Henderson v Merrett Syndicates and Another; Hallam-Eames v Merrett Syndicates Ltd and Another; Heckman Hughes v Merrett Syndicates Ltd and Others

QUEEN'S BENCH DIVISION (COMMERCIAL COURT)

(Transcript)

HEARING-DATES: 21 FEBRUARY 1996

INTRODUCTION:
This is a signed judgment handed down by the judge, with a direction that no further record or transcript need be made (RSC Ord 59, r9(1)(f), Ord 68, r1). See Practice Note dated 9 July 1990, [1990] 2 All ER 1024.

COUNSEL:
A Boswood QC, B Doctor and A Wales for the Names; A Temple QC, J Rowland and A Christie for the Merretts; R Toulson QC and C Edelman for the Members' Agents; C Clarke QC, M Howard and H Davies for Ernst & Whinney

PANEL: CRESSWELL J

JUDGMENTBY-1: CRESSWELL J

JUDGMENT-1:
CRESSWELL J: I refer to the main judgment herein handed down on 31.10.95. This judgment considers certain issues which by agreement or direction were stood over for further argument following delivery of the main judgment. I will consider these issues under the headings:

1. LIMITATION - SECTION 14A

2. MISREPRESENTATION/NON-DISCLOSURE

3. GENERAL PRINCIPLES AS TO DAMAGES

4. CONTRIBUTION

5. INTERIM PAYMENT

1. LIMITATION - SECTION 14A

In the main judgment I held that the claims against E&W in respect of the year 5 RITC 83 -> 84 (Hallam-Eames actions) and the year 4 RITC 82-> 83 are statute-barred, subject to s 14A of the Limitation Act 1980.

Pursuant to s 14A (4)(b) the relevant plaintiffs (whom I shall refer to in this part of the judgment as "the plaintiffs") contend that they did not, within 3 years of the issue of the writs, have the knowledge required for the bringing of an action in damages, and thus they are not time-barred.

Section 14A of the 1980 Act provides:-

"[Actions in respect of latent damage not involving personal injuries] Special time limit for negligence actions where facts relevant to cause of action are not known at date of accrual

(1) This section applies to any action for damages for negligence, other than one to which section 11 of this Act applies, where the starting date for reckoning the period of limitation under subsection (4)(b) below falls after the date on which the cause of action accrued.

(2) Section 2 of this Act shall not apply to an action to which this section applies.

(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4) below.

(4) That period is either -

(a) six years from the date on which the cause of action accrued; or

(b) three years from the starting date as defined by subsection (5) below, if that period expires later than the period mentioned in paragraph (a) above.

(5) For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.

(6) In subsection (5) above 'the knowledge required for bringing an action for damages in respect of the relevant damage' means knowledge both -

(a) of the material facts about the damage in respect of which damages are claimed; and

(b) of the other facts relevant to the current action mentioned in subsection (8) below.

(7) For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.

(8) The other facts referred to in subsection (6)(b) above are

(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

(b) the identity of the defendant; and

(c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.

(9) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.

(10) For the purposes of this section a person's knowledge includes knowledge which he might reasonably have been expected to acquire -

(a) from facts observable or ascertainable by him; or

(b) from facts ascertainable by him with the help of appropriate expert advice which is reasonable for him to seek;

but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.

In Hallam-Eames v Merrett Syndicates Limited, the Court of Appeal held that in relation to the RITCs, the material fact of which the names would be required to have knowledge before time started to run under section 14A(4)(b), was:

"that the certified accounts attributed values to IBNRs, none of which were in fact capable of reasonable quantification."

E&W's SUBMISSIONS

E&W do not suggest that any individual plaintiff had actual personal knowledge of that fact. E&W's case is that Merretts' knowledge of that fact as at the date of each RITC is to be imputed as a matter of law to the plaintiffs, whether direct or indirect names, for these purposes, and therefore that time began to run as at the date of each RITC.

E&W rely on the rule in Bowstead On Agency 15 Edition art 102 (2) which provided:-

"When any fact or circumstances, material to any transaction, business or matter in respect of which an agent is employed, comes to his knowledge, in the course of such employment, and is of such a nature that it is his duty to communicate it to his principal, the principal is deemed to have notice thereof as from the time that he would have received such notice if the agent had performed his duty, and taken such steps to communicate the fact or circumstances he ought reasonably to have taken..."

In Bowstead and Reynolds on Agency 16 Edition the rule is reformulated as follows:

"Article 97

WHEN NOTICE TO AGENT EQUIVALENT TO NOTICE TO PRINCIPAL

(1) A notification given to an agent is effective as such if the agent receives it within the scope of his actual or apparent authority, whether or not it is subsequently transmitted to the principal, unless the person seeking to charge the principal with notice knew that the agent intended to conceal his knowledge from the principal."

(2) The law imputes to the principal and charges him with all notice or knowledge relating to the subject-matter of the agency which his agent acquires or obtains while acting as such agent.

(3) Where an agent is authorised to enter into a transaction in which his own knowledge is material, or where the principal has a duty to investigate or make disclosure, the knowledge of the agent may be attributed to the principal whether it was acquired in connection with the agency or not."

E&W submit that given the findings in the main judgment Merretts had knowledge that "the certified accounts attributed values to IBNRs, none of which were in fact capable of reasonable quantification". That information say E&W is information which Merretts, as the plaintiffs' agent through whom the plaintiffs' relationship with E&W had been created and through whom all the plaintiffs' dealings with E&W took place, had a duty to disclose to the plaintiffs.

In submitting that s 14A is concerned not only with actual or constructive knowledge but also with imputed knowledge E&W relied on Fowell v National Coal Board, Court of Appeal 21 May 1986 Parker LJ (where Simpson v Norwest Holst Southern Ltd [1980] 2 All ER 471, [198O] 1 WLR 968 is referred to) and the judgment of Gatehouse J in Hallam-Eames v Merret Syndicates Limited.

E&W say that the fact that Merretts were themselves negligent does not affect the position. An agent in the position of Merretts has a duty to inform his principal of another agents' wrongdoing, even if such disclosure would inevitably expose his own misconduct: Sybron Corporation v Rochem [1984] Ch 112., [1983] 2 All ER 707.

E&W add that the plaintiffs do not lose a remedy in relation to the year 4 and year 5 RITCs as a result of a finding that Merretts' knowledge is to be treated as their knowledge for the purposes of s 14A The effect of such a finding is simply that their claim becomes a claim against Merretts for failure to disclose the relevant information.

THE PLAINTIFFS' SUBMISSIONS

The plaintiffs submit that the question for decision is whether the rule in Bowstead and Reynolds is of any relevance to a case such as the present, and if so, to what extent? Section 14A of the Limitation Act contains express and detailed provisions extending the meaning of the concept of knowledge for the purposes of the section, beyond actual knowledge - see sub-s 14A(l0).

In addition to actual knowledge, it includes knowledge which the plaintiff might reasonably be expected to come by, but not knowledge which he could not reasonably be expected to have acquired. There is no third category of knowledge, viz. knowledge of an agent which is deemed to be that of the principal/plaintiff, whether or not it is reasonable for the plaintiff to have acquired such knowledge.

The enquiry laid down in s 14A(l0) has to be conducted into what is reasonable for the particular plaintiff to have acquired knowledge of. The plaintiffs further submit that even if contrary to their primary submission, the rule in Bowstead and Reynolds can be applied outside of and in contradiction to the framework of s 14A(l0), it is, in any event, not one of automatic application whenever a relationship of principal and agent is found to exist. As the Commentary thereto (16th ed. para. 8.204 et seq.) makes clear, it gives way to the facts of a particular case, and there are situations where the rule cannot be applied. The plaintiffs submit that this is one of those cases. Merretts were in no sense agents to receive knowledge on behalf of the plaintiffs in connection with their own torts.

The plaintiffs further submit that to impute such knowledge to the plaintiffs in the peculiar circumstances of the present case would be particularly unfair and absurd. The structure of Lloyd's is such that the plaintiffs have no control over the conduct of the underwriting nor any means of knowing more than their agents and auditors choose to tell them about what has actually gone on. The unfairness of imputing to them information which was being concealed from them needs no underlining. Further having negligently failed in their duty to the plaintiffs, E&W seek to rely on the imputation to the plaintiffs of knowledge which E&W ought to have brought to the attention of the plaintiffs.

CONCLUSION

In my judgment the claims against E&W in respect of the year 5 RITC (Hallam-Eames actions) and the year 4 RITC are not statute barred, because the plaintiffs can rely on s 14A of the 1980 Act. My reasons are as follows:

1. E&W do not suggest that any individual plaintiff had actual knowledge that the certified accounts attributed values to IBNRs, which were not in fact capable of reasonable quantification.

2. The plaintiffs did not have knowledge within the terms of s 14A(l0) of the 1980 Act.

3. I emphasise the words "knowledge which he might reasonably have been expected to acquire" in subsection (10).

4. The obiter dicta of Parker LJ in Fowell were by reference to a very different context - "knowledge which (the plaintiff's) solicitors actually have" (see the transcript at page 18E).

5. I refer to the commentary to art 97 in Bowstead and Reynolds, particularly as to the circumstances in which the law does not impute knowledge to the principal (see pages 530 to 542).

6. The present case is concerned with the unusual and complex commercial structure of Lloyd's and in particular the duties of the managing agent, the underwriter and the syndicate auditors in relation to a RITC, having regard not only to the relevant agency/sub-agency agreements and the audit engagement but also to the regulatory regime described in s 17 of the main judgment.

7. The extent to which subsection (10) of s 14A is to be construed by reference to or extended by the general law as to imputed knowledge will fall for consideration in other cases and in very different contexts. It is sufficient for present purposes for me to state that having regard to the relevant context identified in 6 above and in all the circumstances set out in the main judgment I do not consider that Merretts' knowledge (that the certified accounts attributed values to IBNRs, which were not in fact capable of reasonable quantification) is to be imputed to the plaintiffs for the purposes of s 14A Merretts' knowledge was deliberately concealed from the plaintiffs in the circumstances described in the judgment. To impute knowledge in these circumstances would be to negate E&W's role and duties in relation to a RITC (see s 19 of the main judgment). Further E&W had extensive knowledge (to the extent set out in the main judgment) of what the plaintiffs were in fact being told by Merretts and of the true position.

2. MISREPRESENTATION/NON-DISCLOSURE

For reasons set out in More Fisher Brown's letter dated 15.11.95 and Oswald Hickson Collier's letter dated 20.11.95 I have not been invited to consider this issue further.

3. GENERAL PRINCIPLES AS TO DAMAGES

The following reflects the result of exchange of skeleton arguments and numerous meetings between counsel, solicitors and accountants to the parties, culminating in a document signed by counsel for the parties. I pay tribute to the constructive approach adopted by the representatives of all parties in what is a complex area of the case. In the result I propose to make an order as follows:

(A) For the purposes of this Order, the following expressions shall have the following meanings:

(1) "the Henderson actions" means the actions 1992 Folios 1496, 1652 and 1834/LC;

(2) "the Hallam-Eames actions" means the actions 1993 Folios 145, 137, 144, 163, 164, 175, 203, 247, 290, 320, 511, 724 and 817;

(3) "the Hughes actions" means the actions 1993 Folios 545, 546 and 592.

(4)"the Lloyd's breakdown claim" means the issue set out in the proposed Voluntary Further and Better Particulars served by the Plaintiffs in January 1996.

(5) "the relevant run-off contracts" means

(i) in the case of 1981 and prior joiners, all the run-off contracts referred to in the Hallam-Eames amended Points of Claim except for the Provincial, Universal, Burdett and Judd run-off contracts; and

(ii) in the case of 1982 joiners, the aforesaid run-off contracts except for Ballantyne and Verrall

BIssues of principle relating to the calculation of damages (save for the Lloyd's breakdown claim) in all the actions having been tried before the Honourable Mr Justice Cresswell without a jury and the Honourable Mr Justice Cresswell having found as follows:

IT IS HEREBY ADJUDGED AND DECLARED AS FOLLOWS:

1. It is declared that the Plaintiffs are entitled to recover as damages amounts calculated in accordance with the formula set out in paras 3-8 below. The Plaintiffs are further entitled to an indemnity in respect of such further amounts as may hereafter become payable in accordance with the formula set out in paras 3-8 below. This is without prejudice to the Lloyd's breakdown claim, and para 10 below.

2. Subject to any further points which may arise from worked examples and upon the application of the following principles to the actual calculation of damages (as to which the parties shall have liberty to apply), the principles on which damages are to be calculated are as follows:

3. 1985 Joiners

3.1. Those who joined the Syndicate for the first time for its 1985 year of account recover (under their cause of action arising on the wrongful closure of 1984 into 1985) in the Hallam-Eames and Hughes actions, against Merrett Underwriting Agency Management Limited ("MUAM"), Stephen Roy Merrett, Ernst & Whinney and their respective Members' Agents (including, in relation to direct Plaintiff Names, Merrett Syndicates Limited - "MSL");

their share (being their proportion of the total stamp capacity for the 1985 year) of the loss on the 1985 open year referable to 1984 and prior, that loss being;

(i) all claims on 1984 and prior PLUS reinsurance premiums attributable to 1984 and prior (including Time & Distance ("T&D") premiums paid by those Names) PLUS an allowance for syndicate expenses attributable to 1984 and prior in each case only those paid (or, in the case of reinsurance premiums, accrued) as from 1 January 1987 LESS premiums accrued in respect of the underlying business attributable to 1984 and prior as from 1 January 1987 LESS the RITC premium received together with investment income and capital appreciation and LESS the value of T&D recoveries and other accrued reinsurance recoveries.

4. l984 joiners

4.1. Those who joined the Syndicate for the first time for its 1984 year of account recover (under their cause of action arising on the wrongful closure of 1983 into 1984)

4.1.1. as Plaintiffs in the Henderson actions, against MUAM, Ernst & Whinney and their respective Members' Agents (including, in relation to direct Plaintiff Names, MSL),

4.1.2. as Plaintiffs in the Hallam-Eames actions, against MUAM, Stephen Roy Merrett and Ernst & Whinney , but not against their respective Members' Agents,

their share (being their proportion of total stamp capacity for the 1985 year) of the loss on the 1985 open year referable to 1983 and prior, that loss being:

(i) all claims on 1983 and prior PLUS reinsurance premiums attributable to 1983 and prior (including T & D premiums paid by those Names) PLUS an allowance for syndicate expenses attributable to 1983 and prior, in each case only those paid (or, in the case of reinsurance premiums, accrued) as from 1 January 1987, LESS that part of the RITC premium received that related to 1983 and prior together with investment income and capital appreciation LESS premiums accrued in respect of the underlying business attributable to 1983 and prior as from 1 January 1987 and LESS the value of T & D recoveries and other accrued reinsurance recoveries

PLUS (or MINUS if the calculation produces a negative figure)

their share (being their proportion of the total stamp capacity for the 1984 year) of any loss on the 1984 year referable to the close of 1983, that loss being:

(ii) all claims and reinsurance premiums (including T & D premiums) attributable to 1983 and prior paid during the year (ie. 1986) PLUS an allowance for syndicate expenses attributable to 1983 and prior paid (or, in the case of reinsurance premiums, accrued) during the year LESS premiums accrued in respect of the underlying business attributable to 1983 and prior during the year and LESS any T & D or reinsurance recoveries attributable to 1983 and prior accrued during the year PLUS any difference between the RITC premium received to close 1983 (together with investment income and capital appreciation) and that part of the RITC premium paid to close 1984 relating to 1983 and prior.

4.2. Those 1984 joiners who increased their proportion of total stamp capacity for the 1985 year compared with their proportion for the 1984 year also recover (in addition to their recovery under 4.1 above) (under their cause of action for the wrongful closure of 1984 into 1985) the relevant proportion, (ie. the difference between their proportion on the 1984 year and their proportion on the 1985 year) of any loss on the 1984 pure year, that is

(i) all claims paid on 1984 pure year business PLUS reinsurance premiums attributable to 1984 pure year business (including time and distance premiums) PLUS the proportion of syndicate expenses attributable to 1984 pure year business in each case only those paid (or, in the case of reinsurance premiums, accrued) as from I January 1987 LESS premiums accrued in respect of the underlying business attributable to the 1984 pure year as from 1 January 1987 LESS the proportion of the RITC premium received attributable to 1984 pure year business together with investment income and capital appreciation and LESS the value of T & D recoveries and other accrued reinsurance recoveries attributable to 1984 pure year business.

5. 1983 Joiners

5.1. Those Plaintiffs in the Hallam-Eames actions who joined the Syndicate for the first time for its 1983 year of account recover (under their cause of action arising on the wrongful closure of 1982 into 1983) against MUAM, Stephen Roy Merrett and Ernst & Whinney, but not against their respective Members' Agents their share (being their proportion of the total stamp capacity for the 1983 year) of the loss on the 1985 open year referable to 1982 and prior, that loss being:

(i) all claims on 1982 and prior PLUS reinsurance premiums attributable to 1982 and prior (including T & D premiums paid by those Names) PLUS an allowance for syndicate expenses attributable to 1982 and prior, in each case only those paid (or, in the case of reinsurance premiums, accrued) as from 1 January 1987 LESS that part of the RITC premium received that related to 1982 and prior together with the investment income and capital appreciation LESS premiums accrued in respect of the underlying business attributable to 1982 and prior and LESS the value of T & D recoveries and other accrued reinsurance recoveries relating to 1982 and prior

PLUS (or MINUS if the calculation produces a negative figure)

their share (being their proportion of the total stamp capacity for the 1984 year) of any loss on the 1984 year referable to 1982 and prior, that is

(ii) all claims and reinsurance premiums (including T & D premiums) attributable to 1982 and prior paid (or, in the case of reinsurance premiums, accrued), during the year (ie. 1986) PLUS an allowance for syndicate expenses attributable to 1982 and prior LESS premiums accrued in respect of the underlying business attributable to 1982 and prior during the year and LESS any T & D or reinsurance recoveries attributable to 1982 and prior accrued during the year PLUS any difference between the RITC premium received to close 1983 relating to 1982 and prior (together with investment income and capital appreciation) and that part of the RITC premium paid to close 1984 relating to 1982 and prior.

PLUS (or MINUS if the calculation produces a negative figure)

their share (being their proportion of the total stamp capacity for the 1983 year) of any loss on the 1983 year referable to the close of 1982, that is

(iii) all claims and reinsurance premiums (including T & D premiums) attributable to 1982 and prior paid (or, in the case of reinsurance premiums, accrued), during the year (ie. during 1985) PLUS an allowance for syndicate expenses attributable to 1982 and prior paid during the year LESS any premiums accrued in respect of the underlying business attributable to 1982 and prior during the year LESS any T & D or other reinsurance recoveries accrued during the year attributable to 1982 and prior PLUS any difference between the RITC premium received to close 1982 (together with investment income and capital appreciation) and that part of the RITC premium paid to close 1983 relating to 1982 and prior.

5.2. Those 1983 joiners who increased their proportion of total stamp capacity for the 1985 year compared with their proportion for the 1984 year and increased their proportion of total stamp capacity for the 1984 year compared with their proportion for the 1983 year, also recover in addition to their recovery under para 5.1 above:

(a) (under their cause of action for the wrongful closure of 1984 into 1985) the relevant proportion, (ie. the difference between their proportion on the 1984 year and their proportion on the 1985 year) of any loss on the 1984 pure year, that is

A all claims paid on 1984 pure year business PLUS reinsurance premiums attributable to 1984 pure year business (including time and distance premiums) PLUS the proportion of syndicate expenses attributable to 1984 pure year business, in each case only those paid (or, in the case of reinsurance premiums, accrued) as from 1 January 1987, LESS premiums accrued in respect of the underlying business attributable to the 1984 pure year LESS the proportion of the RITC premium received attributable to 1984 pure year business together with investment income and capital appreciation and LESS the value of T & D recoveries and other accrued reinsurance recoveries attributable to 1984 pure year business.

and

(b) (under their cause of action for the wrongful closure of 1983 into 1984) the relevant proportion, (ie. the difference between their proportion on the 1983 year and their proportion on the 1984 year) of any loss attributable to 1983 pure year business, that is

A all claims paid on 1983 pure year business PLUS reinsurance premiums attributable to 1983 pure year business (including time and distance premiums) PLUS the proportion of syndicate expenses attributable to 1983 pure year business all paid (or, in the case of reinsurance premiums, accrued) as from 1 January 1986, LESS premiums accrued in respect of the underlying business attributable to the 1983 pure year LESS the proportion of RITC premium received by 1984 to close 1983 attributable to 1983 pure year business together with investment income and capital appreciation and LESS the value of T & D recoveries and other accrued reinsurance recoveries attributable to 1983 pure year business.

5.3. Those 1983 joiners who increased their proportion of total stamp capacity for the 1984 year compared with their proportion for the 1983 year and whose proportion of total stamp capacity for the 1985 year was equal to or LESS than their proportion for the 1984 year also recover in addition to their recovery under para 5.1 above (under their cause of action for the wrongful closure of 1983 into 1984) the relevant proportion, (ie. the difference between their proportion on the 1983 year and their proportion on the 1984 year) of any claims paid on the 1983 pure year prior to its closure into the 1984 year, that is

(i) all claims paid on 1983 pure year business during 1986 PLUS reinsurance premiums attributable to 1983 pure year business (including time and distance premiums) paid (or, in the case of reinsurance premiums, accrued) during 1986 PLUS the proportion of syndicate expenses attributable to 1983 pure year business paid during 1986 PLUS any difference between the RITC premium received to close 1983 attributable to 1983 pure year business together with investment income and capital appreciation and that part of the RITC premium paid to close 1984 relating to 1983 pure year business, LESS premiums accrued in respect of the underlying business attributable to the 1983 pure year and LESS the value of T & D recoveries and other reinsurance recoveries accrued in 1986 attributable to 1983 pure year business attributable to 1983 pure year business.

5.4. Those 1983 Joiners who increased their proportion of total stamp capacity for the 1985 year compared with their proportion for the 1984 year but whose proportion for the 1984 year was equal to or LESS than their proportion for the 1983 year recover (under their cause of action for the wrongful closure of 1984 into 1985) the relevant proportion, (ie. the difference between their proportion on the 1984 year and their proportion on the 1985 year) of any loss on the 1984 pure year, that is

(i) all claims paid on 1984 pure year business PLUS reinsurance premiums attributable to 1984 pure year business (including time and distance premiums) PLUS the proportion of syndicate expenses attributable to 1984 pure year business, in each case only those paid (or, in the case of reinsurance premiums, accrued) as from 1 January 1987, LESS premiums accrued in respect of the underlying business attributable to the 1984 pure year LESS the proportion of the RITC premium received attributable to 1984 pure year business together with investment income and capital appreciation and LESS the value of T & D recoveries and other accrued reinsurance recoveries attributable to 1984 pure year business.

6. 1982 and earlier Joiners

Those Plaintiffs in the Hallam-Eames actions who joined the Syndicate for the first time for its 1982 or earlier years of account recover (under their causes of action for the negligent writing of the relevant run-off contracts) against MSL their share of the loss on the 1985 open year referable to the relevant run-off contracts, that is:

(i) all claims on the relevant run-off contracts PLUS reinsurance premiums (including T & D premiums paid or payable by those Names) PLUS an allowance for syndicate expenses attributable thereto, in each case only those paid (or, in the case of reinsurance premiums, accrued) as from 1 January 1987 LESS that part of the RITC premium received to close 1984 and prior that related to the relevant run-off contracts together with the investment income and capital appreciation LESS accrued premiums from the relevant run-off cedants and LESS the value of T & D recoveries and other accrued reinsurance recoveries relating to the relevant run-off contracts;

PLUS (or MINUS if the calculation produces a negative figure)

their share (being their proportion of the total stamp capacity for the 1984 year) of any loss on the 1984 year referable to the relevant run-off contracts, that is

(ii) all claims paid on the relevant run-off contracts PLUS reinsurance premiums (including T & D premiums) paid and/or accrued during the year (ie. 1986) PLUS an allowance for syndicate expenses during the year attributable thereto LESS premiums from the relevant run-off cedants accrued during the year and LESS any T & D or reinsurance recoveries accrued during the year PLUS any difference between the RITC premium received to close 1983 relating to the relevant run-off contracts (together with investment income and capital appreciation) and that part of the RITC premium paid to close 1984 relating to the relevant run-off contracts.

PLUS (or MINUS if the calculation produces a negative figure)

their (being their proportion of the total stamp capacity for the 1983 year) share of any loss on the 1983 year referable to the relevant run-off contracts, that is

(iii) all claims paid on the relevant run-off contracts during the year (ie. 1985) PLUS reinsurance premiums (including T & D premiums) paid and/or accrued during the year PLUS an allowance for syndicate expenses during the year attributable thereto LESS premiums from the relevant run-off cedants accrued during the year LESS any T & D or other accrued reinsurance recoveries received during the year PLUS any difference between that part of the RITC premium received to close 1982 relating to the relevant run-off contracts (together with investment income and capital appreciation) and that part of the RITC premium paid to close 1983 relating to the relevant run-off contracts;

PLUS

their share (being their proportion of the total stamp capacity for the 1982 year) of any losses on the relevant run-off contracts paid during the currency of the 1982 open underwriting account (ie. during the period 1982 - 1984) that is

(iv) all claims paid on the relevant run-off contracts PLUS reinsurance premiums (including T&D premiums) paid and/or accrued during the period 1982 - 1984 PLUS that part of the RITC premium paid to close 1982 relating to the relevant run-off contracts, LESS accrued premiums from the relevant run-off cedants.

7. Those 1982 and earlier joiners who increased their proportion of the total stamp capacity of the Syndicate in 1983 or 1984 or 1985.

7.1. Those 1982 and earlier Joiners who increased their proportion of total stamp capacity for the 1985 year compared with their proportion for the 1984 year recover (under their cause of action for the wrongful closure of 1984 into 1985) against the Defendants referred to in, and in accordance with the formula set out at para 3.1 above, their relevant proportion for the purpose of the calculation being the difference between their proportion on the 1984 year and their proportion on the 1985 year.

7.2. Those 1982 and earlier Joiners who increased their proportion of total stamp capacity for the 1984 year compared with their proportion for the 1983 year,

7.2.1 and whose proportion for the 1985 year was greater than their proportion for the 1983 year recover (under their cause of action for the wrongful closure of 1983 into 1984) against the Defendants referred to, and in accordance with the formula set out, in para 4.1 above, their relevant proportion for the purpose of the calculation at para 4.1(i) above being the difference between their proportion on the 1983 year and their proportion on the 1985 year, and for the purpose of the calculation at para 4.1 (ii) above, being the difference between their proportion on the 1983 year and their proportion on the 1984 year;

(If any Plaintiff who is entitled to recover under para 4.1(i) as brought into operation by this para 7.2.1 also recovers under para 7.1 above, the amount recovered under para 7.1 shall be deducted from the amount entitled to be recovered under this sub-paragraph, and the Plaintiff shall only recover under this sub-paragraph the balance.)

7.2.2 and whose proportion on the 1985 year is greater than equal to their proportion on the 1983 year, recover (under their cause of action for the wrongful closure of 1983 into 1984) against the Defendants referred to in, and in accordance with the formula set out, at para 4.1 (ii) above, their relevant proportion for the purpose of the calculation being the difference between their proportion on the 1983 year and their proportion on the 1984 year.

7.3. Those 1982 and earlier Joiners who increased their proportion of total stamp capacity for the 1983 year compared with their proportion for the 1982 year

7.3.1 and whose proportion for the 1985 year was greater than their proportion for the 1982 year recover (under their cause of action for the wrongful closure of 1982 into 1983) against the Defendants referred to in, and in accordance with the formulae set out, at para 5.1(i) and (iii) above, their relevant proportion for the purpose of the calculation at para 5.1(i) being the difference between their proportion on the 1982 year and their proportion on the 1985 year; and for the purpose of the calculation at para 5.1 (iii) being the difference between their proportion on the 1982 year and their proportion on the 1983 year;

(If any Plaintiff who is entitled to recover under para 5.1(i) as brought into operation by para 7.3 also recovers under para 7.1 and/or para 4.1(i) as brought into operation by para 7.2 above, the amount recovered under para 7.1 or 4.1(i) in conjunction with 7.2 or both of them (if recovery is made under both) shall be deducted from the amount entitled to be recovered under para 5.1(i) as brought into operation by this para 7.3, and the Plaintiff shall only recover under para 5.1(i) in conjunction with this para 7.3, the balance.)

7.3.2 and whose proportion on the 1985 year is LESS than their proportion on the 1982 year, recover (under their cause of action for the wrongful closure of 1982 into 1983) only in accordance with the formula set out at para 5.1 (iii) above, the relevant proportion for the purpose of the calculation being the difference between their proportion on the 1982 year and their proportion on the 1983 year.

In so far as any Plaintiff entitled to recover under this para 7 recovers damages in respect of his or her cause of action relating to the writing of the run-off contracts, such amount will be credited against any recovery of damages under this paragraph.

8. The question of costs of the trial, as well as the question of the costs of this hearing, is adjourned for further hearing.

9. All questions concerning the Lloyd's breakdown claim are adjourned for further hearing.

10. It is declared that the Plaintiff Names are not precluded in principle from recovering calls made on them as damages, but the Plaintiff Names may only recover calls made on them as damages if and to the extent that the Court hereafter determines as a matter of fact that such calls represent losses which are recoverable as damages.

11. Liberty to apply generally and, in particular, for the assessment of damages in accordance with the aforesaid principles as and when the Plaintiffs suffer further loss. It is specifically recorded that the parties are agreed in principle that account must be taken, in the assessment of damages, of profits (or losses) on exchange, and that if unable to reach agreement on this issue, the parties will have liberty to apply in relation thereto.

I also record for completeness that the defendants accept that on the current state of the authorities it is not open to them to argue at this level that the plaintiffs should give credit for stop loss recoveries or tax relief but reserve their position in case pending or future appeals indicate otherwise.

CONTRIBUTION

The following Contribution Notices have been served:-

Members' agents 7.4.95 (E&W)

Members' agents 7.4.95 (MSL and MUAM)

E&W 12.4.95 (Members' Agents)

E&W 20.12.95 (Mr Merrett)

Further E&W claim an indemnity/contribution from MSL and MUAM.

Sections 1 and 2 of the Civil Liability (Contribution) Act 1978 so far as material provide:

"1. Entitlement to contribution

(1) Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).

(2) A person shall be entitled to recover contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, provided that he was so liable immediately before he made or was ordered or agreed to make the payment in respect of which the contribution is sought.

(3) A person shall be liable to make contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, unless he ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against him in respect of the damage was based.

2. Assessment of contribution

(1) Subject to subsection (3) below, in any proceedings for contribution under section 1 above the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage in question.

(2) Subject to subsection (3) below, the court shall have power in any such proceedings to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity."

As to the correct approach to the determination of contributory negligence, apportionment and contribution in Fitzgerald v Lane [1989] 1 AC 328, [1988] 2 All ER 961, Lord Ackner said at page 338F of the former report:

"It is axiomatic that whether the plaintiff is suing one or more defendants, for damages for personal injuries, the first question which the judge has to determine is whether the plaintiff has established liability against one or other or all the defendants, i.e. that they, or one or more of them, were negligent (or in breach of statutory duty) and that that negligence (or breach of statutory duty) caused or materially contributed to his injuries. The next step, of course, once liability has been established, is to assess what is the total of the damage that the plaintiff has sustained as a result of the established negligence. It is only after these two decisions have been made that the next question arises, namely, whether the defendant or defendants have established (for the onus is upon them) that the plaintiff, by his own negligence, contributed to the damage which he suffered. If, and only if, contributory negligence is established does the court then have to decide pursuant to section 1 of the Law Reform (Contributory Negligence) Act 1945, to what extent it is just and equitable to reduce the damages which would otherwise be recoverable by the plaintiff, having regard to his 'share in the responsibility for the damage'. All the decisions referred to above are made in the main action. Apportionment of liability in a case of contributory negligence between plaintiff and defendants must be kept separate from apportionment of contribution between the defendants inter se. Although the defendants are each liable to the plaintiff for the whole amount for which he has obtained judgment, the proportions in which, as between themselves, the defendants must meet the plaintiff's claim, do not have any direct relationship to the extent to which the total damages have been reduced by the contributory negligence, although the facts of any given case may justify the proportions being the same. Once the questions referred to above in the main action have been determined in favour of the plaintiff to the extent that he has obtained a judgment against two or more defendants, then and only then should the court focus its attention on the claims which may be made between those defendants for contribution pursuant to the Civil Liability (Contribution) Act 1978, re-enacting and extending the court's powers under section 6 of the Law Reform (Married Women and Tortfeasors) Act 1935. In the contribution proceedings, whether or not they are heard during the trial of the main action or by separate proceedings, the court is concerned to discover what contribution is just and equitable, having regard to the responsibility between the tortfeasors inter se, for the damage which the plaintiff has been adjudged entitled to recover. That damage may, of course, have been subject to a reduction as a result of the decision in the main action that the plaintiff, by his own negligence, contributed to the damage which he sustained. Thus, where the plaintiff successfully sues more than one defendant for damages for personal injuries, and there is a claim between co-defendants for contribution, there are two distinct and different stages in the decision making process - the one in the main action and the other in the contribution proceedings."

In Nelhams v Sandells Maintenance Ltd (CA 8.6.95) Kennedy LJ said that the court, when considering apportionment as between defendants pursuant to the 1978 Act, should look at the matter overall in terms of blameworthiness and causative potency.

AS BETWEEN THE MEMBERS' AGENTS AND MUAM

MUAM concedes that the members' agents are entitled to an indemnity from MUAM to the extent of their respective liabilities to their respective names. In the light of my findings the question of an indemnity from MSL in favour of the members' agents does not as matters stand arise. The members' agents make no claim against Mr Merrett personally for contribution.

AS BETWEEN E&W AND MSL. MUAM AND MR MERRETT

E&W claim an indemnity from MSL, MUAM and Mr Merrett personally. MSL and MUAM's case is that as between MSL and MUAM and E&W, MSL/MUAM should bear two thirds and E&W one third. On behalf of Mr Merrett it is submitted that he should not bear any personal contribution to E&W

I refer to the detailed analysis in the main judgment of the extent of the parties' responsibility for the damage in question. In all the circumstances I find that 80% represents the amount of contribution recoverable by E&W from MSL (RITC 82-> 83), MUAM (83 -> 84 and 84 -> 85) and Mr Merrett (82 -> 83, 83 -> 84 and 84-> 85) that is just and equitable having regard to the extent of those persons responsibility inter se for the damage in question.

AS BETWEEN THE MEMBERS' AGENTS AND E&W

The members' agents contend that they are entitled to contribution from the auditors amounting to an indemnity (to the extent of their respective liabilities to their respective names).

E&W contend that the members' agents should be ordered to contribute to E&W (to the extent as above) in the same proportions as the Court holds that Merretts should contribute to them (ie. on their submission 100% but on my finding 80%).

E&W's SUBMISSIONS

E&W's submissions were as follows:

The basis on which the members' agents have been found liable to the plaintiffs is that they are contractually responsible for the acts of Merretts to whom they sub-delegated their responsibility to carry out all underwriting functions on behalf of the names. Accordingly, given the court's conclusion that Merretts acted negligently, the members' agents have been held liable on the basis that they are to be associated with Merretts: Merretts' acts are, as a matter of contract, to be treated as their acts. The members' agents attempt to disassociate themselves in the contribution proceedings from the acts of Merretts is neither logical not correct. As with Merretts, the members' agents have been found liable to the plaintiffs in respect of the same damage in respect of which E&W have been found liable. Section 1 of the 1978 Act requires consideration of the extent of the members' agents responsibility for the damage in question. The Act does not refer to or invite consideration of the extent of the members' agents personal fault. The members' agents are liable because they are responsible for the acts of Merretts. Therefore, just as in the primary proceedings instituted by the plaintiffs, there is no basis to split the members' agents from the person through whom they sought to discharge their responsibilities. If it were otherwise, every company held liable in respect of the same damage as another person would seek to say that it was not personally at fault where its employees had exposed it to wrong.

According to E&W the members' agents' submissions ignore the basis on which and reasons why they are liable to the names in respect of each of the RITCs for years 4-6.

(i) They are not liable because of the structure of Lloyd's.

(ii) They are liable because, in the light of the Lloyd's set-up, they agreed to be responsible for the acts and defaults of the managing agents.

(iii) Through the managing agents the members' agents breached their duties to the names. That was the position that they accepted by putting their names on the Merrett syndicates. One of the members' agents principal tasks was to advise the names as to which syndicates to join.

(iv) The members' agents chose to identify themselves with Merretts. The position is the same as that of an employer who appoints an employee to carry out a task on his behalf.

It was not open in the proceedings between the names and the members' agents for the latter to disassociate themselves from the acts and defaults of Merretts. Similarly, that is not possible in the contribution proceedings between the members' agents and E&W

Thus say E&W the members' agents should be ordered to contribute to E&W in the same proportions as the court holds that Merrett should contribute to them. There is nothing unjust or inequitable in this. It is simply recognising and giving effect to the position that the members' agents accepted.

E&W submit that there is a further basis, although probably immaterial for present purposes, on which the members' agents are liable to the names, namely their independent breach of duty in failing to take action to stop each of the RITCs. They are so liable because Merretts' knowledge falls to be imputed to them (see the rule in Bowstead & Reynolds on Agency, Art 97). Armed with that imputed knowledge they were in a position to and should have stopped the RITCs.

THE MEMBERS' AGENTS SUBMISSIONS

The members' agents submissions were as follows:

In determining for the purposes of contribution each defendant's "responsibility for the damage" and what is "just and equitable" it is necessary to have regard not to the contractual structure in isolation, but to the regulatory regime which identifies the respective roles and functions of members' agents and managing agents. In the unusual and complex structure of Lloyd's, the duties of the managing agents, members' agents and syndicate auditors were quite separate. In assessing each defendant's "responsibility", and what is just and equitable, it is necessary to consider as between the defendants the causative potency and relative culpability of their respective acts and omissions. No culpability attaches to the members' agents; nor did they in any way cause the damage. They had no control of the RITC process. They did not know the true facts, did not cause years to be closed, and in the circumstances were helpless to prevent closure (see main judgment, page 415). "Responsibility" for the closure of years belongs to (a) the managing agents (who made the decision to close) and (b) the syndicate auditors (who ought to have disclaimed an opinion on grounds of fundamental uncertainty in years 4, 5 and 6, in which case there would have been no closure). It is wrong to say (as the auditors argue) that the members' agents' position should be regarded as inseparable from that of the managing agents. It is true that the members' agents undertook a contractual responsibility to the names for the underwriting, including the RITCs, but they undertook no such responsibility towards the auditors and it is wrong for purposes of contribution to look only at the contractual structure; it is necessary to look at the regulatory regime, under which the positions of managing agents, members' agents and syndicate auditors were separate and distinct.

Even if (contrary to the members' agents' submissions) the members' agents are to be regarded as between the defendants as having "responsibility for the damage" by reason of the contractual structure, it is not just and equitable that the members' agents should make any contribution as between the defendants in circumstances where:

(i) the auditors failed in their duty to make recommendations as to improvements to the managing agents' systems and controls, of which a report in summary (approved by E&W) should have been sent to every members' agent no later than 15.5.85 (judgment, pages 275, 281-282);

(ii) the auditors failed to disclaim an opinion in year 4 (or subsequent years) on the grounds of fundamental uncertainty, in which case not only would the 1982 account have been kept open, but members' agents representing names on subsequent years would have exerted enormous pressure on the managing agents not thereafter to close the 1982 year, to which pressure the managing agents would have been compelled to accede (judgment pages 360-361, 402-403);

(iii) it was foreseeable by the syndicate auditors that members' agents, in performing their duties to names, would take into account that the audited accounts represented not merely the managing agents' opinion, but had been independently scrutinised by an eminent firm and regarded by them independently as reasonable;

(iv) it would have been impossible for each members' agent to conduct a personal review of Merretts' audit and RITC process, independent review of which was in any event provided for by the appointment of the syndicate auditors.

The actual and foreseeable result of the auditors' failure to cause the members agents to be apprised of the inadequacies of Merretts' systems and controls, and of the auditors' unqualified reports on the accounts at 31.12.84 (and subsequent years), was that the members' agents remained ignorant of, and were misled as to, the true facts (namely the deficiencies in Merretts' systems and the impossibility of arriving at a reasonable RITC). It would therefore be unjust and inequitable for the members' agents to be required to contribute to the auditors in respect of the default of Merretts, of which the auditors ought to have informed the members' agents, or seen that they were informed, but failed to do so. Further or in the alternative, by failing to do so the auditors were in breach of duty of care owed towards the members' agents as well as towards the names.

As between the defendants the "responsibility" for the damage lies with the managing agents and the syndicate auditors; alternatively, if as between the defendants the members' agents have "responsibility" for the defaults of the managing agents, it is not just or equitable that any contribution should be exacted from the members' agents, and the members' agents should be entitled to contribution from the auditors amounting to a complete indemnity.

CONCLUSION

It is necessary in considering the amount of contribution that is just and equitable having regard to the extent of the members' agents' and E&W's responsibility inter se for the damage in question, to look at the matter overall in terms of blameworthiness and causative potency.

For cases as to apportionment in other contexts see Jackson and Powell Professional Negligence 3rd edition 2-134-135, 4-74-78, 6-68-69 and Dugdale and Stanton Professional Negligence 2nd edition 21.14 to 21.15. The decision of Bingham J in Anglia, Hastings & Thanet Building Society v House & Son (1981), 260 EG 1128, [1981] EGD 891 is instructive as to apportionment where on the facts blameworthiness is the determining factor.

In my opinion in considering the question of apportionment it is appropriate to take into account (a) the unusual and complex commercial structure of Lloyd's, (b) the duties of the managing agent, the underwriter and the syndicate auditors in relation to a RITC, having regard not only to the relevant agency/sub-agency agreements and the audit engagement but also to the regulatory regime described in s 17 of the main judgment and (c) the detailed analysis in the main judgment of the extent of Merretts' and E&W's responsibility for the damage in question.

As to (c) in particular I refer to:

(i) s 3. The role of members' agents and managing agents at Lloyd's, pages 11-21 (drawn from an agreed statement of facts) including "Accounting Functions" pages 14-17.

(ii) s 17. The regulatory regime for the years ended 31 December 1980-1986, particularly the following:

31.12.1984 Audit: RITC 1982 into 1983 (Year 4)

(pages 97-102)

31.12.1985 Audit: RITC 1983 into 1984 (Year 5)

(pages 102-106)

31.12.1986 Audit: RITC 1984 into 1985 (Year 6)

(pages 106-108) and

Table 5 page 111.

(iii) s 19 RITC - The role of the managing agents/underwriter (pages 117-120) and the role of the auditors (pages 120-124).

(iv) s 35 (Year 4):- particularly pages 274-278 (418/417's internal control procedures, systems and resources) and 279-316 (Year 4 RITC - Conclusions).

(v) s 36 (Year 5):- particularly pages 346-361 (Year 5 RITC - Conclusions).

(vi) s 37 (Year 6):- particularly pages 387-403 (Year 6 RITC - Conclusions).

(vii) s 38 Contributory Negligence pages 405-415 (on page 415 line 10 "inequitable" should read "equitable").

(viii) s 39 Limitation pages 445-447.

(ix) s 40 The claims against Mr Merrett personally pages 448-451.

E&W's submissions fail to have regard to (a) and (b above and to the fact that the members' agents played no part in relation to the RITCs. How the matter worked in practice is dealt with at length in the main judgment (see in particular the references set out above).

In my opinion the amount of contribution that is just and equitable, having regard to the parties' responsibility for the damage in question, looking at the matter overall in terms of blameworthiness and causative potency is as between all defendants MSL (RITC 82-> 83), MUAM (83-> 84 and 84-> 85) and Mr Merrett (82 -> 83, 83 -> 84 and 84 -> 85) 80%; E&W (82 -> 83, 83 -> 84 and 84 -> 85) 20%; members' agents 0%.

As between E&W and the members' agents the appropriate order pursuant to s 2 of the 1978 Act is that the members' agents should be indemnified by E&W to the extent of their respective liabilities to their respective names.

5. INTERIM PAYMENT

The following summonses are before the Court:

(i) Summons issued by the plaintiffs dated 16.11.95 (MSL and/or MUAM);

(ii) Summons issued by the plaintiffs dated 23.11.95 (E & W and the members' agents listed in the schedule thereto);

(iii) Summons issued by the plaintiffs dated 24.11.95 (Mr Merrett);

(iv) Summons issued by E&W for an order that if E&W are ordered to make any interim payment, MSL and/or MUAM and Mr Merrett and the members' agents listed in the schedule to the summons dated 23.11.95 make an interim payment to E&W

The affidavit evidence in relation to these summonses is as follows: -

5th and 6th affidavits of J N Edwards (plaintiffs);

1st affidavit of T J Leggett (E&W);

6th affidavit of NJ Savile-Tucker (members' agents);

1st affidavit of SR Merrett (MUAM, MSL and personally);

1st affidavit of RE Church (plaintiffs);

6th affidavit of AN Hamer (Merretts);

5th affidavit of TJ Burton (E&W);

1st affidavit of S P Spencer (Merretts).

In addition there is before the Court recent correspondence from Merretts' solicitors comprising letters dated 19.1.96, 23.1.96 and 24.1.96

The limited extent of the plaintiffs' application for interim payment

It is important to note the limited extent of the plaintiffs' applications for interim payment. By the summonses the applications are confined to the plaintiffs in the Hughes actions and to those plaintiffs in the Hallam-Eames actions who were members of 418/417 for its 1985 year of account but not for its 1984 year of account ("the 1985 new joiners"). It is not in dispute that the net loss to the 1985 new joiners on a paid claim basis is #9,536,669.

The 1985 new joiners seek a joint and several order for an interim payment against all defendants as follows:

(I) Against:

(i) MUAM;

(ii) Mr Merrett;

(iii) Members' agents represented by Oswald Hickson Collier;

(iv) E&W

for #6,582,679.

(II) Against:

(i) MUAM;

(ii) Mr Merrett;

(iii) MSL;

(iv) E&W

for #1,298,998 (the amount due from MSL to the 1985 direct names in respect of 1985 paid claims)

(III) Against:

(i) MUAM;

(ii) Mr Merrett;

(iii) E&W

for #1,654,996 (#9,536,669 - #6,582,675 + #1,298,998).

Applications for interim payment - same general principles

Order 29 r 11(1) provides that:-

"If, on the hearing of an application under Rule 10 in an action for damages, the Court is satisfied - ...

(b) that the plaintiff has obtained judgment against the respondent for damages to be assessed; ... the Court may, if it thinks fit ... order the respondent to make an interim payment of such amount as it thinks just, not exceeding a reasonable proportion of the damages which in the opinion of the Court are likely to be recovered by the plaintiff after taking into account any relevant contributory negligence..."

In Schott Kem Ltd v Bentley and others [1991] 1 QB 61, [1990] 3 All ER 850 at page 858 of the latter report Neill LJ said:

"I can see no objection to the making of orders for interim payments against two or more defendants in respect of the same liability and in respect of the same sum if the court is satisfied as to the liability of each of the defendants against whom an order is made. The payment of this sum or a proportion of it by any of the defendants will relieve the other defendants of their liability to the plaintiff either wholly or pro tanto, though there may of course be rights of recovery between the defendants. Nor can I see any objection in principle to the making of orders for interim payments against two or more defendants for different fractions of the total amount thought to be 'just', provided (a) it is made clear that if the aggregate of the fractions awarded against the defendants exceeds the 'just amount' the sum actually recoverable by the plaintiff cannot exceed the 'just amount', (b) in the case of a claim for damages it is made clear that the sum actually recoverable by the plaintiff cannot exceed the treasonable proportion of the damages, and (c) the order otherwise complies with the rules. Thus the rules are to be applied flexibly and there may well be cases where one defendant will, for example, have a cross-claim which is not available to the other defendants. I would only add that where fractions of the total amount thought to be 'just' are ordered by way of interim payments against different defendants it may often be simpler in practice, in order to avoid any risk of confusion or duplication of recovery, to provide that the aggregate of the fractions does not exceed the 'just amount' or the 'reasonable proportion' as the case may be. More difficult questions arise, however, where, as in the present case, claims both joint and separate are made against a number of different defendants and where some of the claims are alternative to other claims. In such a case it is necessary for the order to make clear (a) whether the payments ordered against different defendants in respect of the same liability are intended to be for the same sum or in respect of fractions and (b) where claims are made against two defendants in the alternative, whether the court is satisfied that the plaintiff will recover against one of the defendants and, if so, which."

As to the significance of a pending appeal, in Halvanon Insurance Co v Central Reinsurance Corporation [1984] 2 Lloyd's Rep 420 at page 421 Neill J (as he then was) said:

"It is clear from the terms of R.S.C., 0. 29, r. 11 that the Court has a discretion whether or not to make an order for an interim payment. The relevant words are ... the Court may, if it thinks fit...". But I am satisfied that in this case if there were no pending appeals there would be no satisfactory reason for me to refuse to exercise my discretion in favour of making an order. Indeed no impediment has been suggested.

Mr. Cordara has submitted however, that the existence of the appeals linked with the other factors to which he has drawn attention should make the Court stay its hand. I have carefully considered this submission but I find myself unable to accept it. There may be cases where because of the fact that an appeal is pending no order for an interim payment would be appropriate. But there is no suggestion that Halvanon would be unable to make repayments if ordered to do so if the appeals were successful".

(As to when a stay of execution will be granted see Ord 59 r 13 and in particular Linotype-Hell Finance Ltd v Baker [1992] 4 All ER 887, [1993] 1 WLR 321, at page 888 of the former latter report where Staughton LJ said:

"... if a defendant can say that without a stay of execution he will be ruined and that he has an appeal that has some prospect of succeeding, that is a legitimate ground for granting a stay of execution"

and Winchester Cigarette Machinery Ltd v Payne and another (No 2) The Times December 15, 1993 where Ralph Gibson LJ said:-

"that in recent cases it had been said that the practice of the court had moved on from the principle that the only ground for a stay was the reasonable probability that damages and costs paid would not be repaid if the appeal succeeded. Those cases held that the approach to the court now was a matter of common sense and a balance of advantage. But in holding any such balance of advantage, full and proper weight had to be given by the Court to the starting principle there had to be a good reason for depriving a plaintiff from obtaining the fruits of a judgment"

and where Hobhouse LJ said:-

"since the Court had an unfettered discretion no authority could lay down rules but give guidance only. By the terms of Order 59, Rule 13 an appeal did not operate as a stay on the order appealed against - the appellant had to show some special circumstance which took the case out of the ordinary")

As the relevance of the resources of a defendant, in British and Commonwealth Holdings Plc v Quadrex Holdings Inc [1989] 1 QB 842, [1989] 3 All ER 492, at page 866 of the former report Sir Nicolas Browne-Wilkinson V.-C. said:-

"Paragraph (2)(c) places an absolute embargo on the making of an order for interim payment in personal injury cases where the defendant's resources are inadequate: it does not follow that, in exercising the court's discretion as to the amount of any payment, the resources of the defendant are an irrelevant consideration in cases other than personal injuries: they are not decisive, but they are relevant. In my judgment, if a defendant's resources are such that an order for interim payment would cause irremediable harm which cannot be made good by an eventual repayment, that is a very relevant factor to be taken into account in fixing the amount of any interim payment".

(see further Schott Kem supra at 863 d-f).

The submissions of the parties

The submissions of the parties on this subject are set out in their respective skeleton arguments as developed in oral argument. Merretts' latest position is reflected in their solicitors' letters.

Conclusions as to interim payment

It is convenient to deal with the points that arise in the following order.

1. In exercising my discretion pursuant to Ord 29 r 11, I have had regard to the principles as to interim payments set out above.

2. Mr Church's first affidavit distinguishes between the litigation costs (between #4 and #5 million) and the balance of the total sum claimed by way of interim payment. The latter is caught or in part caught by the Premiums Trust Deeds changes (currently subject to challenge in the Chancery Division). As regards the legal costs, the plaintiffs have been funding these proceedings out of moneys raised from each one of them. The Action Group wishes to return to the plaintiffs their contribution to the reasonable costs of the litigation so far (approximately #4.5 - #5M), less the sum of #lM to be retained to fight any appeal, against an undertaking from each name that he or she will repay the sum actually received in cash to the defendants in the event that the names lose on appeal. It is to be noted that for understandable reasons this proposal would involve distributing part of the interim payment recovered by the 1985 new joiners to all the plaintiffs. I suggested to the plaintiffs that the defendants' concerns about the difficulties of recovering sums distributed in this way in the event of a successful appeal might be met by the provision of a first demand bond or stand-by letter of credit. For understandable commercial reasons this approach is not practicable. In all the circumstances I propose to direct that any sums paid to and received by the 1985 new joiners by way of interim payment are to be held by their solicitors in a separate bank account to be opened for this purpose and not to be disposed of or otherwise dealt with without further order of the Court.

3. As to Mr Merrett, it has been submitted on his behalf that any interim payment should be limited to the sum of #250,000. Mr Church in his 1st affidavit states that "a consideration of the records kept at Companies House discloses that in the 8 years 1986 to 1993 (inclusive) Mr Merrett received from Merrett Holdings Plc (MHL) alone a salary amounting to approximately #l.5M and share dividend amounting to approximately #3M net. #4.5M gross". Mr Merrett's financial position is referred to in his first affidavit and a letter from Reynolds Porter Chamberlain dated 19.1.96. The letter states "Mr Merrett presently undertakes consultancy work (including the provision of expert evidence). Fees for this work are presently received by MHL. Mr Merrett is currently being paid a salary of #152,600 by MHL, and anticipates that this salary will shortly terminate due to financial stringency within the company, and will depend on the solvency of the company". Mr Merrett's affidavit makes it clear that he has not sought to set out a detailed affidavit of means. Having regard to the limited material before me I propose to order that Mr Merrett make an interim payment in the sum of #500,000. The members' agents do not seek an indemnity from Mr Merrett personally. I direct that E&W are not to exercise their rights of contribution against Mr Merrett personally without further order. At the same time I accept the long form undertaking offered by Mr Merrett suitably amended to include E&W's solicitors in para 2.

4. Subject to 3 above I consider that the 1985 new joiners are entitled to the joint and several orders sought against all defendants (save Mr Merrett).

5. I set out below my reasons for ordering an interim payment against MSL/MUAM.

(a) The application for an interim payment follows a full trial.

(b) The application is limited. No application is made by plaintiffs other than the 1985 new joiners. The application by the 1985 new joiners is on a paid claim basis. The limitation to a paid claim basis reflects the approach of the Court in other cases forming part of the Lloyd's litigation (see the judgment of Longmore J in Arbuthnott & others v Feltrim 15.1.96 pages 4 to 6). The Lloyd's Second Settlement Initiative does not afford any reason for declining this application.

(c) I refer to my detailed findings in the main judgment as to the year 6 RITC 84-> 85. These claims are not subject to any limitation issues. The order against MSL/MUAM reflects my view of the strength of the claim in year 6. I cannot see any basis on which MSL/MUAM could escape liability in year 6.

(d) According to the latest Report and financial statements of MUAM (to 30.9.94) the principal asset of MUAM is indebtedness of #4,836,991 owed to MUAM by parent undertakings. The latest Report and financial statements of MSL (to 30.9.94) show that the principal asset of MSL is indebtedness of #737,478 owed to MSL by parent undertakings. The equivalent figures in the draft management accounts for the year ended 30.9.95 are MUAM - amounts owed by parent undertakings #4,902,012 and MSL - amounts owed by parent undertakings #532,979, amounts owed by fellow subsidiary undertakings #146,005. Mr Spencer's affidavit states that "in each case the parent undertaking is MHL although in the case of MSL the liability passes through an intermediate holding company". The very limited activities of MUAM and MSL are set out in the Report of the Directors as at 30.9.94. The draft management accounts of MUAM and MSL show total assets less current liabilities of #4,671,329 and #649,264 respectively.

(e) I have already referred to the statement in Mr Church's first affidavit that in the eight years 1986 to 1993 (inclusive) Mr Merrett received from MHL alone salary amounting to approximately #l.5M and share dividends amounting to approximately #3M net #4.5M gross. I have also already referred to the letter dated 19.1.96 which states that Mr Merrett is currently being paid a salary of #152,600 by MHL (although he anticipates that this salary will shortly terminate).

(f) I have given full consideration to the affidavits of Mr Merrett and Mr Spencer and to Reynolds Porter Chamberlain's letters (with enclosures) dated 19.1.96, 23.1.96 and 24.1.96. The information provided is unsatisfactory and incomplete. The circumstances in which the affairs of MUAM and MSL have been so handled and structured that their principal assets comprise substantial indebtedness of parent undertakings and the rights of MUAM and MSL against parent undertakings/other group companies cry out for early and independent investigation. MSL and MUAM cannot avoid an interim payment by so structuring their affairs that their principal assets comprise substantial indebtedness of parent undertakings. Although according to the draft management accounts MUAM and MSL have total assets less current liabilities of #5,320,593, no sum at all is offered by way of interim payment.

(g) Although they funded the defence of these actions the E &W insurers of MUAM and MSL have recently asserted a right to avoid the relevant policy or policies. The (undisclosed) circumstances in which it is alleged MUAM and MSL have lost this valuable asset cry out for early and independent investigation.

(h) E&W and the members' agents have no answer to the application for an interim payment. Upon payment to the 1985 new joiners they are entitled to contribution/indemnity in accordance with this judgment. If E&W and/or the members' agents make an interim payment I do consider that in all the circumstances they should be inhibited from exercising their rights of contribution/indemnity against MSL/MUAM in accordance with this judgment. (For the avoidance of doubt I should record that MSL has not sought contribution from MUAM).

(i) I have of course considered the undertaking offered by MUAM, MSL and MHL in their solicitors' letter dated 23.1.96. I do not consider that in all the circumstances referred to above the offer of such an undertaking is sufficient reason for declining to make any order for interim payment against MUAM and MSL.

DISPOSITION:
Judgment accordingly

SOLICITORS:
More Fisher Brown; Reynolds Porter Chamberlain; Oswald Hickson Collier; McKenna & Co