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Society of Lloyd’s
v Morris and Others Queen’s Bench
Division (Commercial Court) (Transcript) HEARING-DATES: 15
March 1993 15 March 1993 COUNSEL: E Gloster QC and A Havelock-Allan for
the Plaintiffs; T Seymour for the Defendants PANEL: Tuckey J JUDGMENTBY-1: TUCKEY J JUDGMENT-1: TUCKEY J: INTRODUCTION This case raises the question of whether recoveries under Personal
Stop Loss Policies (PSL) taken out by names at Lloyd’s are subject to
their Lloyd’s Premium Trust Deed (LPTD). It comes before the court by
originating summons taken out by the Council of Lloyd’s following
attempts during 1982 by a group of names, who face serious losses from their
underwriting, to have such recoveries paid to them directly. The first and
third Defendants (Mr Morris and Mr Kimpton) are two such names. Their members’
agents, the second Defendants, and the fourth Defendant, one of its Directors,
who is also a Trustee of the LPTD of both Mr Morris and Mr Kimpton, have taken
no part in the proceedings. Lloyd’s contend that PSL recoveries are or
became subject to the LPTD as a result of one or more of the following: (1) as a matter of construction of the LPTD; (2) by assignment where a letter of authority has been signed by
the name containing his irrevocable agreement to the payment of PSL recoveries
to the trustees of his LPTD; (3) by estoppel, where it has been represented to Lloyd’s
by or on behalf of a name that PSL recoveries under a particular PSL policy are
“eligible assets” for Lloyd’s solvency purposes; (4) as a matter of construction of the Assignment of Premium Deed
which, until 1985, was entered into by all names on joining Lloyd’s;
or (5) by reason of a Direction given by the Chairman of Lloyd’s
on 21.2.92 pursuant to the powers of the Council of Lloyd’s under s 6
of the Lloyd’s Act 1982. This is disputed by Mr Morris and Mr Kimpton and over a hundred
more names for whom their Solicitors also act and there may be other names who
have taken the same position. My decision is intended to provide guidance for
the Lloyd’s market on the questions raised even though these are not
representative proceedings. THE LEGISLATIVE AND CONTRACTUAL BACKGROUND By Section 15(4) of the Insurance Companies Act 1982 a name does
not have to comply with the solvency provisions in Part II of the Act provided
he complies with Section 83. Section 83 states: (2) “Every underwriter shall, in accordance with the
provisions of a trust deed approved by the Secretary of State, carry to a trust
fund all premiums received by him or on his behalf in respect of any insurance
business”. (The LPTD is a deed approved by the Secretary of State under
Section 83(2).) “(4) The accounts of every underwriter shall be audited
annually by an accountant approved by the Committee of Lloyd’s and the
auditor shall furnish a certificate in the prescribed form to the Committee and
the Secretary of State. (5) The said certificate shall in particular state whether in the
opinion of the auditor the value of the assets available to meet the
underwriter’s liability in respect of insurance business is correctly
shown in the accounts and whether or not that value is sufficient to meet the
liabilities …” Under the Lloyd’s Act 1982 a name can only be a party to
a contract of insurance if it is written with several liability with each name
accepting liability solely for his own account. He must underwrite through a
managing agent as a member of that agent’s syndicate. His business at
Lloyd’s will be conducted through a members’ agent. The
current agreements between name and members’ agent and name and
managing agent are very comprehensive. The members’ agents’ agreement appoints the
agent to act “in respect of the Business and the names’
affairs at Lloyd’s”. “The business” “means
the business of underwriting and related activities carried on by the name at
Lloyd’s as a member of the contracted syndicates”. Members’
agents’ duties include administering and assisting the name with the
procedures for complying with the annual solvency test and carrying out
functions in relation to taxation matters connected with the business. The name
must ensure “that at all times there are available sufficient funds
subject to the trusts of the (LPTD) and held by or under the control of the …
trustees to enable them to pay … all claims and all necessary and
reasonable expenses and outgoings made or incurred in connection with the
business …”. As part of his General Undertaking when he joins Lloyd’s
the name agrees with Lloyd’s that he will comply with the Lloyd’s
Acts and the byelaws which Lloyd’s is empowered to make in order to
regulate the market. The Solvency and Reporting Byelaw (No l3 of 1990) requires
members’ agents to prepare an asset return for each name for each year
stating the value of all monies and assets of that name held by it or under its
control (“eligible assets”). He is to procure that every such
asset return is audited. Lloyds may prescribe from time to time what are
eligible assets. In practice this is done by a market bulletin which at the
material time provided that anticipated recoveries under PSL’s were
eligible if a number of conditions were met. These included: “5.2 … The contract must contain an assignment
of any recovery to the Trustees of the members’ premium trust fund or 5.3 … The rights to the recovery have been assigned to
the trustees of the members’ premium trust fund.” I shall refer in more detail to the solvency procedures when
considering Question 3 (estoppel). THE LPTD The Deed is made between the Name, the Members’ Agent and
Lloyd’s. After its recitals, the following terms are AGREED AND DECLARED: 1 (Definitions) … The Underwriting The Underwriting business (whether current or past or future) of
the name at Lloyds carried on through the agency of the members’ Agent
or under arrangements made by or through the members’ Agent but
excluding any long term business of the name. 2(a) Subject as hereinafter provided the Trust Fund shall consist
of — (i) all premiums and other monies whatsoever (except as provided
in sub-clause (b) of this Clause) now belonging or payable or hereafter at any
time belonging or becoming payable to the name in connection with the
Underwriting. (ii) if the Members’ Agent is for the time being a
Co-ordinating Agent all such monies or other assets vested in or under the
control of the Members’ Agent (or any of the Members’ Agent’s
Trustees) as represent (1) profits from any current or past underwriting business in the
Name at Lloyd’s carried on through the agency of or under arrangements
made by or through a members’ agent other than the Members’
Agent or (2) payments on account or in respect of United Kingdom income tax
(and any interest thereon) on such profits and (iii) so much of any deposits funds income and assets as is
excepted in paragraphs (i) and (ii) of sub-clause (b) of this Clause and (iv) all investments and other assets now or hereafter for the
time being representing any such premiums or other monies (except as aforesaid)
or representing any such monies or other assets referred to in paragraph (ii)
of this sub-clause or representing so much of any deposits funds income and
assets as aforesaid or representing the income next mentioned and (iv) all income from time to time arising from any such
investments deposits funds or other assets comprised in the Trust Fund (There then follow in sub clause (b) four carefully defined
classes of asset which are not to be treated as comprised in the Trust Fund.) 3 The Trust Fund and the income thereof shall be held (by
whomsoever and in whatever names the monies and assets comprised therein are
respectively now held or stand or shall hereafter at any time be held or stand)
upon the following trusts subject as hereinafter provided — (a) In trust for the payment or discharge as provided in Clause
7(a) hereof — (i) Of any losses claims returns of premiums reinsurance premiums
and other outgoings now payable or at any time hereafter to become payable in
connection with the Underwriting (hereinafter collectively referred to as “Underwriting
payments”) and (ii) of any expenses whatsoever from time to time incurred in
connection with or arising out of the Underwriting (references to such expenses
including throughout this Deed any annual fee commission other remuneration and
reimbursement of outlays payable by the name to any of the name’s
Agents or to any other person in connection with the conduct or winding-up of
the Underwriting and including also any fiscal liabilities incurred in or by
reason of the Underwriting or in respect of the Trust Fund or its income) … 6(a) All premiums monies and other assets whatsoever constituting
or becoming part of the Trust Fund and received by the name or on behalf of the
name by the members’ Agent or any Managing Agent or any other person
shall … forthwith after receipt (if not already vested as hereinafter
provided) be paid or transferred to or otherwise vested in (i) Lloyd’s (if Lloyd’s is then the sole members’
Agent’s Trustee) or at least two of the members’ Agent’s
Trustees … 7(d) The Members’ Agent may at any time or times …
direct that there shall be paid or transferred to or otherwise vested in or
placed under the direct control of the name (freed and discharged from all the
trusts powers and provisions of this Deed) the whole or any part of so much of
the Trust Fund as (i) is for the time being held by or under the control of all or
any of the members’ Agent’s Trustees … (ii) is considered by the members’ Agent to represent …
the assets in the following list: (1) Profits from the Underwriting of any years (2) Such monies and other assets as became comprised in the Trust
Fund but were not premiums from or other receipts of the Underwriting. 22 … the Council may from time to time revoke and
determine the trusts hereby constituted or (subject always to the prior
approval of the Secretary of State) vary or amend all or any of them or any of
the provisions hereof in such manner as the Council think fit and the Council
shall notify the members’ Agent (and the members’ Agent in
turn shall notify the name) of any exercise of the powers conferred upon the
Council under this Clause. PSL’s and the Letters of Authority A name does not have to take out a PSL. It is, as its description
implies, an insurance protection personal to him and voluntary. It may cover
his annual loss on a particular syndicate or his aggregate loss over a number
of years on a number of syndicates. In this case both Mr Morris and Mr Kimpton
wrote on a number of syndicates and each had aggregate policies covering the
underwriting years 1987, 1988 and 1989 and separate annual policies for the
1990 year. Many PSL’s were placed through specialist brokers, Holman
Wade Limited. The terms of the policies do not matter except as to the
destination/payment of recoveries. Six types of wording have been found. They
are: l Those which expressly provide for recoveries to be paid to the
name unless other instructions for payment are received. 2 Those which are silent as to the destination of
payment/treatment of recoveries. 3 Those which expressly provide that recoveries will be paid
directly to the name save that if the name is required to utilise any
anticipated recoveries for solvency test purposes, the claims must be paid to
the Trustees of the name’s Premium Trust Fund. 4 Those which expressly provide for recoveries to be paid directly
to the Trustees of the reinsured’s Premium Trust Fund or to Lloyd’s
as Trustees of a special Deposit Trust Deed. 5 Those which specify the purpose for which the recoveries may be
used without specifying to whom they shall be paid eg by providing that
recoveries shall only go to meet the name’s obligation as a Member of
Lloyd’s. 6 Those which combine the features of 3 and 5 ie which specify
that recoveries shall only go to meet the name’s obligation as Member
of Lloyd’s and which provide that recoveries are to be paid into his
Premiums Trust Fund. The names accept that recoveries under types 4 and 6 do become
subject to the LPTD because that is what the contract of insurance provides.
Moreover if recoveries under such policies are eligible assets for the purposes
of solvency they fall within 5.2 of the market bulletin and so once declared
for solvency the name cannot insist on payment to him. Lloyd’s contend
that the wording is irrelevant since by the terms of the LPTD recoveries under
all types of policy become part of the trust fund. Mr Morris had a type 5 and Mr Kimpton a type 2 policy for the
years 1987, 1988 and 1989. They either had type 4 or type 6 policies for 1990. For the purpose of solvency and purporting to effect assignments
of PSL recoveries pursuant to 5.3 of the market bulletin (or its predecessors
which were in similar terms) names signed letters of authority. The first of
these, (“Old Form 1”), was addressed to the broker and says: “Dear Sirs Personal Stop Loss
Insurance I hereby give my
irrevocable agreement that any recoveries made under my Stop Loss Insurance
Policies shall be paid to the Trustees of my Premiums Trust Fund and held on
this Account until all of my obligations following the Annual Solvency Audit at
the 31st December 19 — and subsequent Annual Solvency Audits have been
satisfied.” The second (“Old
Form 2”) was also addressed to the broker and was in the following
terms: “Dear Sirs Personal Stop Loss
Insurance Policy No … We, the undersigned,
give our irrevocable agreement that any recoveries made under the above
mentioned Stop Loss Insurance Policy shall be paid to the Trustees of the
Premiums Trust Fund and held on this Account until all the Assured’s
obligations following the Annual Solvency Audit at the 31st December 19 —
and subsequent Annual Solvency Audits have been satisfied. Furthermore, if Stop
Loss Insurers advance any monies as an ‘on-account’ payment
under the Policy, we give our irrevocable agreement that such amounts
subsequently shown to be an over-payment by either: the production
of a subsequent Personal Account statement showing a loss less than the amount
previously notified or: the production of
a tax form LL9 showing a loss less than the amount previously notified shall be refunded to
the Underwriters of the above Policy within 30 days of written notice being
given by (Brokers) that such refund is due. Subject always to the Terms and
Conditions of the Policy. Yours faithfully The Assured … Trustees of the
Assured’s Premium Trust Fund …” The PSL number was inserted at the top of the letter and the
letter was signed by the name and one of the Trustees of the LPTD, ie a
Director of the members’ agent. When this dispute arose in 1992 a
further letter was created but I do not think its terms are relevant. Question (1): Are stop loss recoveries as a matter of construction
subject to the trust of the LPTD? Yes, say Lloyd’s because they fall within the ambit of “other
monies whatsoever … payable to the name in connection with the
Underwriting” in Clause 2 (a) (i). The words “in connection
with” should be construed as meaning “having substantial
relation in a practical business sense” or “having something
to do with”. PSL recoveries are so connected because they arise under
contracts of reinsurance of the underwriting business of the name and become
payable solely by reason of and by reference to the performance of that
business. No, say the names, the object of the Deed is to provide a fund for
the payment of claims to policy holders and for payment of such administrative
expenses of the name at Lloyd’s as enable him to carry on his business
of underwriting. The fund consists of premiums, reinsurance recoveries and the
like but not PSL recoveries, since they are not payable to the name in
connection with the underwriting business. These are personal monies and only
become part of the fund if they are bought into it voluntarily. In Napier v Kershaw (14/5/92) Saville J decided that damages
payable to the Outhwaite names for negligent underwriting did not form part of
their LPTD’s. Lloyd’s had argued that the damages were “other
monies whatsoever … payable to the name in connection with the
Underwriting”. In rejecting this argument Saville J said: “The money in question is clearly not a receipt of the
underwriting business, for the business is one of underwriting at Lloyd’s
and not one of compensating Names for mistakes allegedly made by their agents
in conducting the Names’ business of underwriting at Lloyd’s.
The money can hardly be described as an expense of the Names’ business
of underwriting for it is a receipt and not an expense of the Name. As an
expense, it is incurred by the Agents and not the Names, and it is the Names’
business with which we are concerned. The money is not a loss of the
underwriting business since it represents compensation for losses and is not
the losses themselves. It is not a profit of the underwriting business for the
same reason, nor would it feature in the accounts of the Names’
Syndicate: and it should be remembered that Name is only allowed to conduct
underwriting business at Lloyd’s through Syndicates. Thus, the money
is neither a receipt, nor an expense, nor a loss, nor a profit, nor even an
item in the accounts, of the underwriting business of the Name carried on at
Lloyd’s. What, to my mind, the money has to do with is not the Names’
business of underwriting at all, but the rights and obligations existing
between the Name and his Members and Managing Agents: and those rights and
obligations are not part of the Names’ business or underwriting at
Lloyd’s either, but part of the internal arrangements made between
these parties as a means of enabling the Names’ business of underwriting
at Lloyd’s to be conducted. That business is business with third
parties and not business between the Name and his Agents. In my judgment, the
money is payable in connected with the latter and not the former business
within the meaning of the Deeds.” The instant case is a fortiori say the names. The receipt of a PSL
recovery is not a receipt of the underwriting business, nor is it a loss of
that business since it represents an insurance indemnity against such loss
rather than the loss itself. The recovery is not in connection with the
underwriting business but pursuant to the terms of the PSL voluntarily entered
into by the name. Miss Gloster, Counsel for Lloyd’s, did not accept this.
She submitted that PSL recoveries were much more closely connected to the
underwriting business of the name than the damages recovered by the Outhwaite
names. Indeed if one looked at the name in isolation his PSL protection was
part of his underwriting business. She did not accept that a bank or benevolent
uncle could look to the fund for reimbursement if they lent or gave money to
help fund losses (as Saville J suggested) since such loans or gifts were not
payable in connection with the underwriting but pursuant to a loan or gift. I accept Saville J’s reasoning in Napier v Kershaw.
Looking at the statutory and contractual background to the deed it is clear
that its primary purpose is to provide a fund for the payment of policy holders
and to this end the premium which a name receives from his underwriting, which
he can only do as a member of a syndicate, becomes subject to the trust. I
think that the words “other monies whatsoever … payable in
connection with the underwriting” are directed to other receipts of
this underwriting such as reinsurance recoveries, salvage and the like. In
other words they refer to all monies received by or on behalf of the name as an
underwriter on a syndicate. PSL recoveries do not fall into this category. Such
recoveries are not receipts of the names’ underwriting business but
the product of a personal voluntary arrangement which the name has affected in
order to soften the blow in the event that his underwriting business goes
badly. I think this case is a fortiori Napier v Kershaw where the damages at
least represented the proceeds of the underwriting business which, but for the
negligence, the name would have received or been credited with. Ouestion (2): Did either of the letters of authority effect an
assignment of PSL recoveries to the trustees of the names’ LPTD? The first question is what do the operative words of the letters
mean? Do they mean, as Lloyd’s contend, that any recoveries will be
paid to the trustees; or do they merely confer, as the names contend, revocable
authority on the broker to pay such recoveries as he makes to the trustees? I think Lloyd’s are right about this. The undisputed
purpose of the letters was to effect an assignment which met the terms of 5.3
of the market bulletin, ie to effect an assignment to the trustees of the
rights to the recovery under the PSL. Although the letters are addressed to the
brokers, they do not refer to the brokers’ authority at all. Words
would have to be added to give it the meaning the names contend for.
Furthermore the names contention renders the word “irrevocable”
meaningless. Old Form 2 is a fortiori since it is clear that this letter is
directed to underwriters because the policy number is identified and the letter
contains specific provisions dealing with over-payment. The next question is whether the letters effected a legal
assignment of PSL recoveries. Section 136 of the Law of Property Act 1925
requires an “Absolute assignment … (not purporting to be by
way of charge only) of any debt or other legal thing in action, of which
express notice in writing has been given to the debtor …”. Was there an absolute assignment? The names contend there was not
since the recoveries were only assigned “until … the assured’s
obligations following … solvency … have been satisfied”.
Lloyd’s contend that the words “any recoveries …
shall be paid” effect an absolute assignment; the word “until”
only qualifies the word “held”. I accept Lloyd’s construction: the direction to the
underwriter to pay any recoveries is and has to be unqualified since he will
have no idea whether and if so when the name has satisfied his obligations
following solvency. The “held until” part must be directed to
the trustees, who as the names’ members’ agent, will know
when such obligations have been satisfied. On the basis that the assignment is absolute it is common ground
that the fact that it is subject to a proviso for repayment in the event of the
debt being discharged is not fatal. (See Halsbury’s Laws 4th Edition
paragraph 16 and the cases cited in footnote 14 to that paragraph). Was it an assignment of a debt or other legal thing in action?
Here the names contend that this was an assignment of a future chose and so not
within the section. Not so say Lloyd’s, this was the assignment of an
existing contractual right to be paid at a future date and as such it is a
present chose. In support of this contention they relied on passages in
Halsbury (Ibid paragraphs 14, 32 and 33) and the cases there cited, in
particular the judgment of Kitto J in Shepherd v Federal Commissioner of
Taxation [1966] ALR 969 at page 976 where he said of a right to receive
royalties under a three year contract: “The tree though not the fruit existed at the date of the
assignment as a proprietary right of the appellant of which he was competent to
dispose …”. Such was the case here, in my judgment. The PSL existed although
its fruit was uncertain since that was contingent upon the names’
underwriting result for the year or years in question. So I conclude that the
assignment was of a present chose. Were the letters notice to underwriters? Lloyd’s submit
that the brokers were the agents of underwriters for this purpose. A Lloyd’s
broker is generally the agent of the insured. Whether PSL’s were
written by brokers holding a binding authority or under a line slip from
underwriters does not emerge from the evidence before me, although I would not
be surprised if that were the case in which event for some purposes obviously
the brokers would be the underwriters’ agents. Nevertheless, there are
clearly other circumstances (eg notification of claims) in which the broker may
act as agent of underwriters in this market. It was clearly intended that the
letters to brokers were to serve as notice to underwriters and I can see no
reason why such intention should not be given effect. The second part of Old
Form 2 which contains the obligations assumed by trustees in the event of
overpayment must have been received by brokers in their capacity as agent for
underwriters and it would therefore be wholly artificial to say that the first
part was only received by them in their capacity as agent for the insured. So I conclude that both Old Form 1 and Old Form 2 effected valid
legal assignments of PSL recoveries to the LPTD trustees. This relieves me of the task of considering whether the letters or
either of them constituted a valid equitable assignment. On the basis, however,
that the letters took effect as equitable assignments for want of notice to PSL
underwriters, I would have concluded that Old Form 2 was such an assignment because
it had been communicated to the assignee and the name had done all within his
power to effect the assignment so no consideration was required for it
(Halsbury Ibid paragraphs 37, 38 and 41) and Old Form 1 would have been such an
assignment if communicated to the trustees. Question (3): Are names estopped from denying that PSL recoveries
are eligible assets? I proceed to consider this (and the subsequent questions) on the
basis that not all names signed letters in Old Form 1 or Old Form 2 and/or that
my answer to Question 2 is wrong. The amended originating summons defines the
question I have to answer as follows: Whether Mr Morris and/or Mr Kimpton are estopped from denying that
monies belonging or payable or hereafter belonging or becoming payable to them
by way of recoveries under their personal stop loss reinsurance policies are
monies which are subject to the trusts of their respective Lloyd’s
Premiums Trust Deed aforesaid. It is clear from this question and indeed the way in which Lloyd’s
presented their case that they were relying on an estoppel by representation.
What is said is that the name has represented to Lloyd’s that his PSL
recoveries are eligible assets and therefore vested in the trustees of his
LPTD. It is not alleged that the name is estopped as against the trustees and
so the names contend that any estoppel which can be raised by Lloyd’s
gets them nowhere. It would not have the effect of vesting PSL recoveries in
the trustees which otherwise (on this assumption) would not be the case. In her
reply Miss Gloster recognised the force of this point and sought to suggest
that the estoppel should be considered as some kind of promissory estoppel.
Thus, she submitted, that Lloyd’s as a party to the LPTD could seek to
enforce the names’ obligation to assign PSL recoveries to the trustees
and the name would be estopped from denying that he was obliged to do so. I do
not think this will do. The names had no opportunity to deal with this change
of case: the facts surrounding the submissions of asset returns vary in
individual cases and are complicated by the fact that in 1992 attempts were
made by various names to withdraw what had previously been said on their behalf
by submitting negative asset returns. The ingredients necessary to found a promissory
estoppel are, of course, not the same as those required to found an estoppel by
representation. I do not think it would be right therefore for me to decide the
case on this alternative basis. The point which I have considered above is, in my judgment, fatal
to the case of estoppel which Lloyd’s pleaded and initially presented
before me. Lest I be wrong about this, I will deal shortly with the rest of the
case as presented. Lloyd’s relied on estoppel in relation to the solvency
for both the years 1990 and 1991. In the course of the hearing it appeared that
there was no real issue about 1990: PSL recoveries returned during 1991
relating to solvency for the year ending 31st December 1990 had already been
collected and paid to trustees in accordance with the letters of authority in
Old Forms 1 and 2 and no name was seeking repayment of sums so paid. For the year ending 1991 however there was an issue: on
examination of the facts however it relates to Mr Morris alone. Lloyd’s
contended that the facts might vary from name to name so any decision which I
make should be limited to the facts of his case. A decision of such limited
value on a lest I am wrong basis gives me further reason for dealing with the
point quite shortly. The solvency procedure is fairly elaborate, involving the
submission of prescribed forms by the members’ agent on behalf of his
name at various stages. By June when the names’ underwriting result is
known his solvency can be determined by comparing the result with his eligible
assets. It is at this stage that the name may declare anticipated recoveries
from stop loss policies as eligible assets under 5.2 or 5.3 of the market
bulletin. If there is a shortfall in the names’ solvency Lloyd’s
earmarks a part of its central fund to make good the deficiency. The members’
agent is notified of any such earmarking and is required to report further
assets by the solvency clearance date, failing which the name will receive a
notice of demand from Lloyd’s. Based on all the returns they receive
Lloyd’s submit a certificate of solvency to the DTI pursuant to
section 83(4) of the Insurance Companies Act 1982. So far as Mr Morris is concerned, on the 12th August 1992 the
second Defendants submitted a supplementary asset return showing anticipated
PSL recoveries totalling £208,980 under his two policies. That asset
return was audited and confirmed to Lloyd’s by the members’
agents auditors on the 2nd September 1992. Based on this information, on the
same date £55,078 was earmarked by Lloyd’s in respect of Mr
Morris’ deficiency. Also on the same date Lloyd’s filed its
certificate of solvency with the DTI certifying by its auditors (inter alia)
that “the value of assets … available to meet each
underwriting members’ liabilities in respect of his insurance business
is correctly shown in the accounts …”. On the 16th September
1992 Mr Morris submitted a negative asset return which purported to withdraw
his anticipated PSL recoveries from solvency. The solvency clearance date was
the 30th September 1992. In these circumstances Lloyd’s contend that: 1 Mr Morris’ supplementary asset return was a clear and
unequivocal representation that his anticipated PSL recoveries were eligible
assets; 2 They relied on this return in fixing the amount earmarked for Mr
Morris’ deficiency and submitting their certificate of solvency to the
DTI; and 3 They suffered prejudice because they underestimated the amounts
which should have been earmarked and submitted a false certificate to the DTI. On behalf of Mr Morris it is contended that the representation, if
there was one, was withdrawn on the 16th September, that Lloyd’s had
not relied on it before that date and that they suffered no prejudice because
the solvency clearance date was after the 16th September and the DTI certificate
was not false in any real sense. I am in no doubt that the supplementary asset return was a clear
and unequivocal representation by Mr Morris that his anticipated PSL recoveries
were eligible assets and that Lloyd’s relied on this representation in
the way they contend. I am not persuaded, however, that Lloyd’s suffered
prejudice as a result of Mr Morris’ false representation. The solvency
clearance date was the important date for fixing a names’ deficiency.
Between the 2nd September and that date Mr Morris could have added further
assets to reduce or eliminate his deficiency. By the same token it seems to me
that he was entitled to increase that deficiency by saying that assets which
had been returned were no longer eligible assets. Although for a short period
less of the central fund was earmarked than should have been the matter was not
finalised until 30th September 1992. Although the certificate to the DTI was or
rather became inaccurate I would not describe it as false. No revised certificate
had to be submitted, although it is clear that between the 2nd and 30th
September there might have been quite substantial changes of a legitimate
nature to the value of the assets certified. No actual prejudice to Lloyd’s
as a result of the issue of the certificate was alleged. It follows that I do not think that a case of estoppel by
representation is made out on the facts. Question (4): Are stop loss recoveries as a matter of construction
subject to the Assignment of Premium Deed? This Deed which is no longer signed by new names joining Lloyd’s
is made between Lloyd’s, “the Society”, and the
name, “the Candidate”, and provides as follows: “1 The Candidate hereby assigns to the Society all moneys
which may at any time or times become owing to the Candidate in respect of
premiums upon any policies of whatsoever description underwritten by or on
account of the Candidate at Lloyd’s or in respect of salvages upon any
such policies or in respect of general average refunds or in respect of claims
under any Reinsurance Policies effected by or on account of the Candidate and
all other moneys whatsoever at any time during the continuance of the trusts
hereby constituted to become payable to the Candidate in connection with the
Candidate’s underwriting business at Lloyd’s. 3 The Society shall hold any moneys so received (hereinafter
called ”the Trust Fund“) upon trust that when and so soon as
the Council of Lloyd’s … shall have received notice in
writing that the Candidate has made default in paying the Candidate’s
just claims on any Policy … the Society shall apply the Trust Fund or
so much thereof as shall from time to time be necessary in or towards paying
such claims upon such policies of any description underwritten by or on account
of the Candidate at Lloyd’s as the Society shall be directed by the
Council to pay …” Lloyd’s argue that PSL recoveries are “claims
under any reinsurance policies” or “all other monies
whatsoever” “in connection with the Candidate’s
underwriting business” and are therefore subject to the Trust created
by this Deed which enables them to direct that the recoveries should be used in
payment of the names’ underwriting losses. I do not accept this argument for the same reasons as I have given
when dealing with Question 1. It would be surprising if by this Deed the name
had assigned a wider class of assets than those made the subject of the LPTD.
The language of the Deeds is similar although the specific references in this
Deed to salvage and general average refunds emphasise, in my judgment, the fact
that the underwriting business referred to is the names participation in a
syndicate or syndicates. The reinsurance claims referred to are claims on the
syndicates’ reinsurances. PSL recoveries do not fall within the words “all
monies whatsoever” in my judgment. Question (5): Did the Chairman of Lloyd’s direction on
the 21st February 1992 effect a transfer of PSL recoveries to the trustees of
the LPTD? The direction was as follows: “In exercise of the powers delegated to me on 8 January
1992 pursuant to section 6(6)(b) of Lloyd’s Act 1982, I, the Chairman
of Lloyd’s and of the Committee of Lloyd’s, being of the
opinion that it is necessary as a matter of urgency that such direction be
made, hereby direct Holman Wade Insurance Brokers Limited, a Lloyd’s
broker, to pay all recoveries received by it under any personal stop loss
policy placed or managed by it not to the member of Lloyd’s assured
under such policy but to the members’ agent’s trustees for
the time being of the premiums trust deed of that member relating to the
syndicates and years of account to which the policy applied …” Section 6 of the Lloyd’s Act provides: “(1) The Council shall have the management and
superintendence of the affairs of the Society and the power to regulate and
direct the business of insurance at Lloyd’s … (6) The Council may, by special resolution, delegate … (b) to the Committee or to the Chairman of the Committee or to a
Deputy Chairman of the Committee but not otherwise the giving of directions
regarding the business of insurance at Lloyd’s to any member of the
Society, Lloyd’s broker, underwriting agent, director or partner of a
Lloyd’s broker or underwriting agent or person who works for a Lloyd’s
broker or underwriting agent in such capacity as may be specified by the
Council …” Lloyd’s contend that Holman Wade and the names were bound
to comply with the direction as a direction having statutory effect and as a
matter of contractual agreement (as a term of his being approved to carry on
business the broker undertakes to comply with the Lloyd’s Acts; so
does the name in his General Undertaking). The names contend that the Chairman had no power to make a
direction the effect of which was to vary the terms of the LPTD. The deed can
only be varied pursuant to Clause 22 which requires, among other things, the
prior approval of the Secretary of State. They also contend that the direction
was invalid because the Chairman had no power to make it under section 6 since
it was not a direction “regarding the business of insurance at Lloyd’s”
and/or because it was unfair, discriminatory and confiscatory. The validity of the direction has to be considered on the basis
that PSL recoveries were not subject to the LPTD. A direction which required
such recoveries to become part of the trust fund does in my judgment have the
effect of varying the LPTD. It is no answer to this point to say that the name
could have added the recoveries voluntarily. He could, but here the names did
not volunteer to do so and Lloyd’s are seeking to achieve their
purpose by compulsion. In any event in the accompanying letter to brokers Lloyd’s
stated that the reason for the direction was that PSL recoveries were subject
to the LPTD. They were not therefore intending to vary the deed by the
direction. In my judgment they were not entitled to do so other than in
accordance with Clause 22 and therefore the direction was invalid. I need not therefore deal with the names’ other arguments
at any length save to say that I think this was a direction regarding insurance
business at Lloyd’s which could be given to a broker pursuant to the
terms of section 6 of the Act. The public law points were not developed fully
before me; how far a direction of this kind can go before it is susceptible to
challenge on such grounds is a difficult point which I think should be left for
decision in a case where the outcome depends upon it. CONCLUSION I answer the questions as follows: Question (1): Are stop loss recoveries as a matter of construction
subject to the trusts of the LPTD? No Question (2): Did either of the letters of authority effect an
assignment of PSL recoveries to the trustees of the names’ LPTD? Yes Question (3): Are names estopped from denying that PSL recoveries
are eligible assets? No Question (4): Are stop loss recoveries as a matter of construction
subject to the Assignment of Premium Deed? No Question (5): Did the Chairman of Lloyd’s direction on
the 21st February 1992 effect a transfer of PSL recoveries to the trustees of
the LPTD? No DISPOSITION: Judgment accordingly SOLICITORS: Lloyd’s Legal Department; Michael Freeman & Co |