SOCIETY OF LLOYD'S v (1) TIMOTHY JOHN BURNINGHAM (2) MRS SCHERZADE KHAN (3) ANTHONY WILLIAM GOODA (1998)
QBD Commercial Court (Tuckey J) 4/3/98
INSURANCE - PROFESSIONAL NEGLIGENCE
LLOYD'S LITIGATION : DEBT CREDITS : REASONABLENESS OF OFFER : RIGHT TO RESPOND NOT USED : FAIRNESS
Where Lloyd's had made an offer of settlement in the form of debt credits the courts would only interfere where that offer had been irrational.
Action by the plaintiff alleging that the third defendant had no defence to the claim made against it as part of litigation previously reported at Society of Lloyds v Fraser & Ors (1994) (Unreported 31 July). The litigation was part of the Lloyd's of London arrangements under the R & R Agreement by which offers of settlement were made and the beneficiaries of the offers became bound by the Equitas Re-Insurance. The third defendant was involved with Lloyd's for many years, he was a director of two separate companies one with responsibility for managing functions and another for members' agents functions. The managing agency had made very substantial losses during the years leading up to the R & R settlement and Names whose business had been handled by the members' agency had also lost substantial sums. In the time preceding the R & R settlement members were sent details of the proposed scheme with an indication of the amount of debt credit that would be available. The third defendant was offered an original debt credit of £1.69 million. This made the third defendant's final liability in the region of £100,000. The proposed settlement took into account what became known as "excluded Names" whose debt credit entitlement would be subject to review. The third defendant was subsequently declared an excluded Name (redesignated a restricted Name). The third defendant was informed of this and invited to make submissions to overturn the decision. He declined to make submissions in his defence either as a matter of right or by way of an appeal to the discretionary powers enjoyed by the plaintiff. As a result of being declared a restricted Name his entitlement to debt credit was reduced. The reduction was a total of £945,000 with £235,000 in respect of syndicate losses and £354,000 in respect of member's agent's losses. The third defendant rejected the final offer made. It was rejected on the grounds that the offer was unfair and/or discriminatory. The third defendant submitted that the offer was ultra vires and/or invalid. As the offer was invalid the third defendant could not have become party to the Equitas Re-Insurance. Determination by the judge was therefore required on two issues. Firstly, whether the settlement offer was unfair and/or discriminatory and therefore invalid and, secondly, what the effect of the invalid offer would be.
HELD: (1) There was nothing discriminatory or unjust in the way in which the settlement offer had been established and calculated. It was agreed that the third defendant fell into the category of restricted Names and that the calculations of the reduction in his entitlement to debt credit had been made correctly. On the contrary, the third defendant had been involved with syndicates and Names in two capacities and a double reduction had been made in light of this fact. It was eminently fair to make two deductions where the third defendant had acted in two capacities. The courts would only interfere with the power of Lloyd's to calculate the entitlement where the decision had been irrational. Accordingly, the third defendant's attempt to set up an arguable defence failed at the first hurdle. (2) The objective of the R & R settlement had been to allow the continuation of the market for insurance at Lloyd's. It would only be effective if all the Names took part in the scheme. If it were possible for individuals to become free standing insurers on the grounds that the settlement offer made was invalid, then the scheme would have no chance of success. That would be a commercial absurdity.
Judgment for the plaintiff.
Mr D Foxton instructed by Dibb Lupton Alsop for the plaintiff. Mr J Brettler instructed by Clifford Harris & Co for Mr Gooda. Mr Watson-Gandy as amicus curiae for Mrs Khan.
LTL 23/11/98 : (1999) 1 FLR 246
Document No. AC7900045