COLIN BAKER (SYNDICATE 126 AT LLOYD'S IN 1982) v (1) LOMBARD CONTINENTAL (2) JARDINE THOMPSON GRAHAM (1998)

CA (Phillips LJ, Mummery LJ) 24/1/97

COMMERCIAL - INSURANCE

LLOYD'S SYNDICATE SEEKING RE-INSURANCE : REINSURERS PLEADING NON-DISCLOSURE : GENERAL PRINCIPLES

Leave to appeal by Lloyd's Syndicate against the judge's order granting the defendants leave to amend their points of defence to include non-disclosure.

The plaintiffs, Lloyd's Syndicate 126 for the 1982 year, sought leave to appeal against the order of Colman J. In 1982 Syndicate 126, through its brokers, Jardine Thompson Graham ("JTG"), concluded a treaty of quota share re-insurance in relation to 7.5% of the Syndicate's 1982 account with the reinsurers. In 1990 the reinsurers ceased to pay claims and when sued pleaded misrepresentations as to the nature of the business reinsured, allegedly bade to them by JTG on behalf of Syndicate 126. In those circumstances Syndicate 126 sued JTG for breach of duty in failing properly to represent the business. In March 1993 JTG pleaded in its defence non-disclosure by Syndicate 126 of the moral hazard constituted by the involvement of the latter's underwriter, Mr Posgate, ('the Alexander Howden affair'). In the light of the decisions in PCW Syndicates v PCW Reinsurers and Group Josi v Walbrook (1996) 1 All ER 774 Syndicate 126 applied to strike out the moral hazard case pursuant to O.80 r.19. JTG was granted leave to amend the points of defence to plead a proposed new case on knowledge of moral hazard based on the alleged knowledge of Mr Tudor Williams in relation to the improper conduct of Mr Posgate; Syndicate 126 sought leave to appeal this order. Colman J further ordered that the plaintiffs should recover only half their costs in relation to an order for discovery relating to the moral hazard plea which was struck out to be replaced by the 'Tudor Williams defence'. It was alleged that Mr Tudor Williams, the managing director of Syndicate 126's managing agents ("AHUL"), learnt that Mr Posgate had improperly diverted a roll-over fund of over £2.6m which was largely the property of the Syndicate and that subsequently Mr Posgate instructed JTG to place the re-insurance under which the plaintiffs now claimed. Neither the plaintiffs nor JTG nor the reinsurers were informed of Mr Posgate's impropriety. The plaintiffs submitted that the judge had been wrong to conclude that the amended pleading averred a viable defence of non-disclosure. The reinsurers argued that by virtue of s.18(1) Marine Insurance Act 1906, Mr Tudor Williams was under a duty to report to AHUL the knowledge he had acquired of Mr Posgate's impropriety. The plaintiffs contended that, following the cases of PCW Syndicates and Group Josi (supra), the general principles in the 1906 Act did not apply so as to affix a syndicate or its agent with deemed knowledge that an employee had acted fraudulently simply because the employee was aware of his own misconduct.

HELD: (1) There was nothing to suggest that Mr Tudor Williams was acting in furtherance of any joint malpractice complicitly with Mr Posgate or that he was otherwise perpetrating a fraud which would prevent his knowledge being treated as the knowledge of AHUL. (2) On the costs issue there was an arguable case that only one order should have been made in the circumstances which was that the Syndicate should have the costs wasted as a result of the abortive discovery exercise pursuant to the mistaken plea.

Leave to appeal in relation to the order made as to costs.

Andrew Neish instructed by Davies Arnold Cooper for the applicants.

LTL 10/3/98 (Unreported elsewhere)

Judgment Official

Document No. AC8100150