SOCIETY OF LLOYD'S v TERENCE WILLIAM FRASER & ORS (1998)

SOCIETY OF LLOYD'S (Plaintiff) v TERENCE WILLIAM FRASER & ORS (Defendants) (1998)

CA (Hobhouse LJ, Pill LJ, Judge LJ) 31/7/98

INSURANCE - CONTRACT - COMMERCIAL - CONFLICT OF LAWS - EUROPEAN - CIVIL PROCEDURE - INTERNATIONAL

LLOYD'S NAMES LITIGATION : EQUITAS REINSURANCE CONTRACT : SCHEDULE OF LIABILITIES : MANIFEST ERROR : WHETHER SUMMARY JUDGMENT SHOULD HAVE BEEN ENTERED AGAINST DEFENDANTS : WHETHER ARGUABLE DEFENCE : BAD FAITH

Defendants' applications for leave to appeal from the order of Tuckey J, made on 3 December 1997, which ruled in favour of the Society and against Lloyd's Names who did not participate in the Equitas Contract.

Defendants' applications for leave to appeal from the decision of Tuckey J made on December 1997 that it was an abuse of process to raise the argument of bad faith in view of earlier proceedings. Also, appeal against the December Order refusing their applications for leave to appeal against RSC O.14 judgments delivered in March 1998. The plaintiff in all the relevant actions in whose favour the judgments were entered was the Society of Lloyd's and the defendants were underwriting Names who had not accepted the settlement offered to them in August 1996. The judgments were for various liquidated sums and interest which the plaintiff claimed were payable by the individual Names under the reinsurance and run-off scheme contract ('R&R') dated 3 September 1996. The court carefully considered the history and proceedings between the parties and whether judgment against the defendants should have been entered.

HELD: (1) Since RSC O.14 provided a summary procedure for the entering of judgments in favour of the plaintiff against a defendant for the whole or part of the plaintiff's claim against the defendant, it had to be applied for on the basis that there was no defence to the claim. Therefore, the essential question was whether the court considered that there was any triable defence to the claim. Moreover, if a point which might have provided a defendant with an arguable defence had already been determined by the court under RSC O.14A (which authorised the court in suitable cases to determine points of law without a full trial of the action), or the relevant point had already been determined as between the relevant parties in some other way, then it could be appropriate for an RSC O.14 judgment to be asked for at that time and entered in the plaintiff's favour. That was the approach adopted by the Commercial Court and the Court of Appeal in the hearings during 1996 and 1997. (2) The difficulty the defendants faced was showing that there was actually any legal substance in the bad faith argument previously advanced, or that it was possible to escape from or fault the conclusions reached at earlier hearings before Colman J and the Court of Appeal, on the failure of the fraud allegations to provide the defendants with defences to the plaintiff's claims. (3) The bad faith argument provided no basis for distinguishing the previous decisions of the court; it provided no basis for the argument that any of those decisions were wrong. The R&R scheme was, as had been held, within the powers of the Society and clause 5.5, a no set-off clause, was an obviously appropriate part of the reinsurance contract which was an essential part of that scheme. Moreover, a no set-off clause was a standard type of clause, that was to be found in a number of types of contract and had been held to be effective (see Coca-Cola Financial Corporation v Finsat International Ltd & Ors (1996) 3 WLR 849; WRM Group Ltd v Wood & Ors (1997) CA 21 November. (4) It was not irrelevant that the decision made in 1993 in Arbuthnott v Fagan (1994) pre-dated the R&R scheme. It strongly confirmed that it would have been most surprising if the scheme had not included a no set-off clause. Further, it clearly established that such a clause was an essential and valid part of the proper operation and supervision of the market and, that the clause was not protective of the alleged wrong-doer and did not affect the rights of the Name against him. Consequently, the authorities showed that, in the absence of some persuasive evidence to the contrary, no inference of a dominant purpose to defeat claims for fraud against the plaintiff could possibly be justified. The existence of such claims made the clause the more, and not the less, necessary in the interests of the market as a whole and ensuring that the claims of insureds and reinsureds were properly and promptly paid. Accordingly, the bad faith argument provided no basis for giving any applicant leave to defend or leave to appeal to the court from the RSC O.14 judgments entered against him. (5) It was an abuse of process for parties coming within a scheme of marshalled litigation to seek without justification to avoid the outcome of the cases which had been selected for hearing. The administration of justice and considerations of the fair disposal of litigation required that the parties should be bound by such decisions even though unfavourable to them and even though they have chosen not to intervene or address the court. (6) The point argued on behalf of overseas Names concerned the conflict of laws. The question was whether, the fact that an act illegal under the law of Ontario preceeded and led to the defendants subsequently entering into a contract in England governed by English law and, the fact that the contract would be unenforceable in Canada against the defendants, had the consequence in English law that the contract was unenforceable against the defendants in the English courts. Following established principles of English private international law, any invalidity or lack of enforceability of a contract under a foreign law was irrelevant. Furthermore, no question of enforcing any act which would involve infringement of the law of Ontario was involved. Accordingly, the contracts had to be enforced in accordance with English law and the arguments advanced on the Canadian securities legislation did not provide any basis for giving leave to defend and did not provide any basis for giving leave to appeal. (7) The defendants' contention that it was the obligation of the UK through its courts to give effective remedies to those who had been disadvantaged or suffered loss by reason of breaches of the Non-Life Insurance Directives (on the Coordination of Laws, Regulations and Administrative Provisions Relating to Direct Insurance Other than Life Assurance Council Directive 88/357/EEC and Council Directive 92/49/EEC) and that, therefore, clause 5.5 should not be applied or regarded as enforceable in relation to cross-claims arising from alleged breaches of the Directives, was not accepted. In the instant case, under English domestic law, as the Court of Appeal had previously held, clause 5.5 did not deprive the Names of their remedy. Further, clause 5.5 provided no defence to the plaintiff against any claims which Names might have made in respect of fraud or breaches of EEC law for which the plaintiff was responsible. Accordingly, the defendants were not being denied an effective remedy and EEC law did not provide the defendants with an arguable defence to the plaintiff's claims to the premium and provided no basis for granting leave to appeal the RSC O.14 judgments. (8) On the issue of quantum, the defendants submitted that Names' liability for personal expenses should not have been included in the computation of each Name's premium under clause 5.1 of the reinsurance contract. The court was of the opinion, having looked into the structure of the documents and listened to oral submissions, that Tuckey J was clearly right to hold that the word "losses" referred to the aggregate of outstanding debit items for which the Name was liable including the items included under personal expenses. It followed that on the quantum aspects the court was in agreement with the judge that leave to defend should not be given and consequently that leave to appeal from the RSC O.14 judgments should not be granted.

Applications for leave to appeal refused.

A Grabiner QC, R Jacobs QC and D Foxton instructed by Dibb Lupton Alsop for the Society of Lloyd's. For the defendants: S Goldblatt QC and V Nelson instructed by Epstein Grower & Michael Freeman. R Mathew QC, M Jefferis and Miss J Anderson instructed by James Barnett. M Wood (solicitor advocate) instructed by Charles Russell. A Lenczner QC instructed by Warner Cranston. Mr F Wakefield, Mr A Wakefield, Mr O Vaudrey, Mrs A Strong, Mr S Butler and Mr C Thomas-Everard appeared in person.

LTL 5/8/98 : (1998) CLC 1630

Judgment Official

Document No. AC7500008

The judge expressed his concern about the lack of information provided or available to Names about the allocation of such assets as they had at Lloyd's and said that this was unacceptable.

Please see earlier decisions concerning the Lloyd's Names litigation at C0006616 and C8600144. A report of Tuckey J's December ruling may be found at (1998) CLC 127.