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

QBD Commercial Court (Tuckey J) 4/3/98

INSURANCE - CONTRACT - COMMERCIAL

LLOYD'S NAMES : EQUITAS REINSURANCE CONTRACT : SCHEDULE OF LIABILITIES : MANIFEST ERROR

Interpretation of Equitas Reinsurance Contract in hearing on quantum issues.

In an earlier judgment (22 January 1998) in these RSC O.14 proceedings it had been decided that Lloyd's had produced evidence which complied with cl.5.10 of the Equitas Reinsurance Contract ('the Contract') under which they sought to recover premiums against Names who did not accept the R&R settlement. At that time only sample records and calculations were produced but reports had subsequently been produced for each of the remaining 570 Names against whom the proceedings continued. The present hearing was concerned with cl.5.10, which provided that "For the purposes of calculating the amount of any Name's Premium...and the amount of any Name's Premium discharged by the transfer of assets or the amount realised through the liquidation of Funds at Lloyd's for application in or towards any Name's Premium, the records of and calculations performed by the ('MSU') shall be conclusive evidence as between the Name and ('Equitas'), in the absence of any manifest error". The issues before the court were: on the debit side ('the Names' Premium') (1) whether Lloyd's had proved their case at all; (2) whether the premium included Name's personal expenses; and on the credit side (transfer of assets or liquidation of Funds at Lloyd's) (3) whether Names had shown there to be manifest errors in the reports now produced by Lloyds. Threshold questions were raised as to (i) whether cl.5.10 applied to all credits; (ii) what could be relied on to demonstrate manifest error; and (iii) the effect of cl.5.5 of the Contract.

HELD: (1) The Names' submissions that Lloyd's had not proved their case because Sch.1 was not a true copy of the schedule to the Contract and there was doubt as to its accuracy were not accepted. The documentation which brought the Contract into existence was extremely carefully drafted and would not have inadvertently failed to provide for any premium to be collected. (2) The schedule was not in error simply because it did not show releases in the case of any syndicate which had a surplus of assets over liabilities. The Names had been given credit for all releases. The obligation in cl.5.1(b)(i) was to pay the Syndicate Premium, defined as any positive amount in the Syndicate premium column in Sch.1. The premiums payable were shown as positive amounts and the Contract therefore contained no obligation to give credit for releases. (3) The words "any losses" were wide enough to include any expenses for which the Name was liable which were referable to his share on a particular syndicate for a particular year. That could be done with personal expenses but not with members' agents' expenses. The link between losses and calls made in cl.5.1(b), which referred to expenses, suggested that personal expenses were intended to be included. Other indications in the Contract and the matrix support that view. "Losses" in cl.5.1(b) of the Contract did include personal expenses. (4) Clause 5.10 applied to discharge by Personal Stop Loss ('PSL') and Combined Litigation Settlement Funds ('CLSF') paid under an Action Settlement Agreement ('AGSA') as well as other forms, by virtue of the words "discharged by the transfer of assets" which were wide enough to cover payments of both kinds. (5) The Names submitted that to demonstrate error, it was possible to look at other records and calculations produced by MSU, notably the finality statement. Cl 5.10 was clearly designed to avoid challenges to the MSU figures based on such material. The words meant what they said: the records and calculations were to be conclusive evidence ie the only evidence unless there was a manifest error on the face of those records. The finality statements were not relevant records and calculations for the purpose of cl 5.10. In an RSC O.14 hearing in respect of a highly complex transaction involving thousands of different parties, the judge was entitled to look at explanations for any discrepancy and he was satisfied by Lloyd's explanation. The conclusions on this question were fatal to the Names' case on credits. (6) Even if a Name could show manifest error in respect of credits this only gave rise to a right of set-off etc leaving intact his obligation to pay the Name's Premium, the entitlement to which had been established (cl 5.5). (7) By cl 5.6 an non-accepting Name's CLSF could only be used to discharge his Name's premium if he was a party to an AGSA but this clause did not require this to be done. It followed that Names who were party to an AGSA may not have been credited with any or part of their share of the fund because Lloyd's had lawfully allocated all or part of the credit to other liabilities shown on their finality statement or because the funds had not been received. Non-Accepting Names who were not party to an AGSA were not entitled to any credit. (8) There were good reasons, absent manifest error, why the credits shown on the Name's finality statements for funds at Lloyd's or PSL might differ from the amounts credited in the report relied on for these proceedings. The judge dealt with submissions from Names in person.

The quantum issues were resolved in Lloyd's favour.

Mr Goldblatt QC for the EGMF Names. Mark Watson Gandy instructed by Tudengatts for the plaintiff.

LTL 4/3/98 (Unreported elsewhere)

Document No. AC8600144

For the final directions hearing of this action see C0006616. For the appeal of a later decision made by Tuckey J in December 1997 see C7500008.