SOCIETY OF LLOYD'S v SIR WILLIAM OTHO JAFFRAY & ORS (2002)

SOCIETY OF LLOYD'S v SIR WILLIAM OTHO JAFFRAY & ORS : SIR WILLIAM OTHO JAFFRAY & ORS v SOCIETY OF LLOYD'S (Counterclaim) (2002)

[2002] EWCA Civ 1101

CA (Waller LJ, Robert Walker LJ, Clarke LJ) 26/7/2002

INSURANCE - COMMERCIAL - MISREPRESENTATION - FRAUD - CIVIL PROCEDURE - CPR

LLOYD'S NAMES LITIGATION : LLOYD'S NAMES : THRESHOLD FRAUD POINT : DECEIT : FRAUDULENT MISREPRESENTATIONS : REPRESENTATIONS : RELIANCE : INDUCEMENTS : BROCHURES : RESULTS : WHETHER MISREPRESENTATIONS MADE : CONTINUING DUTIES : GOOD FAITH : EXPRESS : IMPLIED : KNOWLEDGE : RECKLESSNESS : ASBESTOS-RELATED CLAIMS : LONG-TAIL CLAIMS : UNDER RESERVING : EXPOSURE : MANAGING AGENTS : UNDERWRITERS : AUDITORS : ROLES AND DUTIES : INDEPENDENT REVIEW : EQUAL TREATMENT : R & R SETTLEMENT : LLOYD'S ACT 1982 : PROCEDURE : FAIR TRIAL : INEQUALITY OF ARMS : UNACCEPTABLE PRESSURE : DOCUMENTARY DISCLOSURE : REDACTED DOCUMENTS : CONFIDENTIAL INFORMATION : WITNESSES NOT CALLED : ADVERSE INFERENCES : LITIGANTS IN PERSON : CIVIL PROCEDURE RULES 1998 SI 1998/3132 : CPR PART 52 : CPR 52.11(3)

Lloyd's Names had not proved fraudulent misrepresentation by Lloyd's because they had failed to prove that the relevant individuals at Lloyd's did not believe the representations to be true or that they knew or were reckless as to whether they were true or untrue. There had been no procedural unfairness in the conduct of the trial. * Application for leave to appeal to the House of Lords pending.

Appeal by certain Lloyd's Names from the judgment of Cresswell J (summarised below) in which he decided the threshold fraud issue, ie whether Lloyd's were liable for making fraudulent misrepresentations adversely to the Names. The Names challenged his decision on its merits and also claimed that they had not received a fair trial, a matter on which they sought permission to appeal. They alleged that, having regard to the inequality of arms between themselves and Lloyd's, they were put under unacceptable pressure; the rate and extent of documentary disclosure was unfair; as was the fact that some of them were redacted; incorrect decisions were made as to the confidentiality of certain information; the judge failed to draw appropriate adverse inferences by reason of Lloyd's failure to call witnesses said to be central to the case; and the treatment of the litigants in person was unfair.

HELD: (1) There was, contrary to the judge's finding, a representation in the 1981 brochure produced by Lloyd's that a rigorous system of auditing existed that involved the making of a reasonable estimate of outstanding liabilities, including unknown and unnoted losses. (2) Subsequent brochures contained essentially the same representation although the word "rigorous" no longer appeared. (3) The 1981 brochure also contained a representation that Lloyd's believed that such a system was in place, as did subsequent brochures. (4) The global accounts contained no relevant representations. (5) The representations in (1) and (2) above were, during the relevant period, untrue. (6) The Names had, however, failed to prove that the relevant individuals at Lloyd's did not believe the representations to be true or that they either knew that they were or became untrue or were reckless as to whether they were true or untrue. (7) The issue of whether Lloyd's could be attributed with the knowledge of individuals did not arise. (8) As such the judge was right to determine the threshold fraud issue in favour of Lloyd's and to hold that Lloyd's was not liable to the Names in the tort of deceit. (9) No application for an adjournment had been made at the trial. In the absence of such an application it was difficult to imagine a case in which it would be appropriate for the Court of Appeal to hold that the decision of the trial judge, whilst not wrong within the meaning of CPR 52.11(3)(a), was unjust because of a serious procedural or other irregularity in the proceedings within CPR 52.11(3)(b). In the circumstances here, the Names were not under unacceptable pressure in any of the respects alleged. The judge made sensible case management decisions which the names did not challenge at the time. He acceded to the names' submission that the trial date should be earlier rather than later. The legally-aided Names did not apply for an adjournment and their counsel played an important part in the trial. The judge acted entirely fairly throughout the period both before the trial and during the trial itself. (10) Both at the trial and on appeal counsel had been able to identify the documents of importance and to dwell upon them appropriately. No application was made for an adjournment to deal with such a problem. No case had been made out that the judge should have ordered redacted parts of particular documents to be disclosed and the Names had not been prejudiced by the decisions on confidential information. (11) The judge dealt with the fact that certain witnesses were not called entirely fairly by indicating that he would draw whatever inferences he thought appropriate from Lloyd's failure to call the witnesses concerned. (12) No criticism could be made of the treatment of litigants in person. (13) There was nothing unfair about the trial either in terms of substance or appearance. The application for permission to appeal on procedural grounds was dismissed.

Appeal and application for permission to appeal dismissed.

* The petition of Sir William Otho Jaffray & ors seeking leave to appeal to the House of Lords in this case was presented and referred to an Appeal Committee on 7 November 2002.

Charles Aldous QC, Richard Jacobs QC and David Foxton instructed by Freshfields for Lloyd's. Simon Goldblatt QC and Vincent Nelson instructed by More Fisher Brown for certain members of the United Names Organisation. Gordon Nardell and Giles Richardson instructed by Grower Freeman for other Names. Sir William Otho Jaffray and other Names in person. Colin Edelman QC instructed by Barlow Lyde & Gilbert for Equitas (intervening).

LTL 26/7/2002 (Unreported elsewhere)

Judgment Official

Document No. AC0100152

DECISION APPEALED

QBD Commercial Court (Cresswell J) 3/11/2000

Lloyd's Names had not proved fraudulent misrepresentation by Lloyd's, as the brochures and reports produced by Lloyd's did not contain the alleged representations.

Trial of an action, forming part of the Lloyd's Names litigation, which concerned three sample Lloyd's Names who had not accepted the R&R settlement. The issue was whether Lloyd's had made misrepresentations that it knew to be untrue and/or as to which it was reckless whether they were true or false, and whether such misrepresentations were communicated to the Lloyd's Names and if so, when ('the threshold fraud point'). The trial was confined to allegations of fraud during the "relevant period" (1978 to 1988) in respect of asbestos-related losses. The Names said that certain alleged representations, derived from the brochures and from the Lloyd's Aggregate Results/Global Reports and Accounts as at 31 December 1981 to 31 December 1987 ('the results'), made by Lloyd's to external Names when they were applying to join Lloyd's or considering whether to continue as underwriting members of Lloyd's, were false and fraudulent to the knowledge of Lloyd's. The Names said that Lloyd's knew or was reckless as to the fact that: (a) the Lloyd's market's exposure to asbestos-related claims required reserves and reinsurance to close ('RITC') to be set at figures far in excess of those that were set out in the results; and (b) to the extent that there was under-reserving, the burden would be borne by Names underwriting in future years. Lloyd's denied that they had made the alleged representations. Further Lloyd's said that none of the elements of the tort of deceit were made out and in particular all allegations of fraud were emphatically denied. In an extensive judgment the judge considered the way the Lloyd's market worked in the relevant period and the regulatory background. He also considered the history of asbestos-related claims in the US.

HELD: (1) In order to sustain an action in deceit, there had to be proof of fraud. Nothing short of fraud would suffice. Fraud was proved where it was shown that a false representation had been made: (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless whether it was true or false. To prevent a false statement from being fraudulent there had to be an honest belief in its truth. (2) The Names' case had to be judged against the relevant administrative structure and regulatory background of Lloyd's. (3) The brochures did not contain the alleged representations. The alleged representations were not contained in any of the express words used in the brochures and could not be implied into the brochures as: (i) they were not necessary to give business efficacy; (ii) did not represent the obvious, but unexpressed intention of the parties; and (iii) were inconsistent with the express words used in the brochures. The alleged derived representations were re-workings of the implied terms rejected in Society of Lloyd's v Clementson (1994) CLC 71 and (1995) CLC 117 by Saville J and the Court of Appeal. Further, the alleged representations were unclear in their terminology and did not accord with the administrative structure and governance of the Lloyd's market and the regulatory background for the auditing and accounting regime at Lloyd's. (4) The results did not contain the alleged representations for the same reasons. (5) Further, the other ingredients of the tort of deceit were not made out. In particular the Names had not proved fraud in the relevant sense. (6) The losses suffered by the market in and after the relevant period were caused by a number of factors in addition to asbestos-related claims including: (i) pollution and other long-tail claims; (ii) individual disasters; and (iii) the LMX Spiral. As the Names' case was confined to asbestos-related losses, it was necessary to single out the impact of those losses. (7) Significant protections should have been afforded to Names on long-tail syndicates by the role and duties of the managing agents/underwriter and of the auditors. Further it was for the members' agent (not Lloyd's centrally) to advise prospective Names and Names as to the risks inherent in long-tail syndicates, along with all other material risks. (8) The allegation at (a) above regarding the Lloyd's market's exposure to asbestos-related claims was rejected. The Committee/Council of Lloyd's were generally entitled to assume that auditors were performing their duties competently. The allegation that the 1979 year of account should have been left open by syndicates affected by asbestos-related claims was also rejected. (9) The judge found for Lloyd's, and against the Names, on the threshold fraud point. (10) The costs of these proceedings were to be subject to rigorous taxation. (11) The judge made a number of further observations, in particular that it was high time that the Lloyd's litigation and related litigation came to an end. (12) A fair overall solution was in the interests of Lloyd's and the Names. An independent review by an independent panel set up by Lloyd's should consider the individual cases of those Names who had not accepted R&R and had not since settled.

Judgment accordingly.

Charles Aldous QC, Richard Jacobs QC, David Foxton and Stephen Houseman instructed by Freshfields Bruckhaus Deringer for Lloyd's. Simon Goldblatt QC and Vincent Nelson instructed by More Fisher Brown for certain members of the United Names Organisation. Patrick Talbot QC, David Drake, David Craig and Giles Richardson instructed by Grower Freeman & Goldberg for other Names. Sir William Otho Jaffray Bt and other Names in person.

LTL 15/11/2000 (Unreported elsewhere)

Judgment Approved subject to editorial corrections - 640 pages

For related proceedings see Society of Lloyd's v Sir William Otho Jaffrey & Ors (2000)