SOCIETY OF LLOYD'S v WOODARD & ANOR (1996)
Ch.D (Sir Richard Scott V-C) 17/5/96
LLOYD'S NAMES LITIGATION : TRUST DEEDS
Amendments extending the scope of Lloyd's premium trust deed intended to
secure repayment of underwriting indebtedness by names from moneys recovered
in litigation by them held invalid.
Application by Lloyds by originating summons for the determination of whether para.1 of the schedule to each relevant deed as varied on 2/3/95 by the Council of Lloyd's in exercise or purported exercise of the power of variation conferred on it by clause 22 of each deed, were, having regard to the true construction of that power, valid. Sums that had been recovered in litigation by members from members' agents, managing agents and syndicate auditors by names had been used by some names to discharge their indebtedness to Lloyd's for their underwriting losses but other names had recovered losses but had not discharged their indebtedness. Lloyd's was anxious to ensure that those names who had not settled their underwriting debts did so. Every name was a party to a trust deed known as a premium trust deed to which the name's members' agent was the other party. Clause 2(a)(i) provided that the trust fund should consist of: "all premiums and other moneys whatsoever ... now belonging to or payable or hereafter at any time belonging or becoming payable to the name in connection with the underwriting". Clause 22 empowered the Council of Lloyd's to "revoke and determine the trust hereby constituted or ... to vary or amend all or any of them or any of the provisions hereof in which manner as the council think fit...".
HELD: In Society of Lloyd's v Morris (1993) 2 Re LR 21 the Court of Appeal held that litigation recoveries were not caught by clause 2(a)(i) of the premium trust deed. This was also the conclusion of Saville J in Napier v Kershaw 14/5/92 unreported. In addition Lloyd's had purported to exercise their power of amendment under clause 22 by adding a new subclause (d) to clause 2 whereby the litigation recoveries became to the extent of the name's existing indebtedness to Lloyd's, part of the trust fund. There were no words limiting the scope of the power to amend the provisions of the trust deed but it was accepted that any amendment made under the clause 22 power had to be consistent with its commercial purpose.
The prime commercial purpose of each premium trust deed was to ensure that the business receipts of the syndicate's underwriting business which the managing agent was conducting, were under the control of the name's member's agent and managing agent and were available to meet the losses and expenses of the name's underwriting business. The amendments would, if valid, enable the trust deed to serve an addition and different purpose. The additional purpose would be that of enabling Lloyd's to obtain, without the consent of the name and unilaterally, security for an existing indebtedness over the assets belonging to the name and specified in the amendment. The amendments were a misuse of clause 22 and were inconsistent with the commercial purpose of the trust deed. They were invalid.
Jules Sher QC, John Child and Joanne Wicks instructed by Simmons & Simmons for Lloyd's. Sydney Kentridge QC, Nicholas Warren QC and Paul Newman instructed by Richards Butler for the names. Richard Slowe, Solicitor, instructed by S J Berwin & Co for the 2nd defendant.
Document No. AC0004253