Johnson and another v Society of Lloyd's
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
 All ER (D) 315 (Jul)
HEARING-DATES: 22 JULY 2002
22 JULY 2002
Contract - Offer and acceptance - Counter offer - Lloyd's making settlement offers to names - Claimant names purporting to accept offers subject to numerous conditions - Claimants alleging Lloyd's accepting conditions by including claimants on list of acceptors sent to members' agents - Whether offer accepted by Lloyd's.
This judgment has been summarised by LexisNexis UK editors.
The claimants were both Lloyd's names. In May 1995, following the substantial losses in the Lloyd's market between 1988 and 1993, Lloyd's published a reconstruction and renewal plan (R&R). Under the plan, all liabilities relating to business underwritten in 1992 and prior years of account were reinsured into a newly formed company, 'Equitas'. A comprehensive settlement of the inter market litigation was also proposed whereby names would receive debt credits to enable them to meet the cost of finality. In order to benefit from the debt credits, or from any contributions from the combined litigation settlement funds, it was proposed that members would have to accept the settlement offer and pay their finality bills. The process for allocating the settlement funds were complex and involved four tranches of allocations, of which tranche 4 was for further assistance for names who could demonstrate that they were unable to pay their finality bills. In March 1996, Lloyds sent to all names 'indicative finality statements' and also sought applications for any tranche 4 debt credits. The claimants were amongst those who applied. Following numerous court actions, Lloyd's offered final statements to names in the form of a settlement offer document, accompanied by an individual finality statement. The settlement offer documentation provided, inter alia: 'To accept the settlement offer, Names must complete and return a form of acceptance to Lloyd's ... The Settlement Agreement will be binding on a Name upon receipt of his form of acceptance ... A Name who does not validly accept the settlement offer and pay his finality bill as set up above will not receive any of the benefits of the settlement offer ...' A few hours before the expiration of the revised deadline for acceptance, the claimants returned acceptance forms to Lloyd's by fax. Both forms, however, were expressed to be subject to a number of conditions, including requirements that they retained their current residence, and that their funds at Lloyd's not be drawn down. Correspondence subsequently followed in which the claimants asserted and maintained that those conditions had constituted a counter offer which Lloyd's had accepted. They issued proceedings, claiming that Lloyd's had accepted their counter offer by including them in lists of members acceptances sent to their members' agents, by or identifying them with a 'Y' under the heading of 'Accept' or 'Accept Status' in reports to the members' agents. At trial the claimants also sought to argued that Lloyd's were estopped from asserting that the claimants were not acceptors since, in reliance on the representation that they were being treated as acceptors, they decided not to resign from the action groups of which they were members.
The court ruled:
On the facts, there were insuperable difficulties which faced the argument that notification of 'acceptance' to the claimants' members' agents created contracts on the terms of the conditional acceptances. It was not clear from the reports from Lloyd's to the members' agents that Lloyd's had treated the claimants as acceptors. In any event, the matter had to be judged objectively. It was very difficult to view any report on which the claimant relied as constituting a report of an unequivocal acceptance of the counter-offer. R&R was a massive exercise involving thousands of names. An indirect notification to a members' agent of acceptance of the counter offer would have been a bizarre way of communicating agreement to terms constituting a major variation to the detailed settlement offer. Furthermore, such a perspective would be entirely contrary to the content of the settlement documentation. It was obvious that the scheme was either to be accepted or rejected. Indeed, the scheme would have been unworkable unless the terms were accepted in their entirety by all names. Accordingly, no reasonable man would have treated the counter-offer as having been accepted. It also followed that the claim based on estoppel would fail, due to the absence of any unequivocal representation that the counter-offer had been accepted. In any event, the claimants had not changed their position in reliance.
This is the first approved version handed down by the court. An edited official transcript or report will follow.
The claimants appeared in person; J Wicks for Lloyd's
PANEL: DAVID STEEL J
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
JUDGMENTBY-1: DAVID STEEL J
DAVID STEEL J: 1. In this action, the court is concerned with the question whether there is a binding contract between the claimants and the defendant ("Lloyd's") on the terms of Settlement Offer Forms, relating to the Lloyd's Reconstruction and Renewal Settlement Offer dated July 1996, despatched by the claimants very shortly before the extended deadline for receipt of such forms in September 1996.
2. It is common ground that those forms, by virtue of additional conditions added by the claimants, constituted counter offers to the Settlement Offer. The primary issue is whether Lloyd's communicated its acceptance of those counter offers by means of notifying the claimants' members' agents that the claimants were amongst those who had "accepted".
3. The general background to this litigation is so well known, and has been recounted in a number of judgments, that it is only necessary to give the briefest of summaries. Between 1988 and 1993 the Lloyd's market sustained very substantial losses. The scale of these losses, taken with the inability of many syndicates to close their years in a conventional way, led to litigation on a massive scale. Proceedings were instituted by Names against members' agents, managing agents, auditors, brokers and Lloyd's itself.
4. In May 1995 Lloyd's published a Reconstruction and Renewal plan. There were four principal elements to the plan. First, reinsurance into a newly formed reinsurance company, Equitas, of all liabilities relating to business underwritten in the 1992 and prior years of account. Second, a comprehensive settlement of the inter market litigation through the establishment of a settlement package where Names would receive debt credits to enable them to meet the cost of finality. Thirdly, a plan for the release of the profits made in the 1993, '94 and '95 years of account, commonly referred to as the triple profit release. And finally the strengthening of the central finances of Lloyds by means of a special contribution.
5. In order to benefit from the debt credits, or indeed from any contributions from the combined litigation settlement funds, it was proposed that members would have to accept the settlement offer and pay their finality bills. The proposals for allocating the settlement funds were complicated. Tranche 1 was allocated pro rata to a Name's losses above a certain threshold. Tranche 2 was allocated pro rata to a Name's finality bill excluding called but unpaid losses and central fund debts above a certain threshold. Tranche 3 was to produce an across the board cap of £ 100,000 above the value of a Name's funds at Lloyds. Tranche 4 was designed to provide further assistance for Names who could demonstrate that they were unable to pay their finality bills.
6. In March 1996 Lloyds sent to all Names 'indicative finality statements' and also sought applications for any Tranche 4 debt credits. The claimants were amongst those to apply. On 20th June 1996 Lloyds sent out a further set of indicative finality statements. By now the Council of Lloyds were confident that the plan was sufficiently well advanced to provide a basis for members to vote on the central fund contribution that was required as part of the package. This was duly approved at a meeting on 15th July 1996.
7. Two milestones in the Lloyd's forensic saga have to be noted here. Firstly, at the end of July 1996, the Court of Appeal held in Lord Navier v. R F Kershaw Ltd  L R L Rep 1 that litigation recoveries arising from negligent underwriting were assets of the Name's premium trust deeds, of which Lloyds was the trustee. (This decision was later confirmed by the House of Lords: see Society of Lloyd's v. Robinson  1 WLR 756) Secondly, in early August 1996, there was a challenge to the whole plan by various Names, including the second claimant, by way of an application for judicial review, prompted by the proposition that the plan was unfair to those Names who, it was contended, had fulfilled their obligations to Lloyd's in contrast to those Names who had not. That application was dismissed on 15th August 1996: Reg. v. Council of the Society of Lloyd's ex parte Johnson 16th August 1996 (Divisional Court).
8. Concurrently with this, Lloyd's made its offer to Names in the form of the Settlement Offer document, accompanied by an individual Finality Statement. The important provisions within the settlement offer documentation are as follows:
The Chairman's Letter
"The settlement offer represents the conclusion of more than a year of discussion and negotiation with all sections of the Society and with a wide range of contributors to the plan... I am well aware that the plan does not provide everything that members might wish... At the Extraordinary General Meting held in London on the 15th July, resolutions seeking radical changes to the reconstruction plan were rejected by large majorities... Each member must now decide whether or not to accept the offer..."
"...Lloyd's hereby offers to enter into the Settlement Agreement with each Name to whom the settlement offer is made ... Pursuant to the Settlement Agreement, each Name who validly accepts the settlement offer and who finally pays his finality bill .. will receive the benefit of [the credits] ... To accept the settlement offer, Names must complete and return a form of acceptance to Lloyd's ... The Settlement Agreement will be binding on a Name upon receipt of his form of acceptance ... A Name who does not validly accept the settlement offer and pay his finality bill as set up above will not receive any of the benefits of the settlement offer [save for recoveries under an Action Group Settlement Agreement]."
"Obligations of Accepting Names
4.1 ... each Accepting Name agrees with Lloyd's to pay .. all amounts due in respect of his Finality Statement in accordance with the terms set out in the Settlement Offer Document and hereof, free and clear of any set-off, counterclaim or other deduction on any account whatsoever...
4.2 Each Accepting Name agrees to take all necessary steps to facilitate the payment of his Equitas Premium and any other liabilities covered by his Finality statement as may be required out of any assets held at Lloyd's...
12.4 A Name will become a party to this Settlement Agreement upon his Form of Acceptance being duly executed and returned in accordance with the terms of the Settlement Offer Document...
TERMS AND CONDITIONS OF THE SETTLEMENT OFFER
1. ...Each Name who executes and returns a form of acceptance irrevocably accepts the settlement offer, agrees to be bound by the terms and conditions set out in this document and in the Settlement Agreement...
5. Lloyd's reserves the right to determine the validity of an acceptance received by it, or on its behalf, whether or not executed and/or returned in accordance with the instructions set out in this document...
18 No revision of the settlement offer is contemplated but, in the event of any revision, forms of acceptance previously executed and returned will apply to settlement offer as revised. If the Council determines that the effect of the revision is materially adverse to any Name who has previously executed and returned a form of acceptance, Lloyd's shall offer that Name a right of withdrawal...
26.. Lloyd's reserves the right:
(e) to waive any requirements of the Settlement Agreement ... or any of the terms and/or conditions of the settlement offer.
27 The settlement offer is indivisible and cannot be accepted in part only by any Name except pursuant to an Action Group Settlement Agreement."
"...By signing and returning this Form you irrevocably accept the settlement offer and become bound by the terms and conditions of the Settlement Agreement..."
9. The original deadline for acceptance was 28th August, but this was extended to 11th September 1996. The Settlement Agreement had been conditional upon a number of matters, including a resolution of the Council of Lloyds that a sufficient number of acceptances had been received. This resolution was made on 29th August 1996. All the other conditions, including the approval of the DTI, had been satisfied by the 4th September. Consequently the Settlement Agreement, and any acceptances entered into under it, became unconditional after this date.
10. A few hours before the settlement offer expired on 11th September, Mr and Mrs Johnson returned acceptance forms to Lloyds by fax. However, both were expressed to be subject to a number of conditions. Mrs Johnson's form stated 'my acceptance of this settlement offer is subject to the following conditions"
that I retain my present residence and that my funds at Lloyd's are not drawn down, as they constitute a bank guarantee secured in this residence.
that I am allocated an income derived from the sums I have paid towards my Lloyd's losses based on the 90-day deposit rate of an appropriate bank or building society. that Clause 2.2 of the settlement be deleted that all figures shown in my finality statement are accurate
that the settlement offer will not be binding if it is subsequently revised in a manner which is materially adverse to me
that my finality bill is in fact final and that no final sums will be debited in respect of orphan syndicates or resignation fees
that my special contribution for underwriting years 1993/4 be refunded in full within 3 years.
11. Mr Johnson's form contained an additional condition, namely that he was to be allocated a credit sufficient to meet his finality costs after taking into account his funds at Lloyd's. This latter condition reflected the fact that Mrs Johnson's finality statement, after taking into account her funds at Lloyd's showed a surplus of £ 99,013, whilst Mr Johnson's showed a finality cost of £ 37,245.
12. Mr Johnson explained in his oral evidence that, very soon after having faxed through his own and his wife's acceptance forms, he made contact with his members' agents and the action groups of which he and his wife were members to ascertain whether Lloyd's were treating them as acceptors or not. There had, he explained, been quite a lot of discussion amongst Names with whom he was in contact about the impact of the sort of conditions that he had attached. He was happy to learn that they both appeared to be numbered with the acceptors.
13. On the 14th September 1996 Lloyd's wrote a letter to Mrs Johnson referring to her form of acceptance:-
"Please note that we have received your Form of Acceptance which has been registered before the deadline.
Your comments have been noted and passed on to both the Financial Recovery Department and the Helpline for response.
However the Settlement Offer must be unconditional and therefore we cannot accept any amendment to the terms of the acceptance form.
Please sign below as confirmation that you accept the Settlement Offer unconditionally."
14. It was Mr Johnson's evidence, and I accept it, that he undertook all responsibility for dealing with correspondence with Lloyd's on his own and his wife's behalf and that this letter was, for some reason, not received. It is in fact a slightly surprising letter given that the Helpline wrote to Mrs Johnson on the 17th September to say that the appropriate department would "respond in due course". Furthermore, on 23rd September 1996, the same signatory to the letter of the 14th September wrote to Mrs Johnson asking for the original of her acceptance form because "we are having difficulty reading some of the wording to your conditions". The letter went on to comment that as soon as the original had been received, the copy would be passed on to the financial recovery department and the settlement helpline. Moreover, it is also notable that no equivalent letter to that of the 14th September was sent to Mr Johnson until 23rd September.
15. Be that as it may, on 16th October 1996 Lloyd's wrote to both Mr and Mrs Johnson as follows:-
"I write to inform you that Lloyd's are not treating your Forms of Acceptance as valid acceptances of its Settlement Offer as they have purportedly been made subject to certain conditions being fulfilled. Lloyd's retains a discretion however to treat your forms of acceptance as valid acceptances in the event that you confirm immediately with the withdrawal of these conditions ........"
16. The response from Mr Johnson formed the basis of the present dispute:-
"I was extremely surprised to receive your letter of 16th October 1996 ... as my wife's and my conditional acceptances amount to counter offers, which you have quite clearly accepted.
You are on record as publicly stating that there were no conditional acceptances and all the action groups, of which my wife and myself are members, have received confirmation from Lloyd's that we are both accepting Names.
As you have already confirmed that we are accepting Names, would you kindly let me know why you should now seek to avoid this contract that exists between us due to your acceptance of our conditions...."
17. In recounting the background, it is only necessary to add that on 17th February 1997 Lloyd's wrote to both Mr and Mrs Johnson in similar terms with regard to their application for assistance under the income and housing support scheme;
"1. The ARC agreed that based on the financial disclosures made by you, your income and that of your family has been reduced to such a level by virtue of the losses paid in the house that you should be entitled to some assistance in accordance with the terms of the IHSS guidelines.
2. In view of the above the ARC is prepared to provide you with an amount of £ 8,800 [£ 5,038 in the case of Mrs Johnson] net for the year 1997. This will be payable quarterly in arrears and you will be notified separately by the Accounting Operations Department in Chatham with the payment dates in due course.
3. Your funds at Lloyd's will now be drawn down immediately and utilised to meet your underwriting losses in accordance with the terms of the settlement offer...
4. This proposal us made subject to current open market valuations of 6 Cheltenham Terrace, London, NW3 and Rignall Farm, Barford St Michael, Oxfordshire, being carried out by a firm of professional valuers...
If you wish to accept this offer please sign and return the attached acceptance form Further you have currently not accepted the Settlement Offer unconditionally and you are therefore at risk of losing the benefits afforded by it, including the offer of Income Support set out above...."
18. On 18th April 1997 Colman J. ordered that any Name wishing to take issue with Lloyd's position regarding his or her acceptance of the settlement offer should issue proceedings on or before 16th May 1997. On that latter date Mr and Mrs Johnson both issued Writs. On 16th June 1997 Cresswell J. selected lead cases from the various examples of "conditional acceptance" cases, staying the Johnson cases. On 31st July 1997 Mance J. gave judgment in favour of Lloyd's on all the lead cases: see Manning v. The Society of Lloyd's  CLC 1411.
19. In these proceedings the Johnsons' pleaded case was that Lloyd's had accepted their counter offers by one or more of the following means -
1. Circulating lists to action groups which identified the Johnsons with a 'Y' under the column marked 'accept'
2. Including the Johnsons' lists of members acceptances sent to their members' agents or identifying them with a 'Y' under the heading of 'Accept' or 'Accept Status'
3. By counting the Johnsons as "acceptances" in dealings with the DTI:
4. By accepting the transfer of litigation recoveries from action groups of which the Johnsons were members.
20. In the face of these defences, Lloyd's sought to obtain summary judgment. The application came before Rix J on the 26th November 1999. He refused the application and ordered that the action should go to trial. He did so with specific reference to issue 2 above. In doing so he made reference to an obiter dictum of Colman J in another conditional acceptance case entitled Society of Lloyd's v. Gerda Doll-Steinberg 19th February 1999 (Commercial Court):-
"I have no doubt that if it were possible to establish the facts postulated by the defendant, and in particular the crucial facts that Lloyd's conveyed to [the members' agents] their confirmation of acceptance of the defendant's qualified acceptance prior to Lloyd's having sent out a rejection of that qualified acceptance, then Lloyd's would indeed be bound by a contract which incorporated the terms of that qualification."
21. Rix J, in refusing summary judgment, recorded the fact that the Johnsons had already paid over £ 2 million in respect of their losses and could not thus be perceived as persons seeking "to wriggle out of their obligations". The judge also paid tribute to Mr Johnson who, now faced with the loss of their two matrimonial homes, had nonetheless represented himself and his wife before the court in a commendable manner. It will be of little comfort but I would like to associate myself with that tribute. Mr Johnson has continued to act in person before me with fluency, economy and great courtesy.
22. Consistent with this attitude, Mr Johnson has recognised that the other three pleaded defences are of no assistance to him and he realistically abandoned them. As regards notifications of acceptances by Lloyd's to action groups, a similar point was not even argued in Manning supra and in any event was rejected by Colman J in Bartlett v. Society of Lloyd's 19th March 1999 (Commercial Court):-
"The action groups had a very specific function in the context of the litigation which was being pursued at the relevant time. Their function was to represent the interests of the Names for the purpose of promoting this litigation and for the purpose of dealing with Lloyd's in relation to the litigation. The action groups had no function whatever relating to the negotiation of terms between the individual members of the action group and Lloyd's applicable to their Tranche 4 allowances or indeed to the entering into of the R&R settlement agreement ... I do not think that anybody at the time could arguably have thought that a communication to an action group by Lloyd's could be treated as a representation by Lloyd's that it accepted the terms which had been advanced by a particular member of that action group in response to the [Settlement Offer Document]"
23. As regards the suggestion that the Johnsons were treated as acceptors for the purpose of dealings with the DTI, the fact is that DTI approval was forthcoming before their "acceptances" were dispatched. And in regard to the proposition that the transfer of litigation recoveries was relevant, the position was that, as recorded above, the Court of Appeal had only recently held that recoveries were assets of the premium trust deeds. The claimants had no direct interest in the monies - a position that was later confirmed by the House of Lords.
24. However, Mr Johnson sought to advance at the trial a new unpleaded argument to the effect that Lloyd's were estopped from asserting that he and his wife were not acceptors since, in reliance on the representation that they were being treated as acceptors, they decided not to resign from the action groups of which they were members. I allowed the point to be taken.
25. Despite the measure of encouragement to derived from Colman Ps dictum in Doll- Steinborg cited above, there are insuperable difficulties which face the argument that notification of "acceptance" to the claimants' members' agents created contracts on the terms of the conditional acceptances.
26. The Johnsons rely upon the information derived from their members' agents, Minories Underwriting Services, as to Lloyd's response to the conditional acceptances. I am prepared to assume that at the time of the enquiry shortly after the deadline, Minories informed Mr Johnson that records received from Lloyd's appeared to show that they were being treated as acceptors. Indeed, such is partly confirmed by Minories' letter of the 1st November 1966 enclosing a copy of their records which, it asserted, demonstrated that Lloyd's had informed them that the Johnson's responses were being treated as "acceptances".
27. The computer record produced by Minories does indeed record "acceptance status" as "Y". However, the printout was from Minories own computer records. I have heard evidence from a number of former employees of Lloyd's, including in particular Mr Paul Kershaw, who was responsible for computer records at Lloyd's relating to R and R. His evidence, which I accept, was that the initial computer file furnished to members' agents (entitled MA) recorded simply the fact of "return" of an acceptance form. On this basis Minories would, if relying upon a MA file to make an oral report of "acceptance" to Mr Johnson, in fact be converting a "return" into an "acceptance". In point of fact, as Mr Kershaw explained, the source of Minories own computer record was probably a later "W" file that did record "member acceptances". However, these were not introduced until late October 1996, after Lloyd's had rejected the Johnsons' acceptance forms.
28. In any event, even if Lloyd's were accurately reported as having treated the Johnsons as acceptors, the matter has to be judged objectively. It is very difficult to view it as constituting a report of an unequivocal acceptance of the counter-offer. To the contrary, the representation appears to be that the Johnsons had been treated, wrongly, as acceptors of the settlement offer. Mance J touched on this in Manning supra:-
"Further, if the word "acceptance" was understood as referring not to the form but to the act, the application of the stamp would suggest that the form was being viewed (albeit contrary to the fact) as an unconditional acceptance, rather than as a counter-offer which the person applying the stamp and returning the photocopy was himself purporting to accept on Lloyd's behalf."
29. This point is reinforced when one has regard to the surrounding circumstances. R & R was a massive exercise involving thousands of Names. An indirect notification to a members' agent of acceptance of the counter-offer would be a bizarre way of communicating agreement to terms constituting a major variation to the detailed settlement offer.
30. Furthermore, such a perspective would be entirely contrary to the content of the settlement documentation. I have recited at some length from it. In my judgment, it is obvious that the scheme was either to be accepted or rejected. It was not open to negotiation. Indeed, the scheme would have been unworkable unless the terms were accepted in their entirety by all Names. The flexibility was provided by the variable allocation of credits and other financial assistance. Any waiver of terms would have to be either universal or without prejudice to any other Names. Yet here the Johnsons were seeking to impose conditions worth something in the region of £ 1 million to them.
31. I conclude that no reasonable man would have treated the counter-offer as having been accepted. Indeed, whilst not suggesting any bad faith, I suspect Mr Johnson, to put it no higher, was himself surprised by the reported response of Lloyd's and doubtful about the contention that their individual counter-offer had been accepted.
32. I must also deal briefly with the alternative estoppel argument. This also fails at the threshold stage, namely the absence of any unequivocal representation that the counter-offer had been accepted. In any event, I am quite unable to accept that the Johnsons changed their position in reliance. Only the Gooda Walker settlement agreement was executed after notice of the acceptance. Even then it was only two days later. If the idea occurred to them, it is wholly improbable that the Johnsons would have immediately resigned from the Gooda Walker action group since they would then have had go it alone in circumstances where they had no direct interest in any recovery.
33. There must therefore, I regret, be judgment for the defendants.
34. As regards costs. I will consider detailed submissions in writing. But my provisional view is that, save as otherwise already ordered, the defendants are entitled to their costs of the action.
Judgment for the defendants.
Lloyd's Legal Services Department