[QUEEN'S BENCH DIVISION]

ANGLO-AFRICAN MERCHANTS LTD. AND ANOTHER v. BAYLEY AND OTHERS

Insurance - Non-disclosure - Material facts - Assured knowing facts which reasonable man would realise underwriter would regard as material - Effect of failure to disclose - "All risks" policy on goods - Government surplus described as "New men's clothes in bales" - Whether underwriters put on inquiry - Waiver.

Insurance - Broker - Agent for assured - Insurance broker acting for assured - Loss of goods - Broker accepting instructions from underwriters - Whether agent for underwriters - Whether breach of duty to assured.

Agency - Insurance broker - Broker acting for assured - Broker subsequently accepting instructions from underwriters unknown to assured - Whether broker agent for assured or for underwriters - Whether in breach of duty.

Practice - Discovery - Privilege - Insurance - Assessor's report obtained by brokers on instructions from underwriters - Whether underwriters' document - Whether privileged against assured.

The plaintiff companies sought to insure a quantity of unused 20-year-old army leather jerkins against "all risks" at Lloyd's. The insurance was effected through the intermediary of two firms of brokers. R., on behalf of the plaintiffs, informed the first brokers, W. Ltd., that the goods were leather jerkins, that they were government surplus and that they were "new" but all the information about them that was conveyed by W. Ltd. to the second brokers G. Ltd. and thence on to the underwriters, was that which subsequently appeared on the policy - "new men's clothes in bales for export." Part of the consignment having been lost from warehouse storage, the plaintiffs claimed under the policy and the underwriters denied liability on the ground of non-disclosure of material facts that the jerkins were 20 years old and army surplus. By way of reply the plaintiffs asserted that the underwriters had waived further information upon the precise nature of the goods:

[Reported by R. D. FAYERS, Esq., Barrister-at-Law.]

Held, (1) that the use of the word "new" did not, on the evidence amount to a misdescription of the clothing (post, p. 320E), but the fact that it was 20 years old and was surplus were material facts and since they had not been disclosed the underwriters were entitled to disclaim liability (post, p. 319F-H).

(2) That, upon the whole of the evidence, there was no special connotation of the word "new," whether with or without the addition of the words "in bales," to put the underwriters upon inquiry so that their failure to make further inquiry as to the precise nature of the goods did not give the plaintiffs ground for a successful plea of waiver.

Dicta of Scrutton and Sargent L.JJ. in Greenhill v. Federal Insurance Co. [1927] 1 K.B. 65, 85, 89, C.A. considered.

During the course of the hearing it became evident that both W. Ltd. and G. Ltd. had made their files with regard to the insurance available to the underwriters. Further, G. Ltd., on discovery, refused to make their file, which contained a copy of an assessor's report obtained by them on the instructions of the underwriters, available to the assured on the ground that, despite their position as agents for the assured, that document was the property of the underwriters. Megaw J. held that the action taken with regard to the files could not be justified (post, p. 321G).

On the general questions relating to the legal position, the rights and the duties of insurance brokers:

Per curiam. Both in marine and in non-marine insurance an insurance broker is the agent only of the assured whether in matters relating to the placing of the policy or in matters arising when a claim is made. Since an agent who has accepted employment from one principal cannot in law accept any engagement inconsistent with his duty to the first principal, unless he first makes the fullest disclosure of all material facts to both principals and obtains their informed consent to his so acting, an insurance broker would be in breach of his duty to the assured if, without his by-your-leave, he accepted the underwriter's instructions to obtain an assessor's report on the claim, the contents of which he was precluded from passing on to the assured and no custom which contradicts this principle will be upheld in the courts (post, pp. 322D-324A).

The following cases are referred to in the judgment:

Fullwood v. Hurley [1928] 1 K.B. 498, C.A.

Greenhill v. Federal Ins. Co. [1927] 1 K.B. 65, C.A.

Rozanes v. Bowen (1928) 32 Ll.L.R. 98, C.A.

The following additional cases were cited in argument:

Anderson v. Scrutton [1934] S.A.S.R. 10.

A/S Ocean v. Black Sea & Baltic General Ins. Co. (1935) 51 Ll.L.R. 305, C.A.

Bank Melli Iran v. Barclays Bank [1951] 2 T.L.R. 1057.

Bates v. Hewitt (1867) L.R. 2 Q.B. 595.

Carter v. Boehm (1766) 3 Burr. 1905.

De Maurier (Jewels) Ltd. v. Bastion Insurance Co. Ltd. [1967] 2 Lloyd's Rep. 550.

Dunn and Tarrant v. W. C. Campbell (1920) 4 Ll.L.R. 36, C.A.

Joel v. Law Union and Crown Ins. Co. [1908] 2 K.B. 863, C.A.

Laing v. Union Marine Insurance Co. (1895) 1 Com.Cas. 11.

Lindenau v. Desborough (1828) 8 B. & C. 586.

Morris Motors Ltd. v. Lilley [1959] 1 W.L.R. 1184; [1959] 3 All E.R. 737.

Morris Motors Ltd. v. Phelan [1960] 1 W.L.R. 352; [1960] 2 All E.R. 208n.

Wheelton v. Hardisty (1858) 8 E. & B. 232, 285.

ACTION.

This was an action by the assured upon a policy of insurance effected with, inter alia, the defendant's syndicate at Lloyd's in respect of a quantity of leather jerkins in bales. The facts are taken from the judgment of Megaw J.

The plaintiffs were two associated family companies. Mr. Marcel Rosen was a director of both. The interest of the first-named plaintiff company. Anglo-African Merchants Ltd., in these proceedings was purely technical. It was the second-named plaintiff company, Exmouth Clothing Company Ltd., which was effectively concerned. That company had been in business since 1945. Its trade throughout that time had been in second-hand and government surplus clothes, almost entirely for export.

In January, 1967, Mr. Rosen, on behalf of Exmouth, tendered for a quantity of government surplus clothing. The goods in question were leather jerkins, lying packed in bales, in the ordnance depot at Bicester. At the relevant time all these jerkins were at least 20 years old, though they were unused. Mr. Rosen succeeded in his tender for 20,500 of the jerkins, for which he paid £34,825.

Mr. Rosen's intention was to find buyers abroad for these goods and to ship them abroad accordingly. Meanwhile, he wished to hold them in store. This involved removing the goods from Bicester and storing them in London, pending export contracts being made and carried out.

Ultimately, on April 3, 1967, the jerkins were brought to London and placed in store with a company, Power Packing Services Ltd. They were insured under a Lloyd's policy subscribed by syndicates concerned with the underwriting of marine risks. The insurance was treated as being marine because, although the policy was on goods in warehouse in England, the goods were in warehouse with a view to ultimate export. The defendant, Mr. James Francis Leslie Bayley, a member of one of the subscribing Lloyd's syndicates, was sued both on his own behalf and as representing all other members of his syndicate.

The policy was in the usual form. It was dated June 19, 1967, but it covered the period of three months from April 7, 1967, to July 6, 1967. That cover was thereafter extended for a further three months to October 6, 1967. For a premium of £115 (covering the original three months) the insurance was against

"all risks of whatever nature and howsoever arising"

in the sum of £40,000 on:

"new men's clothes in bales for export whilst at the premises of Power Packing Ltd., 28, Tidal Basin Road, London, E.16, including transit from the assured's premises."

Between April and October, 1967, some of the bales of jerkins were sold by Mr. Rosen on behalf of his company and were exported. 412 bales

remained, or should have remained, in Power Packing Ltd.'s premises. Before October 5, 1967, at some unknown date, 245 bales disappeared. Each bale contained 25 jerkins. Mr. Rosen learned of their disappearance on October 5, and notified the loss to his insurance brokers on October 6.

It was agreed that the value of the goods lost, and the amount which the plaintiffs would be entitled to recover if they had a valid claim under the insurance policy, was £11,500. The proportion for which the defendant's syndicate was responsible was one-third of that sum - £3,833 6s. 8d.

Liability under the policy was denied by underwriters. The grounds, and the only grounds, on which liability was denied, were set out in paragraph 4 of the points of defence, and in part of paragraph (a) of the particulars thereunder, as follows:

"(4) At the time when the plaintiffs requested the defendants to issue the said policy of insurance, and before the policy was issued, the plaintiffs misrepresented to and concealed from the defendants material facts affecting the goods to be insured and the risk insured against.

"Particulars. (a) The plaintiffs represented that the goods to be insured were 'new men's clothes in bales for export ...' In fact the goods to be insured were old men's clothes, not less than about 23 years old, being army surplus goods manufactured during the Second World War."

In their amended points of reply the plaintiffs said that the defendant waived further information upon the precise nature of the men's clothes in bales, in that by Mr. R. D. Gibson (a member of the syndicate) the defendant was informed by the placing brokers ("Garthwaites") that the goods to be insured were new men's clothes in bales for export. A reasonable underwriter would thereby have been put on inquiry as to the precise nature of the goods but Mr. Gibson, although he had asked questions of the placing brokers, had asked no questions relating to the precise nature of the goods and that he had thereby represented that he required no further information. In reliance thereon the placing brokers obtained the answers to the questions but sought no other information of the plaintiffs' agents (Wilson Dean Ltd.) who at all material times knew and could have given further information as to the precise nature of the goods, viz., that they were leather jerkins and army surplus and were alternatively, industrial clothing. In the alternative, the plaintiffs said that they would rely on similar facts as between the placing brokers, acting for such purpose as the agents of the defendant, and Wilson Dean Ltd. acting for the plaintiffs.

J. G. Wilmers Q.C. and C. S. Staughton for the plaintiffs. The questions that arise in this case are as follows: (1) Did the plaintiffs represent the goods as "new men's clothes in bales"? (2) If so, does the word "new" amount to a misrepresentation? (3) Should the plaintiffs have disclosed that the jerkins were army surplus? (4) If there were misrepresentations made, were those misrepresentations material?

The first is a question of fact. The word "new" in this context means "not used." Bank Melli Iran v. Barclays Bank [1951] 2 T.L.R. 1057 shows that the meaning of the word can vary in different contexts. In Morris Motors Ltd. v. Lilley [1959] 1 W.L.R. 1184 and Morris Motors

Ltd. v. Phelan [1960] 1 W.L.R. 352 the meaning given to the word was "unused." That is the meaning here. The principle to follow is set out in MacGillivray on Insurance Law, 5th ed. (1961), Vol. 1, para. 944, that any ambiguity is to be construed in favour of the insured and against the insurer. Although the chapter concerned is dealing with "warranties" the principles applicable are the same: see T. Dunn v. W. C. Campbell (1920) 4 Ll.L.R. 36 and De Maurier (Jewels) Ltd. v. Bastion Insurance Co. [1967] 2 Lloyd's Rep. 550.

On the balance of probabilities the fact that the jerkins were "army surplus" was disclosed. On the issue of materiality, how can any question of newness affect a prudent underwriter? The date of manufacture may diminish the risk by lowering the value but that is not material. This is an "All Risks" policy and one must judge materiality in relation to all the risks. The plaintiffs adopt the statements of law in Halsbury's Laws of England, 3rd ed. (1958), Vol. 22, p. 187.

F. Maurice Drake Q.C. and P. G. Langdon-Davies for the defendants. The plaintiffs did represent that the goods were "new" and they did not disclose that they were 25 years old and were "army surplus." The primary meaning of "new" is "not old" or "newly made." The Bank Melli case [1951] 2 T.L.R. 1057 shows that the word may be qualified when used in conjunction with other words, e.g., a "new 1960 car" or "new government ex surplus clothes." The two Morris Motors cases [1959] 1 W.L.R. 1184 and [1960] 1 W.L.R. 352, merely demonstrate the secondary meaning of "new." In the Australian case of Anderson v. Scrutton [1934] S.A.S.R. 10 it was decided that "new" meant "not old" or "of recent manufacture." Accordingly, there was a misrepresentation.

There is no ambiguity here. If there is, then there is still a misdescription. The plaintiffs rely on a passage in MacGillivray dealing with "warranties" (para. 944) to support their proposition that, where the words are doubtful, they must be construed in favour of the insured. The relevant principles on ambiguity are found in para. 703. Neither of the authorities relied upon deal with ambiguity as such. T. Dunn v. W. C. Campbell, 4 Ll.L.R. 36 was concerned with a forfeiture clause and in De Maurier (Jewels) Ltd. v. Bastion Insurance Co. [1967] 2 Lloyd's Rep. 550 Donald-son J. was concerned with a warranty. For the purposes of the contra proferentem doctrine the insured is the proferentes: see per Greer L.J. in A/S Ocean v. Black Sea & Baltic General Ins. Co. Ltd. (1935) 51 Ll.L.R. 305, at p. 307. Knowledge of the risk was solely with the insured and the language they use should be such that a prudent and reasonable underwriter can understand. If there is any ambiguity it should be resolved against the insured.

The facts that the jerkins were war surplus and their age are material. They would have affected the decision of a prudent underwriter in deciding whether or not to underwrite the risk, in deciding upon limitations and in deciding on inspections of the goods or their place of storage. The insured is under a duty to disclose facts as might reasonably affect a prudent underwriter even though he does not himself appreciate their materiality: Halsbury's Laws of England, 3rd ed., Vol. 22, para. 363.

By their conduct in not making further inquiries are the underwriters to be taken as having waived the non-disclosure of those facts? The

passage in Halsbury's Laws of England, 3rd ed., Vol. 22 (1958), para. 356 is too wide and is not supported by the authorities there cited. It is to be compared with the statement at para. 210 and with MacGillivray, para. 909. Carter v. Boehm (1766) 3 Burr. 1905 was a different case from the present. The insurance here was on goods the precise condition of which was within the knowledge of the insured alone. [Reference was made to Lindenau v. Desborough (1828) 8 B. & C. 586 and Wheelton v. Hardisty (1858) 8 E. & B. 232.] In Bates v. Hewitt (1867) L.R. 2 Q.B. 595 it was held that it was not enough for the insured to show that the particulars he did supply to the underwriter, coupled with the underwriter's previous knowledge, would, if the underwriter had given sufficient consideration to the matter, have brought to his mind the material fact not communicated. The description here would not have led a reasonable underwriter to say, "What on earth is that?" because he could not know what the description referred to. All he could assume was that the clothes were men's clothes and were not old. [Reference was made to Greenhill v. Federal Insurance Co. [1927] 1 K.B. 65, per Sargant L.J. at p. 89.]

Wilmers Q.C. in reply. The word "new" has no primary meaning. The question is: What is its meaning in the context here? "New" in relation to clothing does not mean newly made. All the documents show that "new" is only used in connection with the words "government surplus."

If there is ambiguity here then the contra proferentem rule applies and the plaintiffs adopt the passage in Dunn v. Campbell, 4 Ll.L.R. 36, p. 39, that the underwriters received a proposal which was ambiguous in form and therefore, having accepted it knowing it was ambiguous, it must be read in the sense most unfavourable to them.

The principle of waiver is stated by Mathew J. in Laing v. The Union Marine Ins. Co. (1895) 1 Com.Cas. 11, 15: "The assured is not bound to give information which the underwriter waives or as to which the assured may reasonably infer that the underwriter is indifferent." The defendants must have realised that the description given was a trade description and as they did not inquire about it they must be taken to have waived a more explicit disclosure. The plaintiffs could reasonably have inferred that the underwriters were indifferent. [Reference was made to Joel v. Law Union and Crown Insurance Co. [1908] 2 K.B. 863 and to Halsbury's Laws of England, 3rd ed., Vol. 22, para. 306.]

A question on the brokers' agency arises in connection with the files. It is accepted by the plaintiffs that the normal position is that the Lloyd's broker is an agent of the assured for the purposes of placing the policy: see per Scrutton L.J. in Rozanes v. Bowen (1928) 32 Ll.L.R. 98, 101. Because of one letter written by the solicitors it is said that, in this particular case, there is something different and that Garthwaites were somehow agents of the underwriters.

[Megaw J. This is a matter of considerable public importance.]

It has always been commonplace at Lloyd's, and indeed it is a worldwide insurance practice, that when a claim arises the underwriter instructs the broker, who up to that stage has acted as agent only for the assured, to obtain a report from assessors. In the normal case the broker considers

the report and then, with knowledge of its contents, he pursues the claim against the underwriters.

[Megaw J. Is all this disclosed by the broker to the assured?]

No, not fully. The underwriter pays for the report and it is his. The broker does not usually disclose its contents to his clients. He keeps a copy on his files and with his knowledge he is in a position himself to judge the strength and weaknesses of the assured's claim. He will advise in general terms whether the claim be pursued or not or whether it ought to be settled. He is in the position of an "honest mediator." He advises his client of the facts in his possession but without disclosing the details. If the client wanted to see the report the broker would ask the underwriters and frequently the report is then shown.

Feb. 24. MEGAW J. read the following judgment which stated the facts set out above, and continued: It should be made clear at the outset that there is no suggestion whatever that this is a dishonest claim. There is no suggestion that there was not a genuine loss of the jerkins in the 245 bales during the period covered by the policy as extended. There is no suggestion that Mr. Rosen was dishonest in anything which he said or did not say in connection with the obtaining of the insurance policy. There is no suggestion that Mr. Rosen was anything other than truthful in the evidence which he gave, whether or not his evidence is in all respects accurate. I am satisfied that he was an honest witness. If the defence depended upon dishonesty on the part of the plaintiffs it would wholly fail.

The defence does not, however, depend upon an assertion of dishonesty. It depends essentially upon the allegation that, however complete and accurate may have been the information regarding the goods to be insured which Mr. Rosen provided to his insurance brokers, the information as to the goods which was actually supplied to underwriters when they accepted the risk was inaccurate and incomplete in material respects; and that therefore they are entitled to disclaim liability.

As is inevitable when an insurance is sought to be placed at Lloyd's, the would-be assured was not in direct contact with underwriters. In this case there were two intermediaries between Mr. Rosen and the underwriters. In circumstances which I need not narrate, Mr. Rosen instructed a firm of insurance brokers, Wilson Dean Ltd. The director of that company with whom Mr. Rosen dealt was Mr. William Davis. Mr. Davis got in touch with other insurance brokers, Sir William Garthwaite (Home and Overseas) Ltd.; his contact there was Mr. James Leonard Evans, a director of that company. Through a Lloyd's broker, Mr. Mew, employed by that company or by an associated company - it matters not which for present purposes - this insurance was thereafter placed with Lloyd's underwriters.

Mr. Rosen, Mr. Davis and Mr. Evans have given evidence, the two former called by the plaintiffs, the latter called by the defendant. It has been accepted throughout the hearing (as I now understand) that Wilson Dean Ltd., and therefore Mr. Davis, were acting as agents for the plaintiffs in placing this insurance. There has been controversy, to which I shall have to refer later, whether Mr. Evans, and his company, and Mr. Mew,

were acting as agents for the plaintiffs or for underwriters or both. I hold - and in the end counsel for the plaintiffs was unable to put forward arguments to the contrary, though he did not abandon the point - that these persons were also acting for the plaintiffs in the placing of the insurance.

There has been evidence, to the admission of which objection was not taken (and, I think, in the circumstances rightly not taken), of conversations between Mr. Rosen and Mr. Davis and between Mr. Davis and Mr. Evans. I shall express, as succinctly as I can, my findings as to what was said in those conversations, so far as I regard such findings as being relevant to the issues which I have to decide in this action. It is obvious that in certain events there is the possibility of litigation hereafter between the plaintiffs and one or other or both of the firms of brokers, though no steps, for some reason, have been taken to join them as parties to this present action. I shall, therefore, be particularly careful not to express any views, unless it is essential for the present action so to do, upon matters which might have to be decided hereafter involving persons who are not parties to this action. In so far as it is necessary for me to express conclusions on matters which might be relevant in other litigation hereafter, persons who are not parties to this action are, of course, in no way bound by my findings in this action.

Mr. Rosen, in his conversation with Mr. Davis when he first asked Wilson Dean Ltd. to try to effect this insurance, gave Mr. Davis all the information which he, Mr. Rosen, thought was or might be material for the purpose of the insurance. That information included the fact that the goods were government surplus; that they were leather jerkins; and, in answer to a question by Mr. Davis whether they were second-hand, that they were new. When Mr. Davis spoke to Mr. Evans, all that Mr. Davis told Mr. Evans about the goods themselves was that which subsequently appeared in the policy, as I have already mentioned: namely, "new men's clothes in bales for export." Mr. Davis did not mention to Mr. Evans anything about "government surplus" or the fact that the clothes were leather jerkins. Mr. Evans passed on to Mr. Mew the information which he had received from Mr. Davis. Mr. Mew went to Lloyd's, having made out a slip in which, against the printed word "Interest," appeared the self-same words as thereafter were included in the policy:

"£40,000 on new men's clothes in bales for export whilst at the premises of Power Packing Ltd., 28, Tidal Basin Road, E.16, including transit from assured's premises. To cover against all risks for loss or damage however arising."

Mr. Mew took the slip to Mr. R. D. Gibson, a member of the syndicate of which the representative defendant is also a member. Mr. Gibson raised a number of queries with Mr. Mew. None of them related to the nature or description of the goods. When thereafter - a delay occurred for reasons which I need not go into - Mr. Mew came back again with the slip and with answers to Mr. Gibson's questions which satisfied him, he, on April 7, initialled the slip on behalf of his syndicate, for 331/3 per cent. The remaining 662/3 per cent. was thereafter that day accepted by other underwriters. In due course the policy was issued, to accord with the slip.

There can be no doubt on the evidence that a representation was made to the underwriters on behalf of the plaintiffs that the goods to be insured

were "new men's clothes in bales for export." There can be no doubt that underwriters were not told that the goods were government surplus goods, or army surplus goods. There can be no doubt that they were not told that the goods had been manufactured at least 20 years earlier.

There has been argument before me and citation of authority as to the nature and extent of the duty of disclosure in the making of a contract of insurance. I need not go into the authorities because, as I understand it, there is not, and cannot be, any doubt as to certain propositions which are decisive on the facts of this case.

First, there may be scope for debate as to the availability of the defence of non-disclosure where the assured does not know of the existence of the fact or facts which have not been disclosed. Questions may arise as to the position if those facts were known to his agents in the placing of the insurance, or if they are facts which a reasonable man in the position of the assured would have known, or if they are facts which he could have ascertained by some degree or other of diligence and inquiry. In the present case, I need not pursue those interesting topics, for there is no doubt that Mr. Rosen himself well knew that the goods were army surplus and that they were at least 20 years old.

Next, there may perhaps be scope for debate as to the effect on the defence of non-disclosure if the assured did not realise, and should not as a reasonable man have realised, that facts of which he knew might reasonably be regarded as being material by a normal, prudent underwriter. If, however, the assured knew of facts, and if as a reasonable man he should have realised that knowledge of those facts might be - not necessarily would be, but might be - regarded as material by a normal prudent underwriter, then, if those facts are not disclosed and if they would have been material, the defence of non-disclosure prevails. The position may be more favour-able to insurers than is indicated in that proposition. I am satisfied that it is not less favour-able. It is an a fortiori case if the assured not merely ought as a reasonable man to have realised, but actually did realise, that the facts of which he had knowledge might be regarded as material.

On Mr. Rosen's own evidence I am satisfied that he himself realised that it might be regarded by potential insurers as material to know that the goods were war surplus. That is why he gave the information to Mr. Davis, when he first asked Mr. Davis to place the insurance. I am also satisfied on the evidence that a reasonable man would have realised that it might well be material for underwriters to know, not only that the goods were war surplus, but also, at any rate in relation to a request for all risks insurance, that the leather jerkins were at least 20 years old.

Having considered the whole of the evidence on this aspect, I am also satisfied that each of these matters - the fact that the goods were war surplus and their age - was a fact which was material: it would have affected the mind of a prudent underwriter in deciding whether or not to underwrite the risk at all, in deciding what limitations he might wish to impose as to the risks to be covered, in deciding what premium to quote and in deciding whether or not to require an inspection of, and report on, the goods or the place where they were being stored or both. In particular, in relation to the fact of war surplus, I am satisfied that underwriters, rightly or wrongly, but not unreasonably, regard war surplus goods, or at any

rate war surplus clothing, as being goods which they classify as "hot": that is, involving an abnormally high risk of theft. In relation to the age of the goods, underwriters would normally and reasonably be concerned with the possibility of defects, such as staining, in respect of which claims might be made and it might be a matter of great difficulty and dispute to ascertain when the damage was in fact sustained; unless, of course, a pre-insurance inspection were to be required as a condition of accepting the risk.

Much evidence was given and argument offered as to the meaning of the word "new," with particular reference to the clothing trade. Of course, it is not a question of the meaning of the word in isolation: it is a question of its meaning in the context of a request for insurance of goods which are described as being "new men's clothes in bales for export." The defendant contended that to describe 20-year-old leather jerkins as "new" was a misdescription: a corollary, as it were, of the non-disclosure that the goods were 20-years old. The plaintiffs contended on the other hand, that, so far from being a misdescription, the use of the word "new" in this context indicated that the clothes were government surplus clothes and that they were not of recent manufacture. The plaintiffs also relied upon that which they said was the connotation of the word "new" in this context for the purposes of their submission as to waiver by underwriters of their entitlement to be apprised of material facts.

The gist of the evidence is that in the clothing trade goods are never described as "new" (for example, in invoices or advertisements or other trade documents) unless they are government surplus goods. If they are government surplus goods, and are unused, they may be described as "new," despite the fact that they are not of recent manufacture. I accept that evidence, but I do not, on the whole of the evidence, accept the proposition that this special connotation of the word "new," whether with or without the addition of the words "in bales," ought to have brought it to the attention of an ordinary, prudent, underwriter that the goods which he was asked to insure under the description of "new men's clothes in bales for export" were, or might reasonably be expected to be, government surplus clothes, or old clothes, in the sense that they were manufactured at least 20 years previously.

By an amendment of their points of reply, for which leave was asked and granted after the evidence had been concluded, the plaintiffs seek to assert that a reasonable underwriter would have been put on inquiry by the description "new men's clothes in bales for export"; that such inquiry would have revealed that the goods were army surplus; that Mr. Gibson, though he made other inquiries, failed to make any inquiry as to the precise nature of the goods; and that the defendants thus "waived further information upon the precise nature of the goods." Let me assume in favour of the plaintiffs that an insurer waives his right to complain of non-disclosure, if he has received information which would put an ordinarily careful insurer on inquiry and nevertheless fails to inquire. That is put by Sargant L.J. as the minimum required for a successful plea of waiver: Greenhill v. Federal Insurance Co. [1927] 1 K.B. 65, 89. Scrutton L.J. in his judgment in the same case, at pp. 85, 86, clearly regards the law on this point as much more favour-able to insurers. Even on the assumption of the most lenient test, I cannot hold on the evidence that a normally prudent insurer

would have been put on inquiry as to the precise nature of the goods by reason of seeing them described as "new men's clothes in bales for export." Some underwriters might be alerted by the word "new" to make inquiries, because they would realise that it is an unusual adjective to apply to clothes. More underwriters, I think, would take the attitude which Mr. Gibson took: the goods are described as "new"; they are new; they are not clothes which were manufactured years ago; they are not government surplus, which is normally some distance away from having been newly manufactured when it is sold as surplus. I do not think that that attitude can properly be said to show any lack of care or prudence; or that failure to inquire could give rise to a valid claim of waiver.

The claim therefore fails.

There is, however, another matter with which I am bound to deal, even though in the end it does not affect the result of this case. It involves the legal position, the rights and duties of insurance brokers.

The plaintiffs have asserted, and by their amended points of reply have reiterated the assertion, that Sir William Garthwaite (Home & Overseas) Ltd. - I shall call them "Garthwaites" - and Mr. Evans and Mr. Mew, employed by that company or an associated company, were acting as agents, not of the plaintiffs, the assured, but of the defendant underwriters. This assertion was put forward, not as involving a general principle, but as being related to the special facts of this case: namely, events which had occurred, at the instance of the defendant's solicitors, with regard to discovery after this action had been commenced. In his final speech, counsel for the plaintiffs did not seek to adduce any argument in support of the contention, but he did not abandon it. I have therefore to deal with it. The answer put forward by counsel for the defendant, rebutting the suggestion that Garthwaites were agents for the defendant in the placing of this contract of insurance, in its turn raised a question of much wider and more general importance as to the position of insurance brokers. With that question also I must concern myself.

Both Wilson Dean and Garthwaites saw fit to make their files, with regard to this insurance, available to underwriters and to underwriters' solicitors. So far as Garthwaites are concerned, further, they refused to make their file available to the plaintiffs or to the plaintiffs' solicitors. This attitude, it should be said, was taken because the defendant's solicitors advised Garthwaites that it was the right and proper attitude to take. The defendant's solicitors further asserted in a letter to the plaintiffs' solicitors that Garthwaites were not the plaintiffs' agents.

The action taken with regard to the files cannot be justified; and, indeed, counsel for the defendant did not seek to argue that it was correct; though he maintained, as I shall have to mention hereafter, that certain documents in Garthwaites' file were the property of the underwriters and that, despite Garthwaites' position as agents for the assured, the assured were not entitled to see documents in possession of their own agents.

I do not propose to go into all the complications which have bedevilled this particular action as a result of these matters. In the end, the plaintiffs' advisers have been enabled - though belatedly - to see all relevant documents which should have been available to them from, or before, the outset of the action; they have not, in the end, been prejudiced by the belatedness

of discovery, nor by the fact that documents which were in the possession of the plaintiffs' agents were unjustifiably made available to the defendant and his advisers at a time when the agents, acting on the advice of the solicitors for the opposite party, were refusing them to their own principals and their principals' legal advisers. It is to be hoped that this sorry state of affairs will not arise again.

I cannot, however, leave this matter there. Counsel for the defendant conceded that, in all matters relating to the placing of the insurance, the insurance broker is the agent of the assured, and of the assured only. I do not think that this proposition of law has ever been in doubt amongst lawyers. I hope it is not in doubt amongst insurance brokers or insurers. More than 40 years ago Scrutton L.J. said:

"I agree, that in the case of marine insurance there is not the slightest doubt, and never has been the slightest doubt, that the broker is not the agent of the underwriter."

He then went on to say that in his experience it would be quite wrong to say that this applies merely to marine insurance: see Rozanes v. Bowen (1928) 32 Ll.L.R. 98, 101.

Counsel for the defendant, however, submitted, on instructions, that while this principle applies to the placing of the policy (be it noted that Scrutton L.J. expressed no such limitation), yet when a claim arises under a policy the insurance broker who placed the policy may thereupon become an agent of both parties in certain respects. This, says counsel, is not merely the practice at Lloyd's; it is the practice also in the non-Lloyd's insurance market in this country; indeed, it is said, it is world-wide practice in the insurance business. When a claim arises, it is asserted, the insurer - Lloyd's underwriters or other insurers - may, and commonly does, instruct the insurance broker who placed the insurance to obtain a report from assessors as to the claim. The broker is, apparently, entitled to accept these instructions without a by-your-leave from his principal, the assured, and without the principal being told by the agent that he is accepting instructions from the adverse, or potentially adverse, party. The assessors' report, unless it contains allegations of fraud, goes from the assessors to the insurer via the broker. The broker sees the report and keeps a copy on his file. But the broker may not disclose the contents of the report to the assured or to the assured's legal advisers, without the express consent of the insurer. The report is the insurer's document.

That practice was followed in the present case. There was a copy of such a report in Garthwaites' file relating to this insurance. It was not made available by Garthwaites to the assured. Privilege was claimed in respect of it against the assured. That claim was persisted in until a very late stage of the hearing. Indeed, though the document was at last made available to the plaintiffs out of their agent's file, this was, I think, claimed to be done as a matter of grace only.

The law, again, has been stated with clarity and precision in the judgment of Scrutton L.J. in Fullwood v. Hurley [1928] 1 K.B. 498, 502:

"No agent who has accepted an employment from one principal can in law accept an engagement inconsistent with his duty to the first

principal ... unless he makes the fullest disclosure to each principal of his interest, and obtains the consent of each principal to the double employment."

The principle is expressed in this way in Bowstead on Agency, 13th ed., p. 144:

"... he may not act for both parties to a transaction unless he ensures that he fully discloses all the material facts to both parties and obtains their informed consent to his so acting ... Any custom to the contrary will not be upheld."

If an insurance broker, before he accepts instructions to place an insurance, discloses to his client that he wishes to be free to act in the way suggested, and if the would-be assured, fully informed as to the broker's intention to accept such instructions from the insurers and as to the possible implications of such collaboration between his agent and the opposite party, is prepared to agree that the broker may so act, good and well. In the absence of such express and fully informed consent, in my opinion it would be a breach of duty on the part of the insurance broker so to act.

The potential dangers and undesirable consequences are obvious in any case where, as here, an agent permits himself, without the express consent of his principal, to make a compact with the opposite party whereby he is supplied with information which he is, or may be, precluded from passing on to his principal. Such a relationship with the insurer inevitably, even if wrongly, invites suspicion that the broker is hunting with the hounds whilst running with the hare. It readily leads to consequences such as occurred in this case where a broker refused to comply with a proper request from his principal's solicitors, but sought or accepted advice from the adverse party's solicitors as to how he should act vis-ˆ-vis his principal. If the insurer desires to obtain an assessor's report, he can obtain it through some other channel than the assured's agent, the broker who has placed the insurance. If the insurer thinks it would be helpful in arriving at a fair and proper settlement of a claim that the assured's broker should see the whole or part of the assessor's report, he can disclose it to the broker; but not, in the absence of the express consent of the assured subject to a condition that the agent shall withhold relevant information from his principal.

It was said by counsel, on instructions, that the practice which he described is common knowledge, not only as being the practice of Lloyd's brokers, but as being general practice in the insurance market. I find it remarkable, if so, that there is no reference to it - none so far as I am aware, and none to which counsel could refer me - in any decided case or in any of the well-known textbooks dealing with insurance law, some of which deal at length with the practice of the insurance market and the position of insurance brokers. Even if it were established to be a practice well known to persons seeking insurance - not merely to insurers and brokers - I should hold the view, in conformity with the passage which I have cited from Bowstead, that a custom will not be upheld by the courts of this country if it contradicts the vital principle that an agent may not

at the same time serve two masters - two principals - in actual or potential opposition to one another: unless, indeed, he has the explicit, informed, consent of both principals. An insurance broker is in no privileged position in this respect.

Solicitors: Paisner & Co.; Herbert Baron & Co.

[QUEEN'S BENCH DIVISION]

ANGLO-AFRICAN MERCHANTS LTD. AND ANOTHER v. BAYLEY AND OTHERS

Insurance - Non-disclosure - Material facts - Assured knowing facts which reasonable man would realise underwriter would regard as material - Effect of failure to disclose - "All risks" policy on goods - Government surplus described as "New men's clothes in bales" - Whether underwriters put on inquiry - Waiver.

Insurance - Broker - Agent for assured - Insurance broker acting for assured - Loss of goods - Broker accepting instructions from underwriters - Whether agent for underwriters - Whether breach of duty to assured.

Agency - Insurance broker - Broker acting for assured - Broker subsequently accepting instructions from underwriters unknown to assured - Whether broker agent for assured or for underwriters - Whether in breach of duty.

Practice - Discovery - Privilege - Insurance - Assessor's report obtained by brokers on instructions from underwriters - Whether underwriters' document - Whether privileged against assured.

The plaintiff companies sought to insure a quantity of unused 20-year-old army leather jerkins against "all risks" at Lloyd's. The insurance was effected through the intermediary of two firms of brokers. R., on behalf of the plaintiffs, informed the first brokers, W. Ltd., that the goods were leather jerkins, that they were government surplus and that they were "new" but all the information about them that was conveyed by W. Ltd. to the second brokers G. Ltd. and thence on to the underwriters, was that which subsequently appeared on the policy - "new men's clothes in bales for export." Part of the consignment having been lost from warehouse storage, the plaintiffs claimed under the policy and the underwriters denied liability on the ground of non-disclosure of material facts that the jerkins were 20 years old and army surplus. By way of reply the plaintiffs asserted that the underwriters had waived further information upon the precise nature of the goods:

[Reported by R. D. FAYERS, Esq., Barrister-at-Law.]

Held, (1) that the use of the word "new" did not, on the evidence amount to a misdescription of the clothing (post, p. 320E), but the fact that it was 20 years old and was surplus were material facts and since they had not been disclosed the underwriters were entitled to disclaim liability (post, p. 319F-H).

(2) That, upon the whole of the evidence, there was no special connotation of the word "new," whether with or without the addition of the words "in bales," to put the underwriters upon inquiry so that their failure to make further inquiry as to the precise nature of the goods did not give the plaintiffs ground for a successful plea of waiver.

Dicta of Scrutton and Sargent L.JJ. in Greenhill v. Federal Insurance Co. [1927] 1 K.B. 65, 85, 89, C.A. considered.

During the course of the hearing it became evident that both W. Ltd. and G. Ltd. had made their files with regard to the insurance available to the underwriters. Further, G. Ltd., on discovery, refused to make their file, which contained a copy of an assessor's report obtained by them on the instructions of the underwriters, available to the assured on the ground that, despite their position as agents for the assured, that document was the property of the underwriters. Megaw J. held that the action taken with regard to the files could not be justified (post, p. 321G).

On the general questions relating to the legal position, the rights and the duties of insurance brokers:

Per curiam. Both in marine and in non-marine insurance an insurance broker is the agent only of the assured whether in matters relating to the placing of the policy or in matters arising when a claim is made. Since an agent who has accepted employment from one principal cannot in law accept any engagement inconsistent with his duty to the first principal, unless he first makes the fullest disclosure of all material facts to both principals and obtains their informed consent to his so acting, an insurance broker would be in breach of his duty to the assured if, without his by-your-leave, he accepted the underwriter's instructions to obtain an assessor's report on the claim, the contents of which he was precluded from passing on to the assured and no custom which contradicts this principle will be upheld in the courts (post, pp. 322D-324A).

The following cases are referred to in the judgment:

Fullwood v. Hurley [1928] 1 K.B. 498, C.A.

Greenhill v. Federal Ins. Co. [1927] 1 K.B. 65, C.A.

Rozanes v. Bowen (1928) 32 Ll.L.R. 98, C.A.

The following additional cases were cited in argument:

Anderson v. Scrutton [1934] S.A.S.R. 10.

A/S Ocean v. Black Sea & Baltic General Ins. Co. (1935) 51 Ll.L.R. 305, C.A.

Bank Melli Iran v. Barclays Bank [1951] 2 T.L.R. 1057.

Bates v. Hewitt (1867) L.R. 2 Q.B. 595.

Carter v. Boehm (1766) 3 Burr. 1905.

De Maurier (Jewels) Ltd. v. Bastion Insurance Co. Ltd. [1967] 2 Lloyd's Rep. 550.

Dunn and Tarrant v. W. C. Campbell (1920) 4 Ll.L.R. 36, C.A.

Joel v. Law Union and Crown Ins. Co. [1908] 2 K.B. 863, C.A.

Laing v. Union Marine Insurance Co. (1895) 1 Com.Cas. 11.

Lindenau v. Desborough (1828) 8 B. & C. 586.

Morris Motors Ltd. v. Lilley [1959] 1 W.L.R. 1184; [1959] 3 All E.R. 737.

Morris Motors Ltd. v. Phelan [1960] 1 W.L.R. 352; [1960] 2 All E.R. 208n.

Wheelton v. Hardisty (1858) 8 E. & B. 232, 285.

ACTION.

This was an action by the assured upon a policy of insurance effected with, inter alia, the defendant's syndicate at Lloyd's in respect of a quantity of leather jerkins in bales. The facts are taken from the judgment of Megaw J.

The plaintiffs were two associated family companies. Mr. Marcel Rosen was a director of both. The interest of the first-named plaintiff company. Anglo-African Merchants Ltd., in these proceedings was purely technical. It was the second-named plaintiff company, Exmouth Clothing Company Ltd., which was effectively concerned. That company had been in business since 1945. Its trade throughout that time had been in second-hand and government surplus clothes, almost entirely for export.

In January, 1967, Mr. Rosen, on behalf of Exmouth, tendered for a quantity of government surplus clothing. The goods in question were leather jerkins, lying packed in bales, in the ordnance depot at Bicester. At the relevant time all these jerkins were at least 20 years old, though they were unused. Mr. Rosen succeeded in his tender for 20,500 of the jerkins, for which he paid £34,825.

Mr. Rosen's intention was to find buyers abroad for these goods and to ship them abroad accordingly. Meanwhile, he wished to hold them in store. This involved removing the goods from Bicester and storing them in London, pending export contracts being made and carried out.

Ultimately, on April 3, 1967, the jerkins were brought to London and placed in store with a company, Power Packing Services Ltd. They were insured under a Lloyd's policy subscribed by syndicates concerned with the underwriting of marine risks. The insurance was treated as being marine because, although the policy was on goods in warehouse in England, the goods were in warehouse with a view to ultimate export. The defendant, Mr. James Francis Leslie Bayley, a member of one of the subscribing Lloyd's syndicates, was sued both on his own behalf and as representing all other members of his syndicate.

The policy was in the usual form. It was dated June 19, 1967, but it covered the period of three months from April 7, 1967, to July 6, 1967. That cover was thereafter extended for a further three months to October 6, 1967. For a premium of £115 (covering the original three months) the insurance was against

"all risks of whatever nature and howsoever arising"

in the sum of £40,000 on:

"new men's clothes in bales for export whilst at the premises of Power Packing Ltd., 28, Tidal Basin Road, London, E.16, including transit from the assured's premises."

Between April and October, 1967, some of the bales of jerkins were sold by Mr. Rosen on behalf of his company and were exported. 412 bales

remained, or should have remained, in Power Packing Ltd.'s premises. Before October 5, 1967, at some unknown date, 245 bales disappeared. Each bale contained 25 jerkins. Mr. Rosen learned of their disappearance on October 5, and notified the loss to his insurance brokers on October 6.

It was agreed that the value of the goods lost, and the amount which the plaintiffs would be entitled to recover if they had a valid claim under the insurance policy, was £11,500. The proportion for which the defendant's syndicate was responsible was one-third of that sum - £3,833 6s. 8d.

Liability under the policy was denied by underwriters. The grounds, and the only grounds, on which liability was denied, were set out in paragraph 4 of the points of defence, and in part of paragraph (a) of the particulars thereunder, as follows:

"(4) At the time when the plaintiffs requested the defendants to issue the said policy of insurance, and before the policy was issued, the plaintiffs misrepresented to and concealed from the defendants material facts affecting the goods to be insured and the risk insured against.

"Particulars. (a) The plaintiffs represented that the goods to be insured were 'new men's clothes in bales for export ...' In fact the goods to be insured were old men's clothes, not less than about 23 years old, being army surplus goods manufactured during the Second World War."

In their amended points of reply the plaintiffs said that the defendant waived further information upon the precise nature of the men's clothes in bales, in that by Mr. R. D. Gibson (a member of the syndicate) the defendant was informed by the placing brokers ("Garthwaites") that the goods to be insured were new men's clothes in bales for export. A reasonable underwriter would thereby have been put on inquiry as to the precise nature of the goods but Mr. Gibson, although he had asked questions of the placing brokers, had asked no questions relating to the precise nature of the goods and that he had thereby represented that he required no further information. In reliance thereon the placing brokers obtained the answers to the questions but sought no other information of the plaintiffs' agents (Wilson Dean Ltd.) who at all material times knew and could have given further information as to the precise nature of the goods, viz., that they were leather jerkins and army surplus and were alternatively, industrial clothing. In the alternative, the plaintiffs said that they would rely on similar facts as between the placing brokers, acting for such purpose as the agents of the defendant, and Wilson Dean Ltd. acting for the plaintiffs.

J. G. Wilmers Q.C. and C. S. Staughton for the plaintiffs. The questions that arise in this case are as follows: (1) Did the plaintiffs represent the goods as "new men's clothes in bales"? (2) If so, does the word "new" amount to a misrepresentation? (3) Should the plaintiffs have disclosed that the jerkins were army surplus? (4) If there were misrepresentations made, were those misrepresentations material?

The first is a question of fact. The word "new" in this context means "not used." Bank Melli Iran v. Barclays Bank [1951] 2 T.L.R. 1057 shows that the meaning of the word can vary in different contexts. In Morris Motors Ltd. v. Lilley [1959] 1 W.L.R. 1184 and Morris Motors

Ltd. v. Phelan [1960] 1 W.L.R. 352 the meaning given to the word was "unused." That is the meaning here. The principle to follow is set out in MacGillivray on Insurance Law, 5th ed. (1961), Vol. 1, para. 944, that any ambiguity is to be construed in favour of the insured and against the insurer. Although the chapter concerned is dealing with "warranties" the principles applicable are the same: see T. Dunn v. W. C. Campbell (1920) 4 Ll.L.R. 36 and De Maurier (Jewels) Ltd. v. Bastion Insurance Co. [1967] 2 Lloyd's Rep. 550.

On the balance of probabilities the fact that the jerkins were "army surplus" was disclosed. On the issue of materiality, how can any question of newness affect a prudent underwriter? The date of manufacture may diminish the risk by lowering the value but that is not material. This is an "All Risks" policy and one must judge materiality in relation to all the risks. The plaintiffs adopt the statements of law in Halsbury's Laws of England, 3rd ed. (1958), Vol. 22, p. 187.

F. Maurice Drake Q.C. and P. G. Langdon-Davies for the defendants. The plaintiffs did represent that the goods were "new" and they did not disclose that they were 25 years old and were "army surplus." The primary meaning of "new" is "not old" or "newly made." The Bank Melli case [1951] 2 T.L.R. 1057 shows that the word may be qualified when used in conjunction with other words, e.g., a "new 1960 car" or "new government ex surplus clothes." The two Morris Motors cases [1959] 1 W.L.R. 1184 and [1960] 1 W.L.R. 352, merely demonstrate the secondary meaning of "new." In the Australian case of Anderson v. Scrutton [1934] S.A.S.R. 10 it was decided that "new" meant "not old" or "of recent manufacture." Accordingly, there was a misrepresentation.

There is no ambiguity here. If there is, then there is still a misdescription. The plaintiffs rely on a passage in MacGillivray dealing with "warranties" (para. 944) to support their proposition that, where the words are doubtful, they must be construed in favour of the insured. The relevant principles on ambiguity are found in para. 703. Neither of the authorities relied upon deal with ambiguity as such. T. Dunn v. W. C. Campbell, 4 Ll.L.R. 36 was concerned with a forfeiture clause and in De Maurier (Jewels) Ltd. v. Bastion Insurance Co. [1967] 2 Lloyd's Rep. 550 Donald-son J. was concerned with a warranty. For the purposes of the contra proferentem doctrine the insured is the proferentes: see per Greer L.J. in A/S Ocean v. Black Sea & Baltic General Ins. Co. Ltd. (1935) 51 Ll.L.R. 305, at p. 307. Knowledge of the risk was solely with the insured and the language they use should be such that a prudent and reasonable underwriter can understand. If there is any ambiguity it should be resolved against the insured.

The facts that the jerkins were war surplus and their age are material. They would have affected the decision of a prudent underwriter in deciding whether or not to underwrite the risk, in deciding upon limitations and in deciding on inspections of the goods or their place of storage. The insured is under a duty to disclose facts as might reasonably affect a prudent underwriter even though he does not himself appreciate their materiality: Halsbury's Laws of England, 3rd ed., Vol. 22, para. 363.

By their conduct in not making further inquiries are the underwriters to be taken as having waived the non-disclosure of those facts? The

passage in Halsbury's Laws of England, 3rd ed., Vol. 22 (1958), para. 356 is too wide and is not supported by the authorities there cited. It is to be compared with the statement at para. 210 and with MacGillivray, para. 909. Carter v. Boehm (1766) 3 Burr. 1905 was a different case from the present. The insurance here was on goods the precise condition of which was within the knowledge of the insured alone. [Reference was made to Lindenau v. Desborough (1828) 8 B. & C. 586 and Wheelton v. Hardisty (1858) 8 E. & B. 232.] In Bates v. Hewitt (1867) L.R. 2 Q.B. 595 it was held that it was not enough for the insured to show that the particulars he did supply to the underwriter, coupled with the underwriter's previous knowledge, would, if the underwriter had given sufficient consideration to the matter, have brought to his mind the material fact not communicated. The description here would not have led a reasonable underwriter to say, "What on earth is that?" because he could not know what the description referred to. All he could assume was that the clothes were men's clothes and were not old. [Reference was made to Greenhill v. Federal Insurance Co. [1927] 1 K.B. 65, per Sargant L.J. at p. 89.]

Wilmers Q.C. in reply. The word "new" has no primary meaning. The question is: What is its meaning in the context here? "New" in relation to clothing does not mean newly made. All the documents show that "new" is only used in connection with the words "government surplus."

If there is ambiguity here then the contra proferentem rule applies and the plaintiffs adopt the passage in Dunn v. Campbell, 4 Ll.L.R. 36, p. 39, that the underwriters received a proposal which was ambiguous in form and therefore, having accepted it knowing it was ambiguous, it must be read in the sense most unfavourable to them.

The principle of waiver is stated by Mathew J. in Laing v. The Union Marine Ins. Co. (1895) 1 Com.Cas. 11, 15: "The assured is not bound to give information which the underwriter waives or as to which the assured may reasonably infer that the underwriter is indifferent." The defendants must have realised that the description given was a trade description and as they did not inquire about it they must be taken to have waived a more explicit disclosure. The plaintiffs could reasonably have inferred that the underwriters were indifferent. [Reference was made to Joel v. Law Union and Crown Insurance Co. [1908] 2 K.B. 863 and to Halsbury's Laws of England, 3rd ed., Vol. 22, para. 306.]

A question on the brokers' agency arises in connection with the files. It is accepted by the plaintiffs that the normal position is that the Lloyd's broker is an agent of the assured for the purposes of placing the policy: see per Scrutton L.J. in Rozanes v. Bowen (1928) 32 Ll.L.R. 98, 101. Because of one letter written by the solicitors it is said that, in this particular case, there is something different and that Garthwaites were somehow agents of the underwriters.

[Megaw J. This is a matter of considerable public importance.]

It has always been commonplace at Lloyd's, and indeed it is a worldwide insurance practice, that when a claim arises the underwriter instructs the broker, who up to that stage has acted as agent only for the assured, to obtain a report from assessors. In the normal case the broker considers

the report and then, with knowledge of its contents, he pursues the claim against the underwriters.

[Megaw J. Is all this disclosed by the broker to the assured?]

No, not fully. The underwriter pays for the report and it is his. The broker does not usually disclose its contents to his clients. He keeps a copy on his files and with his knowledge he is in a position himself to judge the strength and weaknesses of the assured's claim. He will advise in general terms whether the claim be pursued or not or whether it ought to be settled. He is in the position of an "honest mediator." He advises his client of the facts in his possession but without disclosing the details. If the client wanted to see the report the broker would ask the underwriters and frequently the report is then shown.

Feb. 24. MEGAW J. read the following judgment which stated the facts set out above, and continued: It should be made clear at the outset that there is no suggestion whatever that this is a dishonest claim. There is no suggestion that there was not a genuine loss of the jerkins in the 245 bales during the period covered by the policy as extended. There is no suggestion that Mr. Rosen was dishonest in anything which he said or did not say in connection with the obtaining of the insurance policy. There is no suggestion that Mr. Rosen was anything other than truthful in the evidence which he gave, whether or not his evidence is in all respects accurate. I am satisfied that he was an honest witness. If the defence depended upon dishonesty on the part of the plaintiffs it would wholly fail.

The defence does not, however, depend upon an assertion of dishonesty. It depends essentially upon the allegation that, however complete and accurate may have been the information regarding the goods to be insured which Mr. Rosen provided to his insurance brokers, the information as to the goods which was actually supplied to underwriters when they accepted the risk was inaccurate and incomplete in material respects; and that therefore they are entitled to disclaim liability.

As is inevitable when an insurance is sought to be placed at Lloyd's, the would-be assured was not in direct contact with underwriters. In this case there were two intermediaries between Mr. Rosen and the underwriters. In circumstances which I need not narrate, Mr. Rosen instructed a firm of insurance brokers, Wilson Dean Ltd. The director of that company with whom Mr. Rosen dealt was Mr. William Davis. Mr. Davis got in touch with other insurance brokers, Sir William Garthwaite (Home and Overseas) Ltd.; his contact there was Mr. James Leonard Evans, a director of that company. Through a Lloyd's broker, Mr. Mew, employed by that company or by an associated company - it matters not which for present purposes - this insurance was thereafter placed with Lloyd's underwriters.

Mr. Rosen, Mr. Davis and Mr. Evans have given evidence, the two former called by the plaintiffs, the latter called by the defendant. It has been accepted throughout the hearing (as I now understand) that Wilson Dean Ltd., and therefore Mr. Davis, were acting as agents for the plaintiffs in placing this insurance. There has been controversy, to which I shall have to refer later, whether Mr. Evans, and his company, and Mr. Mew,

were acting as agents for the plaintiffs or for underwriters or both. I hold - and in the end counsel for the plaintiffs was unable to put forward arguments to the contrary, though he did not abandon the point - that these persons were also acting for the plaintiffs in the placing of the insurance.

There has been evidence, to the admission of which objection was not taken (and, I think, in the circumstances rightly not taken), of conversations between Mr. Rosen and Mr. Davis and between Mr. Davis and Mr. Evans. I shall express, as succinctly as I can, my findings as to what was said in those conversations, so far as I regard such findings as being relevant to the issues which I have to decide in this action. It is obvious that in certain events there is the possibility of litigation hereafter between the plaintiffs and one or other or both of the firms of brokers, though no steps, for some reason, have been taken to join them as parties to this present action. I shall, therefore, be particularly careful not to express any views, unless it is essential for the present action so to do, upon matters which might have to be decided hereafter involving persons who are not parties to this action. In so far as it is necessary for me to express conclusions on matters which might be relevant in other litigation hereafter, persons who are not parties to this action are, of course, in no way bound by my findings in this action.

Mr. Rosen, in his conversation with Mr. Davis when he first asked Wilson Dean Ltd. to try to effect this insurance, gave Mr. Davis all the information which he, Mr. Rosen, thought was or might be material for the purpose of the insurance. That information included the fact that the goods were government surplus; that they were leather jerkins; and, in answer to a question by Mr. Davis whether they were second-hand, that they were new. When Mr. Davis spoke to Mr. Evans, all that Mr. Davis told Mr. Evans about the goods themselves was that which subsequently appeared in the policy, as I have already mentioned: namely, "new men's clothes in bales for export." Mr. Davis did not mention to Mr. Evans anything about "government surplus" or the fact that the clothes were leather jerkins. Mr. Evans passed on to Mr. Mew the information which he had received from Mr. Davis. Mr. Mew went to Lloyd's, having made out a slip in which, against the printed word "Interest," appeared the self-same words as thereafter were included in the policy:

"£40,000 on new men's clothes in bales for export whilst at the premises of Power Packing Ltd., 28, Tidal Basin Road, E.16, including transit from assured's premises. To cover against all risks for loss or damage however arising."

Mr. Mew took the slip to Mr. R. D. Gibson, a member of the syndicate of which the representative defendant is also a member. Mr. Gibson raised a number of queries with Mr. Mew. None of them related to the nature or description of the goods. When thereafter - a delay occurred for reasons which I need not go into - Mr. Mew came back again with the slip and with answers to Mr. Gibson's questions which satisfied him, he, on April 7, initialled the slip on behalf of his syndicate, for 331/3 per cent. The remaining 662/3 per cent. was thereafter that day accepted by other underwriters. In due course the policy was issued, to accord with the slip.

There can be no doubt on the evidence that a representation was made to the underwriters on behalf of the plaintiffs that the goods to be insured

were "new men's clothes in bales for export." There can be no doubt that underwriters were not told that the goods were government surplus goods, or army surplus goods. There can be no doubt that they were not told that the goods had been manufactured at least 20 years earlier.

There has been argument before me and citation of authority as to the nature and extent of the duty of disclosure in the making of a contract of insurance. I need not go into the authorities because, as I understand it, there is not, and cannot be, any doubt as to certain propositions which are decisive on the facts of this case.

First, there may be scope for debate as to the availability of the defence of non-disclosure where the assured does not know of the existence of the fact or facts which have not been disclosed. Questions may arise as to the position if those facts were known to his agents in the placing of the insurance, or if they are facts which a reasonable man in the position of the assured would have known, or if they are facts which he could have ascertained by some degree or other of diligence and inquiry. In the present case, I need not pursue those interesting topics, for there is no doubt that Mr. Rosen himself well knew that the goods were army surplus and that they were at least 20 years old.

Next, there may perhaps be scope for debate as to the effect on the defence of non-disclosure if the assured did not realise, and should not as a reasonable man have realised, that facts of which he knew might reasonably be regarded as being material by a normal, prudent underwriter. If, however, the assured knew of facts, and if as a reasonable man he should have realised that knowledge of those facts might be - not necessarily would be, but might be - regarded as material by a normal prudent underwriter, then, if those facts are not disclosed and if they would have been material, the defence of non-disclosure prevails. The position may be more favour-able to insurers than is indicated in that proposition. I am satisfied that it is not less favour-able. It is an a fortiori case if the assured not merely ought as a reasonable man to have realised, but actually did realise, that the facts of which he had knowledge might be regarded as material.

On Mr. Rosen's own evidence I am satisfied that he himself realised that it might be regarded by potential insurers as material to know that the goods were war surplus. That is why he gave the information to Mr. Davis, when he first asked Mr. Davis to place the insurance. I am also satisfied on the evidence that a reasonable man would have realised that it might well be material for underwriters to know, not only that the goods were war surplus, but also, at any rate in relation to a request for all risks insurance, that the leather jerkins were at least 20 years old.

Having considered the whole of the evidence on this aspect, I am also satisfied that each of these matters - the fact that the goods were war surplus and their age - was a fact which was material: it would have affected the mind of a prudent underwriter in deciding whether or not to underwrite the risk at all, in deciding what limitations he might wish to impose as to the risks to be covered, in deciding what premium to quote and in deciding whether or not to require an inspection of, and report on, the goods or the place where they were being stored or both. In particular, in relation to the fact of war surplus, I am satisfied that underwriters, rightly or wrongly, but not unreasonably, regard war surplus goods, or at any

rate war surplus clothing, as being goods which they classify as "hot": that is, involving an abnormally high risk of theft. In relation to the age of the goods, underwriters would normally and reasonably be concerned with the possibility of defects, such as staining, in respect of which claims might be made and it might be a matter of great difficulty and dispute to ascertain when the damage was in fact sustained; unless, of course, a pre-insurance inspection were to be required as a condition of accepting the risk.

Much evidence was given and argument offered as to the meaning of the word "new," with particular reference to the clothing trade. Of course, it is not a question of the meaning of the word in isolation: it is a question of its meaning in the context of a request for insurance of goods which are described as being "new men's clothes in bales for export." The defendant contended that to describe 20-year-old leather jerkins as "new" was a misdescription: a corollary, as it were, of the non-disclosure that the goods were 20-years old. The plaintiffs contended on the other hand, that, so far from being a misdescription, the use of the word "new" in this context indicated that the clothes were government surplus clothes and that they were not of recent manufacture. The plaintiffs also relied upon that which they said was the connotation of the word "new" in this context for the purposes of their submission as to waiver by underwriters of their entitlement to be apprised of material facts.

The gist of the evidence is that in the clothing trade goods are never described as "new" (for example, in invoices or advertisements or other trade documents) unless they are government surplus goods. If they are government surplus goods, and are unused, they may be described as "new," despite the fact that they are not of recent manufacture. I accept that evidence, but I do not, on the whole of the evidence, accept the proposition that this special connotation of the word "new," whether with or without the addition of the words "in bales," ought to have brought it to the attention of an ordinary, prudent, underwriter that the goods which he was asked to insure under the description of "new men's clothes in bales for export" were, or might reasonably be expected to be, government surplus clothes, or old clothes, in the sense that they were manufactured at least 20 years previously.

By an amendment of their points of reply, for which leave was asked and granted after the evidence had been concluded, the plaintiffs seek to assert that a reasonable underwriter would have been put on inquiry by the description "new men's clothes in bales for export"; that such inquiry would have revealed that the goods were army surplus; that Mr. Gibson, though he made other inquiries, failed to make any inquiry as to the precise nature of the goods; and that the defendants thus "waived further information upon the precise nature of the goods." Let me assume in favour of the plaintiffs that an insurer waives his right to complain of non-disclosure, if he has received information which would put an ordinarily careful insurer on inquiry and nevertheless fails to inquire. That is put by Sargant L.J. as the minimum required for a successful plea of waiver: Greenhill v. Federal Insurance Co. [1927] 1 K.B. 65, 89. Scrutton L.J. in his judgment in the same case, at pp. 85, 86, clearly regards the law on this point as much more favour-able to insurers. Even on the assumption of the most lenient test, I cannot hold on the evidence that a normally prudent insurer

would have been put on inquiry as to the precise nature of the goods by reason of seeing them described as "new men's clothes in bales for export." Some underwriters might be alerted by the word "new" to make inquiries, because they would realise that it is an unusual adjective to apply to clothes. More underwriters, I think, would take the attitude which Mr. Gibson took: the goods are described as "new"; they are new; they are not clothes which were manufactured years ago; they are not government surplus, which is normally some distance away from having been newly manufactured when it is sold as surplus. I do not think that that attitude can properly be said to show any lack of care or prudence; or that failure to inquire could give rise to a valid claim of waiver.

The claim therefore fails.

There is, however, another matter with which I am bound to deal, even though in the end it does not affect the result of this case. It involves the legal position, the rights and duties of insurance brokers.

The plaintiffs have asserted, and by their amended points of reply have reiterated the assertion, that Sir William Garthwaite (Home & Overseas) Ltd. - I shall call them "Garthwaites" - and Mr. Evans and Mr. Mew, employed by that company or an associated company, were acting as agents, not of the plaintiffs, the assured, but of the defendant underwriters. This assertion was put forward, not as involving a general principle, but as being related to the special facts of this case: namely, events which had occurred, at the instance of the defendant's solicitors, with regard to discovery after this action had been commenced. In his final speech, counsel for the plaintiffs did not seek to adduce any argument in support of the contention, but he did not abandon it. I have therefore to deal with it. The answer put forward by counsel for the defendant, rebutting the suggestion that Garthwaites were agents for the defendant in the placing of this contract of insurance, in its turn raised a question of much wider and more general importance as to the position of insurance brokers. With that question also I must concern myself.

Both Wilson Dean and Garthwaites saw fit to make their files, with regard to this insurance, available to underwriters and to underwriters' solicitors. So far as Garthwaites are concerned, further, they refused to make their file available to the plaintiffs or to the plaintiffs' solicitors. This attitude, it should be said, was taken because the defendant's solicitors advised Garthwaites that it was the right and proper attitude to take. The defendant's solicitors further asserted in a letter to the plaintiffs' solicitors that Garthwaites were not the plaintiffs' agents.

The action taken with regard to the files cannot be justified; and, indeed, counsel for the defendant did not seek to argue that it was correct; though he maintained, as I shall have to mention hereafter, that certain documents in Garthwaites' file were the property of the underwriters and that, despite Garthwaites' position as agents for the assured, the assured were not entitled to see documents in possession of their own agents.

I do not propose to go into all the complications which have bedevilled this particular action as a result of these matters. In the end, the plaintiffs' advisers have been enabled - though belatedly - to see all relevant documents which should have been available to them from, or before, the outset of the action; they have not, in the end, been prejudiced by the belatedness

of discovery, nor by the fact that documents which were in the possession of the plaintiffs' agents were unjustifiably made available to the defendant and his advisers at a time when the agents, acting on the advice of the solicitors for the opposite party, were refusing them to their own principals and their principals' legal advisers. It is to be hoped that this sorry state of affairs will not arise again.

I cannot, however, leave this matter there. Counsel for the defendant conceded that, in all matters relating to the placing of the insurance, the insurance broker is the agent of the assured, and of the assured only. I do not think that this proposition of law has ever been in doubt amongst lawyers. I hope it is not in doubt amongst insurance brokers or insurers. More than 40 years ago Scrutton L.J. said:

"I agree, that in the case of marine insurance there is not the slightest doubt, and never has been the slightest doubt, that the broker is not the agent of the underwriter."

He then went on to say that in his experience it would be quite wrong to say that this applies merely to marine insurance: see Rozanes v. Bowen (1928) 32 Ll.L.R. 98, 101.

Counsel for the defendant, however, submitted, on instructions, that while this principle applies to the placing of the policy (be it noted that Scrutton L.J. expressed no such limitation), yet when a claim arises under a policy the insurance broker who placed the policy may thereupon become an agent of both parties in certain respects. This, says counsel, is not merely the practice at Lloyd's; it is the practice also in the non-Lloyd's insurance market in this country; indeed, it is said, it is world-wide practice in the insurance business. When a claim arises, it is asserted, the insurer - Lloyd's underwriters or other insurers - may, and commonly does, instruct the insurance broker who placed the insurance to obtain a report from assessors as to the claim. The broker is, apparently, entitled to accept these instructions without a by-your-leave from his principal, the assured, and without the principal being told by the agent that he is accepting instructions from the adverse, or potentially adverse, party. The assessors' report, unless it contains allegations of fraud, goes from the assessors to the insurer via the broker. The broker sees the report and keeps a copy on his file. But the broker may not disclose the contents of the report to the assured or to the assured's legal advisers, without the express consent of the insurer. The report is the insurer's document.

That practice was followed in the present case. There was a copy of such a report in Garthwaites' file relating to this insurance. It was not made available by Garthwaites to the assured. Privilege was claimed in respect of it against the assured. That claim was persisted in until a very late stage of the hearing. Indeed, though the document was at last made available to the plaintiffs out of their agent's file, this was, I think, claimed to be done as a matter of grace only.

The law, again, has been stated with clarity and precision in the judgment of Scrutton L.J. in Fullwood v. Hurley [1928] 1 K.B. 498, 502:

"No agent who has accepted an employment from one principal can in law accept an engagement inconsistent with his duty to the first

principal ... unless he makes the fullest disclosure to each principal of his interest, and obtains the consent of each principal to the double employment."

The principle is expressed in this way in Bowstead on Agency, 13th ed., p. 144:

"... he may not act for both parties to a transaction unless he ensures that he fully discloses all the material facts to both parties and obtains their informed consent to his so acting ... Any custom to the contrary will not be upheld."

If an insurance broker, before he accepts instructions to place an insurance, discloses to his client that he wishes to be free to act in the way suggested, and if the would-be assured, fully informed as to the broker's intention to accept such instructions from the insurers and as to the possible implications of such collaboration between his agent and the opposite party, is prepared to agree that the broker may so act, good and well. In the absence of such express and fully informed consent, in my opinion it would be a breach of duty on the part of the insurance broker so to act.

The potential dangers and undesirable consequences are obvious in any case where, as here, an agent permits himself, without the express consent of his principal, to make a compact with the opposite party whereby he is supplied with information which he is, or may be, precluded from passing on to his principal. Such a relationship with the insurer inevitably, even if wrongly, invites suspicion that the broker is hunting with the hounds whilst running with the hare. It readily leads to consequences such as occurred in this case where a broker refused to comply with a proper request from his principal's solicitors, but sought or accepted advice from the adverse party's solicitors as to how he should act vis-ˆ-vis his principal. If the insurer desires to obtain an assessor's report, he can obtain it through some other channel than the assured's agent, the broker who has placed the insurance. If the insurer thinks it would be helpful in arriving at a fair and proper settlement of a claim that the assured's broker should see the whole or part of the assessor's report, he can disclose it to the broker; but not, in the absence of the express consent of the assured subject to a condition that the agent shall withhold relevant information from his principal.

It was said by counsel, on instructions, that the practice which he described is common knowledge, not only as being the practice of Lloyd's brokers, but as being general practice in the insurance market. I find it remarkable, if so, that there is no reference to it - none so far as I am aware, and none to which counsel could refer me - in any decided case or in any of the well-known textbooks dealing with insurance law, some of which deal at length with the practice of the insurance market and the position of insurance brokers. Even if it were established to be a practice well known to persons seeking insurance - not merely to insurers and brokers - I should hold the view, in conformity with the passage which I have cited from Bowstead, that a custom will not be upheld by the courts of this country if it contradicts the vital principle that an agent may not

at the same time serve two masters - two principals - in actual or potential opposition to one another: unless, indeed, he has the explicit, informed, consent of both principals. An insurance broker is in no privileged position in this respect.

Solicitors: Paisner & Co.; Herbert Baron & Co.