[QUEEN'S BENCH DIVISION]

NORTH AND SOUTH TRUST CO. v. BERKELEY

BERKELEY v. NORTH AND SOUTH TRUST CO.

[1970 N. No. 1240]

[1970 B. No. 3446]

Agency - Insurance broker - Broker acting for assured - Assured claiming under insurance policy with Lloyd's underwriters - Underwriters instructing broker to obtain claims assessors' report - Practice of Lloyd's underwriters to use brokers as agents - Whether broker in breach of duty to assured - Whether broker under duty to disclose to assured report and documents appertaining to claim

Lloyd's insurance brokers acting for the plaintiffs arranged that their goods should be insured during transit with Lloyd's

underwriters. The consignees having informed the plaintiffs that there was a shortage of goods on arrival, the plaintiffs made a claim under their insurance policy against the underwriters. The defendant, a member of the underwriters' syndicate, instructed the insurance brokers to obtain an assessors' report for them, which the brokers did but they did not show that report to the plaintiffs. The underwriters thereafter denied liability under the insurance policy and the plaintiffs brought proceedings against the defendant personally and in a representative capacity for the other members of the syndicate to enforce their claim under the insurance policy. During the course of that action, the plaintiffs sought to obtain the assessors' report and other documents from the insurance brokers but their request was refused on the ground that the documents would not be disclosed as the insurance brokers would be acting for the underwriters.

The plaintiffs brought an action against the insurance brokers for declarations that they were entitled to possession or inspection of the documents and the defendant brought an action against the insurance brokers for an injunction restraining them from delivering up or revealing to the plaintiffs the documents.

On an application by the insurance brokers to interplead, Mocatta J. ordered that an issue be tried between the plaintiffs and the defendant on the question whether the plaintiffs or the defendant were entitled to delivery up or inspection of some or all of the documents appertaining to the plaintiffs' action: -

Held, (1) that, although the practice of Lloyd's underwriters to use Lloyd's insurance brokers, who placed business with them, as their agents in communications with claims assessors was a practice which was wholly unreasonable and incapable of being a legal usage or custom (post, p. 482F), nevertheless, since the insurance brokers, in acting for the defendant, had not acted in the discharge of their duty towards the plaintiffs, the plaintiffs were not entitled to possession or to inspection of the documents which the insurance brokers had obtained in a confidential capacity (post, p. 486B-C).

Dictum of Megaw J. in Anglo-African Merchants Ltd. v. Bayley [1970] 1 Q.B. 311, 323 applied.

Per curiam. Fully informed consent apart, an agent cannot lawfully place himself in a position in which he owes a duty to another which is inconsistent whith his duty to his principal, but if nevertheless he does so, his action is not a nullity. Thus his unlawful act provides him with no defence to a claim by his true principal for compensation for loss resulting from the agent's inability, due to the conflict of duties, fully to discharge his duty to that principal (post, pp. 484H - 485A).

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

The following cases are referred to in the judgment:

Anglo-African Merchants Ltd. v. Bayley [1970] 1 Q.B. 311; [1969] 2 W.L.R. 686; [1969] 2 All E.R. 421.

Debtor, In re A (No. 229 of 1927) [1927] 2 Ch. 367, C.A.

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

Taylor v. Walker [1958] 1 Lloyd's Rep. 490

No additional cases were cited in argument.

INTERPLEADER PROCEEDINGS

The plaintiffs, North and South Trust Co., who were a limited company registered in Liechtenstein under the name of North and South Reg. Trust Co., Vaduz, arranged with insurance brokers, Lambert Brothers (Insurance)

Ltd. ("Lamberts"), for goods in transit from Buenos Aires to Assuncion, Paraguay, to be insured with Lloyd's underwriters. The defendant, Rowland Frank Brackenbury Berkeley, was a member of the syndicate of Lloyd's underwriters who insured the goods. When the goods arrived in Paraguay, the consignees notified the plaintiffs that there was a shortage. The plaintiffs made a claim on the underwriters and, during investigation of that claim, an assessors' report was obtained by Lamberts for the defendant but it was not seen by the plaintiffs. The underwriters denied liability under the insurance policy and the plaintiffs brought an action against the defendant, who was sued personally and in a representative capacity for the other members of the syndicate, under the policy and, when the list of documents were exchanged between the parties, the defendant's list referred to the assessors' report and it was claimed that it was privileged.

The plaintiffs' solicitors wrote to Lamberts asking for copies of all the documents and correspondence passing between Lamberts' representative at Buenos Aires and themselves. Lamberts informed the defendant's solicitors, who replied:

"as we understand the law, the only relevant documents which you are entitled to see would be those concerning the effecting of the insurance cover, in other words, those relating to the claim [in which Lamberts] will be acting for underwriters would not be disclosable to you and [would be] protected by a claim for privilege in the usual way."

The plaintiffs issued a writ against Lamberts claiming declarations that they were entitled to possession or inspection of any documents or copies which were or had been in Lamberts' possession and the defendant issued a writ against Lamberts claiming an injunction restraining Lamberts from delivery up or revealing to the plaintiffs certain documents.

On Lamberts' application for leave to interplead, Mocatta J. ordered that all the documents be brought into court and that the issue be stated and tried between the plaintiffs and the defendant, namely, whether the plaintiffs were or the defendant was entitled to (a) delivery up, or (b) inspect some or all the documents appertaining to the action including the assessors' report.

The facts are stated in the judgment of Donaldson J.

R. L. A. Goff Q.C. and J. S. Wordie for the plaintiffs.

R. A. MacCrindle Q.C. and H. K. Woolf for the defendant.

December 8. DONALDSON J. read the following judgment. Lloyd's underwriters, in common with other insurers, employ firms of claims assessors to investigate and report upon claims. For many years it has been their practice to use the Lloyd's broker who placed the insurance as their channel of communication with the assessors. In these proceedings the plaintiffs challenge the propriety of this practice and call for the delivery up to them of the assessors' report on their claim. The issues raised are thus of considerable general importance and interest.

In February 1966 the plaintiffs, who are a Liechtenstein company, were minded to insure some goods which were in transit in the customs warehouse at Buenos Aires on a voyage from there to Assuncion in Paraguay. Mr. Buck del Monte, a trustee or, as we should say, a director or executive

of the company, approached a Mr. Leahy in Buenos Aires and asked him to make the necessary arrangements. Mr. Leahy was a local agent or correspondent of the well known Lloyd's brokers, Lambert Brothers (Insurance) Ltd. (to whom I will refer as "Lamberts") and they placed the risk with Lloyd's underwriters including the defendant who is sued on his own behalf and in a representative capacity on behalf of all other underwriters interested in the insurance.

Underwriters seem to have had some reluctance in accepting the risk, because the goods had already lain in the warehouse for some time. However, they were assured by Mr. Buck del Monte that the goods had been inspected by the Argentine customs authorities before the beginning of the voyage, this being an inspection which, according to Mr. Buck del Monte, is mandatory under Argentine law, and on this assurance the risk was accepted.

In due course the voyage ended at Assuncion and the goods were presented to the Paraguayan customs for clearance. It then became apparent that there was a shortage and the consignees notified the plaintiffs, who in turn informed Lamberts. A little later the plaintiffs assembled an array of documents such as invoices, packing lists, a bill of lading and a Lloyd's survey report, and forwarded them to Lamberts with a request that they obtain an early settlement of the claim.

Thus far the chain of events is familiar, and indeed must occur thousands of times a day, for Lloyd's, as everyone knows, is one of the greatest insurance institutions and one with a world-wide business and reputation. As is also well known, Lloyd's underwriters do not deal with the public, and persons wishing to effect insurances with Lloyd's or to make claims on Lloyd's policies must act directly or indirectly through a Lloyd's broker. Lamberts, having been the Lloyd's brokers through whom the risk had been placed, were the natural and proper persons to act on behalf of the plaintiffs in seeking a settlement of the claim. This Lamberts proceeded to do.

Underwriters duly considered the claim and came to the conclusion that, to quote Lamberts' letter reporting to the plaintiffs:

"no evidence has been produced to show that they are entirely liable for these losses in as much as bills of lading were claused at Buenos Aires and it would appear, therefore, that most, if not all, of the loss was sustained prior to the inception of underwriters' risk."

Lamberts advised the plaintiffs to claim on other insurers who had insured the goods on the voyage to Buenos Aires and returned the plaintiffs' documents.

The plaintiffs did not accept this rejection of their claim and Mr. Buck del Monte came to London to see Lamberts at the beginning of June 1966 On June 6 he had a meeting with Mr. Smith and Mr. Deakin of Lamberts. Mr. Smith remembers Mr. Buck del Monte calling at his office but has no further recollection. However, according to Mr. Buck del Monte, Mr. Smith explained that the documents had been returned because it was the practice, where goods had been carried on a voyage prior to the inception of the risk, for claims of this nature to be presented to the insurers of the first part of the voyage. Mr. Buck del Monte replied that there was a clear undertaking by underwriters to accept the risk from the moment at which the goods were inspected by the Argentine customs. He told Mr. Smith that it was a clear case, and pressed him strongly to pursue the claim. Furthermore, he indicated that if he did not get satisfaction he

would sue Lamberts. This is a not unfamiliar reaction by an assured who finds that his claim has been wrongly rejected, for it is widely believed that Lloyd's brokers are in fact the underwriters. Mr. Smith duly explained to Mr. Buck del Monte that Lamberts were not the proper people to sue, since all that they had done was to act as the plaintiffs' agents. He said that he would present the claim again and would do all that he could to receive a favourable settlement. Mr. Buck del Monte was asked to leave the various documents with Mr. Smith in order that they might be further studied and inquiries made of the placing department to see whether they had any relevant information.

On June 10, 1966, Mr. Smith and Mr. Deakin went with Mr. Buck del Monte to Lloyd's and there had a meeting with Mr. Boag. Mr. Boag is an employee of Kenward (Cargo Claims), an organisation which acts as marine claims advisers to a number of Lloyd's marine insurance syndicates including that of which the defendant underwriter is a member. He was accordingly acting on behalf of the defendant and the defendant's syndicate which was the leading syndicate on the policy. Mr. Buck del Monte put his case to Mr. Boag in detail and, I am sure, with force and at length. His command of the English language is most creditable, but I am sure that he would be the first to admit that his familiarity with it is not such as wholly to eliminate all possibility of misunderstanding either in respect of things which he says or in respect of things which are said to him. Mr. Smith has no recollection of this part of the discussion and it is not material to any issue which I have to decide.

The next part of the discussion is more important. Mr. Boag, who gave evidence on affidavit said:

"I was not satisfied with the evidence produced in support of the loss and I was not prepared to recommend a settlement of the plaintiffs' claim and I so informed Mr. Buck del Monte. In particular I was extremely doubtful about the bona fides of the claim. Accordingly I instructed Mr. Deakin and Mr. Smith of Lamberts in the presence of Mr. Buck del Monte to ask Douglas Jackson & Co. (Adjusters) Ltd., a well-known firm of assessors, to investigate the circumstances of the claim on underwriters' behalf and to report thereon. At that time, as I had refused to recommend a settlement of the plaintiffs' claim, I considered that litigation was likely, and if the claim was maintained it was my intention that the report should, in the usual way, be placed before underwriters' solicitors to enable them to defend any proceedings which were brought."

Mr. Smith's recollection, according to my note of evidence, was that:

"Mr. Boag suggested that I should contact Douglas Jackson at once as there might be someone who could see Mr. del Monte whilst he was in London. This I did. I telephoned Douglas Jackson and spoke to a Mr. Bishop. I took Mr. del Monte to Douglas Jackson's offices, met Mr. Bishop and spoke of the case. I related Mr. Boag's instructions to him that he investigate the case. Mr. del Monte, Mr. Deakin and I were in the room with Mr. Bishop. I said that we had recently left Mr. Boag who had instructed him (Mr. Bishop) to act on underwriters' behalf."

Mr. Buck del Monte's recollection differs in some respects. He told me that he stressed to Mr. Boag the fact that the goods had to be inspected by the customs authorities in Buenos Aires, but Mr. Boag said that with

a claim of over $50,000 he could not recommend a settlement unless he was satisfied that the inspection really took place. Mr. Buck del Monte then asked for a written rejection of the claim in order that he might begin legal proceedings. My note of his evidence continues:

"Mr. Boag thought for a moment, and then asked me if I would agree to have an independent assessor checking in Buenos Aires whether such an inspection really took place as is mandatory. I did agree to this as being in the interests of all parties. My understanding, which was confirmed by Mr. Smith on our way back to Lamberts, was that the report would be available not later than six weeks and that I would have a copy of the report. He told me that it was a pity that I did not have the goods inspected by a Lloyd's agent at Buenos Aires. He promised to send me immediately a copy of the report. This would be an additional document to establish the mandatory nature of the inspection [by the Argentine customs]. Of course I expected a copy of the report. ... After the meeting I saw Mr. Bishop at Jacksons at his request. The purpose of the meeting was to give Mr. Bishop as much information as possible so that he could check on the inspection in Buenos Aires. I promised Mr. Bishop my full co-operation. I was willing because I thought that this would produce justice for both parties."

In cross-examination he said that he thought that a surveyor would check on whether the goods were inspected at Buenos Aires and that inquiries would be made in Assuncion, but that matters would not go further than that. He appreciated that someone would have to pay for the report but he was not asked to do so. A few days later on June 14, 1966, Lamberts wrote to the plaintiffs referring to the discussions which had taken place. The letter continued:

"As a result of these discussions the writer pressed for settlement from underwriters, but as you know the leading underwriter's claims representative required that Messrs Douglas Jackson & Co. (Mr. Bishop) be instructed with regard to obtaining additional information at both Buenos Aires and Assuncion. ... As arranged we will press for early production of the report and upon receipt of this document and underwriter's further views, we will revert in this connection."

Thereafter the plaintiffs furnished the assessors with further documentary evidence and they investigated the claim. The results of this investigation are unknown to me, but they are contained in a report dated August 2, 1966, which was addressed to underwriters but was sent to Lamberts. Lamberts, in accordance with the usual practice, took copies of the report for their files and handed the original to the defendant who, having studied it, reiterated his rejection of the claim and returned the original report to Lamberts for safe custody. At no time have the plaintiffs been allowed to have a copy of the report or to see it, nor have they been told what it contains. This again is in accordance with the practice. Mr. Buck del Monte told me that he saw Mr. Smith and Mr. Perry of Lamberts in October 1966 and asked for the report. He says that he was told that they had not got the report and that the contents were unknown to them. Mr. Smith has no recollection of this meeting. He agreed that he may have had a meeting with Mr. del Monte in October 1966, and thinks that if in fact he said in terms that he had not got the report, it must have been because the report was at that time with underwriters.

Mr. Smith did not think that he would ever have said that he did not know what was in the report.

I have set out the facts at some length, both in deference to Mr. Buck del Monte's firm conviction that he was promised a copy of the report, and because they illustrate the problems and misunderstandings which are likely to arise when the broker, who is the assured's agent, commissions an assessor's report on behalf of underwriters and, as is almost inevitable, enlists his client's co-operation in the assessor's investigation. However, I regard it as inconceivable that Lamberts should ever have promised to supply the plaintiffs with a copy of the report, or any information as to its contents unless, as occasionally happens, underwriters agreed to this course. Underwriters never did so agree. The matter was bedevilled throughout by the facts that Mr. Buck del Monte learnt at a very late stage that Lamberts were his agents and not those of underwriters, that soon after he learnt this fact, Lamberts began to act as underwriters' agents; that Mr. Buck del Monte is no more analytically minded than most men of business and was more prone to linguistic misunderstandings than would be most of those whose mother tongue is English, and, above all, that Mr. Buck del Monte was concerned first and foremost with getting the plaintiffs' claim paid and regarded the provision of an assessor's report as a means to this end, rather than an end in itself. It was only when the report failed to achieve this object that he became interested in what it contained and even this interest was not sufficiently strong to cause the plaintiffs to take any action until it appeared in the defendant's list of privileged documents in the action on the policy in August 1969. I have no doubt that a meeting did take place between Mr. Buck del Monte and Mr. Smith in October 1966 at which the report was mentioned and if Mr. Smith said that he did not have the report I have no doubt that this was literally true for the reasons which he gave. I also think it likely that he gave evasive answers when asked what the report contained and may well have given the impression that he did not know. Tact and "the truth, the whole truth and nothing but the truth" are seldom allied, and Mr. Smith may well have thought it better in all the circumstances to say that he was not entirely sure what it contained than to say "I know what the report says, but I know it under seal of confidence and I cannot and will not tell you." I do not criticise him in this respect for he was acting in accordance with a practice of Lloyd's which had never at that time been challenged. The matter would be very different if any broker adopted the same course today. That Mr. Buck del Monte's honest recollection of events is now slightly at variance with the facts as I have found them is no reflection upon him, but rather, I think, the almost inevitable consequence of the passage of time, coupled with a strong and, from his point of view, a not unreasonable sense of grievance at the rejection of the plaintiffs' claim and the ambivalent attitude of his agents.

Subsequent events can be recalled more brieflly. The defendant instructed Herbert Baron & Co. to act as his solicitors in the plaintiffs' action under the policy. I have not seen the pleadings, but I am told that the defendant has put the plaintiffs to proof of their claim and has, in addition, raised issues of fraud and non-disclosure. Lists of documents were exchanged in August 1969 and, as I have already mentioned, these lists contained a reference to the assessors' report of August 2, 1966, and claimed that the document was privileged from disclosure.

Nothing further has occurred in the action but in January 1970 Brecher & Co., solicitors for the plaintiffs, wrote to Lamberts asking for copies

"of all correspondence and other documents passing between your representative, Mr. Leahy in Buenos Aires and yourselves concerning both the effectation" - that really is the word used - "of insurance cover and the claim subsequently made by our clients under the policy."

Lamberts promptly informed Herbert Baron & Co. of this request. The latter wrote saying that they had been instructed to reply on behalf of Lamberts but this was, I think, a slip, albeit perhaps a revealing one. In fact they were, of course, expressing underwriters' reply which was that:

"as we understand the law, the only relevant documents which you are entitled to see would be those concerning the effecting of the insurance cover, in other words, those relating to the claim [in] which Messrs. Lambert Brothers will be acting for underwriters would not be disclosable to you and [would be] protected by a claim for privilege in the usual way."

Thereafter a brisk correspondence ensued in which various arguments were rehearsed, some, but by no means all of which, have been re-addressed to me. I am not sure who made the next move and it certainly does not matter. Suffice it to say that by about May 1970, Lamberts, who by this time had instructed Messrs. Whitehouse-Vaux & Elborne to act as solicitors on their behalf, round themselves in the unenviable position of having been served with (i) a writ by the plaintiffs claiming declarations that they were entitled to possession and delivery up or inspection of any documents then or previously in the possession of Lamberts relating to or in any way connected with the insurances effected by Lamberts on behalf of the plaintiffs and (ii) a writ by the defendant claiming an injunction restraining Lamberts from delivering up or revealing to the plaintiffs any of a large part of the documents the subject matter of the declarations which the plaintiffs were seeking.

Lamberts not unnaturally sought leave to interplead. Mocatta J. ordered that all the disputed documents be brought into court, and that the following issues be tried as between the plaintiffs and the defendant:

"(1) Whether the plaintiffs are or [the defendant] is entitled to: (a) delivery up, or (b) inspection of some, one or all of the documents referred to in two schedules marked G.A.V.P.1 and G.A.V.P.2. exhibited to the affidavit of Geoffrey Alfred Vickers Perry sworn herein on June 23, 1970, together with some, one or all of the copies thereof in [Lamberts's] possession and the carbon copy referred to in a letter dated July 20, 1970, from [Lamberts's] solicitors to the plaintiff's solicitors. (II) (a) Whether [the plaintiffs] are or [the defendant] is entitled to delivery up of the report made by Douglas Jackson & Co. (Adjusters) Ltd. dated August 2, 1966, and some, one or all of the photo or other copies thereof. (b) Whether [the plaintiffs] are entitled to inspection of the said report and/or some, one or all, of the copies thereof."

The documents listed in G.A.V.P.2 consist of correspondence common to the parties and accordingly neither party is interested in maintaining or resisting their respective claims thereto. For one reason or another, 99 documents in G.A.V.P.1 fail to excite the interest of either party. Issue is joined about the remaining 100 documents, but since special considerations

may apply to some of them it has very sensibly been agreed that my judgment shall be confined in the first instance to documents numbers 41 to 74 inclusive which are the report of Douglas Jackson & Co. (Adjusters) Ltd. to the underwriters dated August 2, 1970, and a photocopy of that report.

Whatever else may be in doubt, it is clear beyond a peradventure that the parties would not have found themselves in their present situation but for the existence of the practice of Lloyd's underwriters and Lloyd's brokers to which I referred at the beginning of this judgment. This practice was condemned by Megaw J. in Anglo-African Merchants Ltd. v. Bayley [1970] 1 Q.B. 311, 323 and, in the light of that judgment, Mr. MacCrindle, who appeared for the defendant, did not seek to persuade me that it constituted a lawful usage binding upon the plaintiffs. He asked, however, to be allowed to reserve the point for argument should this case be considered by a higher court. The evidence of the practice in that case does not seem to have extended much beyond the submissions of counsel for the defendant underwriter made on instructions. Bearing in mind that the practice is not referred to in any decided case or any of the well-known textbooks on insurance law, it is perhaps understandable that Megaw J. expressed surprise when told that it was a matter of common knowledge and indeed was not only the practice of Lloyd's underwriters but also of the insurance companies in this country and throughout the world.

In the present proceedings there is ample evidence that the practice exists amongst Lloyd's underwriters and brokers and it is clear that, strange as it may seem, its propriety was never challenged until this was done in Anglo-African Merchants Ltd . v. Bayley. In that case the insurance was on elderly government surplus jerkins described as "new men's clothes for export." The defendant underwriter denied liability alleging non-disclosure and succeeded on this ground. The plaintiff assured's reply of waiver of the duty to disclose was rejected. It seems probable that the information which it was the plaintiffs' duty to disclose became lost somewhere in the brokerage chain, but that is immaterial for present purposes. In the course of the litigation both firms of brokers made their files available to underwriters' solicitors and refused to make their files available to the assured's solicitors. In so doing they acted on the advice of the underwriters' solicitors. These files must, I think, have included the placing file and the claims file, but unfortunately counsel's instructions from the defendant underwriter made no distinction between the two. The strictures of Megaw J., which were inevitable in the light of the way in which the matter came before him, have caused concern at Lloyd's and have led to the appointment of a special sub-committee to consider and report. Surprisingly it has not yet reported, but I am led to believe that this may be attributable to the fact that the present case was known to be coming before the court and to the fact that those who still supported the practice, be they many or few, were able to comfort themselves with the reflection that the remarks of Megaw J. were obiter dicta.

The propriety of this practice is fundamental to my decision on the issues and, whether right or wrong, my views are not obiter dicta. Furthermore, I wish to make it abundantly clear that, whilst I have in the end been no more impressed with the propriety of the practice than was Megaw J., I have approached the matter independently and without reliance upon his judgment, save to the extent that I should in any matter, and in particular one in the field of commercial law, pay the most careful regard to anything which he said. Above all I wish to make it clear that despite

the absence of active support for the practice from the defendant underwriter, I have given most careful consideration to all the evidence and views which have been put before me in affidavits and in the correspondence.

What I may describe as the leading affidavit was sworn by Mr. Graham Cochran Boag, to whom I have already referred. He has spent 40 years at Lloyd's and necessarily has a wide experience of the practice of Lloyd's brokers and underwriters. Since other deponents and correspondents either expressly confirm his evidence, or give evidence to the like effect, it may be helpful if I quote the relevant paragraphs of his affidavit in full:

"6. Although the extent of the service granted by Lloyd's underwriters is now extremely wide, their organisation is very limited and consists of numerous syndicates each of which is operated by a few men seated at their respective underwriting boxes in the room at Lloyd's. Although there is a central organisation which has been developed for signing policies and preparing accounts, etc., Lloyd's underwriters generally speaking do not maintain a staff to handle or investigate claims and, as far as my experience goes, the invariable practice, when a claim has to be investigated and/or contested on behalf of the underwriters is for the Lloyd's underwriters to use the brokers concerned for passing the instructions which they want given to the assessors and to solicitors acting on behalf of such underwriters, for circulating to the various underwriters concerned the reports and opinions of the assessors and solicitors and any comments thereon made by the leading underwriter or the claims adviser, and also to keep on the underwriters' behalf the latter's documents relating to the claim when they are not required by the underwriters for immediate reference. The foregoing practice in my experience applies whether or not the assessors' reports contain allegations of bad faith or fraud. As far as my knowledge of this practice is concerned, it has been in operation at Lloyd's for the whole of my working life and I believe that this practice goes back at least to the 19th century.

"7. The practice of the insurance brokers assisting the underwriters in this way has particular importance with regard to the instructing of assessors, obtaining their reports and subsequently retaining such reports and paying the fees of the assessors. Invariably, in a case in which this is necessary, I instruct the brokers to engage the assessors of my nomination on the underwriters' behalf; as a result the assessor carries out his investigations and then makes a written report which although addressed to the underwriters is sent to the brokers who bring the report to me, and after I have read the same, and if thought fit, shown it to the underwriters or some of them, I return it to the brokers and give them such instructions as I consider necessary on behalf of the underwriters whom I represent and the brokers keep the report until it is required again or has to be sent to the solicitors or the underwriters in order to resist a claim or so that the underwriters may obtain legal advice.

"8. Although the number of occasions on which a broker has acted on behalf of underwriters in this way must be very considerable, until the decision of Megaw J. in Anglo-African Merchants Ltd. v. Bayley [1970] 1 Q.B. 311, I have never known it suggested that in acting in this way on behalf of underwriters, the brokers committed any breach of duty to the assured.

"9. The position, in law, of the brokers as it was understood by

me and, I believe, as it was understood by the other underwriting members and brokers at Lloyd's, was accurately summarised in the textbook written by J. B. Welson, entitled 'The Law Relating to Insurance Agents and Brokers' and which states the law on pp. 5 and as follows: 'Agents of Both Parties.' 'In certain circumstances the agent may be the agent of both parties, or more commonly the position may be that he is the agent of one party for certain purposes and the agent of the other party for other purposes. In the case of a broker (and for the purpose of placing business at Lloyd's a Lloyd's broker must be employed) he is the agent for both parties. That is one of the fundamental attributes of a broker, but this again does not necessarily mean that he is the agent for both parties in respect of everything he does. The better way of stating the position is to say that in respect of some acts he acts as agent for one party and in respect of other acts as agent for the other party. The point is that he can be agent for either party without the necessity of specially disclosing the fact. It is a position which the law allows.'

"10. I appreciate that for a broker to have a dual capacity does mean that he has conflicts of interest. However, part of the training of the broker is to act properly in the dual capacity to which I have referred and in practice I have never known insurance brokers improperly to use their dual position."

Mr. Thomas Finlayson Poole who has been engaged in marine insurance in the room for 42 years and who has no interest in the plaintiffs' policies, deposed as follows:

"2. I have read what purports to be a true copy of the affidavit of Graham Cochran Boag sworn herein. I entirely agree with the statements he makes about the practice at Lloyd's and the relationship between Lloyd's underwriters and their brokers, upon a claim being made.

"3. I have also read copies of the affidavits which are referred to in the said Boag's affidavit, and although my knowledge of what occurred between the brokers and the Lloyd's underwriters as a result of the plaintiffs' claim under their policy is confined to the facts set out in those affidavits, the position appears to be a typical one where the underwriters would regard the broker as not only acting on behalf of the plaintiffs, but also on the underwriter's behalf, and would give instructions to the broker in the belief and on the footing that he was the underwriter's agent for the purpose of instructing an assessor, receiving communications from the assessor, transmitting those communications to the underwriters concerned, and for the purpose of performing a similar service between the underwriters and their solicitors, and the assessors and the underwriters' solicitors.

"4. The underwriters would also expect the brokers to hold the assessors' reports, and the other documents which came into existence for the purpose of investigating and resisting a claim on behalf of the underwriters exclusively for the underwriters at all times when they were not being used by underwriters.

"5. I would also have expected Lambert Brothers (Insurance) Ltd. the brokers referred to in these proceedings, to have regarded themselves as the agents for the underwriters for the purpose of passing communications between the underwriters and the assessors, and the underwriters and underwriters' solicitors through the assessors.

They would also regard the documents which came into their possession from these persons as being confidential documents which they held on behalf of the underwriters and which should not be disclosed to an assured. "6. I insure a considerable volume of the goods in transit business when hauliers insure their liability under conditions of carriage, and it is a common practice for underwriters to insert in the policy instructions for the assured to communicate direct with a named assessor in the event of certain types of loss, such as theft or hi-jacking. The subsequent reports of such assessor would be forwarded not to the assured, but the underwriters, usually via the broker, who would, on behalf of the underwriters, pay the assessors their fees. Underwriters would regard such documents as their property, but for convenience allow the brokers to retain the same in the latters' office."

Mr. John Winmill, a director of Sedgewick, Collins & Co. Ltd., and a Lloyd's broker for more than 31 years confirmed the evidence to which I have already referred and deposed that it extended, in certain cases, even to the placing of the risk. He said:

"4. It is not only with regard to claims that brokers perform services on behalf of the underwriters. They sometimes perform similar services prior to the placing of the insurance. For example, before underwriters quote for a products liability insurance for manufacturers of pharmaceuticals they may instruct the brokers to obtain a report on their behalf from a consultant chemist, and before underwriters quote for a directors and officers liability insurance, they may instruct the brokers to obtain a report from an accountant and/or a solicitor.

"5. Any of the reports or other documents received by the brokers on behalf of underwriters are kept by the brokers on behalf of the underwriters. They have always been regarded by my company as being the confidential property of the underwriters and those documents are never released to our clients unless we have first obtained the underwriters' permission to do so. As far as I am aware the same practice prevails in the offices of all other Lloyd's brokers, it being understood that the underwriters only ask the brokers to perform these services for them on condition that the reports and other documents obtained by the brokers in performance of the services are treated by them as confidential documents which they hold on behalf of the underwriters.

"6. I am firmly of the opinion that it is in the interest of the insured as well as Lloyd's for the brokers to act in this dual capacity. I have not found that the insured is prejudiced by the practice. On the contrary the knowledge which the broker has of the contents of the underwriters' confidential documents enables the broker to negotiate more effectively on behalf of the insured as he is better aware of the basis of any objections that the underwriter may have to the settlement of the claim."

Finally I should perhaps refer to the affidavit of Mr. Geoffrey Alfred Vickers Perry, Lamberts' marine claims manager. After referring to the judgment in Anglo-African Merchants Ltd. v. Bayley [1970] 1 Q.B. 311 he deposed that:

"I, in common with other persons, did not at once appreciate the full implications of that judgment and, as appears from [a letter dated

February 19, 1970, from Messrs. Herbert Baron & Co. expressing the views of the writer and of 'a number of solicitors engaged in insurance business'] there are those including the [defendant] who still do not agree with it. A sub-committee has been set up by the committee of Lloyd's to consider the implications of that judgment and to make recommendations, but ... its report has not yet been made public. Accordingly many insurance brokers including [Lamberts] have been and are still in doubt how they ought to act in circumstances similar to those which have arisen in this case and in many cases have continued to follow the customary practice until the position is clarified. Lamberts' wish is to be completely impartial between the plaintiffs and the [defendant] and to act as the court considers proper."

I appreciate that Mr. Bayley having succeeded in the action brought by Anglo-African Merchants Ltd. could not appeal against the judgment of Megaw J. Nevertheless, I confess to a sense of very real surprise that, bearing in mind the strong terms in which that judgment was couched, the committee of Lloyd's did not think it proper either to require an alteration in the practice or to take prompt steps by means of a friendly test action to seek the views of the Court of Appeal. Twelve months elapsed before the present dispute arose and it is now nearly two years since the judgment was given, yet the practice continues. I trust that the views which I express when added to those of Megaw J. will suffice to produce either a change of practice or a rapid sortie to the Court of Appeal. If the committee wish to adopt the latter course, they will have my fullest co-operation.

If a usage is to have effect in law it must at least be notorious, certain and reasonable. On the evidence before me, it may be certain, despite the extension of which I think only Mr. Winmill speaks. For my part, I entertain doubts whether it is sufficiently notorious, since I have no evidence that any assureds, who form the class of persons who enter into the contracts affected by it, have ever heard of it. Mr. Goff, for the plaintiffs, would also have wished to argue, and is at liberty to do so on any appeal, that a practice which only applies to Lloyd's is no more than the practice of a single business house or congeries of houses and cannot be said to be sufficiently widespread to amount to a market usage. It is sufficient for present purposes to say that I regard the practice as wholly unreasonable and therefore incapable of being a legal usage.

The general principle was stated by Lord Hanworth M.R. in Fullwood v. Hurley [1928] 1 K.B. 498, 502:

"if and so long as the agent is the agent of one party, he cannot engage to become the agent of another principal without the leave of the first principal with whom he has originally established his agency"

and by Scrutton L.J. on the same page of the report:

"No agent who has accepted an employment from one principal can in law accept an engagement inconsistent with his duty to the first principal from a second principal, unless he makes the fullest disclosure to each principal of his interest, and obtains the consent of each principal to the double employment."

Underwriters and brokers would, I think, concede that the position of the Lloyd's broker is inconsistent with this general principle, but would contend that there are special features of the business of Lloyd's which take

the Lloyd's broker outside the general principle, What are these special features?

It is true that Lloyd's are short of space both for staff and for the storage of documents, but are they unique in this? Much modern technological research is devoted to enabling business enterprises to be directed from small centres remote from the main body of their staff and records. Lloyd's themselves have established outside departments, such as that concerned with claims recoveries, to operate in fields in which their interests cannot effectively be served by brokers.

What other advantages accrue? If, as in this case, the broker, concerned with the claim instructs the assessor, the underwriter can be certain that the assessor fully understands the nature and details of the claim. The same result, however, could be achieved by instructing the assessor direct and inviting the assured and his broker to submit the claim to the assessor. If the broker goes further, the advantages to the underwriter are more obvious as the propriety of the practice becomes more dubious. The underwriter will in many cases wish the assessor to investigate the character, reliability and honesty of the assured and the broker must instruct the assessor accordingly. What happens then? Is it really to be thought that the broker can simply pass on the instructions and say nothing, although he knows that the assured is of the highest character? Of course not. But what if he knows of something to the detriment of the assured? Is he then to remain silent and, if so, will the assessor fail to draw his own conclusions? In some cases the activities of the brokers do not stop at the instruction of the assessors, but include the instruction of solicitors to resist the assured's claim. The claim itself will by then have been defined by letters from the assured's solicitors, so that the broker can add nothing on behalf of the assured. But he, above all, knows the full background of the claim, including its weaknesses. Is he to mislead underwriters' solicitors by giving them only half the story?

In the context of settlement negotiations it is said to be a positive advantage to the assured that his broker shall have confidential information on the strength of underwriters' defence. But how can he use this information when advising his client? Again, underwriters may be denying liability on the basis of a wholly misconceived, but apparently correct, appraisal of the facts by the assessors. The broker must treat this appraisal as confidential and is therefore unable to inquire from the assured whether there may not be a fallacy. And what happens if the assured, taking a pessimistic view of the strength of his claim, indicates to his broker that he is prepared to accept a low figure in settlement, when the broker, having seen the assessor's report in confidence, knows that underwriters must be prepared to settle for a high figure.

Mr. Boag assures me that part of the training of the broker is to act properly in the dual capacity and that he has never known insurance brokers to use their dual position improperly. But how do you train anyone to act properly in such a situation? What course of action can possibly be adopted which does not involve some breach of the duty to one principal or the other? I yield to no one in may admiration for the skill and honesty of the insurance brokers and other men of business of the City of London, but neither skill nor honesty can reconcile the irreconcilable.

The watch words of the business of insurance are "uberrimae fidei" and it is astonishing that Lloyd's should have evolved a practice which

renders the maintenance of the utmost good faith so fraught with difficulty. The fact that the practice was impugned for the first time last year is in part attributable to the utter integrity of those involved and in part attributable to the fact that it was unknown to the public. The integrity remains, but the practice is now becoming common knowledge. Even if those who are members of Lloyd's or Lloyd's brokers still think on reflection that the practice is fair and reasonable, they and the committee of Lloyd's may wish to consider whether in the changed circumstances that is now sufficient or whether, to adapt a precept which the courts seek to apply in relation to their own business, the practices of Lloyd's must not only be reasonable, but must be seen to be reasonable.

Mr. Goff, for the plaintiffs, does not contend that any of the documents referred to in the issues are the property of the plaintiffs or even that the plaintiffs have a direct right to possession of them. The documents, he submits, should not be regarded as mere pieces of paper, but as representing the information which is contained therein. Lamberts were under a duty to make this information available to the plaintiffs either by supplying them with copies or by allowing inspection by the plaintiffs, but were prevented from so doing by the intervention of the defendant supported by an interlocutory order of the court. The real dispute between the parties, as he submits, is whether the plaintiffs are entitled to this information now and without reference to the issues of privilege which would arise if the documents were only available to the plaintiffs in the course of discovery in the action on the policies. That indeed is the real dispute, but I entertain considerable doubts whether interpleader proceedings in general or these issues in particular are the most appropriate method of deciding it. However, neither party wishes to become involved in technicalities and I will try to deal with that dispute.

Although he dealt with the matter in a somewhat different order, I think that the starting point of Mr. Goff's argument is that a Lloyd's broker is agent for the assured in effecting the policy and in everything that is to be done in consequence of that including the preparation and handling of claims against underwriters. As such agent, the broker has a general duty to advise and assist the assured in relation to such claims and in that connection to disclose to the assured all relevant information, documentary or otherwise, which he may lawfully be able to disclose. This I accept, subject to the qualification that the broker is such an agent in everything done for the assured in consequence of effecting the policy and subject to the comment that this formulation begs the question of what the broker may lawfully disclose. That question Mr. Goff faces later.

Mr. Goff's next proposition is that if the broker would otherwise be entitled or obliged to give to the assured information which is recorded in writing, it is irrelevant that, if the documents concerned were in the possession of the underwriter, they would be privileged from disclosure in an action by the assured against the underwriter on the policy. This I accept without qualification.

The third of Mr. Goff's propositions was that an agent cannot without the fully informed consent of his principal in law place himself in a position where he owes a duty to another, which is inconsistent with his duty to his principal. If he does so, he cannot say to his principal: "I have not discharged my duty to you because I owe a duty to another." Subject to some slight amplification, this too I accept. Fully informed consent apart, an agent cannot lawfully place himself in a position in

which he owes a duty to another which is inconsistent with his duty to his principal, but if nevertheless he does so, his action is not a nullity. It is to be accepted as a fact with all the special consequences flowing from its unlawful nature. Thus, as Mr. Goff says, his unlawful act provides him with no defence to a claim by his true principal for compensation for loss resulting from the agent's inability, due to the conflict of duties, fully to discharge his duty to that principal. Further it may provide the true principal with a cause of action against the agent for an account and payment over of any benefit which the agent has received in the course of the unlawful agency. If the agent has been employed to make a contract between his true principal and another for whom he is unlawfully also acting as agent, the true principal can avoid the resulting contract. If that other principal knew of the agency and the transaction resulted in a sale, the court will as between the two principals, presume that the other principal would have bought at a higher price or would have sold at a lower price to the extent of the payment which he unlawfully made to the agent. All this is well established by In re a Debtor (No. 229 of 1927) [1927] 2 Ch. 367; Taylor v. Walker [1958] 1 Lloyd's Rep. 490 and the cases there cited.

This brings me to the proposition which lies at the heart of Mr. Goff's submissions, namely, that if X, a third party, knowing that A is the agent of P, the principal, enters into an agreement with A involving duties which are inconsistent with those owed by A to P, then, in the absence of the fully informed consent of P, X acts at his own peril and where there is any resulting conflict between X's interests and P's interests, the law will prefer the interests of P. No authority was cited for this somewhat general proposition, although I fully accept that it contains much that is sound. Certainly the law prefers P's interests to the extent of avoiding any resulting contracts and calling X to account in relation to any commission paid to A. But Mr. Goff goes on to apply the general to the particular in this form:

"If, knowing of A's agency for P, X passes information or documents to A relevant to matters which are the subject of that agency, X cannot complain if A complies with his duty to P to pass on that information or to show those documents to P, however confidential that information or those documents might otherwise be, unless X has first obtained the fully informed consent of P to A receiving that information or those documents exclusively on behalf of X."

That, of course, is this case in a nutshell.

I do not think that this last link in the chain is supported either by principle or authority. It assumes that it is the duty of the agent to pass on to his principal information which he would not have obtained save on terms that it would be kept confidential from his principal. This information is not a benefit to the agent for which he would be accountable, so how does this duty arise? Mr. Goff submitted that the information was property which Lamberts had wrongfully acquired in the service of the plaintiffs. There are at least three answers to this. First, it is by no means clear that information is property in this context. Second, if it was property, the property was never acquired by Lamberts but was merely in their custody. Third, the information, although wrongfully acquired was not acquired in the service of the plaintiffs. The only way in which Mr. Goff's proposition might be made good is by treating the

common knowledge of the underwriter and Lamberts, that the one could not lawfully give and the other could not lawfully receive the information, as constituting an implied waiver of the implied seal of confidentiality with which the information is impressed. Such an argument could not succeed on the facts of the present case, unless knowledge is to be imputed of the impropriety of the agency to the defendant and to Lamberts as a matter of law, because neither in fact knew that they were acting in a wrongful manner. That will not, of course, apply in future cases.

However, I think that the fallacy underlying the plaintiffs' claim may be even simpler and more basic. Lamberts in acting for the defendant were undertaking duties which inhibited the proper performance of their duties towards the plaintiffs, but, in so far as they acted for the defendant underwriter, they were not acting in the discharge of any duty towards the plaintiffs. Lamberts wore the plaintiffs' hat and the underwriter's hat side by side and in consequence, as was only to be expected, neither hat fitted properly. The plaintiffs had a legitimate complaint on this account and can claim damages if and to the extent that the partial dislodgment of their hat has caused them loss or damage. But what the plaintiffs ask in these proceedings is to be allowed to see what Lamberts were keeping under the underwriter's hat and for that there is no warrant.

Before leaving this matter I should make a brief further mention of Anglo-African Merchants Ltd. v. Bayley [1970] 1 Q.B. 311, because it may be suggested that Megaw J. in that case was expressing a view which was inconsistent with that which I have expressed. This suggestion is based on a passage in the judgment on p. 321 where he said that the refusal of the brokers to make their files available to the assured could not be justified, but that in the end they had been allowed to see all that should have been available to them from the outset. The documents in fact made available included a great deal of material to which the assured was plainly entitled and in addition an assessor's report and, it may be, other similar underwriters' documents. For my part, I do not believe that Megaw J. in that passage had in mind whether different considerations might or might not apply to the classes of document with which I have been concerned. His remarks were directed to the general conduct of the brokers which could not have been justified even on the basis of the practice upon which they relied, and which he condemned.

Accordingly, I answer the various questions stated in the issues in the negative.

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

[Reported by MRS. MARY DAVIES, Barrister-at-Law]