Re Debtor (No.105 of 2000)

(Ch D) Chancery Division

11 July 2000

Debtor (No.105 of 2000), Re

Also known as:

Williams v Society of Lloyd's

(Ch D) Chancery Division

11 July 2000

Where Reported

2000 WL 1675158

Summary

Subject: Insolvency

Keywords: Agreements; Lloyds Names; Reinsurance; Statutory demands

Catchphrases: Lloyds names; reconstruction and renewal plan; settlement agreement; misrepresentation

Abstract: W, a Lloyd's name, appealed against the dismissal of his application to set aside a statutory demand due under a settlement agreement made pursuant to the Lloyd's Reconstruction and Renewal Plan. W contended that there had been no consideration for the settlement agreement, and that he had entered into the agreement in reliance upon a misrepresentation made by Lloyd's to the effect that reinsurance was conditional on the settlement agreement being successful. Furthermore, it was argued that the reinsurance and settlement agreement were independent of each other and should not have been treated as interlinked.

Summary: Held, dismissing the appeal, that there was no basis to set aside the statutory demand, and, furthermore, the registrar was entitled to conclude that there had been consideration for the agreement and that the settlement agreement and the reinsurance scheme had been dependent on each other.

Judge: Jonathan Parker, J.

Counsel: For W: In person. For SL: J Briggs

Solicitor: For SL: Society of Lloyd's Solicitor

IN THE HIGH COURT OF JUSTICE IN THE CHANCERY DIVISION ROYAL COURTS OF JUSTICE

NO. 105-SD-2000

Tuesday 11th July, 2000

B e f o r e: MR. JUSTICE JONATHAN PARKER IN THE MATTER OF THE INSOLVENCY ACT 1986 IN RE A DEBTOR NO.105 OF 2000

WILLIAMS Appellant

v.

SOCIETY OF LLOYD'S Respondent

Transcribed by BEVERLEY F. NUNNERY & CO

Official Shorthand Writers and Tape Transcribers

Quality House, Quality Court, Chancery Lane, London WC2A 1HP

Tel: 020 7831 5627

THE APPELANT appeared in Person. MR. J. BRIGGS ( instructed by Messrs. Philip John Coldbeck, The Society of Lloyd's) appeared on behalf of the Respondent.

J U D G M E N T

(As approved by the Judge)

MR. JUSTICE JONATHAN PARKER: This is an appeal by Mr. Michael Williams against an Order made by Mr. Registrar James on 8 May this year. Mr. Williams appears in person. The respondent in the proceedings, The Society of Lloyd's (""Lloyd's"), is represented by Mr. John Briggs of counsel. Mr. Williams is a Lloyd's Name.

By his Order, the Registrar dismissed Mr. Williams' application to set aside a statutory demand dated 28th February of this year issued by Lloyd's in respect of a sum of 545,532.18 allegedly due under a settlement agreement relating to Mr. Williams' 1992 and prior years underwriting liabilities. The Registrar also dismissed an application by Mr. Williams for disclosure orders against Lloyd's.

Before the Registrar, Mr. Williams took, essentially, two points. Firstly, he contended that there was no consideration for the settlement agreement and/or that it was entered into by him in reliance upon a misrepresentation made by Lloyd's. Secondly, he contended that he should have disclosure of documents against Lloyd's in order to enable him to attack the legitimacy of the settlement agreement, it being his case that, among other things, a number of conditions precedent to the settlement agreement have not been fulfilled, alternatively, may not have been fulfilled.

The relevant factual background is, in summary, as follows. The settlement agreement formed part of an overall plan called the Reconstruction and Renewal Plan (""the Plan") put in place by Lloyd's to resolve the severe problems caused by accumulated losses of some 8 billion reported in respect of the underwriting years 1988 to 1992. The nature and severity of the problems which arose in that situation are too well-known to require further description.

The two central elements of the plan were, firstly, mandatory reinsurance of liabilities for the relevant years into Equitas and, secondly, the settlement offer which offered Names who accepted it the opportunity to accept a financial package in return for the compromise of their Lloyd's related litigation.

The two elements of the plan, that is to say the Equitas reinsurance and the settlement offer, were interconnected and interdependent. Lloyd's had to provide the Equitas share of those names who did not accept the settlement offer. Hence, without a sufficient level of acceptance of the settlement offer, there was a risk that funding arrangements made by Lloyd's to provide finance to Equitas in respect of non-accepting Names might not be sufficient to secure the unconditional authorisation of Equitas.

In a circular to members sent with the form of acceptance of the settlement offer, the chief executive officer of Lloyd's, Mr. Ron Sandler, said this under the heading ""Settlement Agreement and Equitas Reinsurance Becoming Unconditional":

""The conditions of the settlement agreement are summarised in chapter 1. These include the fact that the settlement agreement will not become unconditional unless and until the reinsurance into Equitas has become unconditional. The mandatory reinsurance into Equitas will not become unconditional until sufficient acceptances of the settlement offer have been received and the relevant provisions of the notices of requirements which, inter alia, set out the requirements of the DTI which must be complied with before Equitas can accept the reinsurance of the 1992 and prior liabilities have been satisfied. These requirements include the need for the DTI to be satisfied that Equitas will receive the full additional Equitas premium payable by Names. The decision to declare the settlement agreement and the reinsurance into Equitas unconditional will be made by the council and the board of Equitas in consultation with the DTI as soon as practicable after 28th August 1996. Depending on the level of acceptances of the settlement offer, there is a risk that the authorization may be delayed until sufficient of the Equitas additional premium has been paid by Names or Lloyd's is able to arrange additional funding for Equitas."

Further, various third parties, including underwriting agents, auditors and brokers, were substantial contributors and parties to the settlement agreement. It is apparent, therefore, that a sufficient level of offer of the settlement agreement was a crucial requirement if the plan was to become unconditional and be carried into effect.

As will appear when I recite the procedural history in a moment, at an earlier stage Mr. Williams sought to contend that he had not effectively accepted the settlement offer in that he had sought to introduce an additional term to the effect that he should have three years in which to pay the sums payable under the agreement. That contention has been resurrected in argument today, as will appear.

The settlement agreement provided for credits to be set against the liability of accepting Names and if payment under the agreement were made by a certain specified date.

In August 1996, according to the evidence of Mr. Philip Coldbeck, the assistant manager in the financial recovery department of Lloyd's, the Council of Lloyd's resolved that sufficient acceptances of the settlement offer had been received from Names and declared the settlement offer unconditional.

In September 1996, once again according to the evidence of Mr. Coldbeck, Equitas was duly authorised by the DTI.

30 September 1996 was the date by which Mr. Williams' payment under the agreement had to be made if he were to obtain the benefit of the various credits to whichI referred a moment ago. The amount payable on that basis would have been the sum of 49,789. In the event, that sum was not paid.

In June 1997, a further account was issued to Mr. Williams requiring payment of the full sum due under the agreement in the sum of 451,467.57. Payment not having been made, on 23 October 1997 Lloyd's issued a statutory demand, claiming that sum.

On 18 November 1997, Mr. Williams applied to set that statutory demand aside. His application was heard on 8 April 1998 by Mr. Registrar James, who set it aside on the basis that a triable issue had been demonstrated as to whether Mr. Williams was an accepting Name on the basis of

Mr. Williams' assertion that the payment form under the settlement agreement was sent with his acceptance form containing the additional term to which I referred earlier.

Lloyd's issued a notice of appeal against Mr. Registrar James' Order and it also applied for a review of the Order. Mr. Coldbeck and others lodged witness statements, supporting the application for a review on the footing that Mr. Williams did not send his payment form with the additional term noted upon it with his acceptance form.

On 28 May 1998, Mr. Williams issued a cross-application for review on various bases, including a request for an order for disclosure of documents by Lloyd's; in particular disclosure, of all relevant resolutions and correspondence with the DTI.

Mr. Williams alleged at this stage that the conditions precedent to the coming into effect of the settlement agreement had not been fulfilled, and he requested disclosure of documents on that issue.

On 5 June 1998, Mr. Registrar James refused

Mr. Williams' application for disclosure and gave directions as to the hearing of the application for a review of his order setting aside the statutory demand.

Further evidence was lodged on both sides, but on 6 July 1998 orders were made by consent, dismissing Mr. Williams' application for a review of the Registrar's order of 8 April, rescinding that Order and dismissing his application to set aside the statutory demand.

On 28 February of this year, Lloyd's issued a second statutory demand, being the statutory demand which forms the basis of the Order of Mr. Registrar James which is now appealed, in the sum of 545,532.18.

Mr. Williams subsequently applied to set aside the second statutory demand and also sought relief in the form of a review and orders for disclosure. The application to set aside was heard by Mr. Registrar James on 8 May, when he made the order from which Mr. Williams now appeals.

Mr. Registrar James delivered a detailed reasoned judgment in which he dealt with the various submissions made by Mr. Williams, both in relation to his application for disclosure and also in relation to his application to set aside the statutory demand. The Registrar addressed Mr. Williams' contention that there was no consideration for the settlement agreement, alternatively that it was based upon a misrepresentation, in the following way (I read from para.15 of the note of judgment):

""However, what appears to me to be clear is that the purpose of reinsurance into Equitas would not be achieved unless Equitas resolved unconditionally to accept the reinsurance obligations within the context of the condition precedent of the settlement agreement. It was therefore not a fraudulent misrepresentation or any sort of conspiracy to which Mr. Williams wishes to get to the bottom of that the reinsurance was conditional on the settlement agreement being successful. It was, in fact, an economic necessity that the two elements of R & R [that is a reference to the plan], the reinsurance into Equitas and the settlement agreement should go hand in hand. It seems therefore to me that there is nothing in the argument that there was no consideration for the agreement on the ground that it was not necessary to have the settlement agreement to achieve reinsurance into Equitas."

I leave out some lines and continue:

""The two elements of R & R were intrinsically bound up together: reinsurance and settlement agreement."

The Registrar then referred to a letter from H.M. Treasury Insurance Directorate to Mr. Williams dated 7 May 1998, on which Mr. Williams has relied in the course of his submissions on this appeal. In that letter, Mr. Lance Clarke of the directorate informed Mr. Williams:

""The matter was resolved when Lloyd's used its statutory powers to make the reinsurance into Equitas mandatory for the market. At that point we were satisfied that the regulatory provisions were in place for Lloyd's to round-up the appropriate proportion of market resources to fund the Equitas premium. With that, the issue of payability then fell away."

Mr. Williams relied on that letter, as he has relied on it in this court, in support of his submission that the settlement agreement was unnecessary, the relevant regulatory provisions having been put in place.

The Registrar addressed that submission in the following terms:

""That letter says only that the directorate were satisfied that Lloyd's had put in place the necessary regulatory provisions to make reinsurance into Equitas and the settlement agreement possible. The letter of 7th May raises nothing that casts doubt upon the legitimacy of the settlement agreement: it merely confirms that the necessary regulatory provisions had been put in place."

The Registrar then went on to state his conclusions in the following terms:

""I therefore refuse the application for disclosure, just as I did on the previous occasion. I refuse it not only on those grounds but also because in my view it is an abuse of process because Mr. Williams is simply doing again what he did in June 1998 when I refused the same application. It is also, in my judgment, an abuse to re-open the issue as to whether or not he was an unconditional accepter in the way he has attempted to do in this case. Even if I am wrong on that, I am satisfied in any event that it is unarguable on the evidence that he is anything other than an accepter. Finally, disregarding the abuse point, I am satisfied that Lloyd's has stated in Mr. Coldbeck's evidence both in this current application and in the earlier case [then he gives the reference] that the conditions precedent were met and that there is no serious challenge to that. On that basis, I not only refuse the disclosure I also dismiss the application to set aside the statutory demand."

In his submissions in support of his appeal, which he has made with great courtesy and clarity, Mr. Williams made initially a general point: that Mr. Coldbeck is not to be regarded as an independent witness and that the Registrar should not have accepted his evidence effectively at face value without recognising the need for further investigation and, indeed, disclosure in support of that investigation.

Turning to his detailed submissions, Mr. Williams submits that there is no consideration for the settlement agreement; alternatively, that he entered into it upon the basis of a misrepresentation made by Lloyd's to the effect that the settlement agreement was in some sense necessary in order to support the Equitas reinsurance element in the plan.

As he had done before the Registrar, Mr. Williams relies once again on the letter from the Insurance Directorate dated 7 May 1998, to which I have referred. He submits that this letter indicates clearly that it was not necessary for Names to accept the settlement offer in order for the reinsurance to be carried into effect since, as he interprets the letter, it states that the reinsurance will occur come what may whether or not the settlement agreement is entered into. He accordingly submits that, on that basis, there was no need for Names to make any payment pursuant to the settlement agrement in order for the Equitas reinsurance element to be carried into effect.

He submits that the settlement agreement and the Equitas reinsurance are not to be treated as inter-connected. He submits they are not linked and that each is independent. So far as the conditions precedent are concerned, he submits that, given his reservations as to the acceptability of Mr. Coldbeck's evidence, there should be an order to the effect that Lloyd's produce the relevant documentary evidence to establish that the conditions precedent have been, in fact, met.

As to disclosure, Mr. Williams submits that disclosure is necessary in relation (as I have already indicated) to the fulfilment of the conditions precedent and also on the question of whether, as he suspects, the settlement agreement is void and/or illegal. He suggests that the entire mechanism of the settlement agreement is something of a pretence or a charade designed, as he suggests, to head off a fraud inquiry. On that basis, he submits that the Registrar ought to have made the orders for disclosure which he was seeking.

Lastly, Mr. Williams raised, once again, the issue as to whether or not he effectively accepted the settlement offer. This was an issue raised in the earlier proceedings, as I have already described. It was an issue which he sought to raise before the Registrar and the Registrar dealt with it in the manner to which I have referred. Nevertheless, Mr. Williams adds it to his submissions in support of the appeal, although he emphasises that his principal point is that the settlement agreement itself is or may be void and/or illegal, thereby rendering the question of acceptance academic.

In my judgment, the Registrar reached the right decision for the right reasons. Indeed, I would find it hard to improve upon the clear and succinct way in which he expressed those reasons in his judgment.

As I said at the beginning of this judgment, it is quite plain to my mind that the settlement agreement and the Equitas reinsurance are inextricably linked for the reasons which I have already given. The Registrar was, in my judgment, right to reach that conclusion.

Similarly, there is, in my judgment, no basis upon which the court could not or should not have accepted the evidence adduced by Lloyd's that the various conditions precedent to the settlement agreement had in fact been fulfilled. The application for disclosure in relation to that matter is nothing more than a fishing expedition and the Registrar was right to reject it. Equally, it is plain that Mr. Williams is an accepting Name and, quite apart from the fact that he has already raised this issue in earlier proceedings, the Registrar was right to conclude that there is no substance in his conditions on that point.

In my judgment, therefore, despite the thoroughness of Mr. Williams' submissions in support of the appeal, no basis has been demonstrated upon which it would be appropriate for this court to criticise or interfere with the judgment of the Registrar; on the contrary, as I said earlier, the Registrar reached the right conclusion for the right reasons. Accordingly, I dismiss this appeal.

MR. BRIGGS: My Lord, all I would simply ask is that your Lordship award that Mr. Williams pay Lloyd's costs of and incidental to the appeal. My Lord, that the costs be added to Lloyd's petition costs is quite usual in this context. It is all part of the costs of the bankruptcy process against Mr. Williams.

I would draw to your Lordship's attention that the case has lasted not more than one day.

MR. JUSTICE JONATHAN PARKER: Are you asking for a summary assessment?

MR. BRIGGS: Yes, a summary assessment. Can I just show your Lordship a schedule? In the bankruptcy context, my Lord, sometimes in these cases a summary assessment is not made because, of course, your Lordship will appreciate that the costs of and incidental to Lloyd's petition will, if a bankruptcy order is made, come out of the estate and will be a matter for the Official Receiver or the Trustee to deal with; on the other hand, my Lord, it may be of assistance if this matter does not go all the way to a bankruptcy order if there is a summary assessment.

MR. JUSTICE JONATHAN PARKER: If I was to carry out a summary assessment, could that preclude subsequent querying by the Official Receiver? If it would, I am rather reluctant to do that.

MR. BRIGGS: Yes, but, my Lord, in my submission, it would be open to the Official Receiver to seek a review.

MR. JUSTICE JONATHAN PARKER: In the circumstances, I cannot see that any practical purposes would be served by my making a summary assessment.

MR. BRIGGS: Mr. Williams clearly does not have the funds--probably not even 50,000.

MR. JUSTICE JONATHAN PARKER: No, indeed.

MR. BRIGGS: My Lord, I thought it right to draw it to your Lordship's attention.

MR. JUSTICE JONATHAN PARKER: You are asking for costs against Mr. Williams and I must hear what he wants to say about that.

MR. BRIGGS: And, my Lord, that those costs be added to the petition costs.

MR. JUSTICE JONATHAN PARKER: Yes. Mr. Williams, do you want to say anything about costs? What Mr. Briggs has asked for is an order for costs against you, that is the costs of this appeal, and that those costs be added to Lloyd's costs of the bankruptcy petition.

MR. WILLIAMS: I cannot see that that would be unreasonable.

I may not like it, but ----

MR. JUSTICE JONATHAN PARKER: I do not know that I can think of any ground on which you can resist it, Mr. Williams, but if you can think of one it is up to you to put it forward.

MR. WILLIAMS: No, I ----

MR. JUSTICE JONATHAN PARKER: You have failed; the appeal has been dismissed.

MR. WILLIAMS: The costs are 8,000 or something.

MR. JUSTICE JONATHAN PARKER: That is the statement, yes.

MR. BRIGGS: My Lord, that was on the basis of a two day hearing.

MR. JUSTICE JONATHAN PARKER: One comfort, Mr. Williams, is that possibly the costs will be less because the hearing has not taken quite as long as it might otherwise have done. I make that order then, Mr. Briggs. Thank you very much