Society of Lloyds v
Levy and others
QUEEN'S BENCH DIVISION
(COMMERCIAL COURT)
[2004] EWHC 1860
(COMM), [2004] All ER (D) 566 (Jul), (Approved
Judgment)
HEARING-DATES: 30 JULY
2004
30 JULY 2004
Practice and procedure - Defence -
Application to amend - Lloyd's litigation - Abuse of process.
INTRODUCTION:
This is the first approved version
handed down by the court. An edited official transcript or report will follow.
The defendants were Lloyd's names.
In 1996, the claimant implemented a reconstruction and renewal plan which
involved the compulsory reinsurance of all names for the 1992 underwriting year
and prior year's underwriting liabilities by Equitas Reinsurance Ltd in return
for a premium payable by each name. By cl 13 of the completion agreement of
September 1996, the debt owed by the names to Equitas was assigned to the
claimant. In September 1996, the reinsurance and run-off contract was entered
into between Equitas and the names. By cl 5(1)(b), the names including the
defendants in the instant case, became liable for the premium which was payable
to Equitas in September 1996. At the same time, they were offered a settlement
under the terms of a settlement agreement. The validity of the reconstruction
and renewal plan and its related contracts was the subject of extensive
litigation. The defendants to the instant case were issued with the writ
claiming payment of outstanding Equitas premiums were issued in March 1997. A
voluntary stay was undertaken by the claimant whilst other litigation was being
pursued (see [2000] All ER (D) 1674 and [2002] All ER (D) 399 (Jul)). In the
instant hearing, the defendants applied for permission to amend their pleadings
to raise certain defences, and the claimant applied for summary judgment.
The primary issue on which the
defendants sought permission to amend concerned an allegation that the
Department of Trade and Industry, which was responsible for regulating the
insurance industry in the UK, had delegated to the claimant a supervisory role
in accordance with the obligations laid on the state by Council Directive (EC)
73/239 and that the claimant had failed to fulfil its duty of supervision and
audit responsibilities.
The claimant submitted, inter alia,
that it was an abuse of process for the defendants to raise the point when they
had not done so in earlier litigation.
The court ruled:
It was an abuse of process for the
defendants to seek to introduce the European Directive point; in any event, the
point was devoid of merit and would fail.
The Directive did not confer rights
directly on the names, nor on any class of individual. Lloyd's was not an
emanation of the state nor an agent under the directive of the Department of
Trade and Industry. The issue had been debated before the courts already and
the matter was finally settled. Permission to make the amendment sought should
be refused. A reference was not appropriate.
The defendants were refused
permission to make the various amendments sought and, in those circumstances,
there was no arguable defence to the claims. There would be judgment for the
claimant.
Laws and others v Society of Lloyd's
[2003] All ER (D) 392 (Dec) considered.
COUNSEL:
David Foxton for the claimant.; Mark
Watson-Gandy for the defendants.
PANEL: MORISON J
APPROVED JUDGMENT
I DIRECT THAT PURSUANT TO CPR PD 39A
PARA 6.1 NO OFFICIAL SHORTHAND NOTE SHALL BE TAKEN OF THIS JUDGMENT AND THAT
COPIES OF THIS VERSION AS HANDED DOWN MAY BE TREATED AS AUTHENTIC.
JUDGMENT-1:
MORISON J:
1 There are two cases in which
applications are being heard together. They arise out of the Lloyd's of London
affair. Both sets of Defendants, Dr and Mrs Levy and Mr & Mrs Johnson live
outside the jurisdiction. In each case Lloyd's say that they owe the Society
monies in respect of renewal premiums, the rights to claim which were assigned
to the Society by Equitas Reinsurance Limited by way of security. The amounts
involved are reasonably substantial; £ 300,000 odd, plus interest, in relation
to Dr and Mrs Levy; over £ 1/2 million in relation to Mr and Mrs Johnson, plus
interest. This matter was set down for a two day hearing by Cooke J on 5 August
2003.
2. There are, in essence, four
applications before me:
(1) An application by Lloyd's, the
Claimants, for summary judgment on their claims and in respect of a
counterclaim brought by the Johnsons; (2) Three applications brought by the
Defendants:
(1) permission to amend to tidy up
the existing pleading to remove points which cease to be arguable in the light
of the decisions of this court and the Court of Appeal and to "plead or
more fully explain the defendants' case ... on the remaining issues [which] the
defendants rely on" namely:
(a) the registration point, namely
that the security on which the Claimants' debt claim is based is unregistered;
(b) in the Levys' case, that Lloyd's
are unable to prove the cause of action for unpaid premium was assigned to them
"given that no stamp duty has been paid";
(c) The European Directive point
(d) In the case of the Johnsons, to
raise a question on quantum (2) An application for specific disclosure and
Inspection;
(3) An application that the court
should refer this case to the ECJ under Article 234 because there has been an
infringement of The Insurance Companies Act 1982 and EC Directive 73/239.
3. The background to the Lloyd's
litigation in general is too well known to require extensive recital. In brief,
Lloyd's implemented a Reconstruction and Renewal Plan in 1996 which involved
the compulsory reinsurance of all Names for the 1992 underwriting year and
prior year's underwriting liabilities by Equitas Reinsurance Limited in return
for a premium payable by each name. By clause 13 of the Completion Agreement,
dated 3 September 1996, the debt owed by the Defendants to Equitas was assigned
to Lloyd's. Notice of the assignment was formally given to the Defendants by
pro forma letter dated 24 February 1997. On 3 September 1996 the Reinsurance
and Run-Off Contract was entered into between Equitas and the Names. Pursuant
to clause 5.1(b) of the Reinsurance Contract, the Names, including the
Defendants became liable for the premium which was payable to Equitas on 4
September 1996, although interest did not accrue until 30 September 1996. At
the same time Names were offered a settlement under the terms of a Settlement
Agreement. Accepting Names became obliged to pay on 30 September 1996, and
interest accrued as from that date.
4. The validity and effectiveness of
the Reconstruction and Renewal Plan and its related contracts has been the
source of much litigation. The background to the present litigation is
conveniently set out in Mr Foxton's skeleton argument and I incorporate it,
with a few minor changes, as it is accurate.
The Background
The Levys
5. The writs against Dr and Mrs Levy
claiming payment of outstanding Equitas premiums were issued on 24 March 1997.
Service was acknowledged on 20 May 1997 by Grower Freeman. On 16 January 1997,
Epstein Grower wrote to Lloyd's solicitors, identifying the Levys amongst the
list of Names for whom they acted. The Levys were also among the
"funders" of the Leighs litigation who were made liable for the costs
of that litigation pursuant to the order of Colman J dated 26 October 1998.
Summary judgement on the claim against the Levys was not initially pursued
because they filed for bankruptcy in the US on 9 February 1998 in the Northern
District of California. It would potentially have been a contempt of court to
proceed with court proceedings here whilst the bankruptcy was pending. In fact,
the Levys' application for bankruptcy was dismissed.
6. Dr and Mrs Levy also participated
in the Jaffray action. Again, they were, initially, represented by Grower
Freeman, until More Fisher Brown became the solicitors on the record. The Levys
were joined to this action as at 5 January 2000 pursuant to paragraph 1 and
Schedule 3 of the Order of Cresswell J dated 14 January and stamped on 21
January 2000. Although the writ against the Levys had been served by this time,
they were listed in the case as "original claimants" rather than
"counterclaimants" (perhaps as a result of an oversight). The Levys
participated in the Jaffray proceedings throughout.
7. In the run-up to the trial of
that action, at the Court's request, Lloyd's voluntarily undertook not to
pursue proceedings against Names who were parties to the Jaffray action. This
stay was voluntarily continued to the final disposition of the appeal against
Mr. Justice Cresswell's judgment. The Court of Appeal handed down judgment on
26 July 2002, and Lloyd's voluntary stay came to an end at the hearing refusing
permission to appeal to the House of Lords on 28 October 2002.
8. At this point, the Levys:
(1) made an application for
permission to amend their claim in the Jaffray action (made on their behalf by
MFB) to plead a claim in negligent misrepresentation in reliance on the Human
Rights Act 1998. This application was made on 25 October 2002, and became known
as the Laws application;
(2) served Defences and Part 20
Claims in their Equitas Premium proceedings (served by Grower Freeman) relying
by way of counterclaim on the proposed claim of negligent misrepresentation for
which permission was being sought in the Jaffray claim: the Defences and Part
20 Claims were served on 14 November 2002.
9. In these circumstances, it was
eventually agreed that the applications for summary judgment which Lloyd's had
issued against the Levys should be heard after the application for permission
to amend had been heard and determined in the Laws application (L2/28/8). The
Levys, again represented by MFB, were parties to the Laws litigation. Their
applications for permission to amend were refused by Cooke J in his judgment of
17 April 2003 (Society of Lloyd's v. Laws and others [2003] EWHC 873 (Comm)),
and their applications for permission to appeal were refused by the Court of
Appeal by judgment dated 19 December, 2003 (Laws and others v. Society of
Lloyd's [2003] EWCA 1887).
10. After Cooke J. had refused the
application for permission to amend in Laws, the Levys instructed a new
solicitor, Mr. Barnett. On 28 November 2003, he provided Lloyd's with a new
draft Amended Points of Defence and Counterclaim (to which Lloyd's did not
consent) which sought to attack the vires or validity of the steps by which the
Levys had become parties to the Equitas Contract, and which challenged the
entitlement of Lloyd's to rely on the assignment of the Equitas Premium debt by
Equitas to Lloyd's, the Stamp Act point. In addition, various challenges were
made to the quantum of Lloyd's claim. This draft has been superseded by a
further draft provided to Lloyd's on 8 June 2004 which forms the basis of the
application for permission to amend.
The Johnsons
11. The Johnsons were not served
with Equitas Premium writs until 18 January 2000. They were "conditional
acceptors" and issues had to be resolved as to their status (J1/30). They
participated in the Jaffray action as original claimants, by virtue of their
inclusion in a schedule served by their then solicitors, Grower Freeman, on 26
June 1998 (J1/7-9). Thereafter they have participated in the Jaffray and Laws
cases, represented by MFB.
12. The Johnsons served Defences and
Counterclaims on 25 February 2000. These raised allegations of deceit and
alleged that "Lloyd's have failed to comply with the European Insurance
Regulations and audit obligations ". These Defences were amended in May
2000 to replace the allegation against Lloyd's with an allegation against the
British Government that it failed properly to apply the provisions of European
Directive 73/239 and to raise an issue as to the debt credits. By application
notice dated 14 July 2004, the Johnsons (who are now instructing Mr. Barnett)
seek permission to re-amend the Defence and Counterclaim to raise similar arguments
raised by the Levys, and in addition an argument based on an alleged breach by
Lloyd's of Directive 73/239.
The parties' submissions
13. Professor Watson-Gandy has
represented the Defendants' case with ability and good sense. He explained that
the latest versions of the draft pleadings endeavour to cut out from them those
points which have become unarguable in the light of the Court's many previous
decisions. The points which are left for consideration are those identified for
convenience as The European Directive point; the stamp duty point; the
registration point and, in the case of the Johnsons, the quantum point.
14. I have put the European
Directive point at the top of the list because it is the point upon which most
emphasis was placed by counsel for the Defendants, during his submissions, and,
at the end of the day, was the only point of any potential substance.
The European Directive
15. The allegation is that the
Department of Trade and Industry, which was responsible for regulating the insurance
industry in the UK, had delegated to Lloyd's a supervisory role to be performed
in accordance with the obligations laid on the State by the Directive 73/239
and that Lloyd's had failed to fulfil its duty of supervision and audit
responsibilities. Reliance was placed on the judgment of the Court of Appeal in
the Jaffray litigation. The court said this:
"374. It is clear that detailed
consideration was given each year by the audit department at Lloyd's, 'the
Audit Committee, and the Committee as to the instructions to be given to
underwriters and auditors. All this was intended to procure a system that
enabled proper RITCs [Reinsurances to Close] to be produced and proper
certification of solvency. But was the system actually producing a result where
audit reserves were being calculated in a way that involved the making of a
reasonable estimate of outstanding liabilities including IBNRs [Incurred but
not Reported].
375. We have felt obliged to
consider the system in detail but we can answer these questions shortly because
the facts simply speak for themselves. The mere fact that ultimately, when the
R & R was carried out, so many syndicates were shown to be massively
under-reserved demonstrates that the system simply had not been producing
reasonable estimates of outstanding liabilities over the years. The liabilities
which ultimately had to be paid had in fact been incurred before the period
with which this litigation is concerned. With the benefit of hindsight it is
clear that IBNRs were grossly underestimated throughout the relevant period.
This is not an indictment of particular underwriters or particular auditors. We
have not explored the way in which estimates were made by individual syndicates
or individual auditors. The simple fact is that as it turned out most
syndicates were under-reserved. Mr Murray in his evidence said there was no
doubt he was under-reserved, and all those involved in the writing of business
which included asbestos would, unless they were covered by reinsurance, have to
accept the same.
376. In, short, through the relevant
period the system did not involve the making of a reasonable estimate of
outstanding liabilities including unknown and unnoted losses. It follows that
the answer to the question ... namely whether there was in existence a rigorous
system of auditing which involved the making of a reasonable estimate of
outstanding liabilities, including unknown and unnoted losses, is no. Moreover
the answer would be no even if the word 'rigorous' were removed. The first representation
which we found to exist [namely that there was in existence a rigorous system
of auditing which involved the making of a reasonable estimate of outstanding
liabilities including unknown and unnoted losses in the 1981 brochure] .. is
untrue."
16. The relevant provisions of the
Directive are these;
Article 8
1. each Member State shall require
that any undertaking set up in its territory for which an authorization is
sought shall:
- in the case of the United Kingdom:
'incorporated companies limited by
shares or by guarantee or unlimited', 'societies registered under the
Industrial and Provident Societies Acts', 'societies registered under the
'Friendly Societies Act' the association of underwriters known as Lloyd's.
Furthermore, Members States may set
up, where appropriate, undertakings under any form of known public law provided
that such institutions have as their object insurance operations in conditions
equivalent to those undertakings under private law;
(b) Limit is business activities to the
business of insurance and operation directly arising there from to the
exclusion of all other commercial business;
(c) Submit a scheme of operations in
accordance with the provisions of Article 9;
(d) Posses the minimum guarantee
fund provided for in Article 17 (2).
Article 10
Each Member State shall require that
an undertaking having its head office in the territory of another Member State
and seeking an authorization to open an agency or branch shall:
(a) Submit its statutes and a list
of its directors and managers;
(b) Produce a certificate issued by
the competent authorities of the head office country, attesting the classes of
insurance which the undertaking is entitled to carry on and that it possesses
the minimum guarantee fund or, if higher, the minimum solvency margin
calculated in accordance with Article 16 (3), and stating the risks which it
actually covers and the financial resources referred to in Article 11 (1) (e);
(c) Submit a scheme of operations in
accordance with Article 11;
(d) Designate an authorized agent
having his permanent residence and abode in the host country, and possessing
sufficient powers to bind the undertakings in relation to third parties and to
represent it in relations with the authorities and courts of the host country;
if the agent has a legal personality, it must have its head office in the host
county and it must in its turn designate an individual to represent it who
complies with the above conditions. The designated agent shall not be refused
by the Member State except on grounds relating to repute or technical
qualifications such as apply to directors of undertakings whose head offices
are situated in the territory of the State in question.
With regard to Lloyd's, in the event
of any litigation in the host country resulting from underwritten commitments,
assured persons must not be more unfavourably treated than if the litigation
had been brought against businesses of a more conventional type. The authorized
agent must, therefore, possess sufficient powers to enable proceedings to be
instituted against him and must in that capacity be able to bind the Lloyd's
underwriters concerned.
Article 11
2. The scheme of operations shall be
accompanied by the balance sheet and profit and loss account of the undertaking
for each of the past three financial years. If, however, it has not yet been in
business for three financial years it shall be required to furnish them only
for the financial years completed.
With regard to Lloyd's, the
publication of the balance sheet and the profit and loss account shall be
replaced by the compulsory presentation of annual trading accounts covering the
insurance operations, and accompanied by an affidavit certifying that auditors'
certificates have been supplied in respect of each insurer and showing that the
responsibilities incurred as a result of these operations are wholly covered by
the assets. These documents must allow authorities to form a view of the state
of solvency of the Association.
3. The scheme of operations,
together with the observations of the authorities competent to issue
authorizations, shall be forwarded to the competent authorities of the head
office country. The latter authorities shall communicate their Opinion to the
former within three months from the receipt of the documents; if their Opinion
has not been communicated upon the expiry of this time, it shall be deemed to
be favourable.
Article 14
The supervisory authority of the
Member State in whose territory the head office of the undertaking is situated
must verify the state of solvency of the undertaking with respect to its entire
business. The supervisory authorities of the other Member States shall provide
the former with all the information necessary to enable such verification to be
effected.
Article 15
1. Each Member State in whose
territory business is carried on shall require the undertaking to establish
sufficient technical reserves.
The amount of such reserves shall be
determined according to the rules fixed by the State, or, in the absence of such
rules, according to the established practices in such State.
4. The supervisory authority of the
Member State in whose territory of the head office of an undertaking is
situated shall verify that its balance sheet shows in respect of the technical
reserves assets equivalent to the underwriting liabilities assumed in all the
countries where it undertakes business.
Article 16
1. Each Member State shall require
every undertaking whose head office is situated in its territory to establish
an adequate solvency margin in respect of its entire business.
The solvency margin shall correspond
to the assets of the undertaking, free of all foreseeable liabilities, less any
intangible items. In particular the following shall be considered:
5. In the case of Lloyd's, the
calculation of the first result in respect of premiums, referred to in
paragraph 3, shall be made on the basis of net premiums, which shall be
multiplied by a flat-rate percentage fixed annually by the internal auditor.
This flat-rate percentage must be calculated on the basis of the most recent
statistical data on commission paid.
The details, together with the
relevant calculations shall be sent to the authorities of the countries where
Lloyd's is established.
Article 18
1. Member States shall not prescribe
any rules as to the choice of the assets in excess of those representing the
technical reserves referred to in Article 15.
Article 19
1. Each Member State shall require
every undertaking whose head office is situated in its territory to produce an
annual account covering all types of operation, of its financial situation and
solvency.
2. Member States shall require
undertakings operating in their territory to render periodically the returns,
together with statistical documents, which are necessary for the purposes of
supervision. The competent supervisory authorities shall furnish each other
with the documents and information necessary for exercising supervision.
Article 30
4. An undertaking having a structure
different from any of those listed in Article 8 may continue, for a period of
three years from the notification of the Directive, to carry on their present
business in the legal form in which they are constituted at the time of such
notification. Undertakings set up in the United Kingdom 'by Royal Charter' or
'by private Act' or 'by special public Act' may continue to carry on their
business in their present form for an unlimited period.
17. The Professor puts the argument
this way at paragraph 51 of his skeleton argument:
"[The] Directive .. places a
duty to regulate the insurance market within its territories upon the
governments of the member states. In the case of the United Kingdom, this
specifically includes Lloyd's Underwriters [Article 8.1(a)]. Lloyd's is
responsible for the implementation of the Directive in the UK because it is
liable as an organ or agent of the State because Lloyd's acted as such in
instructing auditors, alternatively, a directly effective right arises under
[the] Directive ..."
18. He submitted that Articles 15,
16 and 19 required the maintenance of adequate technical reserves and the
maintenance of a specific solvency margin. Without a proper audit system no
sensible estimate of outstanding ultimate liabilities and thus reserves or
solvency margin could have been ascertained. Nor would it be possible to
produce a correct or reliable certificate of solvency as required by Article
11. Under this head of claim an injunction would be an appropriate remedy. I
was reminded that
"every national court must
apply Community Law in its entirety and protect the rights which the latter
confers on individuals and must accordingly set aside any provisions of
national law which may conflict with it, whether prior or subsequent to the
Community rule." [paragraph 60 of the Opinion of Advocate General
Ruiz-Jarabo Colomer in the Skandia Case [1999] 2 CMLR 933 at page 9471.
The injunction remedy would be the
proper protection for the Defendants' rights. If I were not persuaded that the
Defendants' point was inevitably good, then the matter should be referred to
the European Court. It would be a waste of costs to refuse a reference at this
stage but require the matter to proceed up the domestic court hierarchy. The
draft questions for the reference were included in the pleadings bundle. I
reproduce them here, simply as an indication of the questions which the
defendants thought should be asked of the ECJ Were I to order a reference, then
it is the Court's responsibility to settle the questions:
"1. Is the delegation of the
duty to regulate the Claimant's market to the Claimant itself lawful under
European Community Law and in particular Directive 73/239?
2. In the light of the decision of
the Court of Appeal in Jaffray, did the UK Government or its delegate Lloyd's
during that period comply with the requirements of Directive 73/239M
3. Does Lloyd's have a duty to
regulate the Claimants' own reinsurance market and has it complied with that
duty and the requirements of Directive 73/239?
4. If the answer to questions 1, 2
or 3 is "no" is it lawful for the Claimant to be permitted to enforce
its claims against defendants?
5. If the answer to question 4 is
"no", should interim relief be awarded by this court to protect the
Defendant's regulatory rights under Community Law?"
19. Professor Watson-Gandy suggested
a sixth question, namely whether the English Limitation Laws or the doctrine in
Henderson v Henderson should, in the circumstances, be applicable so as to
deprive the defendants of a valid claim under Community Law.
20. For Lloyd's, on this question,
Mr Foxton submitted that for there to be direct effect the court must be able
to identify on the basis of the relevant provisions alone rights whose content
are precise, immediate and unconditional. The Directive in question has been
added to, over the years, as described by the Advocate General in the Skandia
case. The relevant Directive is that which applied during the relevant ten year
period to 1988. Looking at the words of the Directive did it confer rights on
the category of people who were seeking to claim them? Reference was made, in
particular, the speech of Lord Hope in Three Rivers District Council v Governor
and Company of the Bank of England [2000] 2 WLR 1220 at pages 1238-1239, &
1257. There, the House of Lords was considering the right of a depositor with
BM to sue the Bank of England for their alleged failure to monitor BM properly
in the discharge of their obligations under the First Council Banking
Co-ordination Directive [77/780/EEC]. The House held that the Directive did not
give the individual customer a right to sue; that the matter was acte clair and
a reference was unnecessary. Mr Foxton submitted that the two Directives have
similarities. Both were designed to harmonise the laws of member states to
ensure equality of rights of establishment and the provision of banking or
insurance services across the community. The House held that Article 57 [it was
pursuant to this article that both Directives were made] did not say anything
to suggest that the protection of individual depositors and potential
depositors against loss "could be regarded as a purpose for which
Directives were to be issued under it", despite the reference in Article
57(2) to the protection of savings. It is one thing for a Directive to
recognise that to obtain recognition a Bank must demonstrate that it has the
means to protect savings; and quite another for a saver to be given protection
by Community Law to an extent greater than under domestic law, on the other
[see page 1244]. There was nothing in the language of the Directive 73/239 to
suggest that rights were being accorded to persons who were damaged by a
failure to carry out proper supervision. In any event, the argument that the
Directive had direct effect for Names was rejected by Tuckey J. in Society of
Lloyd's v Pascoe 9 March 1998 at pages 8 & 9. When dismissing the appeal,
the Court of Appeal expressed as dubious the proposition that the Directive had
direct effect during the relevant period: Lloyd's v Fraser [1999] 1 Lloyd's Rep
IR 156 at pages 174-5.
21. In any event, it is an abuse of
process for the Levys or the Johnsons to seek to amend to raise this new case.
Both parties participated in a lengthy hearing in the Laws case in which the
court considered what counterclaims were open to Names following the Jaffray
judgment. A range of possibilities were canvassed, including innocent
misrepresentation, claims for restitution and (after judgment was handed down)
a reference to the ECJ. Of the various suggestions, the Levys and the Johnsons
espoused only the claim for innocent misrepresentation. When the proceedings
before Cooke J had come to an end, the Levys and the Johnsons both relied on
their limited participation and the fact that they were not to be associated
with other points which had been unsuccessfully argued. The costs order
reflected this. They maintained that position in the Court of Appeal which
dismissed the appeals in December 2003. It is, so Mr Foxton submits, an obvious
abuse of process for the directive point to be raised so late in the day after
they had not adopted it during the Laws litigation. That litigation was
designed to sweep up into one case all outstanding points which might be raised
against Lloyd's following the Jaffray judgment.
Stamp Duty
22. This is a point which is solely
relied upon by the Levys. They do not admit the assignment underlying the debt
and assert that no adequate notice of the assignment was given to them.
Professor Watson-Gandy submits as follows:
1. In order to make their case,
Lloyd's must prove the assignment; any reliance on the documents evidencing the
assignment will be unsustainable since Lloyd's will be unable to adduce in
evidence documents which should have been but were not stamped.
2. Judges must have regard to the
sufficiency of the stamp duty paid on a document before them and must ensure
that proper duty is paid by refusing to admit into evidence an unstamped
document.
3. The failure to pay duty does not
render the document invalid, section 14(2) of the Stamp Act merely renders it
inadmissible.
4. The fact that this point could
have been taken in other Lloyd's litigation and was not is no answer because
stamp duty points arise whenever the court is looking at an unstamped document
and a court will not assume that a document has been properly admitted in
evidence in the court below.
5. Lloyd's assert that the original
assignment has been lost. If the original assignment was not stamped then
secondary evidence of it would not be admissible.
6. If the original was stamped but
has been lost then the commissioners will either re-stamp a duplicate free of
charge or refund the money paid on the original.
7. The burden of proving that the
document was unstamped lies on the Levys; but it is not Lloyd's case that ad
valorem duty on the whole value of the cause of action was ever paid, the issue
is rather whether no or merely nominal duty arose on the operative assignment,
and the position is not clear.
23. The facts relating to stamp duty
are set out in Mr Martin's witness statement.
"24. On 2 October 1996 the
Completion Agreement was sent to the Stamp Office for adjudication.
25. Despite extensive searches by
both Lloyd's and Freshfields Bruckhaus Deringer (Solicitors for Lloyd's) we
have been unable to locate either the original Deed of Assignment or the
stamped original Completion Agreement. I have been informed by Freshfields
Bruckhaus Deringer that they have been able to ascertain from their account
records/files whether a payment of fixed duty was made at this time. Despite this
we have no reason to believe that the Completion Agreement was not adjudicated
and stamped at this time.
26. Further I am informed by
Freshfields Bruckhaus Deringer that they have made enquiries with the Stamp
Office. However the Stamp Office has informed them that they do not retain
records which date back as far as the period in which the Completion Agreement
would have been adjudicated and stamped.
27. For the sake of completeness,
and without prejudice to Lloyd's position that the concerns which had been
raised by the Names regarding the stamping of these documents were without
foundation, on 17 April 2002 four executed originals of the Completion
Agreement were sent by Freshfields Bruckhaus Deringer to the Stamp Office for
adjudication.
28. The Completion Agreement was
returned by the Stamp Office stamped "adjudged not chargeable with any
Stamp Duty". For the sake of clarity I can confirm that the Completion
Agreements which were stamped by the Stamp Office at this time were original documents.
I can confirm that the original stamped Completion Agreement is available for
inspection at Lloyd's.
29. Notice of the Assignment was
given to the Defendants by pro forma letters before action from Lloyd's
Solicitors Dibb Lupton Alsop dated 24 February 1997.
24. Mr Foxton submits that the Stamp
duty point has already been considered and decided by Cooke J. in Society of
Lloyd's v Troostwyk [2003] EWHC 1980 (Comm). There, the Judge rejected a
pleading point based on the difference in Lloyd's case between saying the
assignment was effected by the Deed, on the one hand, and by the Completion
Agreement, on the other. The position is clear: the assignment was effected by
the completion Agreement and was repeated in and evidenced by the terms of the
Deed. Permission to appeal in the case of Troostwyk was refused. The factual
position was summarised by Jacob LJ in his judgment. He said this: "As far
as the deed is concerned nobody knows whether it was stamped or not. The
difficulty is that in those circumstances the law presumes that things have
been carried out correctly."
The Registration point
25. The submission on the
defendants' behalf can be summarised in this way. Section 396 of the Companies
Act 1985 provides that certain charges which have not been registered are void.
"(1) Subject to the provisions of this Chapter, a charge created by a
company registered in England & Wales and being a charge to which this
section applies is, so far as any security on the company's property or
undertaking is conferred by the charge, void against the liquidator [or
administrator] and any creditor of the company, unless the prescribed
particulars of the charge is created or evidenced, are delivered or received by
the registrar of companies for registration in the manner required by this
Chapter within 21 days after the date of the charge's creation."
"Charge" and "property" are widely defined in that section
and it was assumed in the argument before me that they are apt to include the
security granted by the Deed of Assignment and Completion Agreement.
26. Mr Foxton points out that
section 396 comes into play only when the company concerned goes into
administration or liquidation. Assuming for present purposes that the Equitas
Premium is a 'book debt' there is nothing in the statute which entitles a
debtor to rely on these provisions in relation to a solvent company. An
unregistered security assignment is not void or invalid as against the assignor
and non-registration in advance of bankruptcy or insolvency does not affect third
party creditors, or debtors.
The Quantum point
27. This affects the Johnsons only.
They say that the figures are manifestly wrong as there is a difference between
the figures which Lloyd's have supplied them. The sum claimed "bears no
resemblance to the finality statement of either Mr or Mrs Johnson". The
court should not rely upon the sums where no proper audit was undertaken by
Lloyd's. Mr Foxton relies on paragraph 5.10 of the reinsurance contract which
provides that the record of Lloyd's Central Services Unit shall be conclusive
evidence in the absence of manifest error. This provision was upheld by Tuckey
J. in the Fraser litigation and by the Court of Appeal. Neither party here has
put forward any case for saying that there has been manifest error. The
accuracy of the figures has nothing to do with any failing by Lloyd's in
relation to adequate reserves.
Decision
28. There is a sense of dŽjˆ A vu
about this case. The Levys and the Johnsons wish to raise arguments which have
already failed and in the case of the European Directive point a case which
could and should have been raised before. The Lloyd's litigation has been
carefully managed to avoid a multiplicity of hearings and to avoid the risk
that as each point was decided against a party it would think of another one to
overcome the court's decision. But out of respect for the parties' arguments I
shall deal with each point on its merits.
A. The European Directive point
29. In my view there is no merit in
the point being raised. As it seems to me, the structure of the Directive is to
require the national governments to arrange for the supervision of the
insurance industry so as to ensure that 'foreign' companies were not
discriminated against and by providing for common trading rules so that the
prospective insureds would benefit from a competitive, properly regulated
environment. There is nothing in the Directive which suggests that insureds
would have any rights as against the regulator further than their existing
domestic law rights if any. The insureds were not the 'targets' of the
directive, although they might be the beneficiaries of a well regulated
Community wide insurance industry. This is precisely the same position as in
the Three Rivers Case. Under the Directive, Lloyd's were one of the insurance
providers which fell under the regulatory system; they were not, as I
understand the position, a delegate of the DTI for this purpose, they were
regulated by that Department. The fact that the way Lloyd's were regulated was
different because they were regulated with a lighter touch than insurance
companies is neither here nor there. Not only is a case based on the direct
effect of this Directive so far as an insured is concerned a hopeless
contention, it is nonsense on stilts to suggest that a Name was given direct
legal rights to complain about a lack of regulation. There is nothing in the
Directive which comes anywhere near making that argument sustainable. Lloyd's
was a special case because to some extent the Names are single insurers and to some
extent the Society or Association of Lloyd's can be looked at as m entity:
hence the Lloyd's Central Fund from which claims may be paid in the event of a
loss. The Directive could not cover the insurance industry generally without
making special reference to reflect the unique position of the
Names/Syndicate/Society. The fact that they are mentioned in the Directive says
nothing about whether the Directive was conferring individual enforceable
rights on them.
30. The cases cited by Professor
Watson-Gandy to show that insurance companies may be able to sue their
Government do not help. In the Skandia case [1999] 2 CMLR 933, the insurance
company took a 9.2% holding, by using its surplus funds, in another company.
This infringed the 5% rule imposed by the Swedish authorities. The matter was
referred to the ECJ Article 18(1) was relied upon by Skandia, who argued that
the application of a national rule such as the 5% rule was not only contrary to
that article but was also liable to distort competition. The court ruled in
Skandia's favour. The Court held that Articles 18(1) and 21(1) of the directive
"are sufficiently precise and unconditional to be relied upon before the
national court as against the national authorities." There is no
suggestion whatever that an interested third party such as an insured or a Name
were given rights by this Directive. In the second case [Case C-109/99, ABBOI,
[2000] ECR I-7247], the question was whether certain mutual benefit societies
whose sole business was that of insurance were entitled, having regard to
article 8(1)(b), to create a new entity which engages in commercial business.
The Court ruled that it was entitled to do so out of the free capital and
provided that their total liability did not exceed that capital contribution.
The Court referred to its judgment in the Skandia case and said that "the
primary purpose of the prohibition laid down in Article 8(1)(b) is to protect
the interests of insured persons against the risks which engagement in such
business could entail for the solvency of those undertakings." The
protection given by the regulations to the 'end-user' is to be found in the
provisions of the Directive and is derived from them rather than being created
by them.
31. In any event, Lloyd's is not an
emanation of the State and nor is it an 'agent of the State'. Lloyd's as a
society is simply an insurer [in a loose sense] which is regulated by the DTI.
There is high authority for saying that it is not an emanation of the State:
see in particular the decision of the Court of Appeal in R v Lloyd's on the
application of West [2004] EWCA 506. The nature of Lloyd's is essentially
non-governmental; it exercises no public law functions and as such is not
amenable to the application of the Human Rights Legislation.
32. At the end of the day, I regard
the arguments based on the Directive as hopeless. In any event, the events upon
which the Levys and the Johnsons wish to rely are those that occurred in the
ten years leading up to 1988. This claim is founded on the findings by the
Court of Appeal in the Jaffray case. It would be wrong, I think, to permit an
amendment which raised matters which were long statute barred, and even had
they been arguable, I would not have permitted an amendment on this ground as
well. I do not consider that it is remotely arguable that by applying our
Limitation Statute [6 year time limit] and/or our concept of abuse of process
is improperly stifling a European point. The Levys and the Johnsons have had
plenty of opportunity to argue this point before. Indeed, in theory they could
still argue it now in the litigation brought against the UK Government in
relation to its regulation of the insurance industry. None of these rules of
procedure constitute an improper impediment on a party's rights to assert a
claim under European Law. They have an effective but not unlimited right to
make their case. It is not the law that the doctrine of res judicata [or its
equivalent] is incompatible with Community Law. Contrary to the argument
presented by Professor Watson-Gandy, the case of Kšbler v The Austrian Republic
(Case C-224/01) [2004] 2 WLR 976 on which he relied does not establish that res
judicata is impermissible in relation to European Law points. There, a
university professor alleged that his employers in Austria should have taken
into account his university service in other European countries prior to his
service in Austria in calculating a length of service increment. On a reference
from the Supreme Court in Austria [the court of last instance], the ECJ ruled
that service in Europe should have been taken into account. When the matter
came back before the Supreme Court, it then held that the service increment was
not an increment based on length of service, as it had previously held, but
that, rather, it was in the nature of a loyalty bonus, and the court dismissed
the claim; whereupon the professor brought an action against the Republic of
Austria alleging that he had suffered loss as a result of the court's ruling.
The ECJ upheld the complaint on the basis that the principle of state liability
for damage caused to individuals as a result of breaches of Community Law
applied in principle to any breach by a member state of community Law, whatever
the state authority that was responsible, and extended to cases where the
infringement stemmed from a decision of a court adjudicating at last instance.
The United Kingdom intervened to argue that a decision of a Supreme Court of
last instance should not give rise to such arguments and that the principle of
res judicata should apply. But, in the context of the facts of this case, the
ECJ said that the principle of res judicata did not preclude recognition of the
principle of state liability for the decision of a court adjudicating at last
instance. It was inevitable that that was so, otherwise the national court
could pre-empt the ECJ from considering the claim.
33. Thus, my conclusions are that
the Directive does not confer rights directly on the Names, nor on any class of
individual. Second, Lloyd's is not an emanation of the State nor an agent under
the Directive of the DTI. Third, this issue has been debated before the courts
and the matter is finally settled. Fourth, there is nothing in our law or
community Law to preclude either the operation of a time limit nor the
principle of abuse of process. Five, permission to make the amendment sought
should be refused. Sixth, the position under the Directive is acte clair and a
reference is not appropriate.
B Stamp Duty
34. I regard this point as hopeless,
also, for a number of reasons. In the first place, as Jacob LJ said, it is not
known whether the original deed was stamped and therefore in the absence of any
evidence that it was not stamped, but lost, a copy of the deed may be
introduced into evidence. Second, four executed originals of the Completion
Agreement have been submitted to the Stamp Office and have been stamped
"adjudged not chargeable with any Stamp Duty". These documents are
apt to prove the assignment of the debt to Lloyd's. It is not the function of
the Court to question the validity of the stamp nor whether duty should have
been charged nor why these documents were stamped the way they are. The stamp
point is, admittedly, a purely technical point to which there is a perfectly
sound technical argument in response. I will not permit the pleading to be
amended to raise a point which is simply bad. I also regard the question under
the Stamp Act as having been decided in circumstances where the Levys are now
precluded from raising it.
C The Registration Point
35. This point is quite unarguable.
The answer to it is to be found in the following passage from Professor Roy
Goode's book "Legal Problems of Credit and Security", third edition
at paragraph 3-30
"Failure to register a charge
on book debts renders the charge void against a liquidator or administrator and
creditors, by which is meant creditors in a winding-up or administration or
secured creditors as opposed to unsecured creditors where no winding-up or
administration has occurred. Non-registration does not avoid the charge as
against a next line purchaser of the debt, but if he acquires the legal title
without notice of the unregistered charge he has priority under the normal
priority rules.
The effect of non-registration is
exhausted if the debts are collected before anyone has acquired a locus standi
to complain of non-registration, ie before winding-up or administration or the
grant of specific security."
36. I am satisfied that this extract
correctly summarises section 396 of the Companies Act and is the law. On this
basis, the defendants have no locus standi to resist paying the debts, whether
registered or not. I will not grant permission to add this point to the
pleadings.
D The Quantum point
37. There is no evidence of
'manifest error' in the figures. In the absence of such an error, the figures
provided from the records of Lloyd's Central Services Unit are conclusive. This
conclusion was adopted by Tuckey J in the Fraser litigation and approved by the
Court of Appeal. The figures relied on for settlement purposes were different
and nothing turns on that alleged 'discrepancy'.
Conclusion
38. It follows, therefore, that I
refuse permission to make the various amendments and, in those circumstances
there is no arguable defence shown to Lloyd's claims. Professor Watson Gandy
submitted that there was nonetheless some good reason why a trial should take
place after Lloyd's have been required to make full disclosure of their
documents. He criticizes the way in which Lloyd's have made partial disclosure.
When inspection was carried out by the defendants, parts of the Completion
Agreement had been covered over and they were not permitted to examine the
parts which had been concealed from them. This has led to a submission that
Lloyd's are declining to disclose material on the grounds of commercial
confidence. This submission is wrong. First, the stage for discovery has not
formally been reached. If the matter were to proceed to trial then disclosure
would take place in the usual way. However, Lloyd's have made available for
inspection the various formal documents which were made at the R & R stage;
but they are not willing or obliged to disclose irrelevant material, whether
that is contained in a separate document or in a document, part of which has been
disclosed. Whereas Lloyd's would prefer to disclose the whole of the Completion
Agreement, if only to avoid unfounded suspicion that they have something to
hide, they are not prepared to do so for reasons of commercial confidentiality.
They are not seeking and have not sought to cover up anything that is material
to the issues with which this judgment has been concerned. What has happened
over the documentation does not provide any reason why, even though there are
no arguable defences a trial should take place.
39. It follows, therefore, that
there must be judgment for Lloyd's on their claims. Whilst I have considerable
sympathy with the defendants, I reach my conclusion on the basis of the law and
the submissions made to me.
Judgment for the claimant.
Lloyd's; James Barnett