COUNSEL: A Newman QC and R Gordon for the Applicants; G Pollock QC, A Havelock-Allan and A Foster for the Respondent; P Baxendale QC for GW Run-Off Ltd

SOLICITORS: Bentleys Stokes & Lowless; Lloyds Solicitors department; Waltons & Morse

JUDGES: Beldam LJ, Laws J

DATE: 22 May 1992

JUDGMENT 1

BELDAM LJ: On 19th May Potts J gave leave to six Members of a syndicate at Lloyd’s to move for judicial review against Lloyd’s of London. The names and addresses of the Members are given in the Form 86A. The persons upon whom it was proposed to serve the proceedings were described as the regulators. The regulators are defined in the application as Lloyd’s, the Council and Committee, the Chairman, the Deputy Chairman of Lloyd’s, their permitted delegates and representatives and/or anyone or more of them as appropriate, and the decisions, orders and resolutions of the proposed respondents sought to be challenged were a resolution of the Council of 4th March 1992, and cash call statements, audit reports, notices, draw downs and the draw down procedure and the failure of the regulators to manage and superintend the affairs of Lloyd’s, and/or regulate and direct the business of insurance at Lloyd’s and/or advance and protect the interests of the Applicants in connection with the business carried on by them as Members.

Broadly, the relief claimed is certiorari to quash the resolutions, mandamus requiring the regulators to restrain from making and serving the cash call statements and audit reports on the applicants, certiorari to quash the notices and the accelerated draw down procedure, and prohibition to restrain the regulators from making and serving any notices on the applicants or from drawing down pursuant to the notices. The applicants also claim a declaration that the regulators have failed and continued to fail to comply with the requirements of the Acts and byelaws which regulate Lloyd’s of London. But in addition, they claim interim relief. By way of interim relief the applicants, or some of them, state their intention, if leave to move was granted, to seek, on a separate application interlocutory, injunctive relief restraining the making and serving of cash call statements, auditor’s reports and draw down notices until after the determination of the proceedings or other order.

That application Mr Newman on behalf of the applicants has made to the court this afternoon. He has elaborated the relief which he seeks in the Notice of Motion. The grounds are that the cash call statements, audit reports and/or notices are unlawful on the grounds set out in Form 86A and that the respondents threaten and intend, unless restrained by injunction, to draw down pursuant to the said cash call statements, audit reports and/or notices.

Potts J, having read all the documents — there are a considerable number of them — and having heard argument ex parte, was persuaded that a question of public law was raised, and so he granted leave.

This afternoon, Mr Newman has developed his arguments along lines to which I hope I do justice. First, he draws attention to the objects of Lloyd’s as set out in section 10 of the Lloyd’s Act 1871. The first object of the Society is:

“The carrying on by Members of the Society of the business of insurance of every description including guarantee business.”

The second is:

“The advancement and protection of the interests of Members of the Society in connection with the business carried on by them as Members of the Society and in respect of shipping and cargoes and freight and other insurable property or insurable interests or otherwise.”

In addition, the objects include:

“The doing of all things incidental or conducive to the fulfilment of the objects of the Society.”

It is perhaps not inappropriate to observe that the interests of the Members of the Society as a whole do not necessarily correspond with the interests of particular Members of the Society; when the Society seeks to promote the carrying on by Members of the business of insurance, it may well have to take decisions which bear hardly on some particular Members and their interests.

It is necessary, I think, to bear in mind that however large the Society may have become, primarily its object is the promotion of the business of insurance being carried on by its Members, in addition, of course, to the advancement and protection of their interests. It is difficult to see how the advancement and interests of the business of insurance and the interests of the Members of Lloyd’s as a whole would be promoted if a situation arose in which those who, relying on the very high reputation world-wide which the Society enjoys, had sought indemnity, were denied that indemnity because funds were not available to meet the calls needed to provide for the losses which they had suffered.

Essentially, Mr Newman’s case is that the primary object of Lloyd’s is to protect the interests of Members. He bases his submissions on a claim that in the promotion of certain regulations and in the agreement as to the way in which those regulations and procedures should be carried out, Lloyd’s have failed in their duty to protect and advance the interests of their Members. In particular, he accepted, as was put to him in argument by my Lord, Mr Justice Laws, that the whole purpose of Lloyd’s is the establishment of a commercial enterprise, and that the various documents and agreements which, by regulations, Lloyd’s have laid down, create a private law relationship between the regulators, as they are described, and the Members for that purpose. Among those documents is the Managing Agent’s agreement, to which we were referred, which makes provision for sums to be provided for a Premium Trust Fund to enable the agent to pay claims. For that purpose the Managing Agent makes a call on the Name. In particular, the agreement includes requirements as to the form in which calls should be made and the length of notice which must be given. After a cash call has been made under clause 1.7(a) of the Managing Agent’s agreement, the regulators are able, if the call is not met, either to draw down upon sums which have been lodged with Lloyd’s as a sum from which claims can be met, or to enforce a form of security, usually given by bank guarantee or policy of insurance or other security lodged in accordance with the Security and Trust Deed. Under that Deed, again the regulators are required to serve on the Name a written demand on 30 days notice to provide a sum. If the sum is not provided, then the Society can have recourse to the security or the cash deposit in the appropriate case.

Mr Newman, in short, contends that the proper procedure has not been followed, and that the cash call statement was not supported by an auditor’s certificate in the proper form and did not provide the Name with the information which the regulations laid down by Lloyd’s requires.

However, it emerged in the course of argument that the form in which this auditor’s report was given was one which had been agreed between the regulators and the Institute of Chartered Accountants, and one observes that among those who perform the duty of giving auditor’s reports are the names of most of the very large long established firms of City Chartered Accountants. That form having been agreed, it is said that nevertheless the cash call statements which were made were unlawful because they were not supported by the report in the agreed form. It is also said that they were null and void. Of course, it does not follow that if a report is not in the precise form it is null and void. It may not be in accordance with the terms agreed between the parties and it may not accord with the regulations laid down by the regulators. But, nevertheless, it may still be a report for the purposes intended by the parties.

Underlying the attack which Mr Newman makes on the written demand made by the regulators as a prelude to the draw down procedure, is the resolution of 4th March which the court is asked to quash. But Mr Newman does not, for the purpose of these proceedings, need to attack that resolution, for he simply says that the demand, which we were shown, and which is in an unquantified form, does not comply with the agreement between the parties because it is not in respect of a specific sum, and it does not give the required notice to the Name. In other words, he says it is not a reference to a sum as contemplated in paragraph 2(b) of the Security and Trust Deed and, as such, is invalid.

In mention these matters because they serve, in my judgment, to emphasise essentially the private nature of the application which Mr Newman’s clients are making. We were referred to the affidavit in support of the application for leave of Mr Mallet, sworn on 18th May. In that affidavit in paragraph 4 he says:

“… the Applicants' principal contention is that as a consequence of the regulators' failure to act in such a manner as to advance and protect the interests of Members, especially in relation to Cash Calls, the Cash Call Statements, the Audit Reports, the Notices and the Drawdown procedure, the Applicants have been and continue to be exposed to the risk of serious financial harm and possible financial ruin.

5. The present proceedings raise important issues as to the extent to which the Regulators have discharged their obligations towards Members. Further, the Resolution actually or potentially affects every Member of the Syndicates and other Members too.”

Helpfully in his affidavit, he drew attention to the timetable of events. In October 1991 the Managing Agents, Gooda Walker Limited, went into liquidation. In the same month the Council appointed a limited company, GW Run-Off Limited, as substitute Agents in place of Gooda Walker. On 21st January of this year, those Agents made cash calls and served on some or all of the applicants notice of those cash calls. On 16th April Saville J, in different proceedings, gave judgment in actions brought by a number of the Names, three of whom were the last three applicants in these proceedings. In those proceedings injunctions were claimed for the purpose, virtually identical to the purpose of these proceedings, of putting off until the hearing of the actions, the procedure laid down by Lloyd’s to obtain money to meet claims by the draw down procedure. Later that month, the Agent, GW Run-Off Limited, indicated that it was going to provide Lloyd’s with signed and certified statements. It is said that on the week beginning 11th May the draw down procedure began generally. Hence, there was the urgent application in these proceedings for interim relief. The affidavit sets out in full the particular position of the individual Members. It goes on to describe the structure and procedures of Lloyd’s and it refers to guidance given by Lloyd’s in their Market Bulletin on 8th January 1992.

The part of the affidavit to which we were particularly referred to Mr Newman is contained in paragraphs 52 and 53, in which Mr Mallet emphasises the important purpose served by quantification of the amount which is sought to be drawn down. He concludes by stating that:

“By appearing to be a once-and-for-all notice, the Notice frustrates a Members' expectations on two levels: as to a specific sum and as to a specific time.”

I am bound to say, having read the notices and having considered them, that I would be surprised if any of the Members was either misled or indeed frustrated by these documents or had any difficulty in understanding the purport of them. It may of course be that what Mr Mallet meant was that the Members' legitimate expectation of being asked for a specific sum and given a specific time was frustrated and therefore that gave rise to the right of the applicants to seek judicial review.

Be that as it may, having read carefully that affidavit and having listened to the submissions which Mr Newman has made, I am quite satisfied that this is not a case in which, within section 29 of the Supreme Court Act 1981, the court, having regard to the nature of the matters in respect of which the relief is claimed in the Notice of Motion, and having regard to the nature of the persons and bodies against whom relief is claimed, and all the circumstances of the case, it would be either just or convenient for the declaration to be made or for the injunction to be granted. For that reason, I would reject this application. I would only say that in addition to those matters, it seems to me that others than those who are here, though Mr Pollock is here to represent the interests of the regulators, may be acutely interested in the application which is being made, whose interests are no less personal than those of the applicants and upon whom the court has no means of knowing what the effect of granting the relief sought would be. In addition, it seems to me that it would be wrong — Saville J, having refused relief in the individual actions which were brought — that, by merely changing the form of the application and the nature of the relief sought, the last three applicants were to obtain by a different route the relief which he has refused them.

This is a case in which it is inappropriate for the court in a public law action to grant relief which has already been sought, and refused in proceedings based in private law. I would reject the application.

JUDGMENT 2:

LAWS J: I agree. Mr Lord has referred to section 31(2) of the Supreme Court 1981 Act and the private quality of the proceedings launched by these applicants. For my part, I am not able to perceive any public law issues here disclosed. Since Potts J has given leave, I add a few words of my own.

In paragraph 15 of the affidavit of Mr Mallet, to which my Lord, Lord Justice Beldam, has referred, it is stated, after reference is made to the objects of Lloyd’s as set out in section 10 of the Lloyd’s Act, as follows:

“The objects suggest that, among other things, that Lloyd’s is intended to have no executive say whatever or any direct interest of its own in the underwriting affairs of Members and that, instead, it is intended to be subordinate to Members and their interests, and that to the extent it acts at all it must do so with the primary object of advancing and protecting both.”

Mr Newman’s case, sketched for my purposes in very general terms, is that because the primary objects of Lloyd’s are to serve the interests of its Members, a complaint arises, since the procedures adopted in respect of cash calls and draw downs do not, according to his argument, sufficiently accord that protection. If that is the central submission of the case, what is being asserted is that the Society of Lloyd’s is at law subordinate to the undoubtedly private interests of each and every one of its Members. Upon such a premise, it seems to me impossible to perceive that it is here a public law body susceptible to the judicial review jurisdiction. I emphasise that I draw these conclusions from Mr Newman’s own evidence and submissions.

It is right to notice that each Member enters into the Managing Agent’s agreement, paragraph 7 of which deals with cash calls. 7.1(e) provides:

“The Name may not issue proceedings nor make any reference to arbitration, and no cause of action shall arise or accrue, in connection with any request for payment made by the Agent under and in accordance with the provisions of this clause 7.1” — I interpolate to say that is a cash call — “unless the Name has first complied in full with any such request. The Name shall not seek injunctive or any other relief for the purpose, or which would have the result, of preventing the Agent from making any such request for payment or enforcing the Name’s obligation to comply with any such request or of preventing the Agent from applying any money or assets held by or under the control of the Managing Agent’s Trustees in or towards the discharge of any claims or any necessary and reasonable expense or outgoing made or incurred in connection with the Underwriting.”

It is not suggested by Mr Newman that this contractual provision is repugnant to the objects of the Society or otherwise outwith the powers of the Society to make by way of contract with the Member. It may therefore be taken that it is consistent with the proper running and management of Lloyd’s and with the interests of the Members, so far as Lloyd’s must protect them. If so, it is a lawful policy in the means by which Lloyd’s goes about its business that pre-emptive action by recourse to the courts for interlocutory relief is to play no part in the administration of the enforcement procedures in the paragraph which I have mentioned. That being so, in my judgment, to grant the relief sought here would itself be repugnant to the proper operation of the very purposes, admitted by Mr Newman to be lawful, for which the Society exists.

DISPOSITION: Application refused