David Harris & Others v The Society of Lloyd's
Heather Mary Adams v The Society of Lloyd's
Case No: 2007 FOLIO 1439; Case No: 2008 FOLIO 182
High Court of Justice Queen's Bench Division Commercial Court
1 July 2008
 EWHC 1433 (Comm), 2008 WL 2465694
Before: Mr Justice David Steel
* Paul Stafford (instructed by Grower Freeman ) for the Claimants.
* Richard Jacobs QC (instructed by Freshfields ) for the Defendant.
* The claimant in person (assisted by her husband).
* Richard Jacobs QC (instructed by Freshfields ) for the Defendant.
Mr. Justice David Steel:
1 It is appropriate to start by introducing the parties and their representation. The Claimants in 2007 Folio 1439 are 49 names at Lloyd's. They commenced underwriting variously between 1973 and 1990. The Claimant in 2008 Folio 182 is Mrs Adams, another Lloyd's name. She commenced underwriting in 1977. She has instituted separate proceedings although it is accepted that they raise the same issues of law and fact as in the other action and the strike out application taken out in 2007 Folio 1439 is being treated by consent as extending to her claim.
2 None of the Claimants are strangers to the extensive litigation that has arisen out of serious difficulties that faced Lloyd's in the 1980s and 1990s. The claimants in Folio 1439 were represented by counsel. In the past, the court had allowed Mrs. Adams to be represented by her husband. Such an arrangement was accordingly permitted in the present action. However at the commencement of the hearing, Mr. Adams in turn made an application that Mrs. Adams should be represented by Mr. Stephen Merrett, the former underwriter and Deputy Chairman of Lloyd's. I refused the application. My reasons for doing so were expressed broadly at the time of my ruling but are now set out in greater detail.
3 Rights of audience are governed by Section 27 of the Courts and Legal Services Act 1990 . Leaving aside the scope for representation by an appropriately qualified advocate, a litigant in person (such as Mrs. Adams) is of course entitled to appear on her own behalf ( subsection 2(d) ). There remains however a discretion on the part of the court to accord anyone a right of audience in relation to specific proceedings ( subsection 2(c) ). But it is well established that the court will only accord that right (which would bypass the stringent requirements of the legal professional bodies) in exceptional circumstances: D. v S (Rights of Audience)  1 FLR 724 , Paragon Finance Plc v Noueiri  1 W.L.R. 2357 .
4 As I have already recorded, the court has already concluded that the circumstances were sufficiently exceptional to allow Mrs. Adams' husband to make submissions on her behalf. However, I had no hesitation in rejecting the application that Mr. Merrett should replace Mr. Adams. My reasons were these:
* i) The Claimants in 2007 Folio 1439 are represented by counsel, Mr. Stafford. As might be expected, he has presented their case, in almost all respects in pari materia with Mrs. Adams, with conspicuous thoroughness and clarity.
* ii) Mr. Merrett is not legally qualified. In the Commercial Court in particular lay representation is seldom contemplated as permissible: see Section M of the Admiralty and Commercial Court Guide .
* iii) Furthermore he is a witness in the case in the sense that extracts from two statements prepared by him and deployed by the Claimants in an attempt to re-open earlier proceedings in the Court of Appeal are relied upon by the Claimants (and in particular Mrs. Adams) in the present hearing.
* iv) This feature is of particular significance for the following reason. Despite the acceptance by Mr. Adams on his wife's behalf that her claim stands or falls with the other Claimants, he had in fact sought to pursue a different argument to the effect that RITC (reinsurance to close) as between Lloyd's syndicates constituted a statutory novation by virtue of Section 85 of Insurance Companies Act 1982 .
* v) This argument is not open to Mrs. Adams. Indeed it is not pleaded. Although I will briefly touch on it in due course, for present purposes the important factor is that it is clear that the submission is a hobby horse of Mr. Merrett's. Indeed it was apparent that Mr. Merrett was anxious to use the opportunity to appear for Mrs. Adams to pursue this argument rather than make submissions in the general interest of Mrs. Adams on the points properly open.
* vi) This became all the clearer when Mr. Adams came in due course to make his submissions. It became obvious that he used as his text material prepared wholly or largely by Mr. Merrett and which, in the main, focused on the discrete issue of statutory novation.
5 There is one other threshold point which I must deal with. On the eve of the hearing, the Claimants made an application for specific disclosure. I now set out my reasons for rejecting that application. The three documents which were the subject of the disclosure application were all associated with an opinion of Mr. Stewart Boyd Q.C. dated 14 April 1993:
* i) a note dated 4 October 1991 by Mr. Burling of the Defendant's legal department referred to in paragraph 1 of the opinion;
* ii) a note dated 5 April 1993 by Mr. Mallinson, at that time solicitor to the Corporation of Lloyd's, referred to in paragraph 4 of the opinion;
* iii) the instructions provided to Mr. Boyd for the purpose of producing the opinion.
6 The basis of the application was that the Defendant had deployed the opinion in the proceedings thereby waiving privilege of the opinion and thereby effecting a collateral waiver of the privilege in the documents sought: see Nea Karteria Maritime Co. v Atlantic and Great Lakes Steamship Corp.  Com LR 138 .
7 The Defendant's position was as follows:
* i) The documents were not relevant and/or alternatively they were not necessary for the fair disposal of the present application.
* ii) The Defendant had not deployed the opinion in the proceedings: it had been deployed by the Claimants and it was thereby that its privilege had been lost.
* iii) Thus the documents sought remained privileged and that privilege had not been waived.
8 At the end of the hearing late on Friday 11 April 2008, I refused the application and indicated that I would give my reasons in due course.
9 Before dealing with the substance of the matter I ought to record the remarkable delay in presenting the application for disclosure which would, in any event, have mitigated strongly against the exercise of any discretion to grant the relief sought:
* i) A CMC was fixed by Tomlinson J in December 2007 to take place on 8 February 2008 at which, amongst other matters, any application for disclosure was to be made;
* ii) The documents presently sought were requested in correspondence in January 2008;
* iii) The CMC was moved to 22 February. The application notice for disclosure of the documents was duly issued on 13 February, the notice itself identifying that the Claimant wished that the issue be dealt with at the CMC;
* iv) The Defendant's evidence in response to the application was served on 19 February;
* v) In the run up to the CMC hearing there was some debate as to whether there was sufficient time to deal with the application. Whilst the Defendant's position was that there would be time, the Claimants ironically took the opposite view.
* vi) The transcript of the hearing before Andrew Smith J demonstrates clearly the willingness of the judge to deal with the application which was opened at some length. In the event the Claimants refused to pursue it and the judge struck the application out on technical grounds but left it open to the Claimants to make a fresh application.
10 It is well established under the previous procedural rules that the power to order disclosure for the purpose of interlocutory proceedings should be exercised sparingly and then only for such documents as can be shown to be necessary for the just disposal of the application: Rome v Punjab National Bank  2 All E.R. 136 . There are good reasons for concluding that the same if not a stricter approach is appropriate under the provisions of CPR : see Disclosure, Matthews and Malek 3nd Ed. Para 2.68 . The delay described above undermines the credibility of the Claimants' protestations that, leaving aside the issue of privilege, the documents are necessary for (or even relevant to) the strike-out application.
11 The Claimants contended that the documents were relevant because:
* i) It is said that Mr. Burling's note would establish Lloyd's' view of the nature and effect of RITC and this in turn would illustrate when Lloyd's became aware that the representation they had made to prospective names was untrue. But there appeared to be no issue about what Lloyd's' view of the nature and effect of RITC was. It was regarded as a contract of reinsurance. Indeed it is the Claimants' case that that was Lloyd's view because the complaint is that they sought to deceive the Names by suggesting that it had some other nature and effect. It is clear from the opinion that Mr Burling expressed the view in the note that it was a form of reinsurance. Thus how it is relevant to any issue remains at best wholly obscure.
* ii) It is said that Mr. Mallinson's note would indicate what information was provided to names at the Rota Interviews. But Mr. Mallinson's note only purports to refer to the relevant documents all of which are available. The note can add nothing to Mr. Boyd's comment that some of the documents were "misleading". Accordingly the note is not relevant let alone necessary.
* iii) As regards the instructions, it is said that they would in turn encompass the matters identified in (a) and (b). It follows that they are equally irrelevant.
12 It is common ground that the opinion of Mr Boyd QC (and the documents sought on this application) was originally privileged. The opinion was indeed deployed by the Claimants in October 2006 when it was appended as an exhibit to a statement of Mr. Stephen Merrett and put before the Court of Appeal in the preparations for the hearing of the appeal in Henderson . It was also deployed by the names in the Taylor v Lawrence application in the Court of Appeal in June 2007. It would appear that Mr Merrett had copies furnished to him in his earlier capacity as deputy chairman of Lloyd's. In any event it was by this process that the privilege in the opinion was lost.
13 The suggestion made by the Claimants that, although the privilege had been lost, it nonetheless remained a privileged document is rejected. Any subsequent deployment of the opinion by the Defendant can be undertaken without any waiver of privilege. It equally follows that, since the opinion was no longer privileged, no question of any collateral waiver in respect of the documents referred to in it could possibly arise: see Hollander: Documentary Evidence 9th Ed. paras. 19.36 - 19.42 .
14 Leaving all this aside, the Defendant have not in fact deployed the opinion in court. The only relevant hearing was in December 2007 before Tomlinson J. The Defendant produced a detailed statement setting out their case. One of the exhibits was the Boyd opinion but the judge was not shown it and he was not invited to read that part of the statement which referred to the opinion. No submission was made by either party as to the content of the opinion. In short the statement was not deployed "in court" let alone in evidence.
The present application
15 This is an application by Lloyd's to strike out or dismiss yet further claims brought by the claimants. The application to strike out is made pursuant to CPR 3.4(2) and/or to dismiss the claims by way of summary judgment pursuant to CPR 24.2 . As regards the strike out application, it is contended that there are no reasonable grounds for bringing the claims and/or that they constitute an abuse of process. In regard to the application for summary judgment, it is submitted that the claimants have no real prospect of succeeding on the claims and there is no other compelling reason why the case should be disposed of at trial. This is against the background of encouragement to exercise such powers in appropriate cases contained the Report and Recommendations of the Commercial Court Long Trials Working Party dated December 2007.
The main issues
16 As already indicated, the claimants are no strangers to the "Lloyd's litigation". In particular they were all parties to Lloyd's v Jaffray  EWCA Civ 1101 and to the subsequent Taylor v Lawrence application in the Jaffray case: see  EWCA Civ 586 . Since the present proceedings focus on alleged misrepresentation by Lloyd's as to the nature of "reinsurance to close" or "RITC" made at the time when the claimants became names, this previous involvement is said by Lloyd's to be of particular significance.
17 This was because one of the ancillary grounds on which the Taylor v Lawrence application had been made was that the court had been misled about the nature of RITC. The claimants had put the point in this way:
* i) The names had always assumed and the court had accepted that the impact of RITC was to extinguish any further liability on the part of the members of the closing syndicate.
* ii) Lloyd's were however wrongly now asserting that RITC was simply a form of reinsurance and not a complete discharge in the sense of a novation.
* iii) This was not the case. But if it was the case, then it followed that the Court had been misled in its understanding that the effect of RITC was to bring about a legal transfer of all outstanding liabilities.
18 The argument failed to get off the ground because it was clear from the terms of its own judgment that the court in Jaffray had not been under the impression that RITC operated as a novation. It followed that the court was not influenced by any shared misunderstanding with the names that RITC operated as a novation when it had concluded, as regards the main issue in the case, that Lloyd's legitimately thought its audit procedures were capable of producing reliable information for the purposes of reserving and solvency.
19 By way of summary the court said this in rejecting the Taylor v. Lawrence application:
"62. The names are simply seeking to re-open the appeal in order to put forward an argument that was always available to them but which no one thought, or wished, to pursue. It does not depend on new evidence. At best all that has happened is that Mr. Merrett, and through him the names, has become alive to a view of RITC which had not previously occurred to him. And it is very doubtful whether the view of RITC which Mr. Merrett says is now being put forward for the first time is of any significance in relation to Lloyd's understanding in the early 1980s of the effectiveness of the audit procedures. If it were, we are confident that the argument would have been pursued vigorously. These disputes and the way in which they arise are miles away form the proper ambit of Taylor v Lawrence ."
20 I shall need to revert to this passage in due course but I have set this out at an early stage because in the present application it is Lloyd's submission that the claimants are seeking to resurrect the very same point yet again, albeit in a somewhat different form. The claim now advanced is in deceit and is based on the proposition that, at the time the claimants joined, Lloyd's fraudulently misrepresented to them that RITC constituted a novation. The motive for these further proceedings, it was submitted by Lloyd's, was solely for the purpose of further delaying enforcement in respect of Equitas premiums and other sums due to Lloyd's from the claimants.
21 The claim was accordingly, it was submitted, an abuse of process. In any event, Lloyd's contend that the claim is bound to fail:
* i) because as regards the cause of action:
o a) there is no real prospect of establishing a clearly identified and false representation of fact;
o b) there is no real prospect of establishing conscious knowledge of the falsity; and
o c) there is no real prospect of establishing reliance.
* ii) because there is no real prospect of overcoming the limitation defence.
22 Before turning to those issues I must deal with one discrete matter relating to the nature of RITC. It was, or at least became, common ground (with one exception) that RITC was indeed a form of reinsurance. It did not constitute a novation. The exception was Mrs. Adams. As I have already mentioned, she sought to contend, in reliance on advice from Mr. Stephen Merrett, that in truth RITC created a statutory novation.
23 Given the way in which these proceedings have been set up, the point is simply not open to her. Her particulars of claim make no mention of the point. She participates solely on the basis that the question whether her claim should be struck out stands or falls with the others. However since the point has been raised, I will deal with it briefly in the interests of completeness.
24 Sections 49 to 52 of the Insurance Companies Act 1982 make provision for the transfer of insurance business subject as appropriate to the approval of the court or the Secretary of State. Such approval is dependent, amongst other things, on notice to all relevant policy holders. If approval is forthcoming, the transfer is effected by way of a statutory novation. It is this machinery which is relied upon by Mrs. Adams.
25 There are however special provisions as regards the transfer of business by or to Lloyd's underwriters. Section 85 provides that sections 49 to 52 only apply to such transfers if the conditions in subsection (2) are satisfied. They are:
* i) the transfer is not one where both the transferor and the transferee are members of Lloyd's;
* ii) the Committee of Lloyd's have by resolution authorised a person to act in connection with the transfer;
* iii) a copy of the resolution has been given to the Secretary of State.
None of these conditions are satisfied in the present case and, accordingly, any suggestion of statutory novation is misconceived.
26 In any event, since it is fundamental to the case pleaded by David Harris that RITC does not constitute a novation (whilst he claims Lloyd's stated otherwise at the time he renewed his membership), it follows that the line of argument which Mrs. Adams was anxious to pursue would completely undermine that case. In short on the claimant's case, it would establish the absence of any misrepresentation. I say no more about it.
Mr Harris' claim
27 Accordingly, I turn to the claim as advanced by Mr. Harris. This can be very broadly summarised as follows:
* i) The brochure furnished to him by Lloyd's in 1983 contained representations as regards the process of RITC to the effect that all liabilities of a closed year of account passed to the names of the succeeding open year. Such representations were repeated and confirmed in the Verification form furnished to Mr. Harris in the run-up to his interview by the Rota Committee.
* ii) As intended, Mr. Harris relied on the representation in pursuing his application for membership.
* iii) Mr. Harris continued to rely upon the representations for each year of his participation, his last year being 1991, during which period he sustained substantial losses.
* iv) The representations in the brochure and the verification form were untrue. As confirmed by legal advice to Lloyd's and explained in documentation distributed to the names, the names into whose years the risks were originally written remained liable despite RITC. v) Further the representations were made by Lloyd's fraudulently either because Lloyd's had no honest belief in their truth or because Lloyd's made them recklessly, careless whether they were true or false.
* vi) The first time that Mr. Harris knew or could with reasonable diligence have discovered that he had any cause of action in this regard was August 2007 when the content of various statements made by Mr Merrett together with various exhibits were closely examined. Thus, by virtue of s.32 of the Limitation Act 1980 the claim is not time barred.
28 This was a document which was provided to all applicants for underwriting membership of Lloyd's. Amendments were made year by year. The edition furnished to Mr. Harris in 1983 provided as follows:
"...This brochure is intended to inform the recipient and his advisers of many general facts concerning the organisation and operation of Lloyd's and is not intended to be an offer of Membership of Lloyd's nor the solicitation of an application for Membership of Lloyd's. This brochure should be read in conjunction with other materials provided to the recipient in the process of his application for Membership of Lloyd's.
A Member of Lloyd's is severally liable for a specific share of risk on every policy underwritten by him through the syndicate of which he is a member ....However in the event that the chain of security described at 8.1 - 8.4 is insufficient to pay all the claims made against the Member, he will be assessed to the entire amount of his personal fortune to pay any valid claims against him.
Non-transferability of Membership
....The position with regard to resignation from a syndicate will be as laid down in the agreement between the Member and his Underwriting Agent. The Member may join one or more syndicates at the beginning of any year. In the event of a Member's death or resignation from Lloyd's he remains liable (or in the case of his death, his estate remains liable) on all insurance policies underwritten by him, during the time of his Membership, through syndicates in which he was a member. It may be that the terms of his underwriting agreement provide for his participation in the policies underwritten by his syndicates during the whole of the year in which his resignation or death occurs. His deposit will be retained by the Committee of Lloyd's in trust until such time as the Committee is satisfied that all underwriting liabilities have been paid or provided for in a manner approved by it. The deposit will be returned no sooner than the time the Member's last year of account (for description of year of account see "Lloyd's System of Accounting" at 10) is closed by reinsurance: this will normally be at least two years after the effective date of his resignation or the end of the year of his death, as the case may be."
Description Of Security
8.5 Each member is obliged each year to contribute by means of a levy on premium income to a Central fund and contributions are collected from the syndicates concerned. This fund is held and administered under a Trust Deed by the Corporation and the Committee of Lloyd's and the purpose of the Fund is to meet underwriting liabilities of any Member in the event that his security and personal assets are insufficient to meet his underwriting commitments. The fund is for the protection of the holders of Lloyd's policies, not the member, who is still responsible for his liabilities to the full extent of his private wealth."
28 "Lloyd's System of Accounting
10.4 ... Once this liability has been estimated on the account at the end of its third calendar year, it must be reinsured by a valid policy of reinsurance before the account can be closed ..."
28 "Closing Reinsurance
11. When the estimated outstanding liability on a year of account is determined at the end of the third year pursuant to the provisions of the Lloyd's audit, a syndicate will usually close the account by reinsuring such liability into a later year of the syndicate. This is accomplished by the members of the old syndicate paying a reinsurance premium to the new syndicate. The new syndicate then assumes any future liability which may be incurred as a result of claims on the policies written by the old syndicate. Being an estimate of future liability, the reinsurance premium may or may not eventually be proven accurate. In certain cases it has been inadequate and the new syndicate has suffered losses in excess of the reinsurance premium received; in such cases Members in the new syndicate would suffer a loss on the reinsurance to close.
28 "Glossary of Terms
28 "Closed years
An underwriting account of a syndicate which has been debited with a reinsurance premium to close the account ... is known as a 'closed' account ...
28 "Reinsurance to Close
The method by which the outstanding liability on the Underwriting Account of a Lloyd's Syndicate for any one year of Account is closed (usually, but not necessarily, at the end of its third year) by reinsuring such liability into the Account of a later Underwriting Year.
A reinsurance premium is charged to the Underwriting Account of the closing year and credited to that of the reinsuring year, which then adds to its liabilities a sum equal to the reinsurance premium so received and pays all claims which would otherwise be the liability of the Underwriting Year reinsured."
29 As already indicated, the claimants each received different editions of the brochure. The description of RITC varied somewhat but not in my judgment in any material respect. In this respect, it is instructive to have regard to the terms of the earliest and latest relevant versions as regards RITC. In 1975, the "Notes for Applicants" said this:
29 "Lloyd's Audit
Under the Lloyd's system of accounting the accounts for the business underwritten in each year are normally kept open for three years. When the underwriting account is closed at the end of the third year, a reserve is made in respect of outstanding liabilities and this amount, designated a 'reinsurance' to close the account, is carried to the credit of a later underwriting account."
30 In very limited contrast, by 1987 it was defined as follows:
"Reinsurance to close: the method by which the outstanding liability of a year of account is closed by reinsuring such liability to a later year of account in consideration of the payment of a premium equal to the estimated value of known and unknown claims."
31 Part of the process of obtaining membership (and specifically referred to in the brochure provided to Mr Harris) was an interview of the applicant by a Rota Committee to ensure that the applicant was fully cognisant of the implications of unlimited liability. The candidate was interviewed in a formal and prescribed manner against an agenda or briefing note. The relevant version for Mr Harris required the Committee to obtain confirmation from the candidate of various matters as follows:
"1. Confirm that the candidate understands that -
a) His liability is unlimited and that everything he owns is at risk to support this liability also that on his death this liability passes to his estate ...
3. Confirm -
c) Candidate has seen at least seven closed years figures in the form recommended by the committee for the syndicates he proposes joining, together with an indication of the results of the open years ..."
32 Following the interview, a Verification Form had to be completed by the applicant. Quite when this form was introduced remains unclear although it is accepted that at least 15 of the claimants did not sign one. The verification form which was duly signed by Mr. Harris stated:
"(2) I understand the following matters which have been explained to me by my underwriting agent:
a) The underwriting of insurance is a high risk business and profits are not guaranteed.
b) As an underwriting member of Lloyd's my liability is unlimited and in the event of my death my estate will inherit my unlimited liability in respect of business underwritten by me during my membership.
c) I can only resign in accordance with the rules explained to me by my underwriting agent and if I resign I shall continue to remain liable until my last underwriting year has been closed by reinsurance.
d) Upon my resignation or death my deposit ... will not be released until my last year of account has been closed by reinsurance. This will be at least two years after my resignation or death unless a suitable reinsurance policy exists.
e) I will inherit liability for claims arising out of losses which may have occurred prior to my becoming an underwriting member of Lloyd's."
The alleged misrepresentation
33 The claimants' case was that the brochure whether read in isolation or in conjunction with the verification form was a clear statement to the effect that, following RITC, no further liability to the names on the closed year could arise and that nothing was said in the course of the Rota Interview to contradict the position. In short the complaint was that the prospective names were being told incorrectly that, as a matter of legal analysis, all the contracts with the policyholders were novated by virtue of the RITC. On this basis, names could accordingly thereafter resign and their estates could be distributed all without any further residual exposure.
34 The position of Lloyd's was that the contents of these documents were not intended to, and did not, contain a legal analysis of the consequences of RITC. It did not assert that there would be a novation: indeed it was clearly stated that it was a form of reinsurance. The documents simply reflect the factual position that, when a year was closed into a year in which a name was not a member, that member had no further involvement despite the theoretical risk of residual exposure. The elimination of that risk flowed from the security of the RITC contract and, in the event any default on the part of the reinsuring syndicate, the Central Fund.
35 It was accepted by the claimants that the central fund underpinned the RITC mechanism allowing for payment in the event of a default thereby avoiding recourse to the names on the year of account in which the policy was written (although no such recourse had in fact ever been necessary). Thus the fact that such was the practical position was not controversial. Indeed such was confirmed in Lloyd's v Clementson  Lloyd's Reinsurance Rep. 175 at para 14.17:
"A Name has been regarded by the DTI as ceasing to conduct business when all his open years have been closed by RITC. Because RITC is treated as ending a Name's involvement in a syndicate for regulatory and tax purposes, it is effectively the mechanism whereby a name is released from his membership of Lloyd's": per Cresswell J at para 14.7.
Origin of allegation
36 The complaint regarding the alleged misrepresentation did not see the light of day until August 2007 with the claim form following shortly afterwards in October 2007. It arose from material annexed to a witness statement of Mr Stephen Merrett dated October 2006 which was deployed by the claimant names in the Court of Appeal in relation to the appeal in Henderson and the Taylor v. Lawrence application in Jaffray : see further below. The exhibits included documents provided to Mr Merrett by Lloyd's legal department in his capacity as Deputy Chairman. The most significant material took the form of the advice from counsel in respect of which Lloyd's could otherwise have claimed privilege.
37 The first such advice emerged shortly after Mr. Harris was interviewed by the Rota Committee. Lloyd's sought the opinion of Mr. Adrian Hamilton Q.C. as to the nature of RITC. The instructions to Mr. Hamilton prepared by Lloyd's legal department expressed the view that, notwithstanding expressions of opinion to the contrary, "liability for risks underwritten at Lloyd's remain with the syndicate of Names into whose years of account the risks were originally taken down." It is also clear from the note of the subsequent conference with Mr. Hamilton that he shared that view. RITC, he opined, was indeed a form of reinsurance. The old names remained liable to the insured but were exonerated by the indemnity given by the new names.
38 The reason for focussing on the true nature of RITC in the mid-1980s was a dispute that had arisen between Lloyd's and the Inland Revenue. The Revenue was taking the line that the sums payable by way of RITC to the succeeding year's syndicate was in fact a reserve. (Indeed, ironically in the light of subsequent catastrophic events, the Revenue was alleging that syndicates were over reserving for tax avoidance purposes.) In contrast, it was Lloyd's contention that the sums represented a premium for reinsurance cover, a stance that in the event was never formally challenged.
39 Consistent with this view of the nature of RITC, the Council of Lloyd's made a byelaw in 1984. This is referred to in more detail below. Thereafter, in September 1986, as the dispute with the Revenue rumbled on, the second item of legal advice saw the light of day. Lloyd's sought advice from Mr. Nicholas Phillips Q.C. A note of the ensuing consultation reveals that Mr. Phillips' opinion was that the byelaw accurately defined the true position in that RITC was indeed reinsurance and not a form of reserving.
40 The note goes on:
"Although technically an assured could look to the members on old years that have since been reinsured in the event that the reinsurers default in paying the assured, it would be, presumably, a matter of policy for Lloyd's to state that the onus lies only on the members of the latest reinsuring syndicate to pay the assured and, if they do not, then Lloyd's itself (through its Central Fund or otherwise) would see to it that the assured is paid. It would not be necessary to legislate for this."
Against that background, Mr. Phillips is recorded as saying, in agreement with his instructions from Lloyd's legal department, that, while "legally" the old names remain on risk, "in practice there is a novation."
41 Thereafter, in October 1986, Mr. Phillips wrote a joint opinion with Mr. John Gardiner Q.C. which confirmed the earlier advice. Paragraph 8 of the opinion is of particular significance:-
"8. In concluding the multiplicity of contracts which make up a reinsurance to close, the Managing Agent acts for all parties and owes duties to each. Contractually between the Names the effect of the reinsurance to close is to pass, in consideration of a premium, the risk of liabilities of the closed year. The Names of the succeeding year undertake to pay all claims outstanding against the year that is being closed and become entitled to receive all insurance recoveries etc. that would otherwise be payable to the closing year. The Names of the succeeding year are paid a premium for undertaking such risks. Strictly the old Names probably remain liable to the assured under their original contracts of insurance. In practice such liabilities are discharged directly by the new Names. In practice a broker acting for the assured makes a claim against "the Syndicate" without reference to the year of the Syndicate when the risk was written or to the Names who were then on that Syndicate. It could be argued that this practice is such an integral part of the way business is done at Lloyd's that all who insure at Lloyd's accede to it, so that the reinsurance to close is not merely a multiplicity of bilateral reinsurance contracts but a multiplicity of novations. This sophistry in no way affects the principles of taxation with which we are concerned ; [ emphasis added ]."
42 The third element of the legal advice produced by Mr Merrett to the claimants dated from 1993 when Mr. Stewart Boyd Q.C. was instructed to comment on the draft Business Plan that in due course was to form the basis of the Reconstruction and Renewal programme. He was asked the question whether Lloyd's were under any duty to disclose to its membership the legal nature and effect of RITC. He stated in terms that there was no duty of disclosure at any stage whether at the Rota Committee at the earliest or the business plan at the latest. However he confirmed that Lloyd's was under a duty to ensure that any representations that were made to the membership were true.
43 In this regard his attention was drawn to the Rota interview documentation referred to above (and in particular the Verification Form) to the effect that the proposed member would remain liable for his share of the business "until the account is closed". He described this as "misleading". It is this observation which caught the eye of the claimants when studying Mr Merrett's witness statement with greater care after the Taylor v. Lawrence application.
44 However it is important even at this stage to note that Mr Boyd went on his written opinion to say this:
"The member remains legally liable for his share of the business until the account is run off to extinction. However, the difference has probably not been material until now. The RITC has in practice proved effective from a practical point of view to close the account so far as Lloyd's, the Inland Revenue and the DTI are concerned because the RITC has had a Lloyd's syndicate and a Lloyd's Central Fund as security, and the security has never failed."
45 The reason why this distinction had become material was because the Business Plan involved reinsurance of all open years into a corporate vehicle so that the old liabilities were ring fenced. Thereby it was arranged that those continuing their membership or joining thereafter would not be exposed to these liabilities. Importantly therefore, any deficit would not be met from the Central Fund, a matter which needed to be drawn to the attention of all names.
46 In any event, prompted by this suggestion that the Verification Form was misleading in stating that liability remained "until" the account was closed, taken with the revelation that Lloyd's had been advised in terms that RITC was a form of reinsurance and not a novation, the claimants issued these proceedings.
Abuse of process
47 It is worth repeating the relevant statement of principle as contained in Johnson v Gore-Wood  1 AC 1 , per Lord Bingham at 30 - 31:-
"The underlying public interest is ... that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not ... Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."
48 It was Lloyd's submission that the present proceedings were a paradigm example of abuse of process. The foundation to this submission was this. Given the long history of the Lloyd's litigation and the desire of the Commercial Court to conduct its business efficiently, it was the clearly expressed intention of the court in Jaffray that it would constitute the one and only opportunity for prosecuting a claim in fraud against Lloyd's. As Mr. Justice Cresswell stated in a case management conference in June 1999: "This is the fraud case against Lloyd's and there will not be further fraud cases against Lloyd's."
49 The background in brief was as follows. The claim in Jaffray got underway in 1998. In an order for directions made by Colman J on 4 June 1998 the solicitors acting for the names were required to identify what categories of fraudulent misrepresentation were to be relied upon. Category 1 was expressed as follows:
"Damages for fraudulent and/or negligent misstatement and/or misrepresentation arising out of or made prior his or her admission as a name in particular statements made in the Brochure for applicants for underwriting membership for the year of joining between the years 1977 and 1995."
Despite the open ended nature of this category, the threshold fraud point was narrowed down in the event by the names to an allegation of misrepresentation in the brochures and other publications of Lloyd's with respect to asbestos claims. Nonetheless the names had had every opportunity to put forward any different formulation thought to be arguable.
50 At a case management conference on 29 October 1999, Cresswell J (the judge in charge of the Lloyd's litigation) ordered that any name who wished to pursue this narrower allegation had to give notice or otherwise be shut out from advancing it later. He made it clear that the Jaffray proceedings were to be regarded as a test case which will dispose of all cases of the same "type" and that the court would not countenance further allegations of fraud by reference to misrepresentation being made in future proceedings - all the more so if the issues could and should have been raised earlier on Henderson v Henderson principles.
51 In the absence of any broader complaint being advanced by any of the names then party to the Jaffray proceedings (including the present claimants) the form of order contained the following paragraph:
"Any individuals being present or former members of Lloyd's, who wish to reserve the right to advance allegations that they were fraudulently induced to become or remain underwriting members of the Lloyd's market by reason of Lloyd's failure to disclose the nature and extent of the market's liability for asbestos-related claims, must provide written notice to Lloyd's solicitors, Freshfields, at 65 Fleet Street, London EC4Y 1HS (ref RDP/GN, fax number 832 7001) by no later than
a. 3 December 1999, in the case of an individual ordinarily resident in the United Kingdom and Europe,
b. 10 December 1999, in the case of other individuals,
confirming that they wish to become parties to the litigation. Failing timely service of such a notice, these individuals will thereafter be precluded from advancing such allegations without leave of the Commercial Court. An individual who provides written notice by the specified date will be deemed to have become a party to the proceedings on date of receipt of such notice, and will be bound by the Court's determination of the Threshold Fraud Issue ordered to be tried as a preliminary issue herein."
52 It is not necessary to cite from the judgment of Cresswell J. But it should be noted that the RITC process is described throughout, consistently with the agreed statement of facts (and the 1984 bye-law), as a reinsurance contract between the members of the closed year and the members of a later year. Further, if and to the extent it could be argued that the brochures or verification forms suggested otherwise or were inconsistent with the bye-laws or the Business Plan, the penny did not drop so far as the claimants were concerned. All this despite all editions of these documents being thoroughly reviewed during the course of a 64 day long trial.
53 Similar considerations arise with regard to the hearing in the Court of Appeal over a further 14 days. Still no suggestion was made that the very same parts of the brochure relied on as constituting a misrepresentation in regard to auditing (in particular paragraph 10.4 of the brochure) also contained a misrepresentation as to the nature of RITC. This was perhaps all the more remarkable given the exchange between counsel for the names and Lord Justice Clarke, in analysing the concept of RITC on day 2, to the effect that it was well understood by the names that in regard to a policy taken out in, for instance, 1946 the insured would make a claim against the 1946 names who would in turn claim under all the succeeding reinsurances.
54 In its judgment in Jaffray  EWCA Civ. 1107 at para 500, the Court rehearsed the scope and purpose of the trial as outlined above:
"500. At a case management conference on 29 October 1999 Cresswell J, who was of course in charge of the Lloyd's litigation, decided that any names who wished to reserve the right to advance a case that they had been induced to become or remain members of Lloyd's by reason of Lloyd's failure to disclose the nature and extent of the market's liability for asbestos-related claims must give notice that they intended to become parties to the litigation. He made an order to that effect. Such an order was plainly appropriate since it would be unthinkable for either names or indeed Lloyd's to be able to use valuable court resources twice (or many times) in order to have the same issues determined (emphasis added) ."
55 The Court of Appeal dismissed the appeal but in doing so held that the representations relied upon by the names (as reformulated) were false but that such was not known to be false by Lloyd's. Encouraged by this somewhat pyrrhic victory, some of the names (including the claimants) sought to amend the claim in Jaffray in various respects, including reliance on alleged fraudulent misrepresentations other than those advanced and determined by Cresswell J and the Court of Appeal. In particular, the names sought to contend that the representation in the brochure about a rigorous audited assessment of outstanding liability was false (or at least negligently made) in that not only had the audit in fact led to large scale under reservation but it was also not actually capable of producing a reasonable estimate.
56 The application was in large part refused by Cooke J:  EWHC 873 (COMM). Having outlined the history of the Jaffray proceedings, Cooke J made the following comment:
"4. On 1st November 1999, Cresswell J made a further order for directions. In this order, as in others, additional Names were identified as counterclaiming Names and in each case, where the Name had no existing proceedings, a date was specified as the deemed date of commencement for Limitation Act 1980 purposes. He ordered that any Names who wished to advance allegations of fraudulent inducement to become or remain an Underwriting member of Lloyd's by reason of Lloyd's failure to disclose the nature and extent of the market's liability for asbestos related claims had to provide written notice by a specified date, failing which they would thereafter be precluded from advancing such allegations without the permission of the Court. As a result of this order (as appears from the statement sent on the Court's instructions to Names who were in dispute with Lloyd's) the Court hoped to ensure that all fraud arguments would be enshrined in the Threshold Fraud Trial and would be determined once and for all, between Lloyd's and all non-accepting Names, however such fraud claims were framed, whether by reference to misrepresentation or non-disclosure of information ( emphasis added )."
The Court of Appeal dismissed an appeal from Cooke J ( EWCA Civ 1887 ) without needing to touch on these issues.
57 Yet another application to amend the Jaffray proceedings was made in Henderson . This involved an unsuccessful attempt to introduce a claim for misfeasance in public office:  EWHC 850 (Comm). This failed both at first instance and later on appeal. Andrew Smith J refused the application because amongst other reasons given the court's strategy for the management of the Lloyd's litigation and the long delay in pursuing the newly formulated case of fraudulent misrepresentation the amendment should be refused as a matter of discretion, even if it was unnecessary to go so far as to characterise it as an abuse of process on Henderson v. Henderson principles.
"83 ... the applicants have had ample opportunity in the past to make the allegations that they now seek to advance and have not previously done so. They seek permission to make them more than eight years after R&R. No proper reason has been given for the delay in pursuing these claims. If names thought that they would or might advance a claim of misfeasance in public office involving allegations of this kind (or indeed at all), it should have been mentioned at the case management conference before the trial of the Threshold Fraud Point..."
58 The decision of the Court of Appeal was to similar effect (  EWCA Civ 930 ). Buxton LJ said as follows at para. 63:
"63 ... I have no doubt that ... the attempt to introduce Misfeasance in Public Office into the case at this stage is an abuse of process ... as early as 1997 leading counsel for the names ... indicated that the pleading of misfeasance in Public Office was under consideration. That step was not taken even when ... it was made clear that the structure of the enormously expensive TFP proceedings had been set up in order to deal at one time with all of the allegations of fraud sought to be brought against Lloyd's. It is plain abuse to come back to court now, after having gone unsuccessfully through the whole of the TFP trial and appeal, with a new claim that it was decided ten years ago not to plead."
59 But in the meantime a Taylor v Lawrence application had been made in Jaffray:  EWCA Civ. 1101 . The point arising here was the desire to argue that the falsity of the representations made as regards the soundness of Lloyd's accounting system was demonstrated by the fact that RITC was only reinsurance. This was premised on evidence from Mr. Stephen Merrett that Lloyds had portrayed RITC as a contract to transfer liability and thereby achieve "closure". Mr. Merrett put the matter this way:
"1.5 Lloyd's suggestion that Names on historic years of account retain a residual liability to policyholders, and that it is those names in that role who face policyholders claims and who are legally dependent on a successful claim against each name participating in the RITC of that underwriting year, is a change in position which has never been notified by Lloyd's to the Names whom Lloyd's now says have this ongoing liability."
60 It was thus said that the fact that RITC was not by way of "closure" but a form of reinsurance falsified any representation relating to the rigour of the audit procedure. (Notably the present proceedings bring matters full circle since the names now seek to establish that the representation was to different effect - namely that RITC constituted a novation - which in turn was false because it was in fact reinsurance.)
61 The application failed for the following reasons:
"60. This part of the names' case depends on the following propositions: (a) that when hearing the appeal the court understood that the effect of RITC was to bring about a legal transfer of outstanding liabilities from the Names on the closing year to the Names on the next open year; (b) that that was an important factor in its finding that Lloyd's thought that the audit system was capable of producing reliable information about outstanding liabilities and solvency; (c) that if Lloyd's is right in saying that RITC operates merely as a reinsurance, the court was misled; (d) if the court had realised that RITC operates merely as reinsurance, its finding about Lloyd's perception of its audit system would have been different and fraud would have been established.
61. This argument fails at the first stage. In ¤ 373 of its judgment the court adopted the description given by Mr. Outhwaite in his statement in Stockwell v RHM Outhwaite (Underwriting Agencies) Ltd of the way in which reserves were set. In the light of that evidence there is no basis for saying that the court was under the impression that RITC operated as a novation of names' liabilities to the original policyholders. If that is right, it follows that when reaching the conclusion that Lloyd's thought that its audit procedures were capable of producing reliable information for the purposes of reserving and solvency the court was not influenced by an understanding that RITC involved a transfer of legal liabilities, whether that be the correct view or not": per Buxton LJ.
As already noted the court was of the view that the names were simply seeking to put forward an argument that was always available to them but which "no one thought, or wished, to pursue".
62 The present proceedings are, in my judgment, unquestionably an abuse of process:
* i) The court has been at pains to structure the Lloyd's litigation in an efficient way.
* ii) The claimants were all parties to the Jaffray action.
* iii) This was decided at first instance by the judge then nominated by the Commercial Court to be in charge of the Lloyd's litigation.
* iv) The action was designed to deal with the fraud defence raised by the names in Lloyd's v Leighs .
* v) The action was constructed so as to furnish an opportunity for any name to pursue a claim based on some form of fraudulent representation by Lloyd's which had allegedly induced him or her to become a name.
* vi) The documents primarily relied upon in the present proceedings as containing the fraudulent misrepresentation were at the forefront of the Jaffray litigation.
* vii) It is an abuse of process to allow the marshalled proceedings in respect of fraud to be undermined by a later action, based on the same cause of action and indeed the same documents.
63 It follows that in my judgment the action should be struck out.
64 If I am wrong in reaching this conclusion I must turn to the next consideration as to whether there is an arguable case on the merits. It was common ground that the claimants' claim was in deceit. The elements of the tort were fully discussed in The Kriti Palm  1 All ER (Comm) 667 :
"252. At the basis of any claim in deceit is the representation in question. Its falsity, and the honesty of the representor, cannot begin to be considered until the representation in question has been identified. In the case of a written document, the representation can usually be pinpointed (unless questions of implication arise), but of course context remains everything. In the case of an oral representation, the identification may be a more difficult process, involving disputed testimony, but again context remains everything...
253. It is sometimes said that the necessary representation must be unequivocal. That is too broad a statement to be accurate. Because dishonesty is the essence of deceit it is possible to be fraudulent even by means of an ambiguous statement, but in such a case it is essential that the representor should have intended the statement to be understood in the sense in which it is understood by the claimant (and of course a sense in which it is untrue) or should have deliberately used the ambiguity for the purpose of deceiving him and succeeded in doing so...
254. It remains true, however, that in any case of fraud the dishonest representation must be clearly identified.
255. It is also standard law that to found an action in deceit the representation relied on must be one of fact. A statement of opinion will not suffice unless the deceit is in the fact that the opinion was not, or not honestly, held or in some further implicit dishonest misrepresentation of fact to be derived from the statement of opinion; and neither will a misstatement of law suffice save on the same ground that it involves implicitly a misstatement of fact, viz that the representor did not in fact entertain the opinion of law which he expressed...
256. As for the element of dishonesty, the leading cases are replete with statements of its vital importance and of warnings against watering down this ingredient into something akin to negligence, however gross. The standard direction is still that of Lord Herschell in Derry v. Peek (1889) 14 App Cas 337 at 374:
"First, in order to sustain an action in deceit, there must be proof of fraud and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it be true or false."
257. In effect, recklessness is a species of dishonest knowledge, for in both cases there is an absence of belief in truth. It is for that reason that there is "proof of fraud" in the cases of both knowledge and recklessness ...
258. And in Armstong v. Strain  1 TLR 856 at 871 Devlin J, after a full citation of passages in earlier authorities which stress the need for dishonesty (also called actual fraud, mens rea, or moral delinquency), said this about the necessary knowledge:
"A man may be said to know a fact when once he has been told it and pigeon-holed it somewhere in his brain where it is more or less accessible in case of need. In another sense of the word a man knows a fact only when he is fully conscious of it. For an action of deceit there must be knowledge in the narrower sense; and conscious knowledge of falsity must always amount to wickedness and dishonesty. When Judges say, therefore, that wickedness and dishonesty must be present, they are not requiring a new ingredient for the tort of deceit so much as describing the sort of knowledge which is necessary.""
65 Thus in summary the position is as follows:
* a. The Defendant must have made a representation which can be clearly identified.
* b. It must be a representation of fact.
* c. The representation must be false.
* d. The representor must have intended the statement to be understood in the sense that it was so understood.
* e. It must have been made dishonestly in the sense that the representor had no real belief in the truth of what he stated: this involves conscious knowledge of the falsity of the statement.
* f. The statement must have been intended to be relied upon.
* g. It must have in fact been relied upon.
66 The question therefore arises whether there is any realistic prospect of the claimants making good all these ingredients remembering in addition that they must be established by reference to the heightened burden of proof as discussed in Hornal v Newberger Products Ltd  1 Q.B. 247 , Re H (minor)  A.C. 563 . In my judgment it is plain that there is no such prospect.
67 The claimants' case was gravely undermined by the moving target that they put up in alleging deceit. In this regard the following propositions relating to the description of RITC in the brochure were advanced from time to time:
* i) RITC was a form of reinsurance and understood as such throughout
* ii) RITC was a form of novation and understood as such throughout
* iii) RITC was formerly understood as a novation and later thought to constitute reinsurance.
68 The claimants then went on to argue variously the following somewhat inconsistent positions:
* i) The names "take no formal position" on the effect of RITC: it is uncertain in its nature and effect and Lloyd's dishonestly failed to correct any potential for misunderstanding that arose from the brochure.
* ii) It is a form of novation: Lloyd's dishonestly failed to disclose that there was an alternative view.
* iii) Lloyd's had originally thought it to be a form of novation but fraudulently failed to tell the names that they had changed their view.
* iv) Lloyd's had originally thought it was a form of novation but dishonestly failed to tell the names that it had received advice from counsel that it was a form of reinsurance.
* v) Lloyd's correctly appreciated that it was a form of reinsurance but dishonestly described it as a form of novation.
* vi) Lloyd's fraudulently failed to amend the verification form in the light of Mr Boyd's advice but fraudulently produced a Bye-Law to different effect to that advice.
Clearly identified representation of fact
69 Reverting to the pleaded case, this is set out in paragraph 10 of the particulars of claim:
69 "The representations by Lloyd's
10. In the circumstances of his membership application as described above, the statements made by Lloyd's to Mr. Harris in the brochure and the Verification Form, and the lack of any qualification to those statements by the members of the Rota Committee, constituted representations to him by Lloyd's
(1) that if he became a Name he would continue to have liabilities to policyholders until the last underwriting year of account for all syndicates of which he had been a member had been closed by RITC; and
(2) that the effect of RITC was to close the outstanding liability for a year of account on a particular syndicate; and
(3) that the syndicate of the reinsuring year which had accepted the RITC would assume all future liabilities of the reinsured account; and
(4) that a Name's liability to policyholders ceased on payment of RITC because the liability had been transferred to the syndicate accepting the RITC.
The first three representations were express (from the Verification Form (1) and from the brochure (2) and (3)). The fourth was implied from the first three. Mr Harris understood these representations as statements of fact as to the effect of the law or alternatively, if he understood them only as statements of fact he also understood that they implied that they were correct in law."
70 In my judgment it is obviously arguable that the first three representations were made. Whether the fourth is implicit is far less clear. In effect it is being contended that Lloyd's were setting out by implication not just the practical effect of RITC but also its legal effect as being in the form of a novation, statutory or otherwise. Further, if and insofar as it was being understood to be going any further than the three express representations, it was not a representation of fact but of law. Given the context of the express representations, I have the gravest doubts whether any objective reader would regard the documents as containing an implied analysis of the law on the topic.
71 The first three representations were not false. They reflected an entirely accurate picture of the impact of RITC. The practical effect was to release the name in the closed year from any liability. This would be absorbed in the form of reinsurance by the next year's syndicate, failing which the central fund would meet any default. It follows that these representations were not even misleading save in a sense wholly without significance.
72 As regards the implicit representation, that is to say to the extent that the representations are said to constitute a statement that the impact of RITC was to create a novation of the business written in the earlier year, there is no material whatsoever to support the case that Lloyd's held that opinion or indeed intended that it should be understood in that sense.
Knowledge of falsity
73 The first difficulty here is that the names somewhat fought shy of alleging dishonesty. The proposition was advanced that Lloyd's had simply been reckless. But this flies in the face of the decision in the Kriti Palm warning against any watering down of this ingredient. In any event, there is no material on which it could be concluded that Lloyd's were acting dishonestly in making the representations. They genuinely reflected the practical position. RITC was indeed a form of reinsurance with the added obligation on the part of the open year to manage and pay claims arising from the closed year. Such had been Lloyd's understanding throughout. In the run up to the dispute with the revenue, the legal advice afforded to Lloyd's shared this understanding - namely a practical form of novation. Leaving aside the absence of any conceivable motive on the part of Lloyd's to wish to mislead its members deliberately in this respect, in the light of the contents of the joint opinion of Mr Nicholas Phillips QC and Mr John Gardiner QC, it is not arguable that Lloyd's could be shown to have had conscious knowledge of the falsity of the statements.
74 It is almost impossible to discern how the claimant will be able to make good any form of reliance. It is common ground that he was accepting total and unlimited exposure on any open year. It is inconceivable that, in contrast, the "sophistry" of the distinction between the legal and practical effect of RITC would have been viewed by him as of any significance. This is confirmed by the failure to raise the issue until 2007 and only then in the wake of Mr. Merrett's suggestion that RITC created a statutory novation.
75 Again, if I am wrong about this, there remains the issue of limitation. In fact many of the points made under this heading also reinforce the conclusion that there was no false representation that was relied upon in the first place.
76 Mr. Harris stopped underwriting in December 1991. It follows that his cause of action based on his alleged reliance on a fraudulent misrepresentation in the brochure and/or verification form arose in late December 1990 when he joined the 1991 syndicates. It further follows that, by virtue of section 2 of the Limitation Act 1980 , the time limit for bringing any action expired in December 1996.
77 This of course is subject to section 32 of the Act which so far as material reads as follows:
Postponement of limitation period in case of fraud, concealment or mistake
(1) Subject to [subsections (3) and (4A)] below, where in the case of any action for which a period of limitation is prescribed by this Act, either-
(a) the action is based upon the fraud of the defendant; or
(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or
(c) the action is for relief from the consequences of a mistake;
the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.
References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent.
(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty."
78 The exercise of reasonable diligence was considered by the Court of Appeal in Paragon Finance v Thakarar  1 All ER. 400 :-
"In my judgment this reasoning is misconceived. The question is not whether the plaintiffs should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is on them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take. In this context the length of the applicable period of limitation is irrelevant. In the course of argument May LJ observed that reasonable diligence must be measured against some standard, but that the six-year limitation period did not provide the relevant standard. He suggested that the test was how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency. I respectfully agree": per Millett LJ at p.418.
79 Further, in considering the application of Section 32 , it must be borne in mind that the inquiry is directed at establishing when the relevant facts needed to establish a prima facie case were gleaned. That is to say that the focus is on the existence of the cause of action not the evidence which will prove the case: see C v Mirror Group Newspapers  4 All ER. 511 .
80 There is of course no difficulty in terms of the claimants discovering the nature of the representation. This is said to be clear from the terms of the documents shown to the names in preparation for their joining. When then could it reasonably have been discovered to be false? The claimants say that despite reasonable endeavours the falsity was not apparent until the statement of Mr Stephen Merrett (together with its exhibits) was examined in 2007.
81 Leaving aside the contention on the part of Lloyd's that it was self-evident that the representation as allegedly understood was bad in law, Lloyd's submitted that there was a whole range of documentation furnished to names from 1984 onwards from which it was apparent that Lloyd's understanding of RITC was not as, on this basis, had been understood. Indeed, Lloyd's goes further and says that it is quite apparent from material emanating from names in the period from 1984 onwards that the position as to the true effect of RITC was not only fully explained but fully understood.
82 The starting point is bye-law no.7 of 1984 made shortly after the consultation with Mr Adrian Hamilton QC. This reads as follows:-
"reinsurance to close" means an agreement under which underwriting members ('the reinsured members') who are members of the syndicate for a year of account ('the closed year') agree with underwriting members who comprise that or another syndicate for a later year of account ('the reinsuring members') that the reinsuring members will indemnify the reinsured members against all known and unknown liabilities of the reinsured members arising out of insurance business underwritten through that syndicate and allocated to the closed year, in consideration of:-
(i) a premium; and
(ii) the assignment of the reinsuring members of all the rights of the reinsured member arising out of or in connection with that insurance business (including without limitation the right to receive all future premiums, recoveries and other monies receivable in connection with that insurance business).
83 This bye-law is not materially different from the description of RITC contained in the brochures, a point which further supports the proposition that the brochures did not contain any false statement save in the most pedantic sense. It certainly undermines any suggestion that Lloyd's intended the brochures to be understood in the sense pleaded when the very same description is proffered in the wake of the consultation with Mr Hamilton QC.
84 Even at this stage the nature of RITC and the position of names in the syndicate writing the business was well established in the authorities. For example in Daly v. Lime Street Underwiting QB (Comm Ct) 4 June 1987 Staughton J explained that although the claimant "formally remains a party to contracts made on his behalf in that year he no longer has any financial interest in them since his liability is covered by the reinsurance to close". It followed as the judge pointed out that whilst in point of form he himself might be a party to the action he had no financial interest in it as he had resigned his membership in 1980.
85 The next stage was the distribution of the Business Plan. This was in due course to form the basis of the Reconstruction and Renewal proposal. It was distributed to all names in April 1993 (including of course all the claimants who were by then stuck on open years albeit some, like Mr. Harris, had ceased underwriting).
86 The Business Plan spells out in para 3.8 the positions as regards the liability of those in closed years with stark clarity:
"The creation of the 'ring fence' is intended to shield the providers of capital from the impact of old year liabilities. At the same time Names who underwrote the old years must be given the greatest possible security against their outstanding liabilities. In the past the reinsurance to close had proved effective to bring an end to the involvement of Names on closed years. Legally the Names on closed years remained in theory liable for the liabilities attaching to those years: in practice the fact that reinsurance to close was effected with the security of the same or another Lloyd's syndicate as reinsurer meant that closure was for all practical purposes final. An essential feature of the 'ring fence' is that the reinsurance in years 1985 and prior by NewCo will be liabilities of NewCo alone and cannot be allowed to engage the liability of syndicates in future years. Proper capitalisation of NewCo on the basis of appropriate and equitable reserving standards for all the accounts to be reinsured is therefore an indispensable part of the two-phase restructuring approach in order to achieve the same practical finality for the 1985 and prior years of account as was previously achieved by reinsurances to close into Lloyd's syndicates."
87 There was a tentative suggestion made on behalf of the claimants that the plan was so detailed and elaborate that they could not be expected to have read it let alone hoisted in its implications. Against the gloomy prognosis for Lloyd's and its names which was being expressed at the time, this strikes me as so improbable as to be safely discounted. It has to be remembered that the document was sent out to thousands of names together with all managing and members agents accompanied by the suggestion that recipients should seek professional advice.
88 By this stage, various names had formed an "Open Year Panel" to assist Lloyd's. This was chaired by a Mr. Stockwell whose wife is one of the claimants. The understanding of Mr. Stockwell and his colleagues about the nature of RITC is well documented. In the Final Report of the Panel on Open Years published in March 1993 there is the following passage:-
"One major caveat is necessary in respect of all the options outlined in the later paragraphs of this section. It is important to recognise that it is not legally possible to transfer liability under an insurance policy from the original underwriter (in this case, individual Names) without the consent of the policy's beneficiary. Hence, when this report describes means to close years or release Names, these options are, in fact or in practice, the reinsurance of liability, not its permanent and irrevocable transfer. Should the reinsurer fail, for any reason, to meet its obligations under a policy, liability legally reverts to the Name."
89 Against this background, the concept of his wife who is one of the claimants not appreciating some fifteen years ago both the true nature of RITC and Lloyd's understanding of it, in alleged contrast with the brochure which induced her to join and remain with Lloyd's, is truly startling.
90 Again the description of RITC in the brochure (and both in the bye-law and in the joint opinion signed by Mr Phillips) was entirely consistent with the analysis in Toomey v. Eagle Star  1 Lloyd's Rep 516 :
"Therefore when the accounts for a given year are closed it is necessary to make provision for the outstanding liabilities and credits. This is done by assessing a fair figure to represent the assessed outstanding net liability. The mechanism by which these liabilities are transferred is called a "reinsurance to close" and the sum being paid as a consideration for such transfer is called the "premium to close". The transfer that takes place covers the whole of the underwriting account including the benefit of the reinsurances and reinsurance treaties held by the year to be closed. It is a requirement of Lloyd's that the reinsurance to close should be into another Lloyd's syndicate and that the management of the account should remain with a member of Lloyd's. The purpose is to retain both the solvency requirements and the discipline of the Lloyd's market": per Hobhouse LJ.
91 In May 1994, Lloyd's distributed to members an explanatory pamphlet entitled "Value at Lloyd's". It explained the process in which an individual member could transfer his past (and future) underwriting business (including open years) to a corporate member. The pamphlet expressly identified some of the concerns that had been identified in regard to these transitional arrangements. In particular, the primary concern was expressed in this way:
" reinsurance not novation : the scheme involves the new vehicle reinsuring liabilities under the policies written by the individual. The liabilities under these policies remain those of the individual and if the new vehicle is unable to honour the reinsurance the liability will revert to the individual member."
92 Again if all or some of the names had truly been misled by the brochure in renewing their membership the penny would have dropped with someone. That of itself militates against any finding of causative misrepresentation but, more importantly for present purposes, is wholly inconsistent with any suggestion that the true nature of RITC as understood by Lloyd's was not apparent for another decade.
93 Another group (the Lloyd's Names Association Working Party - LNAWP) of which Mr. Stockwell was also chairman published a paper on a proposed alternative to Reconstruction and Renewal in December 1995. It was a necessary precondition to the workability of the alternative proposal that the subscribers to a syndicate remained liable to policy holders even after a year was closed.
94 Indeed the whole concept was based on the perceived difficulty and cost of pursuing the original names (or their estates):-
"It is considered that in the event of a default by a name that cannot pay, a policyholder is likely to experience significant difficulties in taking direct action. (This is also true in the event of the failure of Equitas.) Before the policyholder can initiate action against a Name, he would have to establish that the claim had not already been resolved by the run-off agent and that the Name had defaulted. This should not occur for many years. In the event of seeking to take action against the Names, policyholders first have to locate the Names. The Names in question are those on the original policies, the whereabouts of around a third of whom are unknown to Lloyd's. Of the remainder the majority on old policies are deceased and their estates are wound up. Policyholders seeking to take action will have to locate the original Names or the Executors of original estates and persuade them to make a claim on reinsurance -to-close policies. Even very substantial claims in fact represent very small sums per Name. By the time these sums have been reinsured by 500 people or more, generally speaking the sum is only a couple of dollars per person. By the third year the sum is pence per person. The costs for pursuing these claims are hundreds of pounds per person per year; costs of collection are likely to outweigh potential returns."
95 Thus it was Lloyd's submission that any name who was under any misapprehension as to the nature of RITC could not continue to fail to appreciate the potential on-going exposure. This commentary from LNAWP (which held itself out as the "lobby and mouthpiece" for the Lloyd's Action Groups with a newsletter circulated to 23,000 names) made it clear that there was no such misunderstanding.
96 Lloyd's responded to this idea in its "Papers on Alternatives" sent to names in January 1996. Although it rejected the LNAWP proposal (now christened "Dead Man's Shoes"), it made it clear that the underlying premise was indeed correct namely that the policyholders claims lay against the original syndicate members: it was simply that they (or their estates) were entitled to the benefit of the indemnity under the RITC. "The obligations under the RITC contracts ... are not dependent on the original insurers' ability to pay."
97 The absence of any misunderstanding was confirmed, it was submitted by Lloyd's, from the stance taken by legal advisers to the names when acting on their behalf. In October 1996 the claim in Lloyd's v Leighs  CLC 761 got underway in which Lloyd's sought and obtained summary judgment in respect of the claims for Equitas premiums. This litigation was conducted by the United Names Organisation of which the claimant, Mr. David Harris, was chairman. During the course of the litigation, Colman J asked for counsel's help in considering the position of members of Lloyd's who were in run off but did not accept Reconstruction and Renewal ("R & R").
98 In his response, Mr. Romie Tager Q.C. counsel for the Defendant stated that members of syndicates which had been closed through RITC or through Equitas "will be in run off as long as there are prospective liabilities to policy holders."
99 When the claim reached the Court of Appeal (  CLC 1398 ), the court duly confirmed that the Equitas scheme did not derogate from the principle that "each name remains directly liable to policy holders in respect of the business written by that name and in respect of that business alone."
100 This recognition of the continuing liability was recognised yet again, so Lloyd's submit, in the course of the Jaffray litigation when, as already noted, Mr. Simon Goldblatt Q.C. acting for the names (including all the claimants) accepted that in the event of a claim on an old policy the claim would in a formal sense be made against the original names.
101 The position was yet again confirmed in an important report prepared by Messrs. Slaughter & May in April 1996 as legal advisors to the Validation Steering Group. The group was chaired by Sir David Berriman representing the Association of Lloyd's Members. The other members were Damon de Laszlo representing the Litigation Names Committee and Alan Porter representing LNAWP.
102 In the covering letter sent to members and signed by Sir David Berriman and Mr. de Laszlo, the authors confirmed their agreement with the conclusion that the names would not be better off if the whole of Lloyd's went into the run-off as suggested by the Dead Man's Shoes argument. The letter went on to summarise the main conclusion of the report including this reference to 'finality':-
""True finality" in the sense of limiting or "capping" liabilities to policyholders cannot be achieved for Names. The "finality" offered by R & R is not "true" or "absolute" finality, but is similar to that offered by the traditional RITC in that it depends on the continuing ability of the reinsurer (in this case, Equitas) to meet its obligations under the reinsurance contract. R & R will, however, enable Names to leave Lloyd's. Lloyd's are trying to make the price of that "finality" more affordable by redistributing to some extent the impact of losses across the society as a whole and assembling a substantial fund from various sources to reduce the overall cost to Names."
103 The report itself reinforced the point that it is not possible to "novate" a contract without the consent of both parties. "In other words, names cannot be released from their obligations to policy holders' except with the policy holders consent."
104 So far as reinsurance into Equitas was concerned the report stated:
"41. In legal terms the essence of what is proposed is the same as the traditional RITC contract which for many years has been the mechanism through which Names have been able to leave Lloyd's when they wish. The traditional RITC contract has been treated by all concerned, Names, Lloyd's and the DTI, as providing finality even though, in reality, that depends upon the reinsuring syndicate continuing to comply with its obligations under the RITC contract, in particular to pay claims: the Name is allowed to resign from Lloyd's, is no longer required to maintain reserves to back his underwriting liabilities (even though, in law, he still has them) and conducts his affairs on the basis that he is not only solvent but no longer has any of the contingent liabilities incurred while carrying on insurance business. He may, for example, be able to give his assets away and, if he dies, his executors may be able to wind up his estate without those liabilities being taken into account. The same result is intended to be achieved by the proposed reinsurance into Equitas."
105 In terms of Dead Man's Shoes, Slaughter & May commented that such a policy would not only damage the credibility of all policies written at Lloyd's but failed to allow for the fact that RITC is not simply a reinsurance contract but also contained an undertaking on the part of the successor syndicate to manage the business of the closing year. Thus the difficulties of identifying and finding the original names was not significant. In the light of this report written 12 years ago it is impossible to accept the proposition that the names had not discovered (or could not by reasonable endeavours discover) that any understanding as to novation derived from the brochures was a misconception.
106 In due course, Lloyd's sent two further documents to names - Settlement Information and Settlement Offer dated June and July 1996 respectively. The Settlement Information, in referring to the prospect of affordable 'finality' said this:
"The combination of the settlement offer and the reinsurance into Equitas is designed to provide Names with affordable 'finality': that is, a final reckoning in respect of 1992 and prior business. Although it is not within the power of Lloyd's to grant Names an absolute release from their liabilities to policyholders, Names who wish to resign from the Society will be able to do so (provided they do not have outstanding Lloyd's liabilities). Full acceptance of the settlement offer would also end widespread litigation brought by the Names and allow the Lloyd's market trade forward with increased confidence."
107 In the result arrangements were duly made for all names whether in closed or open years to become parties to the run-off contract with Equitas. As explained in the Settlement Offer, this in turn allowed a member to cease being a member by virtue of the reinsurance into Equitas:-
"A member may resign from the Society at any time by giving written notice of resignation. Under paragraph 40 of the Membership Byelaw (No. 17 of 1993), notice of resignation ordinarily takes effect (that is, the member ceases to be a member) at the end of the year following the year in which the member's remaining open years of account have been closed by reinsurance to close with another Lloyd's syndicate or Equitas. The DTI has accepted that the reinsurance into Equitas can be treated as a reinsurance to close and that, having paid their finality bills, Names with no other outstanding Lloyd's liabilities may resign."
108 In his judgment in Lloyd's v Leighs - Part 1 -  CLC 759 which was concerned with the issue of authority to enter into the settlement, Colman J set out the position with characteristic clarity at p781:
"It cannot even be said that the names have by means of the scheme somehow ceased to be severally liable to their assureds. On the contrary, they remain severally liable on every risk written on their behalf, a liability which could theoretically be enforced if Equitas were ever to go into liquidation before concluding the run-off.... The reinsurance of the run-off by Equitas has simply been on market-wide, uniform terms which have involved the names transferring their assets and paying premium to a reinsurance company in exchange for (i) cover and (ii) claims handling."
109 Much was sought to be made by the names as to the implications of the decision in Re Yorke (decd)  4 All ER 907 . The application was a test case as to whether personal representatives needed to obtain the consent of the court before distributing the estate of names on open years the liabilities of which had been reinsured into Equitas. It was submitted that the decision drew a distinction between such cases and the position where the liabilities had been transferred by way of RITC. It was suggested that in the latter case no such consent was required as the court recognised that no residual liability could remain.
110 I detect no such distinction. It was certainly not a proposition that was argued. The comparison potentially arises from the fact that unlike earlier years policyholders would be unable to look to the Central Fund at Lloyd's in the event of failure of the reinsurance. The decision remains entirely consistent with the proposition that names on a closed year with RITC protection nonetheless remain theoretically liable to policyholders. Indeed the Practice Direction made in the wake of Re Yorke is directed equally to reinsurance into Equitas and RITC with a Lloyd's syndicate.
111 Was it apparent throughout that Lloyd's were aware of the falsity (if any) of the representation in the brochure? The short answer must be yes. They were the authors of many of the documents cited above. The suggested reluctance to plead fraud on this basis sits uneasily with the readiness in which it was alleged in Jaffray . But if there was any doubt, the names only had to ask. Indeed on 15 January 2007, Mr Stockwell wrote to Lord Levene, the then Chairman of Lloyd's, asking various questions including the following:
"1. On what basis does Lloyd's believe that any liability is vested in the original names on policies written before 1992 and now reinsured by Equitas? Does it accept that all liability to original policyholders has been transferred by the RITC chain to the names on the open years that were eventually closed into Equitas? If not, in what circumstances could the original subscribing names have a continuing liability with and without the NIC deal?"
112 Mr Julian Burling, Counsel to Lloyd's responded to this letter and said as follows:
"1. as you are aware the names (or the former Names) originally subscribing policies subsequently reinsured by Equitas Reinsurance Limited remain liable on those policies ... but are reinsured in respect of those liabilities by their reinsurers to close. This was made clear in the Settlement Offer Document and other materials published to names in 1996 ..."
113 Mr. Stockwell wrote again in July 2007 raising the further question as to when Lloyd's had concluded that RITC was only reinsurance. Mr. Burling replied on 27 July to the effect that the view had antedated his employment in September 1985 as "reflected in the Lloyd's Syndicate accounting rules made before that date". I reject the suggestion made by the names that Mr Burling would have given a different answer if he had been asked the question earlier. This seemed to be premised on the proposition that he was only prepared to be honest about it because he was aware that the names now had copies of Mr Merrett's statement and exhibits. Given the content of the bye-law let alone the later documents this submission is unarguable.
114 In short all that the names now rely on was reasonably discoverable more than 6 years before the issue of the proceedings. The claims are thus barred.
Breach of fiduciary duty
115 In addition to the claim advanced in deceit, the claimant pleaded a case of breach of fiduciary duty:-
"Further, in the context of its relationship with Mr. Harris as a prospective Name and subsequently as an existing Name, Lloyd's owed to Mr. Harris a fiduciary duty in circumstances where it undertook to explain to him during the membership application process and at the Rota Committee interview the nature and implications of the unlimited liability that he would have as an underwriting Name. The duty was to disclose the principal features of unlimited liability, and one of those features was that unlimited liability was of unlimited duration. If Lloyd's was aware or became aware from professional advice, whether from its Legal Department if from Leading Counsel, that Names remained liable or might remain liable to a policyholder indefinitely, then Lloyd's had a duty to inform Mr Harris of that advice. It failed to do so at any time and accordingly was in breach of that duty. For the avoidance of doubt, Mr Harris will contend that the exclusion from immunity conferred on Lloyd's under the Lloyd's Act 1982 does not extend to breach of fiduciary duty."
116 In the skeleton argument served on the claimants' behalf the issue of time-bar was covered in paragraph 51:
"Mr. Harris's claim is for dishonest breach of fiduciary duty and, because fraud is involved, is covered by s.32(1)(a) of the Limitation Act 1980 and the construction of that subsection in Barnstaple Boat Co v Jones. Alternatively, if fraud is not made out, the claim is for breach of fiduciary duty in circumstances where Lloyd's deliberately concealed from Mr Harris and the Claimants facts relevant to their right of action. If so, then s. 32(1)(b) applies, and in that event too, the claim is not time-barred."
117 In the course of the hearing, it was accepted by the claimants that the alternative claim was one of "dishonest breach of fiduciary duty". Since it was accepted that the only relevant distinction from deceit was in respect of the appropriate remedy (particularly in terms of compound interest), it was agreed that no further argument on the issue was required. But in post hearing correspondence, the Claimants invited the court to allow further written submissions on the issue. In particular, the claimants argued that Lloyd's were in breach of fiduciary duty (such breach not being dishonest).
118 I leave aside the question whether a fiduciary duty arose (which I strongly doubt is even arguable). The immediate difficulty with any such alternative case is that the Lloyd's Act 1982 section 14 provides that, in the absence of bad faith,:
"14 ...the Society shall not be liable for damages whether for negligence or other tort, breach of duty or otherwise ..."
In my judgment, giving this section its natural meaning, the more so having regard to the "sweeping-up" provision, a claim for breach of fiduciary duty comes within the words "breach of duty or otherwise": see Ashmore v Lloyd's  2 Lloyd's Rep. 622 at p.634.
119 Furthermore, there is still no answer to the limitation plea. The alternative argument now advanced is an allegation of deliberate concealment within the scope of section 32 of the Limitation Act 1980 . However no deliberate concealment of Lloyd's different view of the legal effect of RITC can possibly be made out in the light of the 1990's documentation.
120 For all these reasons the entire claim must in my judgment be struck out