THE SOCIETY OF LLOYD'S v SIR WILLIAM OTHO JAFFRAY (1999)

QBD (Colman J) 22/1/99

INSURANCE - CONTRACT - COMMERCIAL - CIVIL PROCEDURE - FRAUD - MISREPRESENTATION

LLOYD'S NAMES LITIGATION : STAY OF PROCEEDINGS : COSTS NOT PAID IN EARLIER ACTION : ALLEGATIONS OF FRAUD : PROCEDURAL DUPLICATION

Application by Lloyd's for stay of both claims and counterclaims brought by Lloyd's Names alleging fraud against Lloyd's was refused. There was no needless procedural duplication of earlier litigation.

** Below gives references to Statements of Commercial Court in relation to this litigation and the costs sharing order of 26 January 2000.

Application by The Society of Lloyd's ('Lloyd's') to stay proceedings variously brought by way of claim or counterclaim in actions brought by or against four members of Lloyd's. Colman J ordered these to be tried at the same time, as they all raised substantially similar issues. Those issues were allegations by each of the Names that, from 1980, they were induced to become members of Lloyd's and to renew their membership annually by fraudulent misrepresentations made to them by or on behalf of Lloyd's. It was further alleged that as a consequence of those on-going misrepresentations, the claimants were, as members, bound by the regime involving Equitas as reinsurer of the Names and by the duty to pay reinsurance premiums associated with the R&R settlement (subject to the "pay now sue later" provision (clause 5.5) of the reinsurance contract). The Names claimed or counterclaimed damages for fraud. Following the judgments in Society of Lloyd's v Leighs & Ors (1997) TLR 11/8/97 and Society of Lloyd's v Fraser & Ors (1998) CLC 1630, it was held that there was no viable defence to Lloyd's' claims for the Equitas premium. The Names' underlying claims for fraud had been relied upon as the factual foundation for two main grounds put forward by way of defence which had failed as a matter of law, but the determination of those claims had necessarily been postponed because, as a matter of procedural management, it was unnecessary that they should be determined in the context of the Leighs (supra) and Fraser (supra) RSC O.14 applications. The counterclaims thus remained pending. Orders for costs were made in Lloyd's favour against the individual Names and the Names' organisations, which had not yet been settled in full. The present proceedings consisted of counterclaims of some 120 Names in proceedings which were part of the Fraser action, and claims by writ by some 30 other Names. Lloyd's argued that there was a settled practice that where a party, who had been unsuccessful in one action and had therefore sustained an adverse costs order, commenced further proceedings in respect of the same subject matter, the court would stay the second action until the costs of the first action had been paid. It submitted that the settled practice should apply because the subject matter of the counterclaim or the claim was exactly the same as the underlying fraud allegation deployed by way of defence in Leighs and Fraser. Since all the points based on fraud failed and since the claims and counterclaims should be treated as separate proceedings from those in which the unsuccessful defences were raised, it should not be open to the Jaffray claimants or counterclaimants to litigate that issue of fraud until they had fully discharged the costs orders against them and/or the United Names' Organisation, members of which were liable jointly and severally for Lloyd's' outstanding costs.

HELD: (1) The effect of the authorities was that the underlying purpose of such stay orders was to restrict a needless duplication of proceedings directed to the determination of the same (or substantially the same) issues, where there had thus been a misuse of the court's procedure. (2) The issue of fraud was raised in relation to the RSC O.14 hearings in both Leighs and Fraser not for the purpose of being determined by the court, but simply as a factual basis for the defendants' arguments, commonly assumed for the more efficient disposal of those applications. Thus, when it was determined that there was no arguable defence to Lloyd's claims to the Equitas premium, that conclusion left entirely untouched the allegation underlying the Names' defence that there had been fraudulent misrepresentations by Lloyd's. Those allegations, in as much as they were relied on as counterclaims or fresh claims, remained to be determined as the great unresolved group of issues between the Names and Lloyd's. (3) Upon these facts Lloyd's' submission was completely misconceived. The prosecution of the claims and counterclaims would involve no element of needless procedural duplication. The fraud issues could not previously have been determined (and they would fall to be determined at the earliest possible stage in these proceedings and in a number of new actions). There was therefore lacking the essential ingredient for the practice of granting a stay pending satisfaction of an earlier order for costs, and the application should be dismissed. (Obiter): Had the judge concluded that the principle under which a stay was granted was wide enough to cover these facts, he would have been unlikely to follow the principle unless the Names had proceeded in blatant and unreasonable disregard for the court's procedure. In view of the exceptional circumstances in this case, he would have given very considerable weight in any discretionary balance to the public interest in the ventilation and determination in these proceedings of the outstanding fraud issues, regardless of the failure to satisfy the prior costs orders.

Application dismissed.

Anthony Grabiner QC and David Foxton instructed by Freshfields for the plaintiffs. Michael Freeman of Grower Freeman & Goldberg for the defendant.

LTL 18/6/99 (Unreported elsewhere)

Judgment Approved - 15 pages

Document No. AC8600508

See Statement of Commercial Court and Further Statement of the Commercial Court for directions on the reservation of the right to advance allegations of fraud against Lloyd's at the trial of the "Threshold Fraud Issue" in January 2000.

Costs-sharing order of Colman J dated 26 January 2000 reported at Society of Lloyd's v Sir William Otho Jaffray (2000) LTL 31/3/2000.