England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(Mr Justice Cresswell)

		Royal Courts of Justice Strand London WC2 Monday, 8th October 2001

Monday, 8th October 2001

1. MASTER OF THE ROLLS: There are before the court applications in group litigation between the Society of Lloyd's and Names at Lloyd's. The object of that group litigation was to resolve a common issue between Lloyd's and these names, known as the threshold fraud point. The Names contend that they were induced to become Names at Lloyd's or to remain Names by fraudulent misrepresentations, for which Lloyd's were responsible, made between 1978 and 1988 by members of the Committee and Council of Lloyd's. The representations relied on by the Names were made in brochures and in the aggregate results or global reports and accounts. The Names allege that these representations were to the following effect. A name joining Lloyd's:

(1)could have confidence in Lloyd's as an institution to safeguard his or her interests;

(2) could trust those who were chosen by Lloyd's to regulate the Lloyd's market and manage its affairs;

(3)because of the way in which Lloyd's regulated and monitored underwriting accounts year by year:

(a)could rely on syndicate accounts;

(b)could in underwriting and/or deciding whether to remain a member of Lloyd's have confidence in the audited syndicate results for the results of past years;

(c)could be sure that Lloyd's as part of its regulatory duties would ensure that when prospective liabilities were reinsured by one syndicate year into another such liabilities were being fairly assessed and quantified as between the two syndicate years.

2. The Names allege that those responsible for these representations made them knowing that they were untrue or were reckless as to whether they were true or false. These representations were false, so the Names allege, because syndicates and their auditors were making inadequate allowances in the accounts for prospective liabilities in respect of certain long-tail business. The liabilities in question were arising as a result of claims being made against those assured, largely in the United States, for illness contracted as a consequence of contact with asbestos. Diseases generically described as asbestosis can take 20 years or more to develop. The Names say that future Lloyd's liability was impossible to assess accurately but that there were reliable indications that it was going to be gigantic. These facts, so the Names allege, should have led syndicates to keep their accounting years open and to make huge reserves against future losses. Instead they were reinsuring to close at inadequate premiums thereby transferring the liabilities to the more recent years and, in particular, to new names joining Lloyd's in ignorance of the exposure that they were walking into.
3. It is the Names' case that Lloyd's deliberately deceived them by keeping the implications of asbestosis from them and instead publishing misleading brochures, aggregate results, global reports and accounts that suggested that all was well.
4. On 3rd November 2000 Cresswell J gave judgment on the threshold fraud point. He found comprehensively against the names. In particular he held:

(1) that the brochures and other documents attacked by the Names did not contain misrepresentations;

(2)that the members of the Committee and Council of Lloyd's did not know that syndicates were under- reserving in relation to asbestosis or reinsuring to close accounts which should have been kept open;

(3)in the case of three selected names who were treated as sample cases, they were not induced to become Names by the representations made by Lloyd's.

5. On 21st December 2000 Cresswell J refused permission to appeal against his judgment. Applications for permission were then made on paper to Clarke LJ. He ordered that all applications should be made orally to a court of three; and we are sitting today to hear them.
6. All the Names before the court join in seeking permission to appeal against the judgment on the grounds that it was wrong. There are other applications to which we shall turn in due course.
7. Permission to appeal to this court will only be given where the appeal appears to have a real prospect of success or there is some other compelling reason why the appeal should be heard: see CPR 52.3(6). It is usually possible for this court, when considering an application for permission to appeal, to decide whether there is a real prospect of success simply by considering the judgment and any evidence specifically referred to by the applicants in the light of the grounds of appeal and submissions of the applicants.
8. In this case that is not so easy. The hearing lasted over 60 days. The judgment is over 600 pages in length when one includes important appendices. Those acting for the lead names have submitted a skeleton argument in support of their application over 130 pages in length and, unusually, those acting for Lloyd's have submitted some 30 pages of written observations on this skeleton. The applicants originally lodged 55 lever-arch files in support of their application. They were instructed to reduce these to documents essential for their application. This has resulted in the documents being reduced to seven volumes. It has taken the court many hours to read the judgment and the written submissions. We have not attempted to pre-read all the seven volumes. It would be possible to embark on the task of attempting to resolve this application on the basis of the written submissions and a day, or perhaps even two days, of argument with strict time limit on submissions. None of us would be happy with such an approach.
9. This is an action of great importance. The court is conscious that allegations that these applicants have made against Lloyd's mirror allegations in litigation in other jurisdictions. When refusing permission to appeal, Cresswell J observed that the proceedings in those jurisdictions would be, or might be, influenced by his judgment. He also said this:

"If the names allegations were factually correct, then it would follow that each managing agent of the syndicate exposed to asbestos related claims, each firm of panel auditors concerned with such a syndicate, each member's agent advising Names on syndicate selection and the DTI as the overall regulator of the insurance industry should have drawn similar conclusions to those which the Names allege Lloyd's should have drawn. The Committee and Council of Lloyd's were generally entitled to assume that auditors were performing their duties competently. I refer to the description of the evidence of the witnesses and my assessment of that evidence set out in chapter 15. Mrs McKenzie-Smith accepted in a document referred to in chapter 22 that if the Murray Lawrence letter was sent to all underwriting agents Lloyd's were not after all fraudulent. My findings as to the dissemination of the Murray Lawrence letter are set out in the judgment. I found that the letter was sent to all underwriting agents, including members agents and all active underwriters as stated in the final paragraph of the letter.

For the reasons set out in the judgment, quite apart from the question of the need to establish representations, the other ingredients of the tort of deceit were not made out."

10. The Murray Lawrence letter to which the judge referred was one which drew attention to the problems posed by asbestosis and strongly recommending that managing and members' agents should inform their Names of these. An important issue at the trial was whether this was in fact sent to members' agents as well as to managing agents. Surprisingly, there does not seem to have been clearly conclusive evidence on this point. The applicants challenge the judge's analysis of such evidence as there was. More fundamentally, their case does indeed involve the conclusion that many who were auditing syndicate accounts, some members' agents who were advising Names on syndicate selection and certainly some of the Committee and Council of Lloyd's were aware that the Lloyd's procedures designed to ensure fair treatment between syndicate names from year to year were not being properly operated. The Names' case, in short, involves a fundamental attack on Lloyd's.
11. After a lengthy trial, a commercial judge with great experience of Lloyd's litigation has held their attack to be without foundation. Notwithstanding this, we do not believe that justice would be done if we were to refuse this application without looking at the evidence which the applicants are anxious should be reviewed. Nor would justice be seen to be done if we adopted that course. In order to reach a properly informed decision on this application, we would need to devote a very substantial period to consideration of the evidence given below. This would come close to the hearing of the appeal.
12. In these circumstances we have concluded that the appropriate course is to grant permission to appeal, not on the ground that we are satisfied that there is a real prospect of success, but because, for the reasons that we have given, there are other compelling reasons why the appeal should be heard. We stress that this ruling should not be taken by the applicants, or by anyone else, as indicating that we have formed any view on the merits of this appeal.
13. That deals with grounds 1-11 of the application formulated by the lead applicants. We propose to adjourn grounds 12-15 of those grounds, and similar grounds advanced by Mr Jaffray, such as paragraphs 1-4 and paragraph 5 in his skeleton, and any similar grounds of other litigants in person that relate to complaints of the manner in which the trial was conducted. We adjourn those applications to be considered by the court that hears the substantive appeal, because in the course of that appeal it will become much more readily apparent to that court whether or not there is any merit in any of those grounds.
Order: As above.