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Cite as: [2002] QB 929, [2002] 2 All ER 55, [2002] 2 WLR 932, [2002] EWCA Civ 65

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		Neutral Citation Number: [2002] EWCA Civ 65
		Case No: A3/2001/0619

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN’S BENCH DIVISION
COMMERCIAL COURT
The Hon. Mr Justice Andrew Smith

Royal Courts of Justice
Strand,
London, WC2A 2LL

7th February 2002

B e f o r e :

LORD PHILLIPS MR
LORD JUSTICE WALLER
and
LORD JUSTICE BUXTON
____________________

P & B (RUN-OFF) LTD
Respondent

- and -

WOOLLEY
Appellant

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Guy Newey, QC and Catherine Mackenzie Smith (instructed by Hamish M McMillan for the Appellant)
George Leggatt, QC (instructed by Cameron McKenna for the Respondent)
____________________

HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
____________________

Lord Phillips MR :

This is the judgment of the Court.

Introduction

In 1985 the appellant, Mrs Woolley, became a Name at Lloyd’s. The issue that arises on this appeal is whether she was a member of Syndicate 103 for the 1993 year of account. The results of that syndicate for that year have proved disastrous. It has not been reinsured to close, but placed into run-off. Two calls have been made on Mrs Woolley, for a total of Ł15,000. She has refused to pay them, contending that she was not a member of the syndicate. P&B (Run-Off) Ltd, the run-off managers, brought an action in the Commercial Court to recover them. In a judgment delivered on 27^th February 2001 Andrew Smith J. rejected her defence and gave judgment for the claimants. She appeals against this judgment with the permission of Clarke L.J.

Up until late 1998 all concerned, including Mrs Woolley, believed that she was a member of Syndicate 103. It was then discovered that two of the documents which should, according to the requirements of a Lloyd’s Bye-law, have been executed in order to make her a member of Syndicate 103, were missing. It is Mrs Woolley’s contention that these documents were never executed, with the effect that she could not in law, and did not, become a member of Syndicate 103. It is P&B’s contention that the documents were executed and that, even if they were not, Mrs Woolley nonetheless became a member of Syndicate 103. The Judge held that both these contentions were correct. The first conclusion resolved what were purely issues of fact; the second resolved what was purely an issue of law. To succeed on this appeal Mrs Woolley must show that the Judge was wrong on both fact and law.

The background facts and the Bye-law

The background facts and the relevant provisions of the Bye-law are set out by the Judge in an introduction to his judgment which spans eight pages. Seven of these are devoted to the provisions of the Bye-law, which is an indication of their complexity. I do not propose to duplicate the exercise so adequately performed by the Judge, for this part of his findings is not challenged. I shall simply make a short summary of the position and annexe his judgment to my own.

The relevant Bye-law, which was made on 7 December 1988 pursuant to Lloyd’s Act 1982, prescribes the terms, and in some instances the form, of the agreements creating and governing the relationships between Names at Lloyd’s, their Members’ agents and their Managing agents. In 1992 Mrs Woolley entered into an agreement in writing, which accorded with the requirements of the Bye-law, (‘a Schedule 1 agreement’) under which she appointed Knightstone Underwriting Limited (‘KUL’) as her Members’ agent.

KUL agreed with Mrs Woolley that they would take the action necessary to make her a member of, among others, Syndicate 103, of which the managing agents were Knightstone Syndicate Management Limited (‘KSM’), a company in the same group as KUL. The Bye-law prescribes the manner in which this was to be achieved. In accordance with its provisions KUL and KSM had first to have concluded a ‘standard agents agreement’ in writing in the form set out in Schedule 2 (‘a Schedule 2 agreement’). A Schedule 2 agreement includes provisions as to the manner in which the members’ agent can agree, on behalf of the Name, to the conclusion of a contract between the managing agent and the Name under which the Name will be placed on a particular syndicate or syndicates managed by the managing agent. This is achieved by the members’ agent and the managing agent signing an Agents’ Syndicate List containing the Names who are to join the syndicate, together with details of the extent of participation of each Name, whereupon an agreement in the form set out in Schedule 3 to the Bye-law (‘a Schedule 3 agreement’) is deemed to have been concluded between each Name and the managing agent.

It is common ground that KUL and KSM acted on the common assumption that a Schedule 2 agreement had been concluded between them. It has, however, proved impossible to find a copy of this agreement or any document referring to it. It is P&B’s case that such an agreement was concluded in writing, but has been lost. It is Mrs Woolley’s case that no such agreement was ever concluded.

Two Agents’ Syndicate Lists prepared by KUL have been preserved which list the Names that were to be placed on Syndicate 103, the first dated 11 February 1993 and the second, a revised list, dated 10 May 1993. The first list is 59 pages and the second 60 pages long. Each page of each list has been signed by a representative of KUL. No page of either list has been signed on behalf of KSM, although each has a space for such signature. It is P&B’s case that each list is one of a pair presented to KSM and that the second list in each pair was signed by KSM, but has been lost. It is Mrs Woolley’s case that KSM did not sign any Agents’ Syndicate List for Syndicate 103. It is, however, common ground that KUL, KSM and Mrs Woolley proceeded, up until 1998, on the assumption that KUL had concluded with KSM a Schedule 3 agreement on behalf of Mrs Woolley, constituting her a member of Syndicate 103.

Andrew Smith J. held that a Schedule 2 agreement was signed by KUL and KSM, which has been lost, and that KSM countersigned duplicate copies of each Agents’ Syndicate List, which have also been lost. We turn to consider Mrs Woolley’s challenge to these findings.

So far as evidence was concerned the Judge had the evidence of Mr Thompson, and Mr Casement as live witnesses. Mr Thompson had been employed in the Lloyd’s market since 1976. From 1990 he was the Administration Director of Spratt & White until in October 1992 they were purchased by KUL. He then became their Administration Director leaving KUL in October 1993. He was accordingly with KUL at the time the Syndicate Lists should have been signed. The agents’ agreement should have been in place prior to his arrival, and it was part of his responsibility to see that documents were in place. He could not say that he actually remembered seeing the particular documents, but he could give evidence of his practice as Administration Director, and explain why he thought the documents must have existed. Mr Casement, a solicitor, simply gave evidence of the efforts made to locate the documents.

The Judge also had a statement of Mr Moore. He was the agency manager of KSM following the take-over of the John Poland Group by the Knightstone Group. His statement had been taken by P&B and supported the case at that time being made by P&B that a series of novation agreements had been made the effect of which was to place KUL as members’ agent under a contract with KSM as managing agent. On the basis that there were the relevant novation agreements his statement said:

“Thus there is no Agents’ Agreement existing between KUL and KSM because we relied on the existing Agents Agreement dated 7^th and 8^th September 1989 by the previously named Poland managing and member’s agencies.”

He relied then on novations of those agreements one of which was said to have been “novated to KSM”. P&B abandoned this case shortly before the trial. There simply was not a novation and on Mr Thompson’s understanding of the position that was not surprising because (as he explained in evidence page 17) it was the Poland Syndicates who were not going to carry on business, which were dealt with by novation, whereas for ongoing syndicates “new agreements were set-up by Knightstone on their formation or the commencement of their underwriting on 1^st January 1992”. Mr Moore also suggested that the Syndicate List had not been signed by KSM because Names were changing their mind about participation (see paragraph 14).

The statement of Mr Moore was put in evidence on behalf of Mrs Woolley as she was entitled to do, and Mr Moore was not called and was thus not cross-examined.

The Agents Syndicate List was a key document. It was from that document that KSM could be sure that they had underwriting authority and from which KUL could be sure that they had given underwriting authority to KSM.

Two copies of the Agents Syndicate List were found in the files of P&B who took over from KSM, one signed for KUL by Mr Thompson himself, and the other for KUL by Mr Gillespie. There was a place on both for the signature of KSM but on the copies no signature on behalf of KSM appears.

It was Mr Thompson’s evidence that it was the practice to send two copies to KSM, one to be countersigned and returned, and the other to be retained by KSM for its files. There is support for that being the practice from the following. Mr Thompson specifically remembered delivering a list to Mr Moore of KSM in which an error was noticed and he remembered taking the list back to be re-signed, and then redelivered. On P&B’s file was found a letter dated 14 May 1993 from KUL to KSM which states that it attached a further set of 1993 Syndicate Lists for signature.

Furthermore Mr Thompson said that it was the practice on receipt of the list countersigned by KSM, and only then that the information on the list was sent to MUS for the stamp to be drawn up. A stamp for Syndicate 103 was drawn up in February and again in May.

The Judge was impressed by Mr Thompson. He not only thought him a plainly honest witness, but was impressed by his professional expertise as an administrator which, as he put it, “would have ensured that the job was completed thoroughly”, that being particularly likely in the context of a concern which Mr Thompson said he had, to have things in order, because “as part of Lloyd’s regulatory review, one of the standard pieces of information they would have asked to look at would have been copies of the agency agreements and syndicate lists”.

The Judge also had evidence that many of the Knightstone Group documents had been lost, and indeed that was not disputed. It was put to Mr Thompson that some Syndicate Lists that were found did contain both signatures, and Mr Thompson could not offer an explanation for that, but he reiterated his reason as to why the Syndicate Lists, properly signed, must have existed in the following terms “I would have had to produce the documents…. to the general review department, and they would have picked up if there had been a gap…I would not also have been able to file my return with Lloyd’s by the due date confirming that I had received all syndicate lists…”. (page 14 lines 1-9) The Judge took account of the point that some Syndicate Lists had been found with both signatures on, but on Mr Thompson’s evidence he accepted that there must have been an Agents Syndicate List signed by KSM returned to KUL which would have been used for the purpose of getting the stamp drawn and that that list was one of the documents lost.

So far as the Agency Agreement was concerned the Judge accepted that the position was much less clear. Indeed if one reads Mr Thompson’s original statement it comes to little more than an assertion that there should be such an agreement (paragraph 16). But when cross-examined his evidence became stronger. He was asked about his involvement in the preparation of an agent’s agreement, and he said that it was his job “to make sure that an agreement was in place for each syndicate and managing agency the members’ agency supported.” (page 8 line 31) He gave a reason why he thought there would be a new agreement and not a novation as already set out above (page 17 lines 21-29). His evidence relating to the Agents Syndicate Lists furthermore covered the Agents’ Agreement as well. He said that as part of the Lloyd’s Regulatory Review “one of the standard pieces of information they would have asked to look at would have been copies of the agency agreement and Syndicate Lists…as far as I recall we were never taken to task… I would not have allowed a fundamental error like that to happen, nor indeed would the Lloyd’s regulatory department, when they came in to review the agency documentation.” (page 9 lines 41-57). He furthermore said that there was a particular place where KUL filed Syndicate Lists, - “they were kept in a filing cabinet with the copy of the agreement”, the agreement being identified as the agreement between the members’ agent and the managing agent. By inference he was saying that the agents’ agreement was also kept in the particular place.

The only basis for contending that no such documents existed was their absence and the statement of Mr Moore. But it was plain that many documents had gone missing including Agents Agreements, and if the documents were kept in the same place and together, if one was missing it is likely that the other would be missing too. Mr Moore also could not be right in this sense. There simply was no relevant novation agreement. If the administration was efficient that would have had to have been noticed. Mr Thompson’s evidence was that when he joined KUL the “administrative efficiency was not good”, but when put to him that there were still administrative problems in the year he was there, his answer was “Absolutely not” (see page 5 line 15).

That evidence was clearly accepted by the Judge. As we have emphasised the Judge was very impressed by Mr Thompson and impressed by his reliability as an administrator. He had the advantage of assessing Mr Thompson in the witness box which this Court simply has not had. In reliance on that evidence he was satisfied on the balance of probabilities that both the Syndicate List signed by both KUL and KSM, and the Agents Agreement did exist and had been lost. Those were findings that the Judge was clearly entitled to reach, and the appeal on the facts is dismissed.

Having reached the conclusion that there is no basis upon which the facts found by the Judge can be upset, for this reason alone the appeal must fail. We shall, however, deal with the other findings made by the Judge, for they cover an issue of general importance.

Agency

For Mrs Woolley, Mr Newey, QC, contended that if no Schedule 2 agreement had been concluded, or Agents’ Syndicate List countersigned by KSM, Mrs Woolley was placed on Syndicate 103 without her authority. There were two reasons for this. The first was that the authority that she gave was subject to the implied limitation that KUL should do nothing that breached the Lloyd’s Bye-laws. It is not clear from the judgment that this is precisely how the argument was advanced below. In any event we can deal with the point shortly by stating that we can see no basis for this implied limitation.

The second reason for denying authority was a little convoluted. It was as follows. Mrs Woolley conferred express authority on KUL by her Schedule 1 agreement. That authority was to conclude an agreement on the terms of a Schedule 3 agreement. Clause 11.1 of the standard form of the Schedule 3 agreement provides that it shall take effect on the signing of the Agents’ Syndicate List under clause 2 of the Agents’ Agreement. If an agreement was concluded on the terms of the Schedule 3 agreement, it never took effect as no Agents’ Syndicate List was signed by KSM. On analysis this is not a contention that the Schedule 3 agreement was concluded without authority but a contention that the Schedule 3 agreement that was concluded never took effect.

Neither the pleadings nor the grounds of appeal advance this particular reason for contending that Mrs Woolley never became a member of Syndicate 103 and we suspect that it may have been the product of the ingenuity of Mr Newey, who did not appear below. While the argument is ingenious, we do not believe that it is sound. Assume that Mrs Woolley and KUL agreed that she would become a member of Syndicate 103 when KUL and KSM signed an Agents’ Syndicate List and assume that KSM failed to sign the list. KSM, KUL and Mrs Woolley thereafter proceeded as if the list had been signed. KUL informed MUS of the Names on the list, so that the stamp was drawn up, KSM proceeded to write business for the Names on the stamp and Mrs Woolley was content that they should do so. Principles of ratification, estoppel or agreement by conduct would preclude both KSM and Mrs Woolley from contending that the failure on the part of KSM to sign the Agents’ Syndicate List meant that the Schedule 3 agreement never took effect.

Illegality

For the purpose of this argument it is necessary to assume that, but for the requirements of the Bye-law, the conduct of the parties would have resulted in Mrs Woolley concluding a contract with KSM on the terms of Schedule 3. The issue is whether the fact that the requirements of the Bye-law were not complied with has the result that the ‘contract’ was illegal and void. That is the position for which Mr Newey contends.

The Bye-law expressly prohibits a Name from authorising a managing agent to write business on that Name’s behalf and a managing agent from writing such business otherwise than in accordance with the procedures laid down in the Bye-law. These procedures involve both the conclusion of a Schedule 2 agreement in writing and the signing and countersigning of an Agents’ Syndicate List. Mr Newey submits that the effect of purporting to conclude a contract in violation of the express requirements of the Bye-law necessarily results in the contract being void.

In support of this submission, Mr Newey has relied on the decision of the Court of Appeal in Phoenix Insurance v Halvanon Insurance [1988] QB 216. That case concerned the effect of provisions of the Insurance Companies Act 1974 which rendered it illegal, without the authority of the Secretary of State to carry on the business of effecting and carrying out contracts of insurance. The Court held that the effect of this provision was that a contract of insurance entered into by an unauthorised insurance company was void. After considering the relevant authorities, Kerr L.J. summarised their effect at p.273 as follows:

“(i) Where a statute prohibits both parties from concluding or performing a contract when both or either of them have no authority to do so, the contract is impliedly prohibited: see In re Mahmoud and Ispahani [1921] 2 K.B. 716 and its analysis by Pearce L.J. in Archbolds (Freightage) Ltd v S. Spanglett Ltd. [1961] 1 Q.B. 374, with which Devlin L.J. agreed. (ii) But where a statute merely prohibits one party from entering into a contract without authority, and/or imposes a penalty upon him if he does so (i.e. a unilateral prohibition) it does not follow that the contract itself is impliedly prohibited so as to render it illegal and void. Whether or not the statute has this effect depends upon considerations of public policy in the light of the mischief which the statute is designed to prevent, its language, scope and purpose, the consequences for the innocent party, and any other relevant considerations.”

The authorities cited by Kerr L.J. amply supported the propositions for which he cited them. In particular, where both parties to a contract are prohibited by statute from entering into an agreement, or from carrying on a particular activity, any agreement between them to carry on that activity will normally be void for illegality.

Kerr L.J. cited, however, passages from the decision of the High Court of Australia in Yango Pastoral Co. Pty. Ltd. V First Chicago Australia Ltd. (1978) 139 CLR which indicate that the effect of the statute is ultimately a question of interpretation. Gibbs A.C.J. said, at p.413:

“It is often said that a contract expressly or impliedly prohibited by statute is void and unenforceable. That statement is true as a general rule, but for complete accuracy it needs qualification, because it is possible for a statute in terms to prohibit a contract and yet to provide, expressly or impliedly, that the contract will be valid and enforceable. However, cases are likely to be rare in which a statute prohibits a contract but nevertheless reveals an intention that it shall be valid and enforceable, and in most cases it is sufficient to say, as has been said in many cases of authority, that the test is whether the contract is prohibited by the statute. Where a statute imposes a penalty upon the making or performance of a contract, it is a question of construction whether the statute intends to prohibit the contract in this sense, that is, to render it void and unenforceable, or whether it intends only that the penalty for which it provides shall be inflicted if the contract is made or performed.”

And Mason J. said, at p.423:

“The principle that a contract the making of which is expressly or impliedly prohibited by statute is illegal and void is one of long standing but it has always been recognised that the principle is necessarily subject to any contrary intention manifested by the statute. It is perhaps more accurate to say that the question whether a contract prohibited by statute is void is, like the associated question whether the statute prohibits the contract, a question of statutory construction and that the principle to which I have referred does no more than enunciate the ordinary rule which will be applied when the statute itself is silent upon the question. Primarily, then, it is a matter of construing the statute and in construing the statute the court will have regard not only to its language, which may or may not touch upon the question, but also to the scope and purpose of the statute from which inferences may be drawn as to the legislative intention regarding the extent and the effect of the prohibition which the statute contains.”

Lloyd’s Act 1982, pursuant to which the Bye-law is passed, is a public statute. The Bye-law is subordinate legislation. There is no reason in principle why subordinate legislation should not achieve the same effect by prohibiting a contract as primary legislation provided that such effect is not outside the powers conferred by the enabling act. The subordinate legislation must be interpreted having regard to the terms of that statute.

The Bye-law was passed pursuant to section 6 of Lloyd’s Act 1982, which provides:

“(2) The Council may -

(a) make such byelaws as from time to time seem requisite or expedient for the proper and better execution of Lloyd’s Acts 1871 to 1982 and for the furtherance of the objects of the Society, including such byelaws as it thinks fit for any or all of the purposes specified in Schedule 2 to this Act; and

(b) amend or revoke any byelaw made or deemed to have been made hereunder.”

The earlier Lloyd’s Acts to which the section refers were concerned with the conduct of insurance business at Lloyd’s. Schedule 2 of the 1982 Act sets out 43 purposes for which Bye-laws can be passed. Almost without exception they deal with the conduct of business at Lloyd’s. The most relevant purpose is:

“(19) For regulating as among and between underwriting members, Lloyd’s brokers, underwriting agents and any other person transacting with underwriting members the business of insurance (whether as principal or agent) or interested therein, the mode in which insurance shall be effected with underwriting members and the periods at which settlements in respect of insurances so effected shall be made;”

If Mrs Woolley’s contention was correct, any deviation from the terms or form of the agreements scheduled to the Bye-laws would have the effect of depriving managing agents of actual authority to bind Names to policyholders for whose protection they have granted cover. This would be an astonishing result, even if it were ‘intra vires’, which we consider to be questionable.

It has always been a fundamental principle of Lloyd’s that the interests of policyholders are paramount. The Bye-law was passed to give effect to the 1987 Report on the Regulatory Arrangements at Lloyd’s of the Committee of Inquiry chaired by Sir Patrick Neill, QC. That Report included the following statement:

“The protection of Lloyd’s policyholders

2.15 In our consideration of Lloyd’s as an ‘investment’ medium, we have had firmly in mind that its origin and continuing raison d’ętre is as a market in insurance. We have assumed that this fact was implicit in our terms of reference and that we should be careful not to make recommendations that might detract from the current level of protection afforded to policyholders. Not only would it be wrong in principle to disturb arrangements which continue to maintain public confidence, but it would also be disadvantageous to the Names as a whole to make changes which might cast doubt on the security of the Lloyd’s policy. This is not to imply that we do not recognise that real conflicts may sometimes arise between the interests of Names and of policyholders. In reaching our conclusions we have not sought to challenge the view, which we believe to be correct, that, in resolving such conflicts, first priority must continue to be given to the interests of policyholders and to the payment of valid claims.”

In chapter 6 of the Report, the Committee made recommendations in relation to the legal relationship between Names, Members Agents and Managing Agents. These included the following recommendations:

“We recommend that all Names should be put in a position such that they have an unambiguous right to sue both their members' agent and their managing agent for breach of contract. We think that the agency contract should also distinguish clearly between the functions of the two types of agent and that it would be salutary if the respective duties of both were spelt out clearly in a document.

We recommend, therefore, that the structure and content of the standard agency and sub-agency agreements should be considered again in detail from the perspective of the Names, taking into account the specific recommendations and comments made in this chapter; attention should also be given to drawing up a direct contract for use as between indirect Names and managing agents and to the mechanisms whereby such contracts could be brought into existence without a great deal of extra paperwork.”

The Bye-law aims to give effect to these recommendations. It sets out in great detail the terms of the various agreements and provisions designed to ensure that the Names, members’ agents and managing agents contract on those terms. Failure to do so is a disciplinary offence which can result in disciplinary sanctions. There is no need to go further and to interpret the Bye-law in such a way as to make a contract conferring authority on a managing agent to bind a Name void unless all the requirements of the Bye-law are complied with. Such an interpretation would produce a perverse result in that it would tend to defeat the primary objective of Lloyd’s, which is the protection of the policyholder.

The Judge applied similar reasoning when holding that the alleged breaches of the Bye-law would not have avoided Mrs Woolley’s Schedule 3 agreement with KSM. His conclusion was correct.

For the reasons that we have given, this appeal is dismissed.

Order: Appeal dismissed with costs to be subject to detailed assessment if not agreed. (Order does not form part of the approved judgment)

Case No: 1999/815

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand,

London, WC2A 2LL

Date: 27 Feb.01

B e f o r e : THE HONOURABLE MR JUSTICE ANDREW SMITH - - - - - - - - - - - - - - - - - - - - -

P&B (Run-Off) Limited Claimant

- and -

Margaret C Woolley Defendant

- - - - - - - - - - - - - - - - - - - - - (Transcript of the Handed Down Judgment of Smith Bernal Reporting Limited, 190 Fleet Street London EC4A 2AG Tel No: 020 7421 4040, Fax No: 020 7831 8838 Official Shorthand Writers to the Court) - - - - - - - - - - - - - - - - - - - - - Ms S Prevezer QC (instructed by CMS Cameron McKenna for the Claimant) Mr N Davis QC and Ms C Mackenzie-Smith (instructed by Hamish McMillan for the Defendant) - - - - - - - - - - - - - - - - - - - - - Judgment As Approved by the Court Crown Copyright ©

Mr Justice Andrew Smith:

Introduction

The claimants in these proceedings, P&B (Run-Off) Limited (“P&B”), manage the run-off of Lloyd’s syndicates, including the Aviation Personal Accident Syndicate 103 for its 1993 year. Syndicate 103 ceased underwriting in 1993, but the 1993 year has not been reinsured to close. P&B are represented before me by Ms S Prevezer QC.

The defendant, Mrs Margaret C Woolley, who is represented by Mr N Davis QC and Ms C Mackenzie-Smith, became a member of Lloyd’s in 1983. Her first members’ agent was Rose Thomson Young (Underwriting) Limited (“RTY”). As a condition of her membership of Lloyd’s, she signed a General Undertaking dated 1 January 1987 whereby she agreed to “comply with the provisions of the Lloyd’s Acts 1871-1982, any subordinate legislation made or to be made thereunder and any direction given or provision or requirement made or imposed by the Council [of Lloyd’s]…”. By an agreement dated 30 September 1992 but taking effect from 10 June 1992, Mrs Woolley appointed as her members’ agent Knightstone Underwriting Limited (“KUL”) in place of RTY.

KUL was a member of a group of companies that acquired part of the business of what had previously been known as the Poland Group. In the late 1980’s there had been a restructuring of the group and two new managing agents were created, John Poland Managing Agency Limited (“JP”) and a new managing agency called HGP Managing Agency Limited. The latter changed their name on 31 May 1991 to Knightstone Syndicate Management Limited (“KSM”). In September 1991 the group was acquired by Mr Trevor Bradley and the management of syndicate 103 was transferred to KSM. KUL had begun operating as a members’ agent on 1 January 1992, and was the only members’ agent to put Names on syndicate 103 for the 1993 year.

On 17 January 1994 the Lloyd’s Regulatory Board resolved and directed that the Lloyd’s Members Agency Services Limited (“LMAS”) be appointed in place of KUL as members’ agent for Names including Mrs Woolley. The Board directed LMAS, among other things, to take possession of “all such information, documents or other material in the possession, custody or control of KUL relevant to the business in respect of which LMAS has been appointed to act, as have not by agreement been provided to LMAS by KUL”; and directed KUL and their directors, among other things, “to give LMAS possession of all such information, documents or other material as aforesaid”.

By an agreement between LMAS, KSM and P&B, KSM appointed P&B to handle the run-off of the Syndicate underwriting business in place of KSM with effect from 20 July 1994. Mrs Woolley does not dispute that P&B were duly appointed as managing agent in place of KSM.

P&B’s case is that Mrs Woolley was an underwriting member of syndicate 103 for the 1993 year of account. In these proceedings they seek to enforce two cash calls made on 10 October 1996 for Ł5,000 payable on 29 November 1996 and on 25 March 1997 for Ł10,000 payable on 30 April 1997.

Mrs Woolley has not paid the cash calls. She does not dispute that if she was a member of syndicate 103 for 1993, the calls were properly made and that she is liable in respect of them. She also accepts that until late 1998 she considered herself to have been a Name on the syndicate. The issue in these proceedings is whether she was correct in her belief. Mrs Woolley contends that she was not because, unknown to her, KUL had not made proper and effective arrangements with KSM for her participation in the syndicate, having failed to comply with the requirements for her participation stipulated in Lloyd’s Byelaw no 8 of 1988, the Agency Agreements Byelaw (“the Byelaw”).

The Byelaw

The Byelaw was made on 7 December 1988 under section 6(2) and paragraph 15 of Schedule 2 to Lloyd’s Act 1982, following the Report on Regulatory Arrangements at Lloyd’s made in January 1987 by the Committee of Inquiry under the chairmanship of Sir Patrick Neill QC (“the Neill Report”). An Explanatory Note to the Byelaw (which is not part of the Byelaw, but which would have been placed with it before the Council of Lloyd’s) explains that it prescribes the contractual terms upon which Names would appoint their underwriting agents to carry on their underwriting business at Lloyd’s for 1990 and subsequent years of account.

Paragraph 2 of the Byelaw is headed “Members’ agents’ services”, and paragraph 2(1) provides as follows: “… no members’ agent shall act as members’ agent of an underwriting member, and no underwriting member shall appoint a members’ agent to act or agree that it shall continue to act as his members’ agent, otherwise than in pursuance of an agreement in writing in the form and terms of the standard members’ agent’s agreement”. (Here and elsewhere where I set out parts of the Byelaw or its Schedules, the emphasis is added.) Standard members’ agent’s agreement is defined as “the form of agreement between an underwriting member and a members’ agent set out in Schedule 1 to this byelaw”, and I shall refer to it as a “schedule 1 agreement”.

Paragraph 3 of the Byelaw is headed “Managing agents’ services”, and paragraph 3(1) provides as follows:

“…

“a. no managing agent shall underwrite insurance business on behalf of an underwriting member or provide any other services as a managing agent to an underwriting member; and

b. no underwriting member shall authorise or continue to authorise a managing agent to underwrite insurance business on his behalf or agree to receive or continue to receive any other services provided by a managing agent in that capacity;

otherwise than in pursuance of an agreement in the terms of the standard managing agent’s agreement entered into in the manner specified in the standard members’ agent’s agreement and (except where the managing agent is acting as the members’ agent of the underwriting member) the standard agents’ agreement”.

“Standard managing agent’s agreement” is defined as “the form of agreement between an underwriting member and a managing agent set out in Schedule 3 to this byelaw”, and I shall refer to it as a “schedule 3 agreement”. “Standard agents’ agreement” is defined as “the form of agreement between a members’ agent and a managing agent set out in Schedule 2 to this byelaw”, and I shall refer to it as a “schedule 2 agreement”

Paragraph 4 of the Byelaw is headed “Arrangements between underwriting agents”, and paragraph 4(1) provides as follows:

“…:

(a) no members’ agents shall arrange for a managing agent to underwrite or continue to underwrite insurance business on behalf of an underwriting member for whom that members’ agent acts as members’ agent, or to provide any other services as a managing agent to such an underwriting member; and

(b) no managing agent shall arrange or agree with a members’ agent that the managing agent will underwrite insurance business on behalf of an underwriting member for whom that members’ agent acts as members’ agent or in pursuance of such an agreement or arrangement provide any other services as a managing agent to such an underwriting member or continue to underwrite insurance business on behalf of, or provide any other services as a managing agent, to any such underwriting member;

otherwise than in pursuance of an agreement in writing in the form and terms of the standard agents’ agreement.”

Paragraph 5 of the Byelaw provides that “…no underwriting member, managing agent or members’ agent shall without the written consent of the Council vary or agree to vary any term of any agreement to which he or it is a party and which is in the form or in the terms of one of the standard agreements”.

I should next identify the relevant provisions of the standard agreements. First, the schedule 1 agreement, which is to be made between Name and his members’ agent, and which comprises the agreement itself and an appendix to be completed with appropriate details, and signed and sealed by the parties.

(a) By clause 2, which is headed “Appointment and authority of the Agent”, it is provided:

“2.1 The Name hereby appoints the Agent, and the Agent hereby agrees, to provide the services and perform the duties set out in this Agreement in respect of the Business and the Name’s affairs at Lloyd’s

2.2 The Name hereby authorises the Agent on behalf or the Name:

(a) to allocate the whole or part of the Name’s overall premium limit in such amounts as the Name and the Agent shall from time to time agree among those syndicates in which the Name and the Agent shall agree from time to time that the Name is to participate;

(b) to enter into an agreement on the terms of the Standard Managing Agent’s Agreement with the managing agent of each of the syndicates in which the Name and the Agent shall from time to time agree that the Name is to participate (other than any Direct Syndicates) and from time to time agree with each of those managing agents in accordance with the relevant Agents’ Agreement its remuneration on a basis and at a level agreed between the Agent and the Name; and

(c) …

and the Agent undertakes with the Name to enter into an agreement in the form of the Standard Agents’ Agreement with the managing agent of each of the syndicates in which the Name and the Agent shall from time to time agree that the Name is to participate (other than any Direct Syndicates).

2.3 In relation to those syndicates (if any) in respect of which the Agent is the managing agent and in which the Name and the Agent shall from time to time agree that the Name is to participate, the Name hereby agrees to appoint the Agent, and the Agent hereby agrees that it will act, as the Name’s managing agent on the terms of the Standard Managing Agent’s Agreement, with such allocation of the Name’s overall premium limit, and for a remuneration on such basis and at such level, as shall from time to time be agreed between the Name and the Agent in accordance with clause 3.”

(A “Direct Syndicate” is, of course, a syndicate the managing agent of which acts is the Name’s members’ agent.)

(b) By clause 3, which is headed “Syndicate List”, it is provided:

“3.1 By signing a Syndicate List in respect of any year of account to which this Agreement applies:

(a) the Name and the Agent will be deemed to agree in respect of that year of account the syndicates in which the Name is to participate and in relation to which the Agent is to act as his members’ agent, the allocation of the whole or part of the Name’s overall premium limit among those syndicates and the basis and level of the remuneration of the managing agent of each such syndicate, in each case as specified in the Syndicate List; and

(b) if the Agent is a managing agent, the Name will be deemed to appoint the Agent as his managing agent (or, in the case of a Direct Syndicate of which the Name is already a member, to agree that the appointment of the Agent as his managing agent is to continue), and the Agent will be deemed to agree to act (or to continue to act) as the Name’s managing agent, in respect of each of the Direct Syndicates (if any) on the terms of the Standard Managing Agent’s Agreement and with such allocations of the Name’s overall premium limit, and for a remuneration on such basis and at such level, as are specified in the Syndicate List.”

(c) Clause 6.1, under the heading “Duties of the Agent”, provides:”

“6.1. The Agent undertakes to the Name that it will comply with Lloyd’s Acts 1871 to 1982 and with the requirements of the Council, and will have regard to the codes of practice from time to time promulgated or made by the Council, which are applicable to it as a members’ agent at Lloyd’s.”

(d) Clause 7.1, under the heading “Powers of the Agent”, provides:

“The Name hereby authorises the Agent to exercise on his behalf such powers as are necessary or expedient for the provision by the Agent of the services and the performance by the Agent of the duties set out in this Agreement including (without limitation) the power:…

Power of attorney

(h) to sign and execute on behalf of the Name and as the attorney of the Name, in his name or otherwise, all deeds and documents relating to the Business or the Name’s affairs at Lloyd’s which the Name may be required by the Council to sign or execute or which the Agent may consider it necessary or expedient for the Name to sign or execute…

Miscellaneous…

(p) generally to enter into such contracts and arrangements as are necessary or expedient for the purposes of or in connection with the Business or to discharge any of the functions of the Agent under this Agreement,… and for this purpose to incur and discharge or cause to be discharged such expenses as are necessary and reasonable.”

(e) Clause 11.1 provides that the “Agreement shall have effect when executed…”

(f) Mr Davis refers to clause 12, which is headed “Waiver of confidentiality”:

“12.1 In so far as is necessary for the purposes of the exercise by the Council of powers contained in Lloyd’s Acts 1871 to 1982 or in byelaws or regulations made thereunder, but not further or otherwise, the Name hereby:

(a) consents to the persons listed in paragraphs (a), (b) and (c) of clause 12.2 providing to the Council any information or documents relating to the Business or the Name’s affairs at Lloyd’s or any part thereof, whether or not in response to a request by the Council; and

(b) authorises and directs the Agent to waive on its own behalf all duties of confidentiality owed to the Agent by either of the persons listed in paragraphs (b) and (c) of clause 12.2 in respect of such information or documents.

12.2 The persons referred to in clause 12.1 are:

(a) the Agent

(b) any managing agent with whom the Agent on behalf of the Name has entered into a Managing Agent’s Agreement on relation to the Business or any part thereof; and

(c) any auditor appointed by the Agent or by any such managing agent as is referred to in paragraph (b) above.”

(g) Finally, reference should be made to clause 13.1 whereby the Name appoints “the managing agent of each syndicate (other than a Direct Syndicate) of which the Name shall become a member through the agency of the [members’] Agent under this agreement as his attorney on his behalf” to act as stipulated.

I turn to the schedule 2 agreement between the members’ agent and the managing agent.

Clause 2 is headed “Appointment of the Managing Agent” and clause 2.1 provides as follows:

“The Members’ Agent and the Managing Agent agree that by signing an Agents’ Syndicate List in respect of any year of account to which this Agreement applies:

(a) the Members’ Agent will be deemed to confirm that it has entered into a Members’ Agent’s Agreement and a Premium Trust Deed with each of the Names and that each such Members Agents Agreement and Premiums Trust Deed remains in full force and effect;

(b) the Members’ Agent on behalf of each of the Names will be deemed to appoint the Managing Agent as the managing agent of that Name…, and the Managing Agent will be deemed to agree to act… as the managing agent of that Name in respect of the syndicate or syndicates in which that Name is shown as participating in the Agents’ Syndicate List for that year on the terms of the Standard Managing Agent’s Agreement, with such allocation of the Name’s overall premium limit and for a remuneration on such basis and at such level, as are specified in the Agents’ Syndicate List.”

b) A number of terms used in Clause 2.1 are defined in the interpretation clause, clause 1. “Agents’ Syndicate List ” is defined as a schedule prepared in respect of a year of account listing the Names who are members of the syndicate of a managing agent and other stipulated details. “Managing Agent’s Agreement” is defined as “an agreement between a Name and a managing agent of that Name in the terms of the Standard Managing Agent’s Agreement”. “Members’ Agent’s Agreement” is defined as “an agreement between a Name and a members’ agent in the form of the Standard Members’ Agent’s Agreement”.

c) At clause 5 of the Agents’ Agreement, it is provided that, “This Agreement shall take effect when executed…”

As with the schedule 1 agreement, the form of the schedule 2 agreement contemplates that it will be executed under seal by the parties.

The schedule 3 agreement between the Name and the managing agent has the following terms:

(a) It stipulates that the Name appoints the agent and the agent agrees to provide specified services. It also provides that the Name authorises the agent to exercise stipulated powers, including (at clause 5.1(r)) the power “to exercise the power of attorney conferred by clause 13.1 of the Members’ Agent’s Agreement between the Name and the Name’s Members’ Agent…”.

(b) Clause 7 is headed “Obligations and acknowledgements of the Name” and clause 7.1 provides that the “Name shall ensure that at all times there are available sufficient funds subject to the trusts of the Premiums Trust Deed [a trust deed which a Name and his Members’ Agent have to sign to constitute a fund for all premiums received by or on behalf of the Name] and held by or under control of the Managing Agents’ Trustees to enable them to pay all claims and all necessary and reasonable expenses and outgoings made or incurred in connection with the Underwriting and shall comply with any request by the Agent to make such funds available…”. It also provides for interest to accrue from day to day upon any sums not paid by the due date (as defined) “at the rate of two per cent. per annum above the base rate of such London clearing bank as the Agent may select.”

(c) Clause 11 is headed “Commencement and termination” and provides at clause 11.1:

“This agreement shall take effect :

if the Managed Syndicate is not a Direct Syndicate, on the date of signature of an Agents’ Syndicate List under clause 2 of the Agents’ Agreement between the Name’s Members’ Agent and the [managing] Agent…”

Unlike the schedule 1 agreement and the schedule 2 agreement, the form of the schedule 3 agreement does not contemplate execution of the agreement either by seal or otherwise.

The Byelaw therefore (except in cases of “Direct Syndicates”) provides for the following arrangements:

a) written schedule 1 agreements between Names and Members’ Agents;

b) syndicate lists signed by Names and Members’ Agents: it is accepted by both P&B and Mrs Woolley that by signing a list the Name and the Members’ Agent agree that the Name is to participate on syndicates as specified in the list in the relevant year of account;

c) written schedule 2 agreements between the Members’ Agent and the Managing Agent of any syndicate in which the Name is to participate;

d) Agents’ Syndicate Lists whereby Managing Agents are deemed to be appointed to act on behalf of Names, and which are, as P&B and Mrs Woolley agree, to be signed by both the Members’ Agent and the Managing Agent.

schedule 3 agreements made between Names and the Managing Agents.

The background to the introduction of this scheme of arrangements is explained by Cresswell J in The Society of Lloyd’s v Jaffray:

“Until the introduction of the standard agency agreement, there was no mandatory standard form of agency agreement. On 11 March 1985 the Agency Agreements Byelaw No. 1 of 1985 was passed which stipulated that from 1 January 1987 insurance business could not be underwritten in the Lloyd’s market unless the Name had entered into a Standard Agency Agreement. The Standard Agency Agreement governed the relationship between the Name and his/her member’ agent (or a combined agent acting as member’ agent). Where that members’ agent or combined agent delegated some or all of the underwriting to a managing agent a Standard Sub-Agency Agreement contained the terms of that delegation.

There was no direct contractual relationship between a Name and his/her managing agent, unless the members’ agent also acted as managing agent. (The position changed in 1990 with the implementation of the Agency Agreements Byelaw (No.8 of 1988) which prescribed standard form agency agreements and introduced a direct contractual relationship between the Name and his/her managing agent). However, the House of Lords in Henderson v Merrett Syndicates Ltd [1994] 3 WLR 761 [also [1995] 2 AC 145], upheld the decision of the Court of Appeal that the delegation of the conduct of underwriting business did not remove the implicit promise by the members’ agent that the work of the managing agent would be carried out with reasonable care and skill. In addition, the managing agents were under a similar, non-contractual duty to Names to exercise reasonable care and skill”

The Issues

The matters about which P&B and Mrs Woolley are in agreement and the issues between them are as follows:

a) It is agreed that KUL and Mrs Woolley duly entered into a schedule 1 agreement, although only the appendix to it has been found. It is the agreement dated 30 September 1992, to which I have referred.

b) It is agreed that a Name’s Syndicate list was signed by Mrs Woolley and KUL whereby it was agreed that Mrs Woolley should participate for the 1993 year of account on various syndicates, including syndicate 103 with a Ł20,000 line. It was signed by Mrs Woolley on 20 January 1993 and on behalf of KUL on 14 January 1993.

c) No schedule 2 agreement between KUL and KSM has been found. It is P&B’s case that a schedule 2 agreement was duly entered into, but all copies of it have been lost. They also submit that even if no written agreement was entered into, KUL and KSM reached an agreement in the terms of a schedule 2 agreement, and the fact that they did not enter into a written agreement, though a contravention of the Byelaw, would not mean that the agreement is void or unenforceable. Mrs Woolley disputes these matters.

d) There has not been found an agents’ syndicate list in respect of Mrs Woolley’s participation in syndicate 103 for the 1993 year that has been signed by KSM. There have been produced by B&P two lists signed on behalf of KUL: a list of 60 pages dated 11 February 1993 and signed by a Mr Thompson on behalf of KUL on each page against that date, and a list of 59 pages dated 10 May 1993 and signed by a Mr Gillespie on behalf of KUL on each page against the date of 19 May 1993. Both these documents provided for Mrs Woolley to participate in the syndicate with a line of Ł20,000, and both lists have a space on each page for a signature on behalf of KSM. It is P&B’s case that copies of those lists were indeed signed by KSM, but that the countersigned copies have been lost. Further, as with the Schedule 2 agreement, they also submit that even if KSM did not countersign the list, nevertheless an agreement for Mrs Woolley’s participation in the syndicate was reached between KUL and KSM, and the fact that KSM did not countersign an agents’ syndicate list, though a breach of the Byelaw, would not invalidate the agreement or make it unenforceable. Again, Mrs Woolley disputes these points.

e) P&B acknowledge that there was no written schedule 3 agreement made between Mrs Woolley and KSM. They submit that the Byelaw does not require a written agreement between them. Mrs Woolley submits that the Byelaw does require it, and that without a written schedule 3 agreement there cannot be an effective agreement between KSM and herself.

Accordingly, P&B’s primary case is that by the agreement dated 30 September 1992, Mrs Woolley authorised KUL to act as her members’ agent and to enter into schedule 3 agreements on her behalf; that under that authority KUL entered into a schedule 2 agreement with KSM (in writing, or if they fail in that contention, by conduct); and that KUL and KSM agreed that Mrs Woolley should participate in syndicate 103 for 1993 (by signing an Agents’ Syndicate List, or by their conduct). Accordingly, they submit that Mrs Woolley and KSM made an agreement in the terms of a schedule 3 agreement that Mrs Woolley should participate in the syndicate.

It is convenient first to consider whether under the scheme of the Byelaw a written schedule 3 agreement is mandatory; then to determine whether in fact there was a written schedule 2 agreement between KUL and KSM, and whether there was a relevant agents’ syndicate list signed on behalf of both companies; and thirdly to determine the consequences if there were not.

Does the Byelaw require a written schedule 3 agreement?

There is nothing in the Byelaw that stipulates that schedule 3 agreements are to be in writing. Paragraph 3 of the Byelaw refers to an agreement “in the terms of the standard managing agent’s agreement”. This terminology is in contrast with the terminology in paragraph 2 about members’ agents’ services and paragraph 4 about arrangements between underwriting agents, both of which refer to “an agreement in writing in the form and terms” specified.

Further, the Byelaw itself stipulates how a schedule 3 agreement is to be entered into, namely in the manner specified in the schedule 1 agreement and the schedule 2 agreement. This refers to clause 2.2(b) of the schedule 1 agreement and clause 2.1(b) of the schedule 2 agreement. Accordingly the Byelaw stipulates that a schedule 3 agreement is to be entered into by the members’ agent exercising the power conferred upon him by the schedule 1 agreement, and by him and the managing agent signing an Agents’ Syndicate List. Thus, a schedule 3 agreement is “deemed” to be made between the Name and the managing agent.

Accordingly, the Byelaw does not require a written agreement between managing agent and Name (either entered into by the Name himself or made by his members’ agent on his behalf). This is confirmed by a number of other considerations:

In the schedule 1 agreement the authority given to the agent is to enter into agreements in the “terms” of a schedule 3 agreement with the managing agents. This is in contrast with the undertaking of the agent to enter into agreements in the “form” of a schedule 2 agreements.

By clause 2.2 of the schedule 1 agreement the members’ agent undertakes to enter into schedule 2 agreements, but there is no comparable undertaking in respect of schedule 3 agreements.

In the schedule 2 agreement there is a significant difference between the definition of a schedule 3 agreement, which is by reference to its terms, and the definition of a schedule 1 agreement, which is by reference to its form.

Unlike schedule 1 and the schedule 2 agreements which provide that they are to come into effect when executed, the commencement provision of the schedule 3 agreement does not contemplate its execution.

The form of the schedule 3 agreement set out in the Byelaw does not provide for its execution, again in contrast with the schedule 1 and the schedule 2 agreements. There is no Appendix setting out the terms agreed between the Name and the managing agent, comparable to the Appendix to the schedule 1 agreement.

Nevertheless, Mr Davis submits that the execution of an agreement is required. He points out that the Byelaw contemplates that should be an agreement in the terms of the form in schedule 3. That is certainly the case. However that begs questions of the form of the agreement itself and of how it is to be made. Mr Davis also argues that the terminology of the Byelaw contemplates a degree of formality in the making of a schedule 3 agreement: accordingly, he points out that paragraph 3 of the Byelaw refers to the schedule 3 agreement being “entered into”; so too does clause 12 of the schedule 1 agreement. It does not seem to me that this terminology is indicative of the form of the schedule 3 agreement.

It is unsurprising that the Byelaw provides that if a Name gives authority for his members’ agent to place him on a managing agent’s syndicate and the members’ agent does so, an agreement is ipso facto deemed to be made between the Name and the managing agent. This is how the Byelaw ensures that the relationship between Name and managing agent was not that of principal and sub-agent with no direct contractual nexus between them, but there is direct contract between them. It is to be observed that the Neill Report, to which both Ms Prevezer and Mr Davis asked me to have regard when considering the purpose and proper interpretation of the Byelaw, recommended (at paragraph 6.31) that “attention should...be given to drawing up a direct contract for use as between indirect Names and managing agents and to the mechanisms whereby such contract could be brought into existence without a great deal of extra paperwork” (emphasis added).

I should add that the parties put before me expert reports by Mr G J White, instructed by P&B, and by Mr J Jackman, instructed by Mrs Woolley. The measure of agreement between the experts was such that it was not necessary for them to be called to give oral evidence. One matter upon which they were agreed was, “Lloyd’s market practice was to proceed on the basis there was no requirement for a schedule 3 agreement document to be physically signed by both parties”. The practice is therefore in accordance with my interpretation of the Byelaw, but I have not relied upon this evidence in interpreting it.

Was a schedule 2 agreement made in writing between KUL and KSM, and was an Agents’ Syndicate List signed by them both?

Before turning to the evidence of the witnesses about these questions of fact, it is necessary to set out something of the history of this litigation. When Mrs Woolley failed to pay the calls made in 1996 and 1997, P&B served upon her a statutory demand dated 1 May 1998. She applied to set it aside and Mr Registrar James did so on 23 December 1998. In summary, he considered that she had arguable defences to the claim because P&B were not able to produce either a written schedule 2 agreement or an agents’ syndicate list signed by KSM.

These proceedings were issued on 23 June 1999. In their particulars of claim P&B referred to schedule 2 agreements made between companies in the Poland Group in September 1989, and pleaded that through their novation there had come to be a schedule 2 agreement between KUL and KSM. P&B were asked to clarify their case and by letter dated 2 August 1999 P&B wrote as follows:

“Although the Claimant’s primary case is that a standard Agent’s Agreement was entered into between KUL and KSM which has been mis-placed, the Claimant may rely upon the execution of novation agreements in the alternative”.

By an application notice dated 22 October 1999 P&B applied to amend the particulars of claim. Their notice said that the application was made because “new evidence has come to light which enables the claimant to confirm that it relies upon the novation of earlier agency agreements executed by the Poland companies in September 1989”. The evidence in support of the application, verified by a statement of truth signed by Ms J. Plumptre, a barrister and P&B’s company secretary, said this:

“The original Particulars of Claim were not sufficiently clear in that they disclosed two possible arguments. One argument was that the claim relied on an earlier agency agreement between the former Poland members’ agent and the former Poland managing agent. The other argument was that the claim relies upon a new agency agreement, which was subsequently lost or misplaced, between the Knightstone members agents and the Knightstone managing agents. The Defendant properly sought clarification by a request under CPR 18 dated 28 July 1999. I therefore conducted further research of the archives inherited from the Knightstone companies. Also in August 1999 I was contacted by Mr Quentin Moore, the former manager of Knightstone Syndicate Management who told me that the Knightstone companies did not enter into new agency agreements but novated the original Poland agency agreements. In reliance upon Mr Moore’s evidence and also in reliance on his explanation of the changes of company names, which had helped to obscure the history of the former Poland group of companies I wish to amend the Particulars of Claim…to assert a positive case that the Claimant relies upon novation of earlier agency agreements”

By an order dated 28 October 1999, P&B were given permission to amend their pleading accordingly.

Until the week before the trial, the case was pursued against Mrs Woolley on this basis. P&B served a witness statement signed by Mr Moore dated 9 May 2000. He explained in it that he had joined the Poland group on 31 August 1988 as an assistant to the agency manager, and he remained employed by them after they became the Knightstone Group and until November 1993. He said that in September 1991, when Mr T Bradley took over the Group, “there was a degree of re-structuring and a large number of novation agreements were executed around 24 September 1991 to reflect either a change of company name and/or change of managing agent”. He explained the changes in the corporate structure of the Group and said that “the management of 103 was transferred by Novation Agreements executed in September 1991 to KSM”. He continued, “Thus there is no Agents’ Agreement existing between KUL and KSM because we relied upon the existing Agents’ Agreement dated 7 and 8 September 1989 made by the previously named Poland managing and member’s [sic] agencies”.

At the hearing before me P&B abandoned the case that there was a schedule 2 agreement between KSM and KUL through novation, having given notice of this intention a few days before the trial. Their argument now is that a schedule 2 agreement was entered into directly between KUL and KSM. Accordingly they have not called Mr Moore to give oral evidence and do not rely on his witness statement. Mrs Woolley, however, has put in evidence the witness statement under CPR part 32.5(5).

Mr Moore’s statement also refers to agents’ syndicates lists. He explained that P&B found the two lists signed on behalf of KUL which I have described. I was told by Ms Prevezer, and Mr Davis accepts, that only one copy of each of these lists has been found. Mr Moore stated that agents’ syndicate lists were usually signed on behalf of KSM by Mr Bradley or by the relevant active underwriter for the syndicate, and he expressed the belief that more syndicate lists than those dated 11 February 1993 and 19 May 1993 might have been prepared for syndicate 103’s 1993 year of account, explaining that there were constant changes to the lists for syndicate 103 because Names did not provide sufficient funds at Lloyd’s. He says that

“The fact that the two Agents’ Syndicate Lists dated 11 February 1993 and 19 May 1993 were not signed by any member of the managing agent may be explained because we realised that another was likely to be produced because Names were changing their minds about participation due to large losses rather later in the year than was strictly proper.”

Accordingly, he apparently accepted that KSM did not countersign the lists.

In support of their new case, P&B rely on the evidence of Mr Thompson, to whom I have referred, and also the evidence of Mr Casement, a solicitor employed by Messrs CMS Cameron McKenna who have acted for P&B since December 2000.

Mr Thompson was first employed in the Lloyd’s market in 1976. In October 1992 he became the Administration Director of KUL because he was working for a business, Spratt & White, which was acquired by KUL. He was employed by KUL until October 1993. KUL and KSM had separate offices in the same building in Philpot Lane, London EC3. Unsurprisingly there was a good deal of contact, both on a personal and professional level, between the employees of the two companies.

Mr Thompson explained that on the day that he joined KUL, the Lloyd’s General Review Department began a formal review of the Knightstone Group. After the General Review Department had declared in around March 1993 that, in the words of Mr Thompson, “Knightstone was not fit and proper”, the business of the Group was disposed of.

Mr Thompson described his primary role at KUL as “liaising” with the Corporation of Lloyd’s and managing agents, other employees dealing directly with Names. His responsibilities included dealing with agents’ syndicate lists. He had been familiar with the procedure for preparing lists before he joined KUL. After Names had “settled on their individual syndicate portfolios”, agents’ syndicate lists were prepared for each syndicate. KUL, as a members’ agent, supported some 100 syndicates, including 7 syndicates managed by KSM. The standard practice was for KUL to prepare and sign two copies of agents’ syndicate lists and send both to the managing agent. The managing agent would then countersign them, return one and keep the other for their records. However KUL would not check that the managing agents had signed the copies of the list that they retained.

Mr Thompson gave evidence that he recalled signing the syndicate list for syndicate 103 dated 11 February 1993. He recalled this list, of the many lists that he had signed, because he first signed and took to Mr Moore a version of it that was incorrect with regard to “staff participation”, by which, I assume, he means the participation in the Syndicate by employees of the Knightstone Group. When the errors were discovered, he had to sign the copies of the list on every page for a second time. The corrected lists would then have been delivered to Mr Moore. Mr Thompson acknowledged that he does not actually recall delivering them or receiving back a countersigned list, but he believes that this is what happened. KUL would next have sent electronically a list of the Names and their participation on syndicate 103 to Montrose Underwriting Services Limited (“MUS”) at Lloyd’s, and Lloyd’s created a syndicate stamp.

In fact it transpired that a further syndicate list had to be prepared, because of the death of Names and difficulties about solvency requirements. Accordingly on 11 May 1993 further syndicate lists were sent by KUL to KSM. The covering letter, headed “Syndicate 103, 1993 Syndicate Constitutions”, was written in Mr Thompson’s name, but was in fact signed by Ms Angela Kerr, Mr Thompson’s assistant. It said that there were “discrepancies with the information we sent you earlier this year on the Syndicate List”, and having explained the changes, that it “attached a further set of 1993 Syndicate Lists for your signature”. I observe that, although the May version of the list was printed on 10 May 1993 and the letter was dated 11 May 1993, the list was not signed by Mr Gillespie on behalf of KUL until 19 May 1993: the apparent delay was not explained in evidence.

Again, Mr Thompson believes that a copy of this version of the list was returned having been countersigned by KSM, and the information was sent electronically to MUS for Lloyd’s to prepare a new stamp. Mr Moore said that KUL had “computer checklists to ensure that we received back the signed lists from all syndicates prior to giving the notification to Lloyd’s in the electronic format”.

Mr Thompson also gave evidence about an agents’ agreement between KUL and KSM. In his written witness statement, dated 21 January 2001, he said that because KUL were a new company on 1 January 1992 “there should be new agents’ agreements in place with all the managing Agents whose syndicates KUL supported”, and that he understood that these could not be found. In his oral evidence he told me that KUL did not rely upon agreements entered into by the Poland Group, but made new agents’ agreements. Mr Thompson signed some of these new agents’ agreements himself, but he could not say whether he signed one relating to syndicate 103 because he and other directors “would have very likely split the task up between us”.

The agents’ agreements were kept by KUL in a filing cabinet which was on the ground floor at Philpot Lane, in the same area as KSM kept their documents. Indeed Mr Thompson could not recall whether the two companies had separate cabinets or used separate drawers in the same cabinet.

Mr Thompson told me that he would have been careful to ensure that agency agreements and the signed syndicate lists were in order for two reasons: first, his “professional expertise as an administrator would have ensured that that job was completed thoroughly”; he said that he had a reputation “as a thorough administrator who paid attention to detail”. Secondly, he was concerned that these documents should be in order because “as part of the Lloyd’s regulatory review, one of the standard pieces of information they would have asked to look at would have been copies of the agency agreements and syndicate lists”.

Mr Thompson gave some evidence of what he had been told by others about documents being lost. Firstly, he said that he believed that a Mr David Scott, who was employed by KSM but spent much of his time on the Knightstone Group’s affairs, had sworn an affidavit in the subsequent liquidation of KSM, stating that 50 to 60 boxes of company documents had “gone missing”; Mr Thompson had been told this by Ms Plumptre. Mr Thompson also was led to understand in a conversation which he had had in about 1994 or 1995 (after the Group had moved from the Philpot Lane offices) with a Mr David Wedderburn, a director of the holding company of the Knightstone group, that the syndicate lists and agents’ agreements were among the documents which were lost, although he acknowledged that Mr Wedderburn had not specifically told him this. Thirdly, Mr Thompson confirmed that he understood that none of the schedule 2 agreements made by KUL could be found, and said that he was approached by a representative of LMAS “some years prior to 1999” to ask whether he could assist in locating documents: “they were looking specifically for syndicate lists and agreements”.

I consider that Mr Thompson was an honest witness. He also struck me as a man who would be a careful administrator, and I accept that he was concerned that KUL’s documentation should be in order for the review by Lloyd’s.

The other witness called by P&B was Mr Casement. He too, as is not disputed, was entirely honest and candid in his evidence. He explained his attempts to find a schedule 2 agreement between KUL and KSM and a syndicate list signed by KSM. He had spoken to Mr Scott, who confirmed that during the liquidation of KSM it became clear that a large number of documents had been lost. In cross-examination he explained that he had asked Mr Scott whether he agreed with the passage of Mr Thompson’s witness statement which stated this. He had also spoken to Mr Gillespie, the former managing director of KUL, who told him that he had no recollection of events in 1993. Mr Casement accepted that he had not spoken to others who might be able to throw light on the missing documents. He did not speak to Mr Wedderburn, to whom Mr Thompson referred. Nor did he speak to Mr Bradley, to Ms Kerr, who signed the letter of 11 May 1993, or to Mr Bird, the active underwriter on syndicate 103.

Mr Davis points out that, although P&B are putting forward a case contrary to that which they were asserting until shortly before the trial and contradicted by the witness statement of Mr Moore which they themselves served, nevertheless they have not applied to cross-examine Mr Moore. Moreover, P&B have not adduced evidence from others who might have known what agreements KUL and KSM made. There was no evidence from anyone employed by KSM. Nor was there evidence about what was examined and what was found on the Lloyd’s review. However, while recognising the burden of proof on P&B, it is right to observe that Mrs Woolley called no oral evidence.

P&B submit that I should accept Mr Thompson’s evidence and conclude that KSM and KUL both made an agency agreement and signed a syndicate list. Mr Davis, on behalf of Mrs Woolley, submits that P&B have not discharged the burden upon them of showing this on the balance of probabilities.

I accept that documents of the Knightstone Group have been lost since 1993. Indeed, I do not understand Mr Davis to suggest otherwise. It is against this background that I have to decide whether on the balance of probabilities the missing documents included an agency agreement between KUL and KSM and an agents’ syndicates list countersigned by KSM.

It is significant that there has been found only one copy of the syndicate list signed by Mr Thompson and only one copy of that signed by Mr Gillespie. I accept Mr Thompson’s evidence that the practice was for KUL to sign two copies of each list and to send them both to KSM together. This is supported by the letter of 11 May 1993, which refers to a further “set” of lists.

If two copies of each list were prepared, one copy of each has been lost, and the question is whether, on the balance of probabilities, the lost copy of at least one version of the list was signed by KSM. On the face of it, until they sent to KSM, the probability is that the two copies of the lists were kept together. Further, the letter of 11 May 1993 shows that the writer understood that an earlier list, which was, I conclude, the February list, had been sent by KUL to KSM. Again, it is likely that, when the lists arrived at KSM, the two copies would have been kept together unless and until KSM signed a list for return to KUL. In these circumstances, it would be odd that one copy was lost but not the other. It seems to me that the most likely explanation for only one copy of each version of the list being found is that the other copy was countersigned by KSM and returned to KUL.

I am the more confident in my conclusion that KSM countersigned a copy of each version of the list and returned it to KUL because I accept Mr Thompson’s evidence that his practice was to send to MUS at Lloyd’s the information necessary for the stamp to be drawn up after he had received a countersigned list from the managing agent. I do not think it likely that Mr Thompson would have done this before receiving the countersigned list, particularly when KUL were undergoing a Lloyd’s review. It was Mr Thompson’s belief that these matters might be of concern to those conducting the review.

In reaching my conclusion that KSM countersigned the agents’ syndicate lists’ of February and May 1993, I have not overlooked the fact, which was well made by Mr Davis, that there are in evidence other syndicate lists from other members’ agents which were countersigned by KSM. In these cases KSM did apparently countersign the copy of the list that they retained. He argues that this indicates that it was the practice for KSM to countersign their own copy of the list as well as the copy that was returned to the members’ agent. This being so, Mr Davis argues, the fact that no countersigned copies of the relevant lists have been found, supports Mrs Woolley’s contention there never were such countersigned lists. However, the other lists in evidence which were countersigned were very much shorter than the sixty or so pages comprised in the KUL lists, the longest being some five pages. It is easy to suppose that KSM might neglect to countersign the long KUL lists, while adopting a more careful practice in respect of shorter lists.

This leaves the more difficult question of the schedule 2 agreement. Mr Thompson’s evidence about signing new agreements is important. I find it difficult to believe that he was mistaken in believing that he and others had made completed new schedule 2 agreements in the way that he described. If I reject that evidence, it would, in my view, amount to finding that he was dishonest in giving it. I decline to do this. I conclude that Mr Thompson and others did sign new schedule 2 agreements for KUL, and that those agreements have been lost. The question is whether those lost agreements included one between KUL and KSM.

Mr Moore’s evidence that there was no schedule 2 agreement between KUL and KSM explained why no agreement was thought necessary, “because we relied on the existing Agents’ Agreements …made by the …Poland managing and member’s agencies”. Mr Thompson’s evidence about this, in cross-examination, was as follows:

“Q: And your position is that there should be new agreements in place?

“A: That is correct. The reason for that, on my understanding, was that various former Poland syndicates, which were not going to carry on underwriting, were dealt with by novation, but for the Knightstone, the ongoing syndicates with Knightstone, because the intention was to leave the liability with the Poland syndicates behind, new agreements were set up by Knightstone on their formation or the commencement of their underwriting on 1^st of January 1992.”

It is right to mention that Mr Thompson made it clear that he was not himself involved in the decision about this, and the reasoning behind it is not fully clear from Mr Thompson’s evidence. Nevertheless, this evidence is helpful to P&B, both because it makes it clear Mr Thompson’s understanding that the decision was that there should be a new schedule 2 agreement between KUL and KSM, and because it explains how Mr Moore might have the impression that KUL and KSM were relying upon the novation of agreements made in 1989.

I accept Mr Thompson’s evidence and conclude that on the balance of probabilities a schedule 2 agreement between KUL and KSM was among the documents which were lost.

I therefore find that there were (i) a written agreement in the form of schedule 2 to the Byelaw between KSM and KUL, and (ii) syndicate lists dated 11 February 1993 and 10 May 1993 in respect of participation of KUL Names including Mrs Woolley, upon syndicate 103 for the 1993 year signed by both KUL and KSM.

Before I leave this question, I should mention that Mr Davis referred me to the principle about proving lost documents which is set out in Halsbury’s Laws of England (4^th Ed.) Vol. 17 para 140 in the following terms: “Where a document has been lost and cannot be found after due search, secondary evidence of its contents is admissible. The court must be satisfied that the document existed, that the loss or destruction has in fact taken place, and that a reasonable explanation for this has been given.” This principle is, as I understand it, concerned with proving the contents of a lost document and I do not consider it in point here. However, if necessary I would hold that P&B are not precluded from asserting their case on the grounds that their search was inadequate. After all, it would have been in their interests to have found the documents.

If there was no written agents’ agreement made, and no syndicates’ list countersigned by KSM, was there an enforceable agreement between Mrs Woolley and KSM?

In view of my findings of fact, this question does not arise. However, I have heard full argument upon it and I should express my views about it. There are five aspects to the question:

a) Did KUL have authority from Mrs Woolley to agree with KSM that Mrs Woolley should participate on syndicate 103 for the year 1993 otherwise than by making a schedule 2 agreement with KSM and by having a syndicate list signed by both themselves and KSM?

b) Did KUL reach an agreement with KSM that Mrs Woolley should participate in the syndicate?

c) If KUL did so agree with KSM, did KUL make the agreement on behalf of Mrs Woolley?

d) If KUL did so agree with KSM, what were the terms of the agreement?

e) If KUL did so agree with KSM, is the agreement void or unenforceable because of breach of the Byelaw?

a) Did KUL have authority from Mrs Woolley to agree with KSM that Mrs Woolley should participate on syndicate 103 for the year 1993 otherwise than by making a schedule 2 agreement with KSM and by having a syndicate list signed by both themselves and KSM?

Mrs Woolley did authorise KUL to enter into an agreement in the terms of a schedule 3 agreement with the managing agents of the syndicates in which she and KUL agreed that she should participate. She did so by making the schedule 1 agreement of 30 September 1992. Further, Mrs Woolley and KUL agreed that Mrs Woolley should participate in syndicate 103 for the 1993 year of account by signing the Name’s syndicate list. Accordingly, Mrs Woolley did authorise KUL to agree with KSM in the terms of a schedule 3 agreement that she should participate in the syndicate.

The terms of KUL’s authority did not expressly stipulate that KUL could only make schedule 3 agreements on behalf of Mrs Woolley by entering into written schedule 2 agreements and by having an agents’ syndicate list signed by themselves and the managing agents. The authority is restricted only by reference to the terms that were to be agreed with managing agents. There is no reason to imply a further restriction as to the form of such agreements.. Certainly, KUL undertook to enter into an agreement with managing agents who were to act for Mrs Woolley in the form of schedule 2 agreements, but that provision took effect only as an undertaking and was not a limitation upon the authority conferred upon KUL by Mrs Woolley.

b) Did KUL reach an agreement with KSM that Mrs Woolley should participate in the syndicate?

In my judgment, even if KUL neither entered into a written schedule 2 agreement with KSM nor had an agents’ syndicate list countersigned by KSM whereby they agreed with KSM that Mrs Woolley should participate in syndicate 103 for the 1993 year, nevertheless KUL and KSM so agreed by their conduct. This is because KUL electronically sent to MUS at Lloyd’s the list of Names participating on the syndicate, including Mrs Woolley. They did this both in February 1993 and also in May 1993 after revisions to the list. Lloyd’s accordingly compiled a syndicate list, known as a “number 1 stamp”; and sent it to KSM as managing agent. It was for KSM to check the lists, and there has been produced in evidence a copy of the revised version of the list signed by Mr Bird, the active underwriter on the syndicate. I do not understand these matters to be in dispute, but in any event I find that they have been established by Mr Thompson’s evidence and the documents which have been put in evidence. This conduct, it seems to me, would have given rise to an agreement between KUL and KSM that Mrs Woolley should participate in syndicate 103 for the 1993 year.

c) If KUL did so agree with KSM, did KUL make the agreement on behalf of Mrs Woolley?

`In entering into this agreement with KSM that Mrs Woolley should participate in the syndicate, KUL were acting as Mrs Woolley’s agent and making it on her behalf. This is the clear inference from the nature of the agreement and the authority conferred by Mrs Woolley upon KUL.

d) If KUL did so agree with KSM, what were the terms of the agreement?

The terms of an agreement so made between KUL as agent for Mrs Woolley and KSM were those of a schedule 3 agreement. This is to be inferred because both KUL and KSM are to be taken to know that no other terms were permitted under the terms of the Byelaw, and moreover both are to be taken to know that KUL were not authorised to enter into such an agreement on behalf of Mrs Woolley upon any other terms. Although it would be possible to consider the implication of these terms as resulting from the parties’ course of dealing, it is more natural to attribute it to “the common understanding which is to be derived from the conduct of the parties”: British Crane Hire v Ipswich Plant Hire, [1975] QB 303 at p.311B per Lord Denning MR.

e) If KUL did so agree with KSM, is the agreement void or unenforceable because of breach of the Byelaw?

There is no dispute between P&B and Mrs Woolley that it would have been a contravention of the Byelaw to make a schedule 3 agreement in this way. First, in breach of paragraph 3 of the Byelaw, KSM would be underwriting on behalf of Mrs Woolley and Mrs Woolley (through KUL) would have authorised them to underwrite on her behalf otherwise than pursuant to the terms of a schedule 3 agreement entered into the manner specified in the schedule 1 and schedule 3 agreements. Secondly, in breach of paragraph 4, the arrangements between KUL and KSM would have been made otherwise than in pursuance of an agreement in writing in writing and in the form and terms of a schedule 2 agreement. Mr Davis reminds me that in Arbuthnot v Fagan, [1996] Lloyd’s RLR 135 at p.137, Sir Thomas Bingham MR referred to the forms of agreement stipulated under Lloyd’s Agency Byelaw No 1 of 1985 as “mandatorily prescribed”, and those prescribed in the Byelaw are similar. The importance of the standard agreements are emphasised by paragraph 5 of the Byelaw, which requires the Council’s consent to any variation to them.

However, it does not follow that an agreement so made is void or unenforceable. Those so contravening the Byelaw could, no doubt, face Lloyd’s disciplinary action, but the Byelaw is silent as to the civil rights of parties to arrangements made in breach of its provisions. Accordingly, “the appropriate question is to ask whether, having regard to the [Byelaw] and the evils against which it was intended to guard and the circumstances in which the contract was made and to be performed, it would in fact be against public policy to enforce it”: Chitty on Contracts (28^th Ed.) para 17-144.

I have come to the conclusion that it would not be in the public interest or advance the purpose of the Byelaw for arrangements made in breach of it not to be enforced. Four considerations lead me to this conclusion.

First, the position of insureds under Lloyd’s policies is to be considered. If arrangements whereby managing agents are appointed to underwrite are void or unenforceable, the managing agents would not have authority to bind Names to insurance underwritten by them, and policyholders would have incomplete cover. A policyholder might well in such circumstances have a claim against managing agents for breach of warranty of authority, but I find it difficult to believe that the intention of the Byelaw was to put Lloyd’s policyholders in such a position.

This view is supported by the Neill Report, which, at paragraph 2.17, identified four considerations fundamental to their conclusions, and I refer to two of them: “The regulation of Lloyd’s in the interests of the Names cannot be considered in isolation from the primary need to ensure that the interests of policyholders are properly safeguarded”; and “The manner in which protection is provided for the interests of Names must be sensitive to the need to avoid jeopardising the efficient operation of the market”.

Secondly, a purpose of the Byelaw is to bring about certainty in the relationships between Names, members’ agents and managing agents. It would not promote but would detract from that purpose to hold that arrangements that all the parties understand to be in place are void because, through administrative inefficiency or otherwise, the requisite documentation is not in place.

Thirdly, the position of the Name is to be considered not only when a syndicate makes losses but also when it is profitable. A Name who appoints a managing agent otherwise than through the machinery of a properly signed agents’ syndicates list is himself, it seems to me, in breach of Byelaw 3, although the fault would generally not be the Name’s but that of his members’ agent. It would be surprising if in these circumstances the Name were not able to recover any profit made by the managing agent’s underwriting. This consideration seems to me to indicate that arrangements made in breach of the Byelaw are not void and unenforceable for all purposes.

Finally, it is legitimate to consider whether the potential loss to agents which is liable to result from not enforcing arrangements involving a breach of the Byelaw would be proportionate to the breach: see Chitty on Contract (28^th Ed.) at para 17-146. These proceedings concern only Mrs Woolley, but other Names might well be in a position comparable to her. This illustrates that, if such arrangements are unenforceable, the loss which could result from an unintentional, albeit culpable oversight might well be disproportionate to the fault.

Conclusion

For these reasons I therefore conclude that the P&B are entitled to recover from Mrs Woolley Ł15,000 together with interest on the contractual basis claimed.