England and Wales Court of Appeal (Civil Division) Decisions

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		16 October 2003

Lord Justice Rix:

1. This appeal concerns a premium review clause in a three year reinsurance contract relating to the period 1997-1999. The clause provided as follows:

"The reinsurer reserves the right to increase the Annual Premium at any Anniversary Date during the Term on a pro rata basis, if prior to the Termination Date, there is a material change in the normal underwriting guidelines, classes of business, volume of business or proportion of business, as described in the submission and or any extraordinary claims developments. Material change to be deemed to be substantial and as mutually agreed."

2. The critical question is whether the clause was exercised by the reinsurer in relation to the third year of that contract, 1999. Morison J found that it had been exercised at the end of the first year of the contract, 1997, but that such exercise was invalid because the triggering event relied on, that of "extraordinary claims developments" (or "ECD"), was not substantiated. The judge also found, however, that ECD had been substantiated at trial in respect of the following year, 1998, so as to entitle the reinsurer to raise the premium for 1999, the third year of the contract. In that respect the judge found that

"the clause was properly invoked for the 1999 year of account and the Syndicates [the reinsured] cannot be heard to say otherwise".

3. The oddity of the case, nevertheless, is that the reinsurer did not in fact invoke the clause at the end of 1998, nor did it ever nominate a new premium for 1999 (until it sought to do so in the midst of trial in May 2002). The reason for that inactivity appears to have been that the reinsurer had given notice of cancellation as of 31 December 1997, and for that and other reasons (such as avoidance for non-disclosure) it maintained throughout 1998 and 1999 (and right down until the later stages of trial) that the contract had come to an end after only one year. Indeed, the reinsurer asserted that it was only a one year contract in the first place. The reinsured, on the other hand, continued to assert that the contract remained alive for its second and third years, and sought to operate it as best it could in the face of the reinsurer's refusal to acknowledge its continued existence. In the event, following a trial between April and June 2002 in the course of which the reinsurer abandoned all its defences other than reliance on the premium review clause, the judge concluded that the reinsured was right in respect of the second year of the contract. He made orders in favour of the reinsured in that respect. However, he concluded that the reinsured failed in respect of the third year of the contract, as to which he made no provision in his order.
4. The question remains, and has been debated on this appeal: How did the contract come to an end at the conclusion of the second year? The premium review clause makes no express provision for the termination of the contract and the reinsured rejected any purported termination or avoidance by the reinsurer. The reinsurer submits on this appeal that the mechanism of termination is the valid invocation of the premium review clause itself: once it has been validly invoked, there is no agreed premium for the ensuing year (or years) and the contract therefore lapses at the end of the expiring year of account. The reinsured submits, on the other hand, that the contract continues on the basis of the originally agreed premium until a new premium is validly nominated or agreed. In the present case no new premium was nominated (until mid-trial). The judge's order is consistent with the reinsurer's submission, but as will appear below his analysis of the contract was inconsistent with it and there was no express discussion in his judgment of the mechanism of termination.
5. The prior question is still: Was the clause ever exercised in respect of 1999 at all? It was exercised at the end of 1997, but, as the court found, invalidly. The judge nevertheless held that the 1997 invocation "was a continuing act". The reinsured disputes that conclusion. It also submits that the nomination of a new premium was essential to the valid exercise of the clause, relies on the fact that no new premium was nominated at the relevant time, and argues that a nomination in May 2002 was too late.

The slip contract

6. The contract is contained in a slip, or slip policy. It described the reassured as "J R Charman Esq and Others, Lloyd's Syndicate Nos 488 and 2488". Mr Charman is claimant in the action and appellant in this court, as representative for himself and all other members of those syndicates (the "Syndicates"). The slip was scratched on behalf of the reinsurer, New Cap Reinsurance Corporation Ltd, the defendant at trial and here the respondent ("NCR"), for a 17% line which was ultimately signed down to 14.5%. The contract was for whole account excess of loss reinsurance, to cover all business underwritten by the Syndicates with certain named exceptions. Cover was for US or Can $ 24,750,000 or £12,375,000 or currency equivalent each and every loss excess of $250,000 or £125,000 or currency equivalent, up to an "Annual Limit" of $131,000,000 or £65,500,000 "in all per Underwriting Year". There were internal limits, making up the maximum of $131,000,000, to three different layers of loss, but the details do not matter.
7. The "Period" clause provided as follows:

"PERIOD: Losses occurring during the period of 36 months at 1^st January 1997.

…

"Underwriting Year" as used herein shall mean losses occurring during the period 12 months at 1^st January 1997, 1998 or 1999."

8. The premium was dealt with in a clause headed "MINIMUM ANNUAL PREMIUM". The clause provided for a minimum annual premium of US$ 41,202,000, but if losses exceeded US$ 27,500,000 a higher premium was payable up to a maximum of US$ 58,860,000. The premium was payable half-yearly in advance.
9. There was a Cancellation clause:

"CANCELLATION: Cancellation hereon at any time to be mutually agreed. However, it is agreed that failure to pay the Annual Premium within 30 days of the due date shall be deemed Cancellation."

10. That clause may not have been effective, however, since the "GENERAL CONDITIONS" contained a reference to "UK Law and Practice with respect to all issues", and it has long been established as a matter first of custom in the English marine insurance market and as subsequently reflected in section 53(1) of the Marine Insurance Act 1906 that premiums are deemed to have been paid by broker on behalf of assured to underwriter and advanced by underwriter back to broker again by way of loan: see Prentis Donegan & Partners Ltd v. Leeds & Leeds Co Inc [1998] 2 Lloyd's Rep 326 at 334/5. This point was originally in issue before the judge, but was overtaken by NCR's admissions at trial. As a result the judge makes no mention of it. It is relied on by Mr Anthony Temple QC on behalf of the Syndicates, and not disputed by Mr Nicholas Hamblen QC on behalf of NCR. In the light of this common ground, this court has not had to consider whether the rule applies outside marine insurance.
11. There was also an Arbitration Clause – "(Appointor: Chairman of the Committee of Lloyds)". The last clause contained under the General Conditions is what I have called the premium review clause, which I have already set out above. It appears in the contract without a title.
12. NCR's stamp on the slip contains the letters "NCAD", ie Notice of Cancellation at Anniversary Date". This, or its equivalent, is a provision commonly found in contracts of insurance for more than a year, and permits either party to serve notice of cancellation at the anniversary date, thereby effectively reducing the security of such a contract to that of a single year and enabling the parties to renegotiate for a subsequent year. In reliance on this acronym NCR did in fact serve notice of cancellation on 31 December 1997 and thereafter maintained that the contract had not survived beyond its first year. However, the slip contract did not contain this provision and in the end NCR abandoned during the trial its reliance on a contractual cancellation.
13. The judge set out the background to the inclusion of the premium review clause at para 13 of his judgment:

"Mr Devlin [NCR's underwriter] was concerned about a commitment to a three year contract and, for protection, he asked for a review clause enabling him to increase the premium in the event of "atypical" claims development. Mr Adrian Ryan on behalf of the Syndicates suggested the word "extraordinary" and this was inserted into the slip policy when it was scratched."

14. The triggering events of the review clause went beyond ECD, but that was the only trigger relied upon in the event.

The background to trial

15. It is necessary to set out the background to and structure of the litigation in some detail for reasons which will become evident in due course.
16. Another reinsurer who participated in the slip policy reinsurance, indeed the lead reinsurer with an ultimate line of 22.5%, was GIO Reinsurance Ltd (renamed Gordian Run-Off Limited, "GIO"). This line was part of the placing of 40% of the Syndicates' whole account excess of loss reinsurance in the Australian market and involved an overall structure, broked by Nicholson Leslie Reinsurance Brokers Limited, now part of Aon Group Limited ("Aon"), which had GIO, NCR and FAI as reinsurers and HIH Casualty and General Insurance Limited ("HIH") as retrocessionaire. In the event, however, HIH withdrew or purported to do so, and this led to disputes involving HIH and Aon, and to defences on the part of GIO and NCR that HIH's participation was a condition precedent to their own liability.
17. By the end of 1997, the Syndicates' claims experience had deteriorated in terms of the levels of previous years upon the basis of which the reinsurers had scratched the slip. Thus claims in 1996 had been some US$ 42 million. By the end of 1997, however, the 1996 claims figure had deteriorated to $79 million, and the 1997 claims figure was already some $65 million, which could be anticipated to deteriorate in turn.
18. These figures obviously caused the reinsurers to be concerned. On 12 December 1997 NCR wrote via the Australian sub-brokers as follows:

"We are in agreement to cancel the contract at Underwriting Year-end (1997) and would be in a position to offer terms on a new basis.

"If cancellation is not desired, then subject to the review clause, we would invoke our right to revise existing terms."

19. This letter was followed by another on 16 December in which NCR stated that it was investigating with its lawyers "the factual background to the placement" of the reinsurance as well as the HIH retrocession. In the meantime –

"we are imposing, as a precautionary measure, a general reservation of rights in relation to our participation".

20. This was clearly a prelude to a possible claim to be entitled to avoid the reinsurance.
21. On 31 December, NCR's London solicitors, Messrs Holman, Fenwick & Willan, wrote to the Syndicates to cancel the reinsurance as at that date, basing the cancellation on the NCAD provision in NCR's stamp. They added:

"Please also note that this letter is sent subject to the full reservation of rights which [NCR] have imposed whilst their investigations into the placement and operation of your Whole Account Excess of Loss Treaty continue".

22. Although the only one of those three letters to make any reference to the premium review clause was that of 12 December, the judge found, by reference to the oral evidence at trial, that following that letter there had been discussions between the parties about the review clause and that "Mr Ryan [of the Syndicates] knew that Mr Devlin was intending to invoke the review clause, although he, Mr Adrian Ryan, did not accept that that was justified" (at para 16(4)).
23. As for GIO, litigation had already been commenced by the Syndicates against it when on 30 December 1997 its solicitors, Messrs Cameron McKenna, wrote to the Syndicates' solicitors to produce a résumé of GIO's defence: namely that it was discharged from liability under the slip policy either prior to inception or shortly thereafter, alternatively that the contract had been cancelled with effect from 31 December, alternatively that it was entitled under the review clause to increase the premium because of ECD. The letter concluded:

"We hereby put you on notice that GIO regard the claims development to date as extraordinary and therefore intend to exercise their right to increase the annual premium for 1998 and 1999."

24. In due course, quite early in 1998, three further actions were commenced. One was by the Syndicates against NCR, which is the action from which this appeal arises, and the other two were by GIO and NCR against HIH and Aon. The Syndicates in turn added Aon as a defendant to their two actions.
25. The pleadings in the present action went through many amendments. NCR's points of defence ultimately extended to six versions. Its primary defences were that reinsurance and retrocession had been expressly or implicitly placed as a single overall package and that the existence of HIH's commitment as a retrocessionaire was a condition precedent to NCR's own liability; and that there had been numerous non-disclosures which entitled NCR to avoid the contract, as it had done. Its second line of defence was that the contract was confined to a single year: either because it was only a one year contract to begin with; or because the NCAD provision gave it a right to cancel as at 31 December 1997 as it had done; or because the policy was deemed to have been cancelled under the Cancellation Clause with effect from at latest 1 January 1998 for failure to pay premium; or because of the consequences of the premium review clause.
26. As for the last matter, NCR's pleading, itself the product of several amendments, was ultimately as follows (at para 9(5) of the re-re-re-re-amended points of defence):

"[NCR] had a right (by virtue of the Review clause pleaded at paragraph 4.9 of the Amended Points of Claim) to increase the Annual Premium at each anniversary date in the event of any extraordinary claims development. If the Claimant was not prepared to agree that increase then the Reinsurance Contract lapsed. The claims development in 1997 was extraordinary and no increase in premium was agreed. In the premises, the Reinsurance Contract lapsed as at 31^st December 1997. If, which is denied, the Reinsurance Contract did not lapse as at 31^st December 1997, the claims development in 1998 was extraordinary and no terms were agreed or would have been agreed for 1999. As a result, if, which is denied, the Reinsurance Contract did not lapse as at 31^st December 1997 it lapsed as at 31^st December 1998."

27. However, the last two sentences of that paragraph were only introduced by way of amendment in May 2002 during the course of trial itself. Prior to those amendments the pleading in para 9(5) had read as follows:

"[NCR] also had a right (by virtue of the NCAD provision and/or the Review clause…and/or the provisions of the Slip…) to cancel the Reinsurance Contract at the anniversary date if they required an increase in the Annual Premium (whether because of any extraordinary claims development or for any other reason) and the Claimant was not prepared to agree that increase or change its terms. The claims development in 1997 was extraordinary and in any event no terms were agreed. In the premises, the Reinsurance Contract was validly cancelled as at 31^st December 1997."

28. Thus it was that the List of Issues prepared prior to trial in 2002 referred at item 6.3 to the premium review issue in the following terms, reflecting the then contemporary status of para 9(5) of the points of defence:

"6. Whether the Mainframe Contract (if otherwise valid) terminated on 31 December 1997, by reason of…

6.3 The express terms of the Mainframe Contract (and, in particular, the term pleaded in Paragraph 9(5) of P/Defence 1), the alleged effect of which was that, in the event of an extraordinary claims development, NCR was entitled to increase the premium for the following year; the claims development for 1997 was allegedly extraordinary and, no terms having been agreed as to premium for the 1998 year, the Mainframe Contract terminated on 31 December 1997…"

29. It will have been observed that prior to the ultimate amendments in the course of trial, the only issues under the premium review clause related to ECD in 1997 leading to a termination of the contract at the end of 1997; whereas following the further mid-trial amendments there was also a pleaded issue as to ECD in 1998. It will also have been observed that in the earlier version of the pleading the operation of the review clause was seen as being closely connected with the right of cancellation under the NCAD provision and with the exercise of that right; whereas in its final form the pleading alleges that the mere incidence of ECD causes the contract to lapse and nothing is said about any mechanism whereby the review clause is invoked or exercised.
30. In this connection it is interesting to observe that in the earlier version of its pleadings NCR did refer to the invocation of the premium review clause but only in the separate context of a still further defence (see para 9A) which in the ultimate pleading was deleted. This defence had been that there was an implied term that for the purposes of the review clause the Syndicates would, at NCR's request, provide it with such information as NCR might require "in order to increase the annual premium on a pro rata basis"; that NCR "invoked its right to revise the terms of the Reinsurance Contract" by the letter of 12 December 1997 (referred to at para 18 above); that in repudiatory breach of the implied term the Syndicates failed to provide NCR with the necessary information; and that NCR accepted that repudiation in refusing to settle any further claims and was thereby discharged from liability in respect of the second and third years of the contract. That plea again emphasises that until the trial itself NCR's case was solely concerned with a termination of the contract at the end of 1997. With the deletion of that plea, moreover, went any reference in the pleadings at all to the concept of an express invocation or exercise of the premium review clause.
31. The Syndicates, on the other hand, had from the earliest version of their points of reply not only denied ECD in 1997 but also alleged that, even if there had been any ECD, that did not entitle NCR to cancel the contract (reflecting the language and analysis of NCR's pre-trial pleadings). The point was also made that NCR "did not even propose any increased premium" (para 10.12 of the points of reply). The reply, which was not amended anew in response to NCR's mid-trial May 2002 amendments, thus never previously had to deny ECD in 1998.
32. How then did the issue of ECD in 1998 emerge? It seems that this may have occurred because GIO, unlike NCR, had requested the addition of a reference to ECD in 1998 in a revised list of issues agreed in the GIO action (but not in the NCR action) on 3 April 2002. Thus this revised list stated -

"11. Extraordinary claims development. This involves consideration of the following matters:…

11.2.3 Whether there was extraordinary claims development for 1997 or 1998 [emphasis added];

11.2.4 If so, whether the failure to reach agreement as to an increased premium resulted in the termination of the Mainframe Contract."

Prior to that date, however, there had been no reference to ECD in 1998 in the GIO action either.

33. Experts' reports had been exchanged on 6/7 March 2002. As a result of the then state of the pleadings, Mr Outhwaite, NCR's expert, had not addressed himself to the question of ECD in 1998, as the judge mentions in para 27 of his judgment. There was a pre-trial meeting of experts on 16 April 2002, the record of which simply states that, with the exception of Mr Jackson, who was the Syndicates' expert, the other experts believed "as the Reports make clear…that, as underwriters, they consider that the actual claims development was extraordinary", without any reference to year.
34. There was one other development in the mid-trial amendments to NCR's defence. By an amendment to para 14A NCR for the first time put a figure on the premiums which it alleged would have been payable by the Syndicates in 1998 and 1999 had the contract continued, viz $101 (or $80) million in 1998 and $131 (or $121.5) million in 1999. These figures were pleaded not as nominations under the premium review clause but as quantifications of the plea that, even if the contract did survive into 1998 and 1999, the Syndicates "must give credit for the increased premium which would have been imposed in the absence of agreement".
35. What is the upshot of this history? The trial began on 29 April 2002, and on 15 May and again on some later date during May NCR served the latest and last two versions of its defence. For the first time it pleaded a reliance on ECD in 1998 (in addition to 1997). It amended its claim in connection with the premium review clause from a case of reliance on express cancellation (via the NCAD provision) to an allegation that the mere existence of ECD caused the contract to lapse, ie at the end of either 1997 or 1998. There was no allegation that the premium review clause had been actually invoked. A previous allegation that it had been invoked by means of the 12 December 1997 letter was deleted. There was no allegation that a new premium had been nominated. On the contrary, there had been a previous allegation that the Syndicates' repudiatory conduct had prevented NCR from nominating a new premium, but that allegation was deleted. There was no other allegation, no surviving allegation at all, that any conduct on the part of the Syndicates had prevented NCR from exercising its premium review clause rights. There was no issue of waiver or estoppel in play.
36. On 22 May 2002 the joint trial of the four actions involving the Syndicates, GIO, NCR, HIH and Aon, which had begun over three weeks earlier, reached one of its turning-points. NCR and Aon reached a separate, confidential settlement, and Aon took over NCR's defence. NCR obtained permission to make the mid-trial amendments discussed above. Those amendments also extended to further deletions and concessions in NCR's defence. In consequence, NCR served a document called "Admissions by the First Defendant" in order to clarify what defences it was now abandoning and what it was now saying. Thus the Admissions stated:

"2. [NCR] admits that it is not entitled to avoid the Policy (whether for misrepresentation, non-disclosure or on any other grounds).

"3. [NCR] admits that there is no unfulfilled condition precedent to the Policy and/or to [NCR's] liability thereunder.

"4. [NCR] admits that, as a matter of construction, the Policy was for a period of three years, subject only to the Cancellation clause and to the review clause contained in the General Conditions.

"5. [NCR] admits that the Policy was not terminated pursuant to the Cancellation clause (whether by notice of cancellation, mutual agreement or late payment of premium).

"6. For the avoidance of doubt, [NCR] maintains that there was extraordinary claims development prior to 31^st December 1997 and/or prior to 31^st December 1998 and that, as a result:

(a) because no increased premium was agreed, the Policy terminated as at 31^st December 1997 and/or 31^st December 1998; alternatively

(b) the [Syndicates] must give credit for the increased premium that would have been imposed in the absence of actual agreement between the parties and that the increased premium would have been in the sum of $101 million, alternatively $80 million, for 1998 and $131 million, alternatively $121.5 million for 1999."

37. It will be observed that, consistently with the then current state of NCR's pleaded defence, there was no reference in that summation to any exercise of the premium review clause, or to any contemporaneous invocation of it, or to any contemporaneous nomination of a new premium; nor was there any reference to any case of estoppel or waiver against the Syndicates.
38. The trial then continued. On 20 June 2002 there came another turning-point in it. On that day the Syndicates, GIO and Aon reached a settlement, and Aon's legal team was freed to take over NCR's defence. By that time most of the witnesses in the case had given evidence and the trial was nearing the time for final speeches. Some, however, of the experts relied on by the settling parties were not called. The last day of trial was 27 June 2002. In the course of final speeches the question whether the premium review clause could be forensically utilised without its having been contemporaneously invoked became a significant issue. This led Mr Hamblen, who had represented Aon and was now representing NCR, to tell the judge that he was troubled by the issue's potential significance and was concerned that it had not perhaps been adequately analysed on NCR's part. He asked for and was given permission to address the issue in further post-trial written submissions. Mr Temple, for the Syndicates, was given permission to respond.
39. So it was that on 10 July 2002 a submission entitled "NCR Note on Invocation of Review Clause" was provided to the judge, to which the Syndicates responded on 12 July 2002.
40. NCR's written submission began as follows:

"This Note is provided in order to address the question raised by the Court during final submissions, namely whether it is necessary in order to invoke the review clause to specify the additional premium required. It will do so by setting out NCR's case as to (a) whether NCR invoked the review clause and (b) the consequence (if any) of failing to specify the additional premium demanded."

41. The note then addressed the question of whether NCR had invoked the premium review clause at the end of 1997 by reference to the evidence in the case. (In the event, the judge accepted that submission on the facts, see para 22 above). That passage ended with the following paragraph:

"9. In summary, NCR made it clear that in the event that Charman did not agree to a mutual cancellation, then they would exercise their right to put forward new terms pursuant to the "review" clause (or ECD clause). Charman indicated that there was no right of review and rejected any proposal to revise or vary existing terms. This hardline [sic] from the Syndicates pre-empted any detailed consideration by NCR as to an appropriate increase or any subsequent negotiation with the Syndicates."

42. (I would comment that, in the light of the judge's ultimate finding that there was no ECD in 1997, the Syndicates' response was entirely justified, could not be described as "hardline", and pre-empted nothing.) The note then continued with the heading: "Is it necessary to specify the additional premium required in order to invoke the clause?" The submission in answer was that it was not necessary, provided the clause had been invoked, since the absence of any demand for increased premium was relevant, if at all, "to questions of waiver". This passage concluded as follows:

"14. Moreover, it is clear on the evidence that if an increased premium figure had been specified by NCR the Syndicates would not have accepted it or paid it. In those circumstances it is difficult to see how it can be open to the Syndicates to contend that the review clause cannot be relied upon because no premium figure was specified. In the light of the stance taken by the Syndicates it would have been futile for NCR to do so."

(I would comment that that passage reads as though it is making a case on waiver or estoppel against the Syndicates in respect of their conduct at the end of 1997.)

43. The next question addressed by Mr Hamblen's note was: "What is the consequence of failing to specify the additional premium demanded? Does it mean that NCR waived its right to an increased premium?" To which the note answered in effect, no, first because "NCR's conduct in failing to specify the additional premium" cannot be characterised as a clear and unequivocal abandonment of the right to an increased premium, and secondly because "The Syndicates do not…make out a waiver case".
44. The next question addressed was how the contract came to an end. The note's answer was that –

"26. The contract came to an end because once the review clause was validly invoked then (subject to questions of waiver) the original premium terms ceased to apply as from the first anniversary date. This meant that going forward the contract was incomplete in an essential respect ie the premium (and/or void for uncertainty) unless and until a new premium was settled or agreed upon.

"27. Alternatively, by wrongfully insisting that there had been no ECD and/or refusing to recognise NCR's right to invoke the review clause and/or maintaining that none of the terms of the contract could be varied the Syndicates repudiated the contract which repudiation was accepted by NCR's cancellation of the contract on 31 December 1997."

(As for the first answer given in para 26, this I suppose reflected a combination of the unpleaded case advanced in the note that the review clause had been invoked in respect of 1997 together with the pleaded case (see para 9.5 of the ultimate defence) to the effect that valid invocation of the review clause caused the contract to lapse at the relevant anniversary date, viz 31 December 1997. As for the second answer given in para 27, this was in truth an illegitimate attempt to raise anew a (different) case of repudiation. On either basis, the submission was bound to fail in the light of the judge's finding that there was no ECD in 1997.)

45. So far NCR's note had said nothing about the possibility of the contract continuing into 1998. This was addressed for the first time under the heading of "NCR's alternative case", as follows:

"28. If the Court rejects NCR's primary case and holds that the contract continued for 1998 and 1999 then it could only continue subject to NCR's right to specify the additional premium due. NCR has stipulated the increased premium it requires in paragraph 14A of their Defence (ie $101 million for 1998 and $131 million for 1999)."

(At this stage, the pleaded case of "giving credit" for what would have been the premiums, which is a question of fact, is transposed into the submission that NCR had a continuing "right to specify" an increased premium in May 2002.)

46. It will be observed that this note nowhere addresses the problem which would arise in connection with the invocation of the review clause, if the judge were to reject NCR's case of ECD in 1997. There was simply no submission of any invocation of the clause on the basis of ECD in 1998. This point was addressed in the Syndicates' written submissions in response. That stated in terms that "if the Court finds that ECD only occurred in respect of the 1998 year, NCR has never purported to invoke the clause in respect of year 3" (at para 11). As to the facts relating to 1997, the Syndicates submitted (inter alia) that the only [pleaded] case that had ever been made in this respect was by reference to the letter of 12 December 1997. As for the exercise of the review clause, that required both its clear invocation and the nomination of a new premium. As to the latter, it was pointed out that it was common ground that no new premium had been nominated for either 1997 or 1998 at the time, and submitted that the attempt to rely on the figures stated in para 14A of the mid-trial pleading came too late.

The draft judgment

47. This was the state of play when the judge circulated his draft judgment on 28 October 2002, for handing down on 6 November. His judgment explained that in the event there were only two issues to be determined: (1) Was there ECD such as to entitle NCR to invoke the review clause for 1998 and 1999 respectively? (2) If so, did NCR invoke the clause?
48. As to the first issue, which occupied the greatest part of his judgment, he found, as stated above, that there had been no ECD in 1997, but that there had been ECD in 1998. As to the second issue he found that the review clause had been invoked in the aftermath of the letter of 12 December 1997, but made no finding of any invocation in respect of the 1998 ECD. He nevertheless held that the clause required invocation, and he also appears to have rejected NCR's submission that, upon invocation, the contract lapsed at the relevant anniversary date, for he said (at para 11):

"it is for the Reinsurer to invoke the clause in question (the right to increase is reserved to him) and, in the absence of agreement with the Syndicates, either to agree to the early termination of the policy or to determine a new premium which, if not paid by the Syndicates, would lead to a deemed Cancellation."

He made no finding that any increased premium had been nominated at any time, and simply ignored NCR's reliance on the figures pleaded in para 14A of the defence. He accepted that NCR "should have nominated a new premium".

49. His "Decision on the second issue" was contained in this paragraph towards the end of his draft:

"30. As a matter of fact, I conclude that although the words "extraordinary claims development" were missing from the communications what was said by the reinsurer was enough to invoke the operation of the clause, albeit that it was impracticable for it to operate in the light of the reinsurer's desire to treat the contract as at an end by reason of the NACD lettering. The review of the evidence at paragraph 16 shows that the underwriters thought the clause had been invoked, the brokers and the Syndicates thought so too. Had the contract continued in existence, the reinsurers should have nominated a new premium. But if the parties could not agree to the existence of the right to review, it would be unfair, uncommercial and wrong, I think, to say that the reinsurers would not have been able to insist on a review for the 1999 year, in the light of the extraordinary claims development which had come to light in 1998. The Syndicates cannot be heard to say that there was no extraordinary claims development and we would not have paid any more premium for that year and at the same time say that the reinsurers had failed properly to invoke the clause."

50. Circulation of the draft judgment and an attempt to agree an order in the light of it caused the parties to be divided as to what the judge had finally determined. NCR took the view that the judge had decided against it as to the operation of the policy in the 1998 year but in its favour as to 1999. The Syndicates took the view that the effect of the judgment was that NCR's failure with respect to 1998 meant that it failed with respect to 1999 as well: for how had the contract come to an end at the end of 1998 in the absence of any invocation of the review clause at that time? This division of opinion led to further written and oral submissions at the time of hand-down on 6 November 2002. NCR now submitted as follows:

"(1) NCR expressly invoked the review clause at the end of 1997. At all times thereafter their position was that there had been extraordinary claims development and that they were entitled to a review. That stance was unjustified as at the end of 1997 but had become justified by the end of 1998. Further or alternatively, having invoked the clause at the end of 1997, it went without saying that NCR was invoking the clause at the end of 1998 when the claims development was even more severe. The Syndicates could never have been in any doubt that NCR, as an alternative case, was relying on its right to increase the premium at all material times.

(2) NCR, having invoked the clause, never went on to determine and nominate a premium for 1998 or 1999. This does not mean that the clause was not properly invoked. Even if it did, the Syndicates cannot be heard to argue that this meant that NCR had failed properly to invoke the clause in circumstances where the Syndicates' position was that there was no extraordinary claims development, was no right of review, and was no further premium payable. This made nominating a new premium futile and unnecessary (the law never compels someone to perform a useless formality).

(3) In any event, having invoked the clause for 1999, a new premium had to be agreed, but it never was and therefore the contract lapsed.

(4) Further or alternatively, the Court may also have had regard to the principle that in relation to damages claims it is always assumed that the defendant will perform the contract in the way most beneficial to himself and least beneficial to the claimant. In this case that means assuming that NCR would have invoked the review clause as they were entitled to do. If they had done so, the Syndicates would not have accepted their right to do so or paid any more premium (para. 30), and the contract would have lapsed."

51. The submissions made in (1) above had never previously been made in respect of 1998 and those in (4) above were also entirely new. Their factual basis had never been explored, save for the possibility of some merely incidental evidence bearing upon them. The submission made in (2) reflected that made in para 14 of NCR's note of 10 July 2002 (see para 42 above) and again suffers from the absence of any pleaded case of waiver. It also suffers from the defect that, whereas the para 14 submission was an attempt to explain the absence of any nomination of an increased premium based on ECD in 1997, the argument has now had to extend to explaining also the absence of any invocation of the review clause at all in respect of 1999 based on ECD in 1998. The submission made in (3) reflects a variety of the original submission that incidence of ECD causes the contract to lapse, now adapted for, and premised upon, the necessary invocation of the clause ("having invoked the clause for 1999"). In other words, without invocation for the relevant year, submission (3) does not get off the ground. In sum, the argument is made for the first time that the review clause had contemporaneously been invoked in respect of 1998, and in that connection that such invocation "went without saying" and that the syndicates "cannot be heard to argue" that it had not been, or had not properly been.

The amended judgment

52. Following these further submissions, the judge left his judgment as it was, save for the addition of a new paragraph 31, as follows:

"31. For the avoidance of doubt, I consider that when NCR invoked the review clause in 1997, that was a continuing act; in other words they were invoking the clause then and for any subsequent year where the claims were no less. The stage of setting a new notional premium did not arise because the Syndicates did not accept that there was extraordinary claims development and because the Reinsurers were saying that the contract was dead. I am satisfied that there is no technical step required for the review clause to be invoked; normally a new premium would be set by the reinsurers. But it cannot sensibly be said that where the parties are in dispute it was a necessary condition that the reinsurers should go through the motions of setting a premium, when it had already been made clear that no increase in premium was acceptable. The review clause must be construed in such a way as to give it a degree of commercial reality. The suggestion that the clause was not invoked for the 1999 year because the Reinsurers did not stipulate a premium which was never going to be paid seems to me to deprive the clause of any commercial effect. In my view the clause was properly invoked for the 1999 year of account and the Syndicates cannot be heard to say otherwise."

53. In essence, therefore, the judge held that NCR's invocation of the review clause on the basis of ECD in 1997 was a continuing act and that, even though that invocation failed, it was subsequently validated for the 1999 year by the ECD in 1998. As for the absence of any nomination of an increased premium for 1999, that was made unnecessary "where the parties are in dispute" or possibly "when it had already been made clear that no increase in premium was acceptable". Therefore the clause was properly invoked for 1999 and in any event the Syndicates "cannot be heard to say otherwise". That is again the language of waiver or estoppel.

The Syndicates' submissions on appeal

54. On behalf of the Syndicates, Mr Temple now submits, as before, that the review clause cannot operate unless it is invoked, that it had never been invoked in order to review the premium in 1999 in respect of ECD in 1998, and that any case to the effect that it had been so invoked had never been pleaded or made at trial. In any event any attempt to invoke the clause (for 1999) would fail without the nomination of a new premium, and no such premium had ever been nominated (until trial, which was too late). Until such nomination, the contract simply continued at the established premium. Subject to the new para 31 of his judgment, the judge's underlying rationale was in the Syndicates' favour.
55. As for the reasons advanced in para 31, they were all flawed. The first was that the invocation of the clause in 1997 was a "continuing act". However, no such case had ever been pleaded, made or supported on the evidence, and it was impossible to construe anything said in late 1997 as an adequate notice that advance reliance on ECD in 1998 was to form the basis of a premium review for 1999. In any event, the review clause did not contemplate advance notice. Secondly, the judge had said that the Syndicates' attitude to the parties' disputes at the end of 1997 made it unnecessary for NCR to "go through the motions of setting a premium": but such a conclusion could only be premised on some action or representation on the part of the Syndicates which had relieved NCR from further performance of the contract, and no such case had ever been pleaded or made, and in any event the evidence established the contrary, viz that at all times it was the Syndicates who sought continued performance in the face of NCR's insistence that the contract was over. The same response was made to the judge's language reminiscent of waiver ("cannot be heard to say otherwise"). Thirdly, to the extent that the judge relied on some process of construction of the review clause to support his conclusions ("must be construed in such a way as to give it a degree of commercial reality"), the point was not understood: the judge had construed the clause in favour of the Syndicates so far as the need for invocation and nomination of a new premium, but had nevertheless decided that its requirements, however untechnical, in the circumstances need not be insisted on. Finally, in as much as the judge had, already in his para 30, implicitly regarded the contract as coming to an end ("Had the contract continued in existence…"), he was mistaken so to regard it and nowhere explained how and at what time the contract had indeed terminated. It never had.
56. As for NCR's submission, emphasised in its skeleton on appeal, that the effect of the clause was that the contract simply lapsed at the end of the year whose events had led to the invocation of the clause: even if that was so, there never had been any invocation in respect of 1998's ECD and therefore that submission could not avail NCR. But in any event the contract did not lapse automatically by reason of the clause's invocation, but would only do so if a new premium could not be agreed or determined, and even then only after its nomination by NCR, and not by reason of any automatic lapse but by reason of the Syndicates' refusal to pay the premium due.
57. Finally, although it was not part of the Syndicates' appeal, Mr Temple submitted that the judge had also erred in construing the review clause as giving to NCR a unilateral right to nominate a new premium. The judge had construed the clause's phrase "on a pro rata basis" as merely referring to the balance of the contract, having found that there was no other meaning that could be ascribed to it. However, although the Syndicates' attempt to use expert underwriting evidence to support an objective assessment of a new premium "on a pro rata basis" failed at trial, Mr Temple suggested that the phrase must have been intended to provide some form of objective basis for the determination of a new premium, and that in such circumstances it would be open, in the absence of the parties' agreement, for an arbitrator to settle any dispute. That had been their submission to the judge.

NCR's submissions on appeal

58. On behalf of NCR, on the other hand, Mr Hamblen focused on the judge's comment that to uphold the Syndicates' submissions would be "unfair, uncommercial and wrong". He acknowledged that there had been no express invocation of the clause in respect of events in 1998, but it was ridiculous to suppose that the Syndicates, seeing that NCR had invoked the clause in respect of the 1997 claims figures, had not perfectly well understood that it intended also to do so in respect of the still worse figures developed in 1998. To conclude otherwise would give the Syndicates cover for 1999 (when the 1998 ECD continued, so as to cause a total loss in 1999 of the $131 limit) at the much lower contract rate for premium, and that "would be a travesty of the bargain made and would represent a complete windfall for the Syndicates". Indeed, the Syndicates had always known that an allegation of ECD in 1998 (as well as in 1997) was in play at the trial, and had prepared their evidence on that basis. They had acknowledged that dispute in their closing submissions to the judge. Therefore there was an air of unreality in the suggestion that the parties, who were already in litigation well before the end of 1998, were expecting to deal with one another on the basis that a further letter would be written at the end of that year formally invoking the clause in respect of ECD in 1998.
59. Mr Hamblen acknowledged that the issue of invocation of the clause "did not figure prominently if at all at the trial until closing oral submissions", but submitted that that was of no consequence where the Syndicates always knew that there was a case to be answered in respect of ECD in 1998.
60. As to the construction of the clause, Mr Hamblen's main submission was that the contract lapsed as from the next anniversary date as soon as the review clause "is validly invoked". He therefore accepted that it had to be invoked, but disputed any need for the nomination of a new premium. There was nothing in the language of the clause to require that. For the contract to continue beyond the year end, a new bargain had to be struck.
61. NCR had invoked the clause for 1999 in respect of ECD in 1998 (see above). Moreover, once invoked in respect of ECD in 1997, the right to nominate a new premium continued for the balance of the contract, including 1999. As the judge had held, "on a pro rata basis" meant "for the balance of the contract". Therefore no new invocation was in any event necessary. The right to call for a new premium was a continuing right.
62. As for nomination of a new premium, this was not a condition precedent of the right to invoke the clause, but it was accepted that if the submission of automatic lapse on invocation was wrong, then there was no right to receive an increased premium without it being nominated. Since, however, the concept of automatic lapse was correct, there was no unilateral right in NCR to specify a new premium: that premium had to be agreed, or there was no contract. In as much as the judge had rejected the concept of automatic lapse (see the end of para 11 of the judgment, cited at para 48 above), he had erred: for a binding contract which permitted NCR to specify a new premium was uncommercial, especially as that premium, once validly nominated, became a debt. In effect, therefore, the premium review clause was another form of cancellation clause, permitting NCR to cancel as at each year end on the happening of any of the specified events.
63. If, however, a premium nomination was a condition precedent of the invocation of the clause, then the mid-trial nomination was not too late. The natural time to nominate would arise when an event within the clause was established, and at mid-trial that had still not yet occurred. Subject to that, it was accepted that if a new premium had to be nominated, then on classical principles that would have to be done within a reasonable time of the end of a relevant anniversary date.
64. As for waiver: there was a passage in Mr Hamblen's skeleton argument to the effect that the Syndicates were contending that NCR had waived its right to rely on the review clause in respect of 1998 ECD, and rebutting this contention, but no such argument on waiver was relied on by Mr Temple, and in the event Mr Hamblen did not develop this subject in his oral submissions. Neither, however, did he develop any submissions specifically related to analysing and supporting the judge's conclusions, which I have described above as reminiscent of waiver or estoppel, to the effect that the Syndicates "cannot be heard to say otherwise".

Discussion

65. It is now common ground that the review clause will have no effect unless it is invoked. It is not sufficient merely that an event within the clause occurs. NCR must invoke its rights under the clause. This is plainly right. Any other construction would leave the parties in a wholly uncertain state.
66. The essential question therefore is whether NCR invoked its rights under the clause ("to increase the Annual Premium at any Anniversary Date during the Term") in respect of the ECD in 1998. In my judgment it did not. It is not suggested by Mr Hamblen that it did so expressly, other perhaps than in terms of the invocation of the clause at the end of 1997. The judge did not find that it did so expressly, again other than by his construction of the 1997 notice as a continuing act – "in other words they were invoking the clause then and for any subsequent year where the claims were no less". However, it seems to me that that is an impossible construction to put on the events at the end of 1997. It is true that the clause contains no formal requirements as to how it is to be invoked or as to the contents of any notice, for instance it does not say that anything has to be done in writing. In that sense, which I consider was the sense that the judge intended, he was right to say that "there is no technical step required for the review clause to be invoked". Nevertheless, some notice must be given, and it follows that the notice relied on must be capable of giving to the Syndicates clear guidance as to the fact that the clause is being invoked, and, since there could be a number of different reasons why it could be invoked, the reason for invoking it. Thus in Mannai Ltd v. Eagle Star Life Assurance Co Ltd [1997] AC 749 at 767/8 Lord Steyn said:

"The reasons for my conclusion can be stated in the form of numbered propositions…

"(2) The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene. The approach in Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen (trading as H. E. Hansen-Tangen) [1976] 1 W.L.R. 989, which deals with the construction of commercial contracts, is by analogy of assistance in respect of unilateral notices such as those under consideration in the present case. Relying on the reasoning in Lord Wilberforce's speech in the Reardon Smith case, at pp. 996D-997D, three propositions can be formulated. First, in respect of contracts and contractual notices the contextual scene is always relevant…Thirdly, the inquiry is objective: the question is what reasonable persons, circumstanced as the actual parties were, would have in mind…

"(4) There is no justification for placing notices under a break clause in leases in a unique category. Making due allowance for contextual differences, such notices belong to the class of unilateral notices served under contractual rights reserved, e.g. notices to quit, notices to determine licences and notices to complete: Delta Vale Properties Ltd. v. Mills [1990] 1 W.L.R. 445, 454E-G. To those examples may be added notices under charter parties, contracts of affreightment, and so forth. Even if such notices under contractual rights reserved contain errors they may be valid if they are "sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate:" the Delta case, at p. 454E-G, per Slade L.J. and adopted by Stocker and Bingham L.JJ.; see also Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442, 444. That test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice. I would gratefully adopt it." [emphasis added]

67. Mannai was a case concerning a written notice under a lease to determine the lease. The notice wrongly specified 12 January as the determination date, when it should have referred to 13 January: nevertheless the notice was held valid by a majority of their Lordships, departing from earlier authority as to the strictness with which such notices should be interpreted, and adopting the more modern approach referred to in Carradine. Lord Goff of Chieveley and Lord Jauncey of Tullichettle dissented, on the ground that a stricter approach was more conducive to certainty. However, even the more modern, relaxed, approach formulated by Lord Steyn emphasised the importance, in words which I have underlined in the above citation, of the need that "the reasonable recipient is left in no doubt that the right reserved is being exercised". Lord Steyn also emphasised that his approach applied across the board to contractual notices of all kinds, including notices under commercial documents such as charterparties.
68. In the present case the premium review clause was a clause of great importance. It balanced the Syndicates' right to a three year contract. It was designed to affect the amount of premium due under a contract of high value. On NCR's case, its invocation would automatically lead to the termination of that contract, unless the parties agreed on a new arrangement. In these circumstances, despite the absence of any requirement of writing, or even because of that absence, it was particularly important that the Syndicates knew what reliance was being placed on the clause by NCR.
69. This question was investigated at the conclusion of the trial by reference to the evidence given as to events at the end of 1997 leading up to NCR's purported cancellation of the policy on 31 December 1997. The judge reviewed that evidence in paras 16 and 20 of his judgment. The only letter to refer expressly to the review clause was that of 12 December (see para 18 above), but even so there was no reference to ECD. Mr Devlin, NCR's underwriter, said that the letter was intended to refer not only to ECD but also to other grounds for invoking the clause. As a matter of principle, Mr Devlin's intentions would not be relevant, but in any event the judge was not impressed by this evidence. He said (at para 20(9)):

"On the evidence there is no mention in the contemporary documents about the claims development being extraordinary. On 15 December 1997, Mr Devlin reported on the losses but made no mention of the losses showing anything extraordinary. He gave some unconvincing evidence about why he thought that the claims were extraordinary, based upon a comparison between the output of the computer model he had used at GIO and the actual experience. He said that if the claims were greater than he [or the model] had anticipated then it was extraordinary, and he then added that the claims had to exceed those anticipated by a margin of about 5% - 7.5%. Frankly, during this part of Mr Devlin's evidence I was not convinced that he was doing other than making up a case on the spot whilst being questioned. The letter of 12 December was, at best, an oblique reference to the extraordinary claims development but, according to Mr Devlin, the reservation also encompassed other triggering events. Nor is there any contemporary material from the brokers in support of this part of the case."

70. Even so, the judge concluded, largely because the Syndicates' witness, Mr Adrian Ryan, did not dispute that there had been a meeting as a result of which he "knew that Mr Devlin was intending to invoke the review clause" (at para 16(4) of the judgment), that "the underwriters thought the clause had been invoked, the brokers and the Syndicates thought so too" (para 30). What is not clear on the judge's findings is whether there had been any specific reliance on ECD. In the different context of what the judge called the first issue, namely whether there was ECD in fact, he found that there was none in 1997 in part because, as just cited above, "On the evidence there is no mention in the contemporary documents about the claims development being extraordinary" etc. In these circumstances it may be doubted whether NCR had ever made it clear that the clause was being invoked in respect of 1997 on the ground of ECD. There is no specific finding by the judge that the clause was then invoked on the ground of ECD. The furthest the judge goes is to say, at the opening of para 30, that:

"As a matter of fact, I conclude that although the words "extraordinary claims development" were missing from the communications what was said by the reinsurer was enough to invoke the operation of the clause…"

71. In the light of the other findings in the judgment and especially what is said in para 20(9) about Mr Devlin's evidence and the documentation, that seems to me to be hardly a sufficient basis for a finding that proper notice was given to the Syndicates that NCR was invoking the review clause on the ground of ECD. Nevertheless, I will assume for the sake of argument that the judge did intend to find, and was entitled to find, that sufficient had been said at the meeting in December 1997 to put the Syndicates on notice that the review clause was being invoked on the ground of ECD. There is, however, simply nothing to support the suggestion that anything said about ECD in 1997 (when there was in fact no ECD) was to be understood, objectively and clearly understood, as there and then to involve as well an invocation of the clause on the ground of ECD in 1998.
72. It seems to me that this conclusion is rendered all the more compelling by the following considerations. First, even if ECD had been mentioned, it appears that other grounds may have been mentioned as well. Secondly, NCR was determined to bring the contract to an end without delay, as at the end of 31 December 1997 at latest. For these purposes it was relying on cancellation under the NCAD notation and avoidance for non-disclosure. Thirdly, even if NCR did not regard the contract as over by end 1997,why should it invoke the clause for the future, rather than to reserve the position in the light of future events? In such circumstances it is to my mind simply impossible and in any event highly unlikely that NCR's attitude to the clause, as objectively notified to the Syndicates, extended into the future.
73. But the position goes still further than that, for in my judgment it was not open to NCR, even if it had wished to do so, and had given express written notice to this effect, to invoke the clause at the end of 1997 in respect of events in 1998, which in any event could only have been a purely speculative anticipation of what might or might not happen. I say that as a matter of construction of the clause, which is obviously intended to operate in terms of historical fact, rather than anticipation. "Material change" in guidelines, volume of business or proportion of business plainly looks to a change which has taken place and can be measured as being material. ECD also looks to something which has occurred and can be described by the words "claims" and "developments" and can be measured as being extraordinary. The clause is intended to be operated in the midst of an on-going three year contract, in a way which will permit business-like continuation from one year to the next. If, however, it could be operated prospectively, it would be an inevitable recipe for confusion and dispute. How could the parties ever be prepared to agree as to future events? And if they could not agree, how could future events, which might never therefore take place, be measured even for the sake of retrospective litigation? How could a prospective new premium for 1999 be arrived at as at the end of 1997?
74. The judge described the clause as "hopelessly badly drafted", and no one has disagreed with that on appeal. In such a disaster it may be expecting too much to think that any analogy could be found elsewhere in authority. There is, however, to my mind, guidance which may be drawn from decisions regarding well-known commercial clauses which require notice to be given for their operation. One such clause is the classic notice of readiness clause found in voyage charters. A notice of readiness is required to inform a charterer that a ship has arrived at its loading or discharging port and is ready to commence operations. Such a clause is sometimes referred to merely as a requirement for a "notice of readiness" (see the Gencon clause 6: "Laytime for loading and discharging shall commence at 1 p.m. if notice of readiness is given before noon…"). Although many charters provide that the notice must be given in writing, there is no such formality required by the Gencon form itself, which thus permits the notice to be given orally. Of course, it is business-like to generate documentary evidence. Although some notice of readiness clauses state what the notice must contain, the Gencon form gives no further information than is to be found in the words "notice of readiness". It is established, however, that the notice must be of an existing state of readiness, so that a notice that the vessel will be ready in the future is invalid, as is a notice that the vessel is ready when it is not: see Voyage Charters, by Cooke, Young and Taylor, 2^nd, ed, 2001, at para 15.23. Another well known shipping clause is a cancellation clause (on Mr Hamblen's case the review clause is a kind of cancellation clause). Again, the Gencon cancellation clause (clause 10, "Should the vessel not be ready to load…on or before the date indicated in Box 19, Charterers have the option of cancelling this contract…") does not require the formality of a written notice, but again it cannot be exercised in advance of the indicated cancellation date – not even if its inability to make that date is inevitable, see The Mihalis Angelos [1971] 1 QB 164.
75. I do not base my decision on those analogies, but they do in my judgment provide support for my conclusion, otherwise arrived at, that to invoke the review clause at the end of 1997 can only fairly be construed, in the absence of language to the contrary, as an appeal to ECD in 1997, and that even if NCR was to be viewed at that time as relying as well on a future ECD in 1998, that would be an invalid use of the clause. At most NCR could have said (but plainly did not) that if there was any future reason under the clause for invoking it in respect of 1999 it would wish to do so. But I would not regard such a contingent invocation of the clause as valid.
76. These considerations are quite different from the separate argument made by Mr Hamblen (and which may have influenced the judge) that if the invocation of the clause in respect of 1997 ECD had been justified, then NCR would have been entitled to a new premium rate for 1999 as well as 1998.
77. Can it be said, however, that the clause has been invoked for a review of the 1999 premium by reason of any latter-day reference to the clause in that context in the course of the litigation, and in particular the quantification of a 1999 premium in the mid-trial amendment of May 2002? In my judgment, no. Mr Hamblen accepted in the course of argument that the clause had to be invoked within a reasonable time of the end of a contract year in respect of which NCR wished to be able to say that the occurrence of a triggering event entitled it to a higher premium in the subsequent year. That never happened in respect of ECD in 1998. The first reference to 1998 occurred during the May 2002 amendments (see paras 26/27 and 34 above). This was some three years or more too late.
78. It follows that, subject to any doctrine of waiver or estoppel or any like consideration which would have made it unnecessary for NCR to invoke the clause in respect of ECD in 1998 as well, this appeal must succeed. Although the judge did not refer expressly to waiver or estoppel, and did not need to do so if he considered that invocation of the clause had continued to embrace ECD in 1998, there is to my mind no doubt that his language ("the Syndicates cannot be heard to say otherwise") can make sense only on the basis of some aspect of those doctrines. There was, however, nothing in the pleadings or the evidence to justify his conclusion along these lines. I have set out above a history of the pleadings and trial which in my judgment makes that plain. The Syndicates were justified in rejecting any invocation of the clause at the end of 1997, or any cancellation of the contract at that time, or any attempt to avoid it for non-disclosure. They elected to keep the contract going and attempted to operate it. They would have paid the contract premium for 1998 and 1999, but NCR refused to set up a new letter of credit which was a condition precedent for the payment of such premium. As NCR said, by a fax of 30 January 1998, "as we are not on risk for 1998 year of account, could you please refrain from sending us documentation relating to the 1998 account". There was nothing that the Syndicates did to intimate to NCR that it could regard the contract and its formalities as dead. On the contrary, it was NCR who insisted that the contract was over. The only case raised by NCR that the Syndicates had repudiated the contract (which, if such a repudiation had been accepted by NCR, would have rendered further operation of the contract's terms unnecessary, and if not accepted by NCR, may have amounted to a waiver or estoppel) was deleted and abandoned mid-trial.
79. In the circumstances it is unnecessary to decide two further questions debated before us, namely (1) whether valid invocation of the clause amounted to a cancellation of the contract or at any rate operated to cause its lapsing as at the year end, and (2) whether nomination of a new premium was a condition precedent to the invocation or operation of the clause. I shall therefore merely indicate briefly my views on these questions.
80. As for (1), on the basis determined by the judge that the clause contained no mechanism for determining the new premium, there is in my judgment force in Mr Hamblen's submission that the contract fails in the absence of a new consensus as to that premium. The alternative of saying that NCR has a unilateral right to fix the new premium is nonsense, for it would give to NCR the right to extract any premium whatsoever, which the Syndicates would be bound to pay. However, partly for that very reason I do not think that either the judge's or Mr Hamblen's solution is the right one. The clause speaks of "the right to increase the Annual Premium…on a pro rata basis". There are two aspects of that language which seem to point away from that solution. In the first place, a "right to increase" which, when invoked, destroys the contract is not much of a right: on Mr Hamblen's construction, the right is not so much a right to obtain more, but a right to cancel in the mere hope of obtaining more. Secondly, the reference to "a pro rata basis" looks very much like the fixing of an objective standard (hence the word "basis") for the determination of an increased premium. Thirdly, the balance of the contract, which was for three years and contained no express cancellation clause (other than for non-payment of premium), suggests that the review clause was intended to operate as part of a consensual machinery entitling NCR to an increased premium but at the same time preserving the Syndicates' security in a three year deal. Despite the judge's finding and the absence of any appeal on this point, I would be unhappy to have to apply the clause on the, to my mind, artificial basis that the clause did not contain its own machinery for fixing a fair new premium, in the case of dispute to be determined with the assistance of arbitration: see Sykes (Wessex) Ltd v. Fine Fare Ltd [1967] 1 Lloyd's Rep 53 and Mamidoil-Jetoil Greek Petroleum Co SA v. Okta Crude Oil Refinery Ad [2001] EWCA Civ 406, [2001] 2 Lloyd's Rep 76.
81. If I am right about that, then the nomination of a new premium by NCR would seem to me to be merely part of the machinery of the clause, and not vital to its effectiveness. If, however, I am wrong about that, then I would be inclined to say that the nomination of a new premium was necessary to the valid invocation of the clause. There would be no need for the contract to lapse if the parties could agree on a new premium, and there could be no move towards agreement unless NCR began by quantifying its new demand. The act of quantification, moreover, would assist both parties in assessing the legitimacy and extent of the triggering event invoked by NCR. Moreover, "the right to increase" seems to me consonant with the need to state the increase. As for the submission that NCR did quantify its 1999 premium albeit in the course of trial, this would fail for the same reason already stated in a closely parallel context, viz that a quantification vital to the effective invocation of the clause would have to occur within a reasonable time of the end of 1998.
82. On the basis of Mr Hamblen's submission as to the construction of the clause, I would therefore have been inclined to say that this appeal in any event succeeded because of the absence of any nomination of an increased premium for 1999. The judge considered that, if the contract had continued, NCR "should have nominated" a new premium (para 30, and see also the end of para 11) but that where the parties were in dispute it was unnecessary to "go through the motions of setting a premium" (para 31). Either the judge changed his mind about the need for premium nomination, or his final conclusion again reflects an unpleaded, unsupported, and unmade case of waiver. Such a case would have to fail for the reasons already given.
83. In this context, there was one further argument addressed to the judge, but not repeated on appeal, to the effect that the judge should have regard to the principle that in relation to damages claims it is always assumed that the defendant will perform the contract in the way most beneficial to himself and least beneficial to the claimant: and that if the contract had continued into 1999 the Syndicates would in any event have had to pay a premium, pleaded in May 2002, of $131 million (see submission (4) cited at para 50 above). It is true that there is a presumption that runs in favour of a party who has repudiated a contract, where that repudiation has been accepted and thus brought the contract to an end, that damages will be assessed on the basis that the repudiating party would have exercised any option in his favour to reduce the amount of damages. Thus if a seller who has failed to deliver goods had contracted to sell in his option 100 tons plus or minus 10%, damages will be quantified on the basis of 90, not 100 tons. However, as it seems to me, that presumption is only one of fact, not law, may not apply to options which depend on extraneous events (as here on ECD), and in any event does not apply where the contract has not been terminated but remains open for performance. In the latter situation, it is for the repudiating party either to exercise his option or not; where he has not exercised it, it cannot be presumed in his favour that he would have exercised it. However, this is a complex area and, in the absence of any submissions regarding it, I am reluctant to express any firm opinion. I only mention it because I have the feeling that some such doctrine may have lain behind the judge's conclusions, in particular that it would be "unfair, uncommercial and wrong" to allow the Syndicates to enforce their contract in the light of the occurrence, as it turned out, of ECD in 1998 (see para 30 of the judgment below).
84. However, it seems to me that in such circumstances it is for commercial men to look out for themselves. There was no over-reaching by the Syndicates, no waiver or any representation by them that relieved NCR of its duty to have regard for its own interests, but only a mistaken claim by NCR to a right to increase its premium in respect of the 1998 year, a wrongful attempt to cancel or avoid the contract, and a failure by it to exercise what has in the end emerged to be an opportunity to increase its premium in respect of the 1999 year. The Syndicates may with hindsight have been shown to be fortunate, but that, subject to careful scrutiny, is not proof of an invalid claim.

Conclusion

85. In sum, the Syndicates' appeal succeeds and they are entitled to be indemnified by NCR for its respective percentage in respect of the 1998 and 1999 years. The parties will no doubt be able to agree the relevant orders.

Mr Justice Holman:

86. I agree

Lord Justice Potter:

87. I am grateful to Lord Justice Rix for the full and comprehensive nature of his judgment, with which I am in complete agreement. The judge appears to have felt that a strict application of contractual principles and a requirement for clear notice by NCR of its invocation of the premium review clause for the year 1999 in the face of the Syndicates' assertion that the contract continued in existence after 31 December 1997, would lead to an unfair and uncommercial result in the litigation. That may or may not be correct, but I can find no legal basis by which NCR's invalid invocation of the clause in respect of the ECD in 1997 could be treated as a continuing act for the purposes of a valid invocation of the clause in respect of 1999. Nor was there any realistic basis for an argument of waiver or estoppel on the part of the Syndicates. I too would allow the appeal.

Order:

The Claimant's appeal be allowed

Paragraph 1 of the Order of the Honourable Mr Justice Morison herein dated 6 November 2002 (the order) be varied as follows: "The reinsurance cover provided by New Cap Re to the Syndicates pursuant to the policy (as defined in paragraph 3 of the Re-Re- Amended Points of Claim) subsisted in full force and effect for a term of three years from January 1997.

Paragraph 2 of the Order be varied as follows: "New Cap Re is obliged to indemnify the syndicates, pursuant to and in accordance with the terms of the policy, in respect of losses occurring during the three-year periods from 1 January 1997"

Paragraph 3 of the Order be varied as follows: "In the events which have happened, New Cap Re is not entitled to nominate a new, increased premium for the second or third years of the Policy term.

Paragraph 4 of the Order be varied as follows; "there be judgment for the Syndicates against New Cap Re in respect of paid claims for the first and second years to the date hereof in the sum of US $12,716,654.68 being, US $1,014,617.93 in respect of the first year and US $11,702,036.75 in respect of the second year, together with simple interest thereon to the date hereof at the rate of 2% per annum over LIBOR.

A new paragraph 6A be added to the Order to provide as follows; "The parties shall endeavour to agree the amount of paid claims (and interest thereon) in respect of the third year by 4.00pm on 14 November 2003. In default of agreement by that date, the Claimant shall have permission to apply to a Judge of the High Court of Justice, Queen's Bench Division (Commercial Court) for a determination of the amount of such paid claims and interest, and for judgment to be entered for the Claimant accordingly".

The First Defendant do pay the Claimant's costs of this appeal to be subject to a detailed assessment (if not agreed)

(Order does not form part of approved judgment)