England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
COMMERCIAL

		Royal Courts of Justice Strand, London, WC2A 2LL
		23 March 2005

MR JUSTICE CHRISTOPHER CLARKE :

1. The Claimants ("the Syndicates") are Lloyd's Syndicates 102 and 2021 for 1999 and Syndicate 102 for the years 2000 to 2003. The first and second defendants are Lloyd's brokers. Nothing turns on the distinction between them and I shall refer to them simply as "the Brokers". The issue between the parties is whether the Brokers are obliged, and, if so, to what extent, to allow the Syndicates to inspect and copy three categories of documents, some of which the Syndicates, through their agents, will at some stage have seen.

The background

2. "Viatical" companies purchase the life assurance policies of the terminally ill ("viatical" business) or those over 65 ("seniors" business) at a discount, with a view to profiting from the payout upon death in the event that the sum assured exceeds the purchase price of the policy and the premiums paid to keep it in force thereafter. For such companies death cannot come too soon. But nature defies expectations. The life assured may live longer than anticipated, so that payment is either delayed beyond the time expected, or never occurs at all, because the insurance is term insurance and the life assured outlives the term. The Syndicates provided cover against such an eventuality in the form of what is described as contingent cost insurance. Such insurance was provided either directly, the insurance being placed with the Syndicates by the Brokers, or, as was for the most part the case, indirectly, the insurance being placed by (with a few exceptions) the Brokers with the Syndicates' agents, Merlin Underwriting Agency Limited ("Merlin"), who from 2000 onwards held a binding authority. The volume of business transacted was extremely large. The combined face value of the life insurance policies insured by the Syndicates under the CCI cover exceeds $1 billion.
3. In general the insurance worked in this way. The insured event was that of the assured under the policy purchased ("the viator") outliving the prognostication of his death by 24 months. The indemnity was the face value of the policy, and the policy was to be assigned to the Syndicates if a claim was paid. Medical testing, including a prognosis of life expectancy, was required from at least one qualified consultant physician, and sometimes two. Many of the policies contained a condition precedent or "basis of insurance" clause by which the supply of true and complete information by the assured was made the basis of the insurance or a condition precedent to it. Some of the policies referred under the heading "Information" either to particular documents having been seen and noted, and in some cases attached, or, more generally, to the information being "As per Tyser Special Risks Ltd file". Sometimes there was no express reference to information at all.
4. The Syndicates are in run off. That run off is the responsibility of Cavell Managing Agency Ltd. In order that that run off may be conducted satisfactorily, and in particular so that the extent of exposure may be calculated, the Syndicates seek documents in the following categories:

(1) Placing documents, i.e. documents contained in the Brokers' placing files, which were disclosed (in the sense that they were either shown to the Syndicates or Merlin, or made available to them, or referred to in the slip), at the time of placement of the risk;

(2) Claims documents. i.e. documents contained in the Brokers' claims files, which were documents disclosed and presented to the Syndicates or Merlin during the presentation of claims;

(3) Premium accounting documents relating to the collection, processing and accounting for premium, showing premiums due, charged and paid.

A substantial quantity of material under these headings has been provided, where the client, i.e. the assured, consents. But much has not. It is agreed that I should first determine questions of principle, leaving the detail of what exactly has to be provided to be determined, if necessary, hereafter.

5. The Brokers contend that the Syndicates are not entitled to access to these documents. If their clients consent, they say that they are perfectly happy to produce, and have produced, them. In the absence of such consent, they refuse to do so. In some cases consent has been expressly refused. But in several the clients are uncontactable or unresponsive. The Brokers fear that, if they volunteer this material without their clients' express consent, they may face claims that the documents should never have been provided and that they are accountable for the consequences.
6. That the parties are divided by this issue reflects the fact that over the last twenty years Lloyd's has become a more litigious place, not only as between syndicates and assureds and reassureds, and between Names and agencies, but also between brokers and underwriters.
7. The problem arises in relation to the placing and claims documents because, historically, underwriters often did not, and still sometimes do not retain, either at the box or elsewhere, copies of these documents, particularly in the case of claims documents (where the retention by the underwriter of claims documentation is exceptional), relying on an expectation that they can get them from the brokers if the need arises.

The Codes

8. The issue of a broker's obligation to his clients in relation to information obtained from clients and the production of documents to others has been the subject of regulation and negotiation from the late 1980s. In July 1988 Lloyd's promulgated a Code of Practice ("the Lloyd's Code"), which came into force on 1^st November 1988. The Introduction provided, inter alia, as follows:

"3 Lloyd's brokers and their partners, directors and employees who are individually registered under the Insurance Brokers (Registration) Act 1977 are also subject to the Code of Conduct drawn up under that Act. The three fundamental principles of that code are:

…

B. Insurance brokers shall do everything possible to satisfy the insurance requirements of their clients and shall place the interests of those clients before all other considerations. Subject to these requirements and interests, insurance brokers shall have proper regard to others.

…

5. Lloyd's brokers are the agents of their clients and, as such, they are subject to the general law as it applies to agents. The Code of Practice is not intended in any way to derogate from that general law".

9. The Lloyd's Code, itself, provided:

"3 Confidentiality of Client Information

(1) Any information acquired by an insurance broker from his client shall not be used or disclosed except in the normal course of negotiating, maintaining, or renewing a contract of insurance for that client or unless the consent of the client has been obtained or the information is required by a Court of competent jurisdiction.

10. On 21^st November 1994 a new Code came into force under the Insurance Brokers Registration Council (Code of Conduct) Approval Order 1994. It laid down a number of fundamental principles including:

"2

..

B Insurance brokers shall do everything possible to satisfy the requirements of clients and shall, subject to Paragraph C, place the interests of their clients before all other considerations. Subject to these requirements and interests, insurance brokers shall have proper regard for others.

…

The following are some specific examples of the application of these principles:

….

(19) Any information acquired by insurance brokers from their clients shall not be used or disclosed except in the normal course of negotiating, maintaining, or renewing a contract of insurance, or in handling a claim for that client unless the consent of the client has been obtained or the information is required by a court of competent jurisdiction".

11. On 3^rd July 2000 there came into force the Commercial Code of the General Insurance Standards Council ("the GISC Code"). The GISC Code, which applied to Lloyd's brokers, contained the following provision:

"Confidentiality and Security

44 Members will ensure that any information obtained from a Commercial Customer will not be used or disclosed except in the normal course of negotiating, maintaining or renewing insurance for that Commercial Customer, unless they have their Commercial Customer's consent, or disclosure is made to enable GISC to fulfil its regulatory function, or where the Member is legally obliged to disclose the information".

12. As from 14^th January 2005 Lloyd's brokers were no longer subject to the GISC Code, but became subject instead to the Insurance Conduct of Business Code, an FSA document. This contains no repetition of paragraph 44 of the GISC Code.

The Terms of Business Agreement

13. Paragraph 5(4) of the Lloyd's Broker Byelaw 17/2000 required Lloyd's brokers to enter into Terms of Business Agreements ("TOBAs") with managing agents as from 1^st January 2002. During 2001 various versions of a standard TOBA were discussed between the Lloyd's Market Association ("LMA") and the London Market Insurance Brokers Committee ("LMIBC").

14. In February 2001 the then draft model terms provided as follows:

"Access to Records

The Broker agrees to allow the Managing Agent access to all documents used in the negotiation of any insurances which the Broker places with the Managing Agent subject to the terms of this Agreement and shall allow the Managing Agent the right to make copies or extracts of any such records. Such right of access shall be at the discretion of the Broker but shall not be unreasonably withheld."

15. A Guidance Note annexed to those Model Terms contained these clauses:

"Access to Records

1. Where the broker's papers are created in the course of an agency for the Assured as principal, the broker owes a duty of confidentiality and therefore cannot allow third parties to inspect any of their files unless the Assured first grants permission.

2. The exception to this rule, pursuant to London market practice, is that a Managing Agent is entitled to inspect those documents which they saw at the time of placement (e.g. placing presentation with supporting documents, information sheets, slips, any endorsements, policy wordings in draft and final form, and so forth). This is what is meant in the TOBA by "All documents used in the negotiation …." No other documents may be inspected by a Managing Agent without the consent of the Assured".

(Underlining added)

14. Those model terms were sent out by the LMIBC to members by a letter of 14^th February 2001 which contained the following paragraphs:

"….Lloyd's has not specified the wording of the TOBA, but has laid down the minimum headings that must be accommodated, which include premium and claims, ownership of and access to records and law and jurisdiction.

A model TOBA has been drafted in conjunction with the [LMA], which it is hoped brokers will use as the basis of their own TOBAs, but may adapt to suit their own specific types of business.

…..

Brokers are reminded that this model will not cover every circumstance and care should be taken to ensure that it accommodates situations which may be particular to individual territories and classes of business. In particular Brokers are recommended to consider the section on access to business to ensure it satisfies their particular situation"

The terms in the draft model were also the terms contained in the first draft TOBA put forward on behalf of the Syndicates.

15. Thereafter there were further negotiations as to the form of the model TOBA. A final version of the model ("the TOBA") was eventually promulgated, and on 20^th December 2001 the managing agent of the Syndicates and the Brokers signed it. It provided as follows:

"1.Definitions

…

1.2. Insurance Business

Any insurance business falling within Schedule 2 of the Insurance Companies Act 1982, including facilities and binding authorities relating thereto and reinsurance thereof, which may be transacted between the Broker and the Managing Agent, other than any outwards (re)insurance business placed by the Broker as agent of the Managing Agent.

…

1.4. Group

Any Company which is a holding company of the Parties or a subsidiary of any holding company of the Parties where "holding company" and "subsidiary" shall have the same meaning as given by sections 736 and 736A of the Companies Act 1985 of Great Britain (as amended).

2 Scope

2.1. The purpose of this Agreement is solely to set out the rights and obligations of the Parties only in respect of the matters specifically addressed in the Agreement. To the extent that any matters relating to the relationship between the Broker and the Managing Agent are not expressly addressed in this Agreement they remain unaffected and unaltered by this Agreement. This Agreement shall not override the terms of any underlying contract for or of Insurance Business.

2.2. Nothing in this Agreement overrides the Broker's duty to place the interests of its client before all other considerations nor shall this Agreement override any legal or regulatory requirement (whether obligatory or advisory) which may apply to the Broker, the Managing Agent, or the placing of any insurance business.

…

3. Authority.

Nothing in this Agreement shall grant the Broker authority to accept, amend or vary Insurance Business, settle, negotiate or compromise claims, alter any document or policy or otherwise act as or be the Managing Agent's agent .

4. Premiums and Claims

4.1. The Broker shall maintain segregated accounts for the receipt, holding and payment of premiums and claims and tax monies in accordance with, as a minimum standard, the requirements of the General Insurance Standards Council…

4.2. The time at which premiums are to be paid to the Managing Agent will be agreed on a risk by risk basis in the relevant Slip or as may be separately agreed between the parties.

4.3. If premiums have not been received by the payment date agreed in accordance with clause 4.2. above, the Broker will use all reasonable endeavours to assist in their collection. If the premium is not paid to the Managing Agent by the agreed payment date, the Managing Agent may terminate the relevant Insurance Business in accordance with any right of cancellation.

4.4. The Broker shall pay to the Managing Agent the premium due under any Insurance Business and account to the Managing Agent for such premium, where:

4.4.1. the Broker is deemed to have received the premium on behalf of the Managing Agent under the law applicable to the payment of such premium; and

4.4.2. the Broker, or another broking company in the same Group, has received the premium.

8. Access to Records

8.1. The Broker agrees to allow the Managing Agent on reasonable notice to inspect and to take copies of the following:

8.1.1 the accounting records pertinent to any Insurance Business including information relating to the receipt and payment of premiums and claims and documentation such as any insurance contract or slip endorsements, addenda or bordereaux in the possession of the Broker relating to the Insurance Business; and

8.1.2. documents as may be in the possession of the Broker which were disclosed to the Managing Agent by the Broker in respect of any Insurance Business including, but not limited to, documentation relating to the proposal for the Insurance Business, the placing thereof (including endorsements and reinstatements) and any claims thereunder

9. Confidentiality

Each of the parties will treat information received from the other relating to this Agreement and to the Insurance Business as confidential and will not disclose it to any other person not entitled to receive such information except as may be necessary to fulfil their respective obligations in the conduct of the Insurance Business and except as may be required by law or regulatory authority…".

The Brokers' insurance

16. The question of access to records also came to the attention of Griffin Managers Ltd, who are the managers of a mutual insurance association which insured about a quarter of Lloyd's Brokers. In January 1990 they issued a Bulletin that read as follows:

RELEASE OF FILES

Requests for the release of files to insurers have traditionally been complied with for the simple reason that underwriters have kept very few documents themselves. The insurance market has not always been as litigious as it is today and there was therefore no good reason for not complying with such a request. The changed atmosphere of today's environment however means that these requests now need to be considered extremely carefully.

As agent of the insured, it would be easy for a broker to assume that all documents in the placing file belong to his principal, the insured. The truth of the matter is unfortunately not as simple, since the documents in a typical placing file may belong to either the insured or indeed to the broker himself. The first reaction therefore to a request for a file, or certain documents within a file, should be to identify the owner of the document.

Generally the insurer will be entitled to see the slip and policy wording and little else. However as a matter of practice, the broker should obtain his consent to the release of any document including placing information originally shown to the insurer. In this way he will protect himself from any future allegations of breach of duty by his client. It is worth emphasising that the broker has little to lose by refusing to disclose documents to the insurer since the insurer's only remedy is to seek formal discovery of the documents in question. Although in extreme cases the broker may be penalised with legal costs incurred in the application for discovery, it is perhaps a lesser price to pay than would be the case if the broker acted against his principal's best interests…

17. In April 2002 an updated Bulletin was produced upon the same subject, which indicated that the client's consent should still be sought even when insurers requested access pursuant to a TOBA. It contained the following passages:

"..Although it is by no means always the case, a request to inspect the file can be the first sign that there is a potential problem. For this reason all such requests shall be treated as matters of priority and approached with care.

Client Authority

When dealing with a request for inspection, the first step should be to consider whether you are authorised to comply. Where the request comes from a regulator such as GISC the broker, generally, will be obliged by the regulatory regime to comply. Other than that, where the request comes from a party other than the client, the general rule is that the client's consent must be obtained before the inspection proceeds. This is not only because of the agency relationship between the broker and the client … but is also a GISC requirement.

If the broker has agreed …under a TOBA with a managing agent, to allow access to records, the client's consent still should be sought before access is allowed. Likewise if the request is, say, pursuant to some contractual right of inspection under a reinsurance contract, the client's consent should be sought. This is to ensure that there has been no change to the contract or the relationship between client and underwriter, of which, as broker, you are unaware. Again, if the request is from an underwriter to inspect a claim file other than in the normal course the clients should be advised and their approval sought. Such a request may be more routine in nature than a request to see the placing file, but it nevertheless concerns a file of documents which you hold on behalf of another. Always check with your client that they are happy before you proceed".

The contentions of the parties

Placing and claims files

18. The Syndicates' contention, in respect of policies written prior to 20^th December 2001, is that there is an implied contract based on long established market practice and the custom of Lloyd's that brokers will allow underwriters access to information which the underwriters do not have, but which has been made available to underwriters and which the brokers have on their placing and claims files. In respect of policies written on or after 20^th December 2001 the Syndicates say that the TOBA gives them, expressly, the rights that, before then, they had enjoyed impliedly.
19. The Brokers deny the existence of any such implied contract or custom and deny that the TOBA grants the Syndicates the rights that they claim.

Accounting records

20. In respect of the accounting documents the Syndicates contend that it is the practice at Lloyd's for the broker to collect, process, and account to the underwriter for premiums and that, in this case, the Brokers accepted and partly performed that duty, such that they are accounting parties, and therefore under a duty to be constantly ready with a correct account of all of their dealings in respect of the premiums and to produce all documents in their hands relating to them. The Brokers dispute this.

The evidence

21. Written evidence of the factual background, which was not in dispute, was contained in the witness statements of Mr Jonathan Sacher, the Syndicates' solicitor, and Mr Robert Marsello, the manager of Cavells, for the Syndicates, and of Mr Michael Cairns on behalf of the Brokers. Apart from this the parties called the expert evidence of, in the case of the Syndicates, Mr Tony Berry, a Lloyd's underwriter, and in the case of the Brokers, Mr David Blackburn, an experienced broker.

The expert evidence

Mr Berry

22. Mr Berry, who retired in 1998, has had over 40 years experience in the Lloyd's market. In the early 1960's he worked in the marine claims department of Swann & Everett Underwriting Agency, and then from 1970 he started underwriting, predominantly in the marine excess of loss and proportional reinsurance market. He described how in the early 1980's many syndicates, if not all, would have a photocopier, which had not been the case in the 1960s. But, even in the 1980s, space was limited such that it was not possible for a syndicate to copy and retain all the material that it was shown. When the market moved to the current building, many syndicates had computer systems, but, as in the old building, the only method of storage at the box was in cupboards, either under the seats or at the rear of the boxes, or in an ascending tier of filing shelves. Offices at or outside Lloyds were not normally used for the storage of underwriting documents. His evidence was that there was no uniform practice amongst underwriters as to whether they would retain a copy of the documentation provided to them at placing, and even for those whose practice it was to keep a copy, in certain cases the information would be too voluminous to do so. If the underwriter was only writing a small, following line, he might well decide not to take copies of any documents at all. If the underwriter did not retain copies it was "an accepted and understood market practice" that the underwriters were entitled to require the production to them of copies of any documentation made available by the brokers at placing and remaining on the brokers' files. This practice was reflected in paragraph 8.1.2. of the TOBA. He did not accept that paragraph 44 of the GISC code should be interpreted as meaning that documentation available to underwriters at placing could no longer be produced to them, and that, if that interpretation was to be taken it was incumbent on the brokers to notify underwriters that that would be so.
23. In respect of claims files, his experience was that they were invariably maintained only by the broker, and the custom and practice was that underwriters could call for them at any time, even if the loss had been settled. The market would not work unless underwriters could routinely access the brokers' claim files. He could not recollect a single instance in which he, as reinsurer, had asked his reassured for an original claims file, and the reassured had been unable to obtain the file from the broker of the original assured.

Mr Blackburn

24. Mr Blackburn has been a Lloyd's broker for 27 years, primarily broking insurance contracts. In his report of 17^th November 2004 he described it as the normal practice of the Lloyd's market for an underwriter either to retain a copy of the placing information, or to sign or initial it and return it to brokers "for safekeeping". He described it as established Lloyd's market practice that, where an underwriter does not retain copies of the placing information that was shown to him at the time of placing, "the underwriter may ask the broker for a copy of those documents and the broker will make the document available to the underwriter". But where at the time of placement the underwriter was not shown the placing documents, or it is not clear that he was, the brokers should obtain the consent of their client, whether insured or reinsured, and, in the absence of such consent, he would be in breach of duty to his principal in making the documents available. He required more time to consider the position in respect of claim documents.
25. In his report of 14^th January 2005 (wrongly dated 2004) he described how during the whole of the 1990s underwriters normally kept copies of risk information, including submissions provided by the broker, the placing slip and other documentation, and that, following the reconstruction and renewal of the market and the introduction of corporate capital in the early 1990s the trend for better record keeping was reinforced. This report introduced some qualification to the opinions expressed in his earlier report. Firstly, he stated that it was only "rarely" that the underwriter would sign and initial the information provided and return it to the brokers for safekeeping. Secondly he expressed the qualification (with which Mr Berry did not agree) that whenever the broker's client expressly stated that information should not be shown to the underwriter, the broker must abide by the request of his principal, and that the broker should do likewise if he had grounds to think that the request was not in the best interests of his principal. As to claim files his opinion was that the brokers should produce any report that had been paid for by underwriters. But in relation to other documents the position was the same as in respect of placing information.
26. In his oral evidence Mr Blackburn made it plain that certainly since the early 90s he would expect an underwriter to keep copies of placing information and that it was increasingly rare not to do so; that, if the underwriter did not do so, although he was entitled to ask to see information that he had not kept, and there might be reasons why the broker would generally give it, the underwriter was not entitled to see such information ("I don't think these days you can say anyone is entitled to see anything in accordance with market practice"). Brokers would be likely to share information in the context of routine commercial relationships, but in particular situations, such as the present, when information is sought several years after the event, the position might be different.
27. The oral evidence of the experts reflected, to some degree, the necessarily different stance from which they examined the question. Thus Mr Berry had difficulty in seeing how the underwriter could not be justified in requiring the production to him of material that he had already seen before, and suggested that a broker whose client refused to give it would have to tell his client that, in refusing the production of such documentation, he would run the risk of suggesting to the underwriter that there had been some form of non disclosure. He did not see as particularly realistic or relevant the scenario suggested to him of (a) the broker who, at the time of placing, has put forward a profit forecast or an estimate of some kind and whose client resists the underwriter's call for the forecast or estimate to be presented a second time, because it has proved to be an embarrassment and its production likely to cause trouble; or (b) the broker who has disclosed placing information, part of which is not material and should not have been disclosed, and whose client does not wish it to be disclosed again for the same reason; or (c) the broker who is suspicious that the underwriter's request to look at the file relating to a paid claim betokens some challenge to the claim or even the insurance itself.
28. Mr Blackburn regarded the interests of the broker's client as paramount, even if they conflicted with an undertaking that the broker may have given to the underwriter. The example was postulated of the underwriter who hands a document back to the brokers, saying "keep that for me". Mr Blackburn expressed the view that he would not regard himself as having made an agreement with the underwriter to hold the documents to his order, or to produce them on demand, simply because the underwriter gave him the documents back, and that, even if he had been specifically asked to hold information for the insurer, he would not release it if instructed by his client not to do so, even if that put him in breach of an undertaking to the underwriter.

Placing and claims information

The position before the TOBA

29. The primary submission of Mr Steven Berry, Q.C., was that, if and when the underwriter returns the placing information to the broker, there is an implied agreement to the effect that the broker will keep the documents safe and will produce them for inspection when asked. Such an implication arises because, in such a case, both underwriter and broker know that it will, or may, be necessary for the underwriter to see the slips or other placing information, for regulatory or reinsurance purposes, and the broker knows that the underwriter is relying upon him to be able to get access to them. In handing over the documents the underwriter impliedly requests the broker to keep them safe for him, and the broker impliedly agrees to do so. This implication is supported by the practice at Lloyd's. He relies on the reference to "entitlement" in paragraph 2 of the Guidance Note to the draft model terms, and the eventual terms of clause 8 of the Model Agreement as stating expressly what previously had been implied. He further submitted that the practice amounted to a binding custom. In respect of claims information the position was the same.
30. Mr Berry drew my attention to a passage in "Reinsurance Practice and the Law", written by the Reinsurance and International Risk Team of Barlow Lyde and Gilbert, in the July 2003 Service Issue, paragraph 2.4:

"The question whether the reinsurer is entitled to call for the placing file at any time after placement is a matter of some controversy. If a dispute arises over the accuracy of the placing information, the reinsured will almost certainly have to produce the contents of the file to the broker in the ensuing proceedings, at least in so far as the documents have been created by the broker in its capacity as agent of the reinsured. It is more doubtful, however, whether the reinsurer has the right to see the placing file at any earlier stage. It is, nevertheless, common practice for brokers to provide their placing files to reinsurers if they are requested to do so, even if a dispute has not arisen".

and at paragraph 6.9:

"… it is important to note that Lloyd's underwriters, at least, very rarely keep copies of documents which are shown to them. Rather they rely on the Lloyd's brokers, who introduce the risks to them, to store all placing information on those underwriters' behalf".

31. He, also, drew my attention to Henley on "The Law of Insurance Broking", 2004, which states at paragraph 9.055:

"…the only documents to which the insurer may have unrestricted access in the placing file are the initialled slip and policy wording, and as a matter of market practice those documents used by the broker in his presentation to that insurer at placing. The insurer has no right to see other documentation in the file where it clearly relates to work done by the broker as agent for the insured, and if the broker hands it over without authority to do so from the insured, he will be in breach of his duty of confidentiality. In the absence of the insured's consent the insurer will have to wait until litigation and disclosure before seeing other documentation. …".

32. For the Brokers Mr Richard Slade submitted that, although the documents now sought might well, subject to questions of specificity and relevance, be obtainable by way of third party disclosure under CPR 31.17 in any litigation between the Syndicates and their assureds, the Syndicates' attempt to obtain them in these proceedings constituted an illegitimate shortcut. They seek, he says, the advantage, denied to other insurers, of disclosure before the formulation of any complaint. In principle a principal, such as the Syndicates, could not, as of right, obtain from the agent of his counterparty records of what he had previously been told but which he no longer retained. The Syndicates' contention must be that the underwriter was entitled to access to the documents even if the client gave express instructions to the contrary. He drew attention, rightly, to the fact that there is no evidence of any express agreement between the Brokers and the Syndicates entitling the Syndicates to access to the documents in question. As to the implied contract relied on, there was no necessity for it to be implied; the act of handing documents back to the Brokers did not create some right of action against the Brokers; nor did it change their status so that they became bailees or trustees; nor did it create any contractual right of inspection. So far as reliance on a binding custom is concerned, he submitted that, if it existed, you would expect some clear recognition of it to appear in the material to which I have already referred.
33. It was suggested in the Claimants' opening skeleton that the underwriters enjoyed some equitable right to, or ownership of, the information in the placing and claims documents, and that the Brokers maintained the hard copies of the documents containing the information as trustees or fiduciary agents for the Syndicates for the purpose of allowing the Syndicates to recover that information by subsequent inspection and the taking of copies of the documents. It seems to me extremely doubtful that the information in question is information of which the Syndicates are to be treated as owners, and certainly not exclusive owners, and it does not seem to me that the act of handing back the relevant documents to the broker is apt to give rise to the relationship of trustee (or fiduciary) and beneficiary in respect of such documents.
34. Nor am I persuaded that, in respect of the period prior to 20^th December 2001, the contract suggested is to be inferred from the circumstances. Mr Berry does not submit that the obligation that he asserts is a term to be implied in the contracts of insurance and that the Brokers are personally liable for its performance. The contracts of insurance are perfectly workable without the Brokers being under any such obligation. The obligation, he submits, arises from an implied contract between the Brokers and the underwriter. Such an implication could, to my mind, only be made if the circumstances clearly showed that the Brokers and the underwriter, or the managing agent, had, by their conduct, looked at in the context of the Lloyd's market, made an agreement to the effect claimed. I find it impossible to reach that conclusion. Firstly it does not seem to me that broker and underwriter would naturally regard themselves as entering into a contract in relation to the placing and claims documents. Secondly, whilst both broker and underwriter are members of the Lloyd's market, they are contractually on opposing sides. It is not difficult to imagine circumstances in which the broker's clients would not wish placing or claims documentation to be available to underwriters unless it was necessary in order to obtain insurance or reinsurance, or an alteration of the terms, or in order to secure payment of a claim, or for some similar reason. It seems to me far from clear that the Brokers must be taken to have bound themselves to provide such documentation. I recognise that in many cases brokers may willingly provide the information either without question or because their clients consent, and that, if brokers are not under such an obligation, underwriters may find themselves in difficulties in the conduct of their business as a whole. But I do not accept that that is a reason for imposing the obligation now suggested on brokers, the interests of whose clients could be prejudiced if they were legally required in all circumstances to provide the information. I note that in Sail v Farex [1995] LRLR 116, 151, the Court of Appeal, admittedly in a non Lloyd's case, regarded rights of inspection as particularly a matter for commercial negotiation. There may, of course, be documents on the claims file which the insurer has commissioned and for which he has paid, but this case is not concerned with documents such as those.
35. I also reject the submission that there is, by the custom of Lloyd's, a contract between broker and underwriter to the effect alleged. A term may be implied in a contract if it is "certain, notorious and reasonable": see Cunliffe-Owen v Teather & Greenwood [1967] 1 WLR 1421, 1438 and General Reinsurance Corp. v Fennia Patria [1983] 1 QB 856, and the authorities cited at Chitty Volume 1– 13-018. In other words, the term has to be sufficiently clear, invariable and well known that those who practice, or seek to practice, in the relevant market must be taken to know that it is implicit in the contracts that they make; and it must not be so lacking in reason that effect should not be given to it. If these three conditions are satisfied it may be that the term can arise by way of a freestanding contract. But it is not sufficient to show that, as a matter of practice, those concerned have often, or habitually, acted conformably to the term asserted. A typical way of proving the existence of a custom is to show that its existence had once been challenged but, when the challenge occurred, the application of the custom was confirmed. But this is not the only way of doing so since, were that so, a term, which, apart from the disputing litigant, everyone recognised, would fail to be treated as a customary obligation if no one, apart from him had ever questioned its applicability.
36. In the present case the evidence, in my opinion, falls considerably short of establishing a custom, as opposed to a common or habitual practice. There is no evidence of an unsuccessful challenge to the custom. Mr Berry does not relate any occasion when the existence or otherwise of the custom was in issue. Moreover I find it difficult to reconcile the differing provisions of the Codes, and the draft of the TOBA, to which I have referred, with a settled and notorious custom to the effect alleged. The content of that material reveals a tension between (a) the obligation of the broker to safeguard his client's interests at all times and the broker's obligation not, without his client's consent to disclose information acquired from the client, or created in the course of acting for him, (save "in the normal course of negotiating, maintaining, or renewing a contract of insurance") and (b) the requirement of the underwriter for placing and claims information. The Lloyd's and GISC Codes recognize and refer to the former. The draft TOBA contains an attempt to reconcile the two. It would have granted the underwriter a right of access to placing information, but at the broker's discretion, such right of access not to be unreasonably withheld. If the custom relied on existed it would seem surprising that neither the Lloyd's Code nor the negotiations about the model TOBA contain any clear reference to it. The closest one comes to such a reference is in paragraph 2 of the Guidance Note to the first draft of the model TOBA to an "entitlement" to inspect. But that entitlement is significantly qualified in the substantive provisions of the draft; and there is no suggestion that the first draft represented a reduction in the right that the underwriter, by custom, already enjoyed.
37. Further, the difference of view of the experts appears to me inconsistent with the existence of the custom relied on. I, of course, accept that the fact that they hold differing views is not conclusive against the existence of such a custom, since one of them may simply be wrong. But the impression that I received, from the evidence of two men of great experience, was not that there was a well known customary obligation, which all concerned would recognise, but which Mr Blackburn for some reason did not. I do not think that Mr Berry's evidence is sufficient to elevate market practice to the status of a freestanding contract arising by custom; and I found Mr Blackburn's evidence that, having regard to the broker's duty to his client, there was no such custom obliging disclosure as is relied upon, convincing. Mr Berry has never been a broker, and, as it seems to me, it is the evidence of brokers, upon whom, if the custom exists, the obligation would fall, that is of particular importance for present purposes. There is no evidence that brokers have felt themselves under an obligation to supply information, despite their clients' instructions to the contrary or where it would not be in their client's interests to do so. Nor is there evidence of underwriters, in reliance on the custom alleged, telling brokers that the information in question had to be handed over in those circumstances, or successfully compelling reluctant brokers to do so. In addition, there is nothing in the Griffin bulletins, or such limited textbooks as there are, that supports the existence of the custom alleged.
38. It was urged upon me that a custom may survive, even though the reason why it arose no longer applies or not to the same extent. Thus, it was said, if such a custom existed in days gone past, it would not necessarily cease because modern technology made the storage of information much easier. That may be so, and if there was clear evidence of a custom at some stage not long before the relevant time (1999 to 2003), it might become important to see whether and, if so, when the custom had ceased to apply. But, for a custom to be valid, it must be well known and recognised as a custom at the time that it is said to apply. The evidence does not persuade me that that is so, or that a custom existed sufficiently close to the relevant time to call for an examination of when and how it fell into disuse.
39. Lastly it seems to me that, insofar as the custom relied upon obliges the broker to disclose documents to the underwriter, notwithstanding that to do so would be inconsistent with the instructions or best interests of his clients, it is unreasonable and not, therefore, enforceable: Anglo African Merchants Ltd v Bayley [1969] I Lloyd's Rep 268; [1970] 1 Q.B. 311; North and South Trust Co v Berkeley [1970] 2 Lloyd's Rep 467; [1971] 1 WLR 470; Pryke v GHC [1991] I Lloyd's Rep 602, 615. Mr Berry submits that there is no conflict since, if the client instructs his broker to secure insurance, and a necessary incident of that is that the broker comes under an obligation to make the placing and claims documentation available, then that obligation arises as a result of compliance with the client's instructions. But that seems to me to assume what is to be proved namely that every underwriter and broker impliedly makes the agreement relied upon.
40. The considerations to which I have referred in considering the existence of a custom serve, also, to confirm my conclusion that there was no implied contract. It is apparent that there are several different ways of dealing with the tension between the interests of the broker and his clients and the requirements of the underwriter, and it is not clear to me that the method of doing so inherent in the implied contract relied on must necessarily be the applicable one.

The position after the TOBA

41. Mr Berry submits that, after the TOBA was signed, the position became clear. The Managing Agent has, by clause 8.1.2. an entitlement to inspect and take copies of such

"documents as may be in the possession of the Broker which were disclosed to the Managing Agent by the Broker in respect of any Insurance Business including, but not limited to, documentation relating to the proposal for the Insurance business, the placing thereof (including endorsement and reinstatement) and any claims thereunder".

The statement in clause 2.2 that:

"Nothing in this Agreement overrides the Broker's duty to place the interests of its client before all other considerations."

cannot, he submits, qualify the unequivocal obligation contained in paragraph 8.1.2. It constitutes a statement of general principle. It does not provide, as it might have done, that nothing in the Agreement should override the broker's duty to comply with the client's instructions. The "interests of its client", which the Broker is to place before all other considerations, obviously include the making of contracts of insurance and reinsurance, the making of which will, from the date when the TOBA comes into force, attract the operation of clause 8.1.2, to the Brokers' agreement to which the insured must be taken to have consented. The latter part of that submission appears to me to beg the question since the making of contracts will, also, attract the operation of clause 2.2 and it is the interrelationship between the two clauses that has to be determined.

42. Mr Slade submits that the context in which the TOBA must be construed is that the potential for a conflict of interest if brokers contracted with underwriters was well known, as was the fact that brokers should avoid making agreements with underwriters which produced, or allowed, such a conflict. That that was so was apparent from the Anglo African case, in which Megaw, L.J, cited certain classic statements of the law that an agent could not act for two principals, without the free, explicit and informed consent of both, and held that any custom or practice at Lloyd's whereby the broker could act for both underwriter and client in the process of settling claims could not be upheld. The effect of that judgment is reflected in paragraph 9.6 of the Lloyd's Code.
43. Clause 2.2, Mr Slade submits, is not a mere statement of the broker's basic duty, nor an acknowledgement that entry into the TOBA was not a breach of that duty. It is a paramount provision (hence its position at the beginning) affecting all that follows, and, in particular clause 8. To meet the submission that, if that is so, clause 8 is devoid of practical effect, he submitted that that was not so. The presence of that clause would preclude the broker from objecting to production of the information requested on the grounds, for instance, that the broker's records were in a state of confusion and the broker did not want to make the effort to sort the confusion out, or that he was too busy to attend to the underwriter's request, or that the documents had been put away in a store and it would take time, effort and money to comply with the request.
44. Not without some hesitation I have come to the conclusion that clause 2.2 is, where it applies, capable of "trumping" clause 8.1. In other words the obligation to grant access to documents will not arise if to do so would be inconsistent with the broker's duty to place the interests of his client before all other considerations. Whether that would be so must depend upon the facts of any given case. But, if the broker has genuine, and not spurious or wholly irrational, grounds to regard it as against the interests of his client to provide the placing and claims information the TOBA does not, in my view, require him to do so. The duty which is not overridden seems to me to go beyond that of not disobeying the client's instructions, since a duty to place the interests of the client above all other considerations includes an obligation on the broker to take a view of the client's interests. This duty may be of considerable importance if the client cannot be found or does not respond, as is the case in respect of several of the clients in the present case.
45. If clause 2.2 is treated as doing nothing more than setting out the broker's general duty towards his client, it serves no real purpose. The duty exists anyway; it arises because of the relationship between the broker and his client, to which the managing agent is not a party; and it is not affected by the broker entering into an agreement with the managing agent, whatever that agreement says. If clause 2.2 is treated as a confirmation that the broker would not be in breach of his duty to his client by entering into the TOBA, it is either superfluous (if the confirmation is correct) or false (if it is not). In my judgment clause 2.2 contemplates that obligations contained in the agreement may, in certain circumstances, be inconsistent with the broker's duty to place the interests of the client before all other considerations, in which case it is that duty that is to prevail. The Code established by the 1994 Order provided that one application of the fundamental principle that insurance brokers should place the interests of their clients before all other considerations was that any information acquired by brokers from their clients should not be used or disclosed, save in the normal course of negotiating, maintaining, or renewing a contract of insurance, or in handling a claim, unless the consent of the client has been obtained. It is not, therefore, possible to say that clause 2.2 can have no application to the provision of documents.
46. I recognize that this construction introduces a serious limitation on the operation of clause 8. This is particularly so, if, as seems to me to be the case, the obligation of the broker to place the interests of its client before all other considerations introduces a degree of subjectivity, since, if the broker genuinely thinks that his clients may be prejudiced by giving access to the information, and there are grounds for such belief, his duty is not to disclose. Different brokers may take different views. But this construction does not deprive the clause of all content. In some cases the broker may not be able plausibly to assert that his duty to his client would be overridden if he were to have to provide the material. Further, unless clause 2.2 is to be interpreted in this way, it, itself, is devoid of content. If nothing in the Agreement could override the Broker's duty there would be no need to save the agreement from having that effect. The result is untidy, but I suspect that such untidiness arises because the agreement strives to give effect to an uneasy compromise between the interests of brokers and underwriters.

Premium accounting documents

Prior to the TOBA

47. In the case of marine insurance the Lloyd's broker is, by custom, liable to the underwriter for the premium. Mr Berry did not invite me to hold that the custom was equally applicable to the non marine market. I have no evidence to that effect, and I note that in Pacific & General Insurance Co Ltd v Hazell & Ors (1997) 6 IRLR 157, 168, an attempt to establish such a custom failed. Mr Berry relied upon the fact that, in the non marine market, the underwriter leaves it to the broker to collect and calculate the premium and to pay it to the managing agent. In some cases, for instance where the premium payable to the insurer is a proportion of the face value of the relevant life insurance policies or of the net death benefit payable thereunder, the premium can only be calculated from the provision of information that the underwriter looks to the broker to provide. In those circumstances there is, he submits, an implied contract between underwriter and broker that the premium accounting documents will be made available. The broker owes the underwriter the duty of an accounting party.
48. I do not accept that that is so. Under the contract of insurance the premium is due from the assured in accordance with whatever terms have been agreed as to premium. The premium is payable to the insurer, or his agent, such as, in the present case, Merlin, the coverholder. If the premium is to be a proportion of some figure which is not known to the underwriter the assured will have to tell the underwriter what the figure is, and how it is calculated, and pay it. In the normal course of things he will do this through the broker who is his agent. But the fact that the assured has that obligation towards the insurer, and that he will perform it through the broker, does not, in my judgment, mean that there arises an implied contract between broker and underwriter whereby the broker undertakes to the insurer that he will himself pay the premium or collect it as agent for the insurer, or that the broker becomes, or is to be treated as, the agent of the underwriter for the collection and receipt of premium so as to be under an obligation to produce, on request, every document in his hands relating to the collection, processing and accounting of and for premium.
49. Reliance was placed on a number of cases in which the Courts have considered whether the broker, as well as being the agent of the insured was, also, for certain purposes the agent of the underwriter. Thus in Chapman v Kadirga Demicille ve Ticaret [1998] IRLR 377 Sir Brian Neil suggested that the concepts of a marine insurance broker acting as a "dual agent", or "common agent" – per Lord Ellenborough in Shee v Clarkson [1810] 12 East 507, 511, a marine insurance case, or as an independent intermediary could be regarded as underpinning the provisions of section 53 (1) of the Marine Insurance Act 1906. In that case he found no need to depart from the ordinary position that, in a case of marine insurance, the broker is the only person liable to the underwriter and entitled to sue the assured for the premium. Power v Butcher [1829] 10 B & C 329, in which the broker was described as "not solely agent: he is a principal to receive the money from the assured, and to pay it to the underwriters" is, also, a case of marine insurance. I do not regard these cases as bearing upon the position of the Brokers in respect of non marine business. In respect of the position after the TOBA clause 3 makes it plain that nothing in it shall grant the Brokers any authority to act as or be the Managing Agent's agent.
50. The extent of the documentation that bears some relation to premiums is extensive. In a letter of 8^th November 2004 Holman Fenwick & Willan, on behalf of the Defendants, explained the premium flow that was involved where a surplus line broker called Kalmanson was involved, as was the case in respect of business arising in certain of the United States. Typically that would involve the following steps:

(1) the Assured would provide Tyser with a bordereau detailing purchased life policies to be insured under their CCI policy;

(2) Tyser would draw up an endorsement which would include any additional premiums that may have been due;

(3) Tyser would send a debit note in respect of the additional premium to Kalmanson;

(4) Kalmanson would invoice the Assured;

(5) The Assured would pay Kalmanson;

(6) Tyser would receive a monthly account from Kalmanson which included a gross figure for all premium received by Kalmanson at a certain date in respect of the CCI portfolio;

(7) Kalmanson would pay to Tyser an amount representing the gross premium less Kalmanson's share of the brokerage from the Assured. Such payments were made monthly by credit transfer;

(8) Tyser would allocate the premium to specific policies by reference to the debit notes they had originally issued to Kalmanson;

(9) Tyser would pay the premium directly to Goshawk Securities Ltd, Merlin's agents for receipt of the premium. Merlin would take a 20% coverholder's commission in respect of all policies written by it. Tyser received a 5% commission for placing the binding authority with the Syndicates. Kalmanson received a share of Tyser's brokerage. Merlin also paid some of its 20% commission to brokers, including Tyser, in respect of the inwards inward business with Merlin. The total deduction from gross premium was 25%.

There may be some further features of the premium flow that are not covered by that summary, but it suffices to show the general nature of the arrangements when that sub broker was involved.

The position after TOBA

51. Mr Slade submits that, as a matter of construction clause 8.1.1 applies only to documents "crossing the line", that is to say documents that have been obtained by the Brokers or created by them for the purpose of their being shown to the underwriter or the managing agents as evidence of the premiums that have been received and are payable to the managing agent. It did not extend to documents passing between the assured, any broker such as Kalmanson, and Tyser. Nor did it cover documents internal to the broker, such as the broker's own bank statements, or a cheque requisition form or other similar document by which someone at the Brokers asked for the preparation of a single cheque to be made out to the underwriter for the premiums under a number of policies. Unless documents were created for the purpose of crossing the line, they would count as working papers. It could not be supposed that the clause envisaged these as having to be provided, not least because they would be documents that even the assured would not be entitled to see. In this respect he relied on Formica Ltd v ECGD [1995] 1 Lloyd's Law Reports 692, 703, where Colman, J, distinguished documents which the broker is required to produce on behalf of the client, or for the purpose of providing them to the insurers or their representatives, from documents such as working papers or similar material. The former were, but the latter were not within the client's "power" for the purposes of discovery. Further, as he submitted, clause 8.1.1 was, itself, subject to clause 2.2.
52. I do not think that clause 8.1.1 is circumscribed in the manner that Mr Slade suggests. The question as to whether access to documents is to be provided does not, in my opinion, depend on whether the document is one which it is within the "power" of the assured to demand from the broker (the question in Formica) pursuant to the rights, express or implied in the contract between them, or whether it is one which has crossed, or is intended to cross the line between broker and syndicate. Clause 8.1.1, unlike Clause 8.1.2 is noticeably not limited to documents that have been disclosed to the Managing Agent. Whether access is to be provided depends upon whether the document is one that the Syndicates can seek pursuant to their rights under their contract with the Brokers. The critical question, therefore, is whether what is sought falls within the description of:

"accounting records pertinent to any Insurance Business including information relating to the receipt and payment of premiums and … documentation such as …slip endorsements, addenda or bordereaux in the possession of the broker relating to the Insurance Business"

i.e. the contracts of insurance and the associated binding authorities. These are wide words. The reference to "accounting records" might suggest that a relatively narrow range of documentation was envisaged. But there is authority, admittedly in a different context, that "accounting records" for the purpose of section 221 of the Companies Act 1985 extend to sales invoices, purchase invoices, cheque books, paying in books, bank statements and "other accounting record documents": DTC v Sargeant & Co (1996) 2 A.E.R 369; and the express inclusion of "information relating to the receipt and payment of premiums" appears to me to be widen the ambit of what is required to be provided under the clause. Whether or not a document is one to which the Syndicates are entitled to have access depends therefore upon whether it can accurately be said (a) to be pertinent to the Insurance Business; and (b) to record information of an accounting nature that relates to the receipt and payment of premiums.

53. Now that I have rejected Mr Slade's proposed construction of clause 8.1.1. it remains to be decided whether or not any of the specific documents in issue fall within this relevant description. Since it is intended that exactly which documents are those to which access falls to be given under 8.1.1 should be decided in the light of this judgment, I make no final determination on that question. But the dividing line between an issue of principle and its application is not clear cut. It, therefore, seems to me to be appropriate to express my provisional view, that the clause would, for instance, cover items (2), (3), (4), (6) in paragraph 52, provided they are in the Brokers' possession, and would also extend to such portion of the Brokers' bank statements as evidences the receipt of premium from the assured or Kalmanson and the payment of premium to the Syndicates. I appreciate that some of these items may already have been provided, and that some are not in the possession of the Brokers.

Clause 2.2.

54. There remains the question of the application of clause 2.2. The obligation arising under clause 8 may, as I find, be trumped by clause 2.2 if the Broker, on genuine grounds, regards it as against the interests of his client for the access sought to be refused. In relation to the placing and claims files it seems to me that there are genuine grounds for the Brokers to think that it is not in their clients' interests to provide the documentation. Whilst, from the Syndicates' point of view their desire to see the documents is understandable and the documents may well be necessary or desirable for the effective conduct of the run off, the Brokers and their clients can legitimately apprehend that the production of these files, a considerable time after the events to which they relate, may also lead to consequences prejudicial to them, such as querying of the validity of the placements and the claims. I do not ignore the fact that the Brokers' stance involves a high degree of self protection, since they wish to avoid being sued by their clients, who have either not proved to be contactable or who have not responded. But the basis upon which their clients might have a remedy of any substance is that the provision of placing and claims information at this juncture has prejudiced them.
55. In relation to the premium accounting documents the position is different. As the Brokers point out the Syndicates have already been provided with documentation showing the premiums due, less brokerage, from which they can see whether they have actually received the premiums to which those documents show them to be entitled. I am not persuaded, upon the present material, that the Brokers do in fact have any genuine grounds to fear that production of the material sought under this heading will be against the interests of their clients, as opposed to being time consuming and tedious to locate and produce (two considerations that, on their case, would not justify non production of the material), or prejudicial to themselves. When I raised this point with Mr Slade he suggested that the matter could be dealt with by a letter explaining the Brokers' concerns. This suggestion prompted the submission by Mr Berry that clause 8.1.1 could be rendered illusory if rights under it could be thwarted in this way. In my view this is not an issue that can sensibly be addressed until a decision is reached, insofar as that is necessary, on precisely what documents the Syndicates are, subject to clause 2.2, entitled to see under clause 8.1.1. Once that is established it will be necessary to see whether and, if so, on what basis the Brokers seek to invoke clauses 2.2; and it will probably be necessary for a witness statement to be given in support, which may have to be the subject of cross-examination, if matters cannot be agreed.
56. I should make clear, for the avoidance of doubt, that nothing that I have said should be regarded as expressing any view on the way that the court should exercise such discretion as it may have if its aid is invoked to compel the production of the documentation in question, particularly in relation to any class of documents which, although falling within the definition, are of limited relevance or whose location would involve effort and expense disproportionate to any value that the documents may have.
57. I shall discuss with counsel the form of order that should follow this judgement.