Law Report: Duty of care is owed to names: Arbuthnott v Feltrim; Deeny v Gooda Walker; Henderson v The Merrett Syndicates - Court of Appeal (Sir Thomas Bingham, Master of the Rolls, Lord Justice Hoffmann and Lord Justice Henry), 13 December 1993.

Underwriting agents of Lloyd's names, whether members' agents or managing agents or both, owe a duty of care to their names to exercise reasonable care and skill in the conduct of underwriting business.

The Court of Appeal unanimously dismissed appeals by underwriting agents of Lloyd's names from Mr Justice Saville's decision on 12 October 1993 that the underwriting agents owed a duty of care to their names.

A Lloyd's name was not a professional underwriter and appointed an underwriting agent to conduct the underwriting on his behalf. The underwriting agents, known as members' agents, were appointed under an underwriting agency agreement. The underwriting was done on behalf of the name through a syndicate of which the name, with others, was a member. Syndicates were managed by managing agents who employed a professional underwriter. The underwriting agent might be both the member's agent and managing agent, or only the member's agent but appointing a managing agent under a sub-agency agreement.

Before 1987 there was no prescribed form of agreement between name and underwriting agent, but agreements were of a uniform standard. From 1987, under Lloyd's by-laws, a standard form of agency agreement became mandatory.

Bernard Eder QC and Colin Edelman (Oswald Hickson Collier) for Merrett members' agents; Bernard Eder QC and David Foxton (Elborne Mitchell) for Feltrim members' agents; Bernard Eder QC and Christopher Butcher (Elbourne Mitchell) for Gooda Walker members' agents; Anthony Temple QC and John Rowland (Reynolds Porter) for Merrett managing agents; John Rowland (Clifford Chance) for Feltrim managing agents; Anthony Boswood QC and Stephen Moriarty (Moore Fisher Brown; Richards Butler) for the Merrett names and Feltrim names; Geoffrey Vos QC and David Lord (Wilde Sapte) for Gooda Walker names.

SIR THOMAS BINGHAM MR said that the first issue concerned the liability of managing agents to names before 1987. Although managing agents who were not also members' agents had control and management of the underwriting, the agent was not absolved from the duty ordinarily binding on any professional agent to exercise reasonable care and skill. Any successful claim against the agent in negligence would have to show a failure to show the standard of skill and care reasonably to be expected of such an agent at the time and with the knowledge that he had or should have had.

The managing agents owed a tortious duty to the names to take reasonable care not to cause them economic loss. It was not easy to think of a non-contractual commercial relationship in which a duty of care more obviously ought to exist than the relationship of managing agent and name.

Where the managing agents were also members' agents and therefore in direct contractual relations with names, the argument that the contract governed relations between them and regulated the duty of care so that the court would not impose a concurrent duty of care in tort should be rejected. The names did not rely on the law of tort to provide a duty more extensive or far-reaching than the contractual duty, even though the names gained the benefit of a more advantageous limitation period.

Under the post-1987 agreements, members' agents who were not also managing agents were prevented from carrying out the underwriting but had a comprehensive power to delegate. Under the plain meaning of the agreement the members' agents did undertake to conduct on behalf of the name the underwriting business of the name, including the functions which the managing agents performed.

If any underwriting transaction was conducted without reasonable care and skill, it would not avail members' agents to demonstrate that other underwriting transactions were properly conducted. Mr Justice Saville's rulings would be affirmed.

Ying Hui Tan, Barrister