Law Report: Lloyd's names win damages claim: Brown v KMR Services Ltd; Sword-Daniels v Pitel and others - Queen's Bench Division (Commercial Court) (Mr Justice Gatehouse), 13 April 1994

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A member's agent of a Lloyd's name who has assured the name that low-risk syndicates would be recommended is in breach of his duty to the name if he recommends syndicates contrary to that assurance without obtaining the name's consent. A Lloyd's name, however sophisticated an investor, is entitled to expect a warning of the dangers of high- risk syndicates from his member's agent.

Mr Justice Gatehouse gave judgment on claims by the plaintiffs, Richard Kevin Brown and Michael Sword-Daniels, both Lloyd's names, against their former member's agents.

The plaintiffs alleged that their former member's agents acted negligently and in breach of contract in advising them to join syndicates which were high reward/high risk, instead of following a conservative underwriting policy. They claimed damages for losses suffered in the years 1987 to 1990 and likely to be suffered in open years and declarations for an indemnity.

Mr Brown, a successful businessman, began underwriting in a small way in 1977, gradually expanding his portfolio until in 1989 he was on 35 syndicates. Mr Sword- Daniels, a dental surgeon, joined Lloyd's in 1986. His income was modest, some pounds 32,800, and assets slender, and he wanted a conservative, low-risk approach.

Adrian Hamilton QC and Stephen Hofmeyr (DJ Freeman & Co); Michael Crane QC and Hannah Brown (Hextall Erskine & Co) for the plaintiffs; Peregrine Simon QC and Simon Bryan (Elborne Mitchell) for the defendants.

MR JUSTICE GATEHOUSE said the name turned to the member's agent for his introduction to Lloyd's and then for advice on all subsequent underwriting matters, and he paid for the agent's services. The member's agent's duties included advising the name which syndicates to join and in what amounts and to keep him informed of material matters which might affect his underwriting.

Considering Mr Sword-Daniels's case first, on the facts his claim was unanswerable. The evidence was clear that he should have received advice from his members' agent in view of his modest income. He was not alerted to the high risk nature of the syndicates he joined.

Without such advice, his agreement to the allocations complained of was an uninformed agreement. If he had been alerted, it was unlikely he would have resigned. It was impossible to decide what a safer portfolio would have comprised. The only fair conclusion was that he would not have suffered the losses claimed.

The breach of contract was causative of loss. Losses of the type that occurred were foreseeable, even though their scale was not. He was entitled to recover his actual losses and to an indemnity against future losses on the open years of the syndicates in question.

He was entitled to succeed on two bases. Where a principal obtained from his agent for reward an assurance that the agency would be performed in a certain manner, the agent would be in breach of contract if he subsequently performed in a different way involving breach of the assurance, without obtaining his principal's informed consent. Alternatively the agent gave an assurance that Mr Sword- Daniels's syndicates would constitute a low-risk conservative portfolio, and the recommendations actually made involved a breach of the agent's duty of care.

Mr Brown was an independent-minded name who made his own decisions. Nevertheless he was not given any warning of the dangers of the excess of loss syndicates he joined. He was entitled to expect that advice, however sophisticated an investor he might have been. His claim for breach of contract was made out.

Had his agent given the necessary warning, Mr Brown would nevertheless have continued on a number of the syndicates of which he now complained. He would have allowed about 30 per cent of his total premium income limit to high-risk syndicates. His damages and indemnity for future losses should be reduced by 30 per cent.