The Court of Appeal dismissed an appeal by the defendants, KMR Services Ltd, formerly H.G. Poland (Agencies) Ltd, against the judgment of Mr Justice Gatehouse ( 4 All ER 385) in favour of the plaintiff, Richard Kevin Brown.
The court by a majority (Lord Justice Stuart-Smith dissenting) allowed the plaintiff's cross-appeal against the judge's decision to set off the plaintiff's underwriting profits for previous years against losses for the years in question.
Peregrine Simon QC and Simon Bryan (Elborne Mitchell) for the defendants; Adrian Hamilton QC and Stephen Hofmeyr (D.J. Freeman) for the plaintiff.
Lord Justice Stuart-Smith said the plaintiff, an underwriting name at Lloyd's, sued the defendant, his members' agent, for breach of contract and negligence, claiming that substantial losses he had suffered as a result of underwriting on catastrophe excess of loss (Cat XL) and London market excess of loss (LMX) reinsurance had been caused by the defendant's breaches of duty. Syndicates doing a substantial amount of such business were, or should have been, regarded at the time as high-risk syndicates.
The judge held that, if the plaintiff had been warned of this, he would have placed a smaller proportion of his premium income limit on Cat XL and LMX syndicates. He awarded the plaintiff damages representing a pro rata proportion of his loss in each of the years of account in question, 1988, 1989 and 1990, which totalled pounds 415,717.
The defendants argued that, even if the plaintiff had been warned, he would have done nothing different from what he did. Moreover, the loss in fact incurred was too remote, since the scale was unprecedented and unforeseeable.
The duties which the members' agent owed to the name included the duty to advise him which syndicates to join and in what amounts and the duty to provide him with a balanced portfolio and appropriate spread of risk.
The plaintiff was never given any adequate warning as to the risks involved in Cat XL and LMX syndicates, or any advice as to the proportion of such syndicates he should have in his portfolio or as to what was a proper spread of risk. Losses of the type which had occurred were foreseeable and foreseen, even though their scale was not.
His Lordship then explained why, in his view, credit should be given against the damages for the profits made on the high-risk syndicates in 1986 and 1987. To allow the plaintiff to disregard the profits in those years was inconsistent with his case that, had he been warned, he would have acted differently. A similar approach was adopted in Bartlett v Barclays Trust Co  Ch 515 at 538, where a trustee whose breach of trust had resulted in losses on one property transaction and profit on another, was allowed to set off one against the other.
Lord Justice Hobhouse, with whom Lord Justice Peter Gibson agreed, gave reasons why such a set-off should not be permitted.
The plaintiff had a separate cause of action in respect of each of the three loss-making years in question. Each gave rise to a right in law to recover the damages he had suffered by reason of the breach which constituted that cause of action. The cause of action was a legal one arising under a contract and was not dependent upon any equitable or restitutionary principle.
Although there was an element of repetition in the defendants' breaches, it was not a case of a continuing breach. Each breach was complete when the plaintiff had been committed to that year's allocation.
The function of the court was to find and award to the plaintiff the damages which he proved had suffered as a result of the three distinct breaches of contract upon which he had succeeded.
The principle applied in Bartlett v Barclays Trust Co  Ch 515 at 538 arose from the context of that particular case. It could not properly be applied to the legal remedies being enforced in the present case.
Paul Magrath, BarristerReuse content