Law Report: Lloyd's names' actions can proceed: Arbuthnott and others v Feltrim and others; Deeny and others v Gooda Walker Ltd and others - Court of Appeal (Sir Thomas Bingham, Master of the Rolls, Lord Justice Steyn and Lord Justice Hoffmann), 30 July 1993

Although Lloyd's names are prohibited from bringing proceedings challenging the validity of a cash call made on them by their agents until the names have paid the cash calls, a name can bring an action for breach of contract against his agent alleging imprudent insurance liabilities while cash calls remain outstanding.

The Court of Appeal dismissed appeals by the agents of Lloyd's names against Mr Justice Saville's decision on an issue of construction arising from the agreements between the names and the agents.

The plaintiffs, Lloyd's names, claimed damages against their agents for breach of contract in the conduct of underwriting for four syndicates. The names and agents were parties to a standard agency agreement. The agents claimed that clause 9 of the agreement precluded a name from bringing an action when the damages sought related to a cash requirement made on the name for underwriting liabilities which had not been met.

Bernard Eder QC and David Foxton; Bernard Eder QC and Simon Bryan (Elborne Mitchell) for the appellant agents; Anthony Boswood Qc and Stephen Moriarty (Richards Butler) for the names in the first action; Jonathan Mance QC and David Lord (Wilde Sapte) for the names in the second action.

SIR THOMAS BINGHAM MR said the scheme of the clause was clear and sensible. The duty of the name to pay sums required by the agent without prevarication was stated clearly. That reflected the overriding need to ensure that funds were available for prompt settlement of the claims of those who had insured or reinsured at Lloyd's. But that need did not require that names should forgo all rights to complain of negligent underwriting where there were still calls outstanding and unpaid.

Courts would never construe words in a vacuum. To seek to construe any instrument in ignorance or disregard of the circumstances which gave rise to it or the situation in which it was expected to take effect was pedantic, sterile and productive of error. Construction was a composite exercise, neither uncompromisingly literal nor unswervingly purposive: the instrument must speak for itself, but it must do so in situ and not be transported to the laboratory for microscopic analysis.

Lord Justice Steyn, agreeing, said that the agents' interpretation led to the extraordinary result that if the agent ruined a name by negligent underwriting, so that the name could not pay the cash call, the contract breaker or tortfeasor went scot-free. That result was inimical to the interest of policyholders and the Lloyd's market.

Lord Justice Hoffmann also concurred.

Ying Hui Tan, Barrister

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