Law Report: Lloyd's names can sue agents

Arbuthnott v Feltrim; Deeny v Gooda Walker Ltd; Henderson v Merrett Syndicates Ltd. - House of Lords (Lord Keith of Kinkel, Lord Goff of Chieveley, Lord Browne- Wilkinson, Lord Mustill and Lord Nolan), 25 July 1994

Where the relationship between parties was such that one party assumed responsibility to the other in respect of certain services and the other relied on those services, a duty of care arose in respect of negligent performance of those services which resulted in economic loss suffered, unless negatived by the terms of any contract between them.

The House of Lords dismissed appeals by Lloyd's underwriting agents from the Court of Appeal's decision (the Independent, 14 December 1993) affirming Mr Justice Saville's decision that the underwriting agents owed a duty of care to their Lloyd's names.

Lloyd's names who are not underwriting agents appoint underwriting agents who may be members' agents who advise the names on their choice of syndicates, or managing agents who underwrite contracts of insurance on behalf of the names, or they may be combined members' agents and managing agents.

The names brought actions against their underwriting agents to recoup part of the great losses they had suffered. The agents argued that the imposition of a duty of care in tort was inconsistent with the contractual relationship between the parties, and it was not permissible for the names to rely on the more favourable limitation regime for tort.

Anthony Temple QC, John Rowland and Aiden Christie (Reynolds Porter Chamberlain) for the Merrett managing agents; Anthony Boswood QC, Stephen Moriarty (More Fisher Brown) for the Merrett names; John Rownland and Kirsten Hough (Clifford Chance) for the Feltrim managing agents; Bernard Eder QC and David Foxton (Elborne Mitchell) for the Feltrim members' agents; Anthony Boswood QC and Stephen Moriarty (Richards Butler) for the Feltrim names; Bernard Eder QC and Christopher Butcher (Elborne Mitchell) for Gooda Walker members' agents; Geoffrey Vos QC, Jonathan Gaisman and David Lord (Wilde Sapte) for the Gooda Walker names.

LORD GOFF said that in Hedley Byrne & Co Ltd v Heller, bankers were held liable in tort in respect of the gratuitous provision of a negligently favourable reference of a customer when they knew the reference would be relied on, and when financial loss was suffered in consequence. The principle rested on a relationship between the parties, which might or might not be contractual, where one party assumed or undertook a responsibility towards the other.

The concept of 'assumption of responsibility' provided its own explanation why there was no problem in cases of this kind about liability for pure economic loss. Once the case was identified as falling within the Hedley Byrne principle, there should be no need to embark on any further inquiry whether it was 'fair, just and reasonable' to impose liability for economic loss.

The relationship between name and managing agent appeared to provide a classic example of the type of relationship to which the principle in Hedley Byrne applied, subject to the impact, if any, of the contractual context.

The problem of the possibility of concurrent claims arising from breach of duty was by no means only of academic significance. Foremost among practical issues was the question of limitation of actions.

Approached as a matter of principle, it was right to attribute to the assumption of responsiblity, together with its concomitant reliance, a tortious liability, and then to inquire whether or not that liability was excluded by the contract because the latter was inconsistent with it.

The House of Lords should develop the principle of assumption of responsibility as stated in Hedley Byrne to its logical conclusion so as to make it clear that a tortious duty of care might arise not only in cases where the relevant services were rendered gratuitously, but also where they were rendered under a contract.

There was no sound basis for a rule which automatically restricted the claimant to either a tortious or a contractual remedy. It was not objectionable that the claimant might be entitled to take advantage of the remedy which was most advantageous to him, subject only to ascertaining whether the tortious duty was so inconsistent with the applicable contract that the parties must be taken to have agreed that the tortious remedy was to be limited or excluded. The plaintiff who had available concurrent remedies in contract and tort might choose the remedy which appeared to him to be the most advantageous.

Applying those principles to the present case, the agency agreements here did not operate to exclude the tortious duty, leaving it open to the names to pursue either remedy against the agents.


Ying Hui Tan, Barrister

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