Society of Lloyd's v Laws & Ors

Introduction: History of the proceedings and identification of the parties to the application for permission to amend| (paragraphs 1-27)

The test for allowing amendment of pleadings| (paragraphs 28-34)

Claims in respect of Lloyd’s duty to the Names to disclose information, advise and regulate the Lloyd’s market| (paragraphs 35-37)

Claims in respect of fraudulent Misrepresentations other than those advanced and determined by Cresswell J and the Court of Appeal| (paragraphs 38-40)

Are the Names’ claims for Statutory or Negligent Misrepresentation time barred?|

The Lloyd’s Act 1982 (the 1982 Act)| (paragraphs 130-197)

Other Interpretations| (paragraphs 198-206)

Miscellaneous Points| (paragraph 207)

Discretion and Prejudice| (paragraphs 208-215)

Conclusions| (216-218)

On 3^rd November 2000 Cresswell J gave judgment on the “Threshold Fraud Point”, as it was known, in a number of actions. In actions commenced by Lloyd’s against various Names who had refused to accept the R & R settlement offer of July 1996, claims were brought in respect of premium for reinsurance of their liabilities to Equitas and counterclaims were raised by those Names. In other actions, Names had themselves brought claims, the common thread between the Names’ claims and counterclaims being allegations of fraudulent misrepresentation made by Lloyd’s in brochures and other publications issued by them which, it was said, induced the Names to become members of Lloyd’s and to enter into agreements with Members Agents and Managing Agents. For a comprehensive account of the background, and the extensive history which lies behind the “Threshold fraud” trial, reference should be made to the terms of the lengthy judgment of Cresswell J and the appendices to it. The Names appealed against the decision of the learned Judge and that appeal was rejected on 26^th July 2002 in another lengthy judgment delivered by Waller LJ on behalf of the Court of Appeal. Once again, reference should be made to that judgment for the background to the appeal.

By an Order dated 30^th June 1998, Colman J had ordered that four specific actions should be tried together and the Threshold Fraud point determined, following exchanges of pleadings and evidence in accordance with the directions he made. There was a requirement to identify the different categories of claim advanced by different Names by reference to the Threshold Fraud Point which was, at that stage, defined as:

“the issue whether Lloyd’s made misrepresentations which it knew to be untrue and/or as to which it was reckless whether they were true or false and whether such misrepresentations were communicated to the Names and if so when”.

Of those Names so identified, who had not at that stage served a claim or counterclaim alleging fraud against Lloyd’s, one claimant from each category was to serve a pleading incorporating such part of the Points of Defence and Counterclaim already served on behalf of Sir William Jaffray as he might be advised and setting out any particular matters relating to the Threshold Fraud Point which applied to their claim. By a letter of 16^th September 1998 Schedules were served by solicitors acting for the UNO Names setting out the categories of claim and those Names who were pursuing them. Only one category, Category 1, related to misrepresentations in the Brochure for Applicants for Underwriting Membership for the year of joining. As it turned out, the categories overlapped in the content of their cases (the other 20 categories related to the Global Report and Accounts produced by Lloyd’s in relation to closed years of account between 1977 and 1995) so that it became unnecessary to draft a multiplicity of pleadings and that of Sir William Jaffray which pleaded reliance on the Brochure became the key pleading.

By a further Order dated 1^st July 1999, the allegations of fraud to be tried on the 11^th January 2000 were further refined, being confined to the period 1978 to 1988 and by reference to the alleged fraud of 33 named persons at Lloyd’s. In addition to the matters previously referred to, the issue of reliance by 3 sample Names was also to be determined. It was specifically provided that the Names would not seek to investigate at trial the position of any particular Lloyd’s syndicate or seek to show that any such syndicate wrongly closed any years of account: nor would any allegations of fraud be made against panel auditors: nor would the Names seek to investigate at trial the manner in which any particular firm of auditors conducted the audit of any Lloyd’s syndicate for any particular syndicate year of account. Moreover the only allegation to be made as to the withholding of material information from underwriters or auditors by Lloyd’s was that Lloyd’s had failed to distribute the Murray Lawrence letter of 18^th March 1982 to the Members Agents, an issue which was ultimately determined against the Names by Cresswell J at the Threshold Fraud Trial.

On 1^st November 1999, Cresswell J made a further order for directions. In this order, as in others, additional Names were identified as counterclaiming Names and in each case, where the Name had no existing proceedings, a date was specified as the deemed date of commencement for Limitation Act 1980 purposes. He ordered that any Names who wished to advance allegations of fraudulent inducement to become or remain an Underwriting member of Lloyd’s by reason of Lloyd’s failure to disclose the nature and extent of the market’s liability for asbestos related claims had to provide written notice by a specified date, failing which they would thereafter be precluded from advancing such allegations without the permission of the Court. As a result of this order (as appears from the statement sent on the Court’s instructions to Names who were in dispute with Lloyd’s) the Court hoped to ensure that all fraud arguments would be enshrined in the Threshold Fraud Trial and would be determined once and for all, between Lloyd’s and all non-accepting Names, however such fraud claims were framed, whether by reference to misrepresentation or non-disclosure of information.

As finally reformulated in the Re-Re-Amended Points of Defence and Counterclaim of Sir William Jaffray, the fraud alleged against Lloyd’s was contained in a series of representations made in the Lloyd’s Brochure and by reference to the Aggregate Results/Global Reports and Accounts which Lloyd’s issued annually and upon which the Name relied in deciding to join or remain in Lloyd’s and in deciding on premium limits and the continuation of underwriting. The details of these alleged representations are set out in the judgment of Cresswell J and the judgment of the Court of Appeal. It was alleged that the representations were false because Lloyd’s knew, at the time of making such representations that the minimum audit reserves were manifestly inadequate in the light of its knowledge of the Lloyd’s market’s exposure to asbestos related liabilities, as set out in paragraph 34 of the Re-Re-Amended Points of Defence and Counterclaim. As part of the plea of falsity, in paragraph 34.2, it was alleged that Lloyd’s failed to make proper and full disclosure of material information relating to the exposure of the Lloyd’s market to potentially huge and escalating asbestos related claims and that, moreover, Lloyd’s failed properly to regulate the manner in which syndicates or their auditors reserved for and accounted for such potential liabilities.

In addition to these pleas there was an additional plea in paragraph 108 which read as follows:-

“Alternatively, if it be held that the representations made as set out in paragraph 29 hereof were not made fraudulently by Lloyd’s, Lloyd’s was nevertheless under a continuing duty to its Names, including the defendant, to take the steps set out in paragraph 91 hereof. In breach of duty, negligently and/or in circumstances to which section 2(1) and/or 2(2) of the Misrepresentation Act 1967 applied, Lloyd’s failed to take those steps or any of them. Insofar as the Defendant’s claim arises alternatively in tort, the Defendant contends that the loss and damage which he sustained arises from tortious conduct by Lloyd’s and its officers prior to 5^th January 1983, the date upon which Lloyd’s Act 1982, and in particular section 14 thereof, came into effect and that his damage, all as set out above is recoverable from Lloyd’s accordingly.

Particulars of Negligence.

1.

If and insofar as the Defendant may fail to establish that the facts appertaining to asbestos-related liability as hereinbefore pleaded were known to Lloyd's or that Lloyd's closed its eyes thereto, those facts were at all material times known to Lloyd's and to each of its Committee and/or Council members;

2.

The representations made in paragraph 29 could not have been made by Lloyd's or any officer or Council or Committee member if any care had been taken to ascertain the facts before authorising communication in the forms pleaded to the Defendant and other external Names;

3.

If the regulation of the market by Lloyd's had been carried out with any proper or reasonable care, Lloyd's would not have failed to take the steps set out in paragraph 91;

4.

In the premises, Lloyd's had no reasonable grounds at any material time for believing that the facts represented were true.”

Whilst framed obscurely, this plea was primarily a plea of negligent failure to take the steps set out in paragraph 91 of the pleading which can be summarised as follows:-

In addition to this primary allegation in paragraph 108 it can be seen that there was a reference to those failures taking place in a context to which the Misrepresentation Act 1967 applied and in the particulars of negligence (subparagraphs 2 and 4) it was alleged that the representations pleaded in paragraph 29 could not have been made by Lloyd's if any care had been taken to ascertain the facts before authorising communication in the form in which it took place. Moreover, Lloyd's had no reasonable grounds at any material time for believing that the facts represented were true.

It is therefore the position, and it is accepted by Lloyd's, that there were, on the face of the pleading, allegations of negligent misrepresentation and statutory misrepresentation made before the 5^th January 1983 which, the Names alleged, was the date upon which the Lloyd's Act 1982 came into force. That date is the subject of dispute between the parties.

Following the Threshold Fraud Trial and shortly before judgment was given by Cresswell J, the Names raised the possibility of amending their pleading to include new allegations of negligent misrepresentation after 5^th January 1983 and, following the judgment, the matter came before the learned Judge once again and resulted in an order made by him on 27^th April 2001. Because the Judge had found that no representations had been made as alleged, it was accepted by leading counsel for the UNO Names, that the amended case could not be regarded as having a reasonable prospect of success, unless there was success in the envisaged appeal from the decision of the Judge. In consequence, the Judge dismissed both the Names’ claims and counterclaims and their application for permission to amend to include the later allegations of negligent misrepresentation which, they alleged, they were entitled to pursue by virtue of the coming into force of the Human Rights Act in October 2000.

When the matter came before the Court of Appeal, as appears from the terms of the Court of Appeal judgment, the Court reformulated the alleged representations made to the Names at paragraphs 309 to 322 and, having done so, then found at paragraphs 374 to 376 that those representations were false. The Court then went on to hold that it had not been shown that Lloyd's had knowledge of the falsity of such representations with the result that the Names’ claim failed on appeal, just as it had at first instance. (The Court of Appeal also rejected the Names application for permission to appeal on the basis that they had not received a fair trial).

The Court of Appeal found that the brochures contained “a representation that there was in place a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and un-noted losses.” They found furthermore that those at the centre of Lloyd's must have intended the representation to be understood in that way and that it was material, in the sense that it was intended to be relied on. Despite the fact that the point had never been pleaded in this way before, the Court of Appeal found that an ordinary person applying to become a Name would reasonably conclude that the brochure did contain such a representation.

It is important to note that the Court of Appeal, at paragraphs 375 and 376, found that the representation was false simply on the basis that, when R&R was carried out in 1996, so many syndicates were shown to be massively under reserved, that this demonstrated that the system had not been producing reasonable estimates of outstanding liabilities over the years. With the benefit of hindsight, the Court commented that it was clear that the un-noted losses (IBNR) were grossly underestimated throughout the relevant period. The Court made it plain that this was not an indictment of particular underwriters or auditors and that they had not explored the way in which such estimates were made by individual syndicates or individual auditors. There was therefore no question of any finding of negligence or unreasonableness on the part of those making the estimates or audits at the time those estimates were made. There was no finding that the estimates were unreasonable in the light of the facts and circumstances known at the time the representations were made. The simple fact was that “as it turned out most syndicates were under reserved”.

As a consequence, the Court of Appeal found that throughout the relevant period the system did not involve the making of a reasonable estimate of outstanding liabilities including unknown and un-noted losses. It is important in this context to emphasise that the words used by the Court of Appeal, namely “the system simply had not been producing reasonable estimates of outstanding liabilities over the years” have to be understood as meaning that the system had not been producing sufficiently accurate estimates of outstanding liabilities to be relied on as opposed to estimates which were unreasonable at the time they were made. The basis of the Court of Appeal’s decision as to falsity therefore did not depend upon anything more than the fact that, when seen at the time of R&R, the reserves made and RITC premium charged were grossly insufficient in respect of the liabilities incurred for prior years. Such a finding could only be put upon this basis since, in accordance with the earlier orders made by the Commercial Court, there had been no investigation into the individual assessment of any particular RITC premium by a syndicate or its audit for any of the years in question.

By an order dated 28^th October 2002, the Court of Appeal spelt out the consequences of its decision. It refused applications for a stay of execution, of enforcement of judgments obtained against any Name for that person’s Equitas premium, of any costs orders made in specified Lloyd's litigation or of any writ or claim forms issued or to be issued in respect of Central Fund debt. By paragraph 8(2) the Court refused the application of the Names to discharge the order made by Cresswell J on 27^th April 2001, in which he dismissed the Names’ claims and refused permission to amend but, in a passage in parenthesis, the Court stated that “for the avoidance of doubt nothing [in that order] shall prevent the Names or any of them making a further application for permission to amend to the Commercial Court”.

It is in these circumstances that the current applications for permission to amend arise and, it is agreed, are to be treated as such, notwithstanding the absence of any current pleading to amend, following Cresswell J’s order striking out and dismissing the claims/counterclaims. The applications are of a somewhat confused nature because of the changes in representation of a number of Names and the appearance of some as litigants in person, making representations either orally or in writing. In essence however, the UNO Names represented by More Fisher Brown and Grower Freeman have produced 3 forms of draft pleading for 3 sample Names who represent pre 1982 joiners of Lloyd’s, 1982 joiners and post 1982 joiners.

A Re-Re-Re-Amended Points of Defence and Counter-claim has been produced in the name of Mr. Laws (the sample 1982 joiner) which deletes large tracts of the prior form of pleading of Sir William Jaffray but maintains that Lloyd's owed a duty of care and a statutory duty under the Lloyd's Acts to manage and superintend the affairs of the Society lawfully and to advance and protect the interests of Names. At paragraph 29 the draft pleading alleges that the Annual Brochure contained representations to the effect that “Lloyd's had put in place within the Lloyd's market a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and un-noted losses.” In paragraph 30 it is alleged that the representations were knowingly made by Lloyd's and intended to be understood by the Names in the manner pleaded and in paragraph 31 that Lloyd's knew and intended that prospective Names would read and rely upon the brochure and the statements and representations contained in it for the purposes of considering whether or not to become a Name. Paragraphs 32 and 33 then plead inducement whilst paragraph 34 sets out the falsity of the representation on the basis of the judgment of the Court of Appeal to which I have already referred. The particulars of falsity read as follows

“As evidence of falsity of the pleaded representation the Defendant will rely on the fact that when Reconstruction and Renewal (R&R) was carried out, syndicates at Lloyd's were massively under reserved. The Defendant will contend that such under reserving demonstrates that the audit system put in place by Lloyd's for the Lloyd's market had not and was not capable of producing reasonable estimates about outstanding liabilities during the period 1982 to 1989”.

The draft pleading therefore tracks the Court of Appeal’s holdings in essence, save for making the additional point that the under-reserving revealed at R&R demonstrated that the audit system “was not capable of producing reasonable estimates of outstanding liabilities” during the relevant period and pleading a duty of care, negligent misrepresentation and statutory misrepresentation.

At paragraphs 106A –106E the plea is made of Lloyd's liability under the Misrepresentation Act 1967, with reliance upon admissions made by Lloyd's in its Business Plan dated April 1993 and to a number of AU38 and AU38 (A) forms for 1986, 1987 and 1988, together with those for the Merrett syndicates at 31^st December 1981 and 31^st December 1982. At paragraphs 106A-106K, the plea is made of negligent misrepresentation by Lloyd's in circumstances where it is alleged that Lloyd's owed a duty of care in making representations. Paragraph 112 then maintains that section 14(3) of the Lloyd's Act 1982 (“the 1982 Act”), is ineffective to exempt Lloyd's from liability for these misrepresentations because of the terms of the Human Rights Act 1998 (“the HRA”), whilst putting Lloyd's to proof that the misrepresentations were made in respect of a power, duty or function conferred or imposed by the Lloyd's Acts or any bye law or regulation made thereunder relating to the admission or non-admission to or continuance of membership of Lloyd's. In the alternative, it is contended that if section 14(3) is effective to exclude a remedy in damages, it is not effective to preclude the granting by the Court of other relief, including a stay in relation to any judgment given against the Name in Lloyd's favour. Because Mr Laws’ draft pleading was one of the lead pleadings this action is entitled with his name, whilst previously entitled by reference to Sir William Jaffray who is no longer a party to this action.

In addition to the draft pleading in the name of Mr. Laws, there was a draft pleading in the sample name of a pre 1982 Joiner, Mr Thomas-Everard, in virtually identical form and a further draft Re-Re-Re Amended Points of Defence and Counterclaim in the name of Mr. Harris, a post 1982 joiner. Both the Laws and Thomas-Everard pleadings incorporated the larger section of the Harris pleading setting out the case that Lloyd's is liable for any misrepresentation notwithstanding the immunity apparently provided by section 14(3) of the 1982 Act.

The essential point raised is that the 1982 Act must now be read and construed by the court by reference to the HRA. It is pleaded that, prior to 2^nd October 2000 (the date when the HRA came into force), the only claims which could be maintained against Lloyd's were for fraudulent misrepresentation and that the contrary was not properly arguable, by reason of s 14(3) of the 1982 Act. Since the coming into force of the HRA however, it is maintained that any such construction would be incompatible with Convention rights, namely the Names’ right of access to the courts to have the merits of their non fraud claims against Lloyd's determined and their right to a fair trial under Article 6(1) of the Convention scheduled to the HRA. Section 14 of the 1982 Act, it is alleged, interferes with such rights and engages Article 6 of the Convention so that it can only be enforced to the extent that it is a necessary interference with those rights and a proportionate means of pursuing a legitimate aim which justifies such interference. These issues are, it is said, pre-eminently a matter for determination on evidence at trial.

At one stage, a number of Names (“the LMG Names”) were represented by Memery Crystal who issued an application to amend on their behalf on 17^th February 2003. Memery Crystal ceased to act for these Names shortly before the hearing of the current application. Some of the Names for whom they acted, then reverted to representation by More Fisher Brown or Grower Freeman, whilst others represented themselves. Re-Re-Re-Amended Points of Defence and Counterclaim for five sample Names (Messrs. Hulse, Wilson and Starkey, Mrs Mackenzie Smith and Mrs Doll-Steinberg) had been drafted by Memery Crystal at a time when they were represented by them. The allegations contained in those draft pleadings were similar to but not identical to those in the draft pleadings to which I have already referred. Equally they were similar to, but not identical with, one another. Put shortly, the additional or different allegations to those of negligent misrepresentation as alleged by the UNO sample Names included:-

The Litigants in person all adopted the arguments put forward on behalf of the UNO Names in relation to the HRA. In addition, apart from Mr Butler, each adopted (at least as an alternative) the LMG Names’ Skeleton argument which had been provided to the Court before Memery Crystal came off the record. Each Litigant in person also provided points of his/her own and adopted all the arguments put forward by other Names whether represented or not as alternative arguments to their own. To the extent that any different case or argument was pursued, this is set out in this Judgment.

(i) Mrs Mackenzie Smith in her draft pleading sought to plead misrepresentation in the 1972 and 1974 Brochures to the same effect as that found by the Court of Appeal in later Brochures alleging their falsity and Lloyd’s lack of belief or alternatively lack of reasonable grounds to believe in the truth of those representations. In the particulars of falsity, she sought to plead that from 1974 onwards and throughout the relevant period there was not in place a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and un-noted losses, relying upon the revelation of under-reserving in R & R and the Court of Appeal’s Judgment in relation to the falsity of representations made in later years on this basis. Otherwise her pleading largely followed that of the LMG Names.

All the draft pleadings and cases put forward asserted that the representations alleged were continuing, (in the sense of not being withdrawn) as well as being repeated in later Brochures, and were false both at the time when the Name in question joined Lloyd’s and concluded agreements with his or her Agents and throughout the time each continued to underwrite. The representation continued to be relied on at the point of potential resignation or change of underwriting arrangements for the following year. The falsity was that set out by the Court of Appeal, namely that “throughout the relevant period there was not in place a rigorous system of outstanding liabilities including unknown and un-noted losses”. Moreover each Name relied, as particulars of falsity, on the fact that, when R&R was carried out, syndicates at Lloyd's were found to be massively under-reserved. The Names’ draft pleadings contend that such under-reserving demonstrates that the audit system put in place by Lloyd's for the Lloyd's market had not and was not capable of producing reasonable estimates of outstanding liabilities during the relevant period.

On analysis therefore all the claims of negligent misrepresentation except for those of LMG set out in paragraph 22(ii) (b)–(d) of this Judgment are identical or similar to those advanced in the UNO Names’ draft pleadings. There are allegations of bad faith or fraud in failure to disclose the inadequacy of the audit system between 1978 and 1988, failure to disclose other matters and failure to inform or advise as well as failure to regulate the market. The remaining allegations are equivalent allegations of negligence in failing to regulate the market or of failure to disclose, inform or advise whether of matters affecting the audit system or otherwise, together with an allegation of deliberate concealment which relates to the issue of limitation, but for which no particulars are provided, save by Mrs Mackenzie Smith.

It should also be noted that some of the UNO Names and some of the litigants in person expressed no desire to pursue a claim against Lloyd’s for damages. All they wished to be able to do was to use their claims as a shield to protect themselves from Lloyd’s enforcement of its claims against them, which in many cases would result in their bankruptcy. Others however wished to pursue the claims in order to recover the losses which they, as innocent victims, had suffered at the hands of their underwriting agents and, as they maintained, Lloyd’s.

In considering whether or not permission to amend should be given, the parties directed their submissions to CPR 17.3 and 17.4 and the principles set out there. Regard must be had to the overriding objective of enabling the court to deal with cases justly.

“The overriding objective is that the court should deal with cases justly. That includes so far as practicable ensuring that each case is dealt with not only expeditiously but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon, provided that any prejudice to the other party or parties caused by the amendment can be compensated for in costs and the public interest in the efficient administration of justice is not significantly harmed”. (Per Peter Gibson LJ in Cobbold v. London Borough of Greenwich August 9^th 1999 CA).

Amendments take effect from the date of the original document which is amended (CPR 17.3.4) but CPR 17.4 applies where an application is made to amend after the relevant period of limitation has expired. In those circumstances the court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings. In this respect the terms of the rule differ from s 35(5) of the Limitation Act which provides that rules of court may allow a new claim to be brought in circumstances where the new cause of action arises out of the same facts or substantially the same facts as are already in issueon any claim previously made in the original action. In the present case, issues of limitation arise where claims or counter claims have already been pleaded by various Names in actions begun on 10^th October 1996 or later. No misrepresentation relied on was made later than 1990 in respect of underwriting in 1991.

Furthermore, it is clear that an application for permission to amend will not be allowed when the proposed amendment has no realistic prospect of success. The test is much the same as that in CPR part 24 in relation to the Court’s power to give summary judgment or to strike out a statement of case. The essential question is therefore whether or not the case which the Names wish to advance by way of amendment has a reasonable prospect of succeeding or is properly arguable. If it has no such reasonable prospect then the application should be refused. If it has a real, not a fanciful, prospect of succeeding at trial, then it is properly arguable and the amendment should be allowed. In determining such an application, consideration should be given to the evidence which could reasonably be expected at trial.

The Names drew attention to the decision of the House of Lords in Three Rivers DC v. Bank of England [2001] 2AER 513, [2002] UKHL 16 and to the speech of Lord Hope in which he summarised the test for striking out a statement of case which he equated with the test for an application for summary judgment. The question is whether the newly formulated claim has a real prospect of succeeding at trial. That question must be answered having regard to the overriding objective of dealing with the case justly. The more complex the questions involved, even if they are limited to questions of law, the less likely it is that a claim can be shown to have no real prospect of succeeding. Furthermore the Names rely on this decision as showing that the Court should start from a neutral standpoint, by which it is meant that the Court should make no assumptions about the competence or integrity of those whose actions are challenged. In this connection it is of course right to record the findings already made by the Court of Appeal so far as the representations are concerned and the falsity of them.

The Argument before me lasted many days, with extensive written submissions. There are plainly complex issues to be determined, if this matter were to go to trial. Nonetheless, Lloyd's say that the UNO Names’ reformulated amended claim has no realistic prospect of success, essentially for two reasons.

As to the claims by the LMG Names and most of the Litigants in person, Lloyd’s say that these claims are doomed to fail for the same reasons and for two more.

Lloyd’s maintains that bad faith is the same as dishonesty in the context of the claims advanced so that the only claims which can now be made are claims in negligence or for breach of statutory duty falling short of bad faith and that all of these are unsustainable because of the absence of duty and because they are barred by virtue of the 1982 Act. Lloyd's therefore maintain that the Names’ claims are doomed to fail.

It is convenient to start with the issue of Lloyd’s duties, as raised by the LMG Names and most of the Litigants in Person. The matter is concluded by a series of authorities which established that Lloyd’s owe no such duties to Names, the most recent of which is Price & Price v Society of Lloyd’s [2002] LIRLR 453, where Colman J at pages 459 – 460 referred to Society of Lloyd’s v Clementson [1995] CLC 117 and to Ashmore v Corporation of Lloyd’s (No 2) [1999] 2 LRR 620, in holding that there was no contractual, statutory or common law duty upon Lloyd’s to exercise reasonable skill and care or act in good faith in relation to the regulation of the Market. There was no implied or statutory duty to alert Names to defects in the management of syndicates or in the operation of the market. It is clear, not only from Tai Hing Cotton Mill Limited v Liu Chong Hing Bank (P.C.) [1986] AC80, but from the decision of the House of Lords in Ashmore v Corporation of Lloyd’s [1992] 1 WLR 446 (HL) at 451 – 452, that no common law duty could arise if there is no statutory or contractual duty.

If there is no duty resting on Lloyd’s to the Names in these respects, whether at common law, under contract or by statute, it matters not whether bad faith is alleged. In the absence of duty there can be no breach, regardless of bad faith and regardless of the terms of section 14(3) of the 1982 Act as Colman J pointed out. Lloyd’s are therefore correct in advancing this is a reason why the claim of the LMG Names and other Names in these respects is doomed to fail. Moreover, for reasons which appear later, any claim for failure to regulate the Market would, on the Names’ own arguments, be covered by the immunity granted to Lloyds under section 14(3) of the 1982 Act in respect of any failure occurring after the date when that section of the 1982 Act came into force.

The UNO Names have recognised this, and having therefore previously pleaded fraudulent misrepresentation, now rely solely upon negligent misrepresentation as opposed to neligence of any other kind.

I have already referred to the history of orders made by the Court in relation to the determination of the Threshold Fraud Point. The order of Creswell J on 1^st November 1999 required all allegations of fraudulent inducement to become or remain an underwriting Member of Lloyd’s by reason of Lloyd’s failure to disclose the nature and extent of the Market’s liability for asbestos related claims to be notified and identified by a specific date, failing which they could not be advanced without the permission of the Court. No application has been made for such permission as such and if the current application is treated as if it were such an application, it is doomed to fail. Any fraudulent misrepresentation or fraudulent non-disclosure in relation to asbestos related losses was, as the Court informed all the Names, intended to be dealt with at the Threshold Fraud Trial. There is now no basis for any such contention to be advanced.

Insofar as any fraudulent misrepresentation is now sought to be advanced in relation to matters other than asbestos related losses, there is no reason put forward for allowing such an amendment which would be time barred. Moreover, the history of the litigation so far shows that the original pleadings in Jaffray included allegations relating to under-reserving for pollution and health hazards as well as asbestosis. These were, by amendment, deleted from the pleadings so as to restrict the fraudulent misrepresentation case to asbestos related losses alone. Given this history and the impossibility of successfully relying on CPR 17.4 and maintaining that such wider claims arise out of the same facts or substantially the same facts as those material to an existing claim, there is no basis upon which permission could be given. (The application of CPR 17.4 is considered more fully later in this Judgment).

Neither the UNO Names nor the LMG Names advance such a plea in their draft pleadings and none of the Litigants in person have provided any particulars of fraud which would possibly justify the advancement of any such case in any event. Given the history of the proceedings permission to advance such unparticularised claims could not be countenanced.

The first issue is when the cause of action arises in respect of the claims now advanced by the Names in their draft Re-Re-Re-Amended Points of Defence and Counterclaim. With the exception of any claim already covered by paragraph 108 of the Jaffray pleading, for causes of action for misrepresentation prior to January 5^th 1983, which was struck out by Cresswell J, any plea of negligent misrepresentation represents a new cause of action. The necessary ingredients of that cause of action essentially consist of the alleged negligent misrepresentation, the Name’s reliance thereon in joining Lloyd's and concluding agreements with Agents and the damage suffered in consequence. The representations were made on an annual basis in the form of the Brochure upon which the Name relied when joining Lloyd’s. It is said that those Names who had previously joined Lloyd's relied upon the continuing and repeated annual representations in making their underwriting arrangements for succeeding years, when deciding not to resign from Lloyd’s and when signing the Syndicate List for that Underwriting year. Termination of Agents’ Agreements was required 3 months before the end of the year and signing of fresh Syndicate Lists normally took place in the last quarter of the preceding year but occasionally, in individual cases, whether because of inefficiency or otherwise, syndicate participation was not finalised until after the start of the new underwriting year.

It is accepted by the UNO Names that for the purpose of any claim under the Misrepresentation Act, time runs from the moment of conclusion of the contract into which they were induced to enter by the misrepresentation in question. For the purposes of that Act this means the contract with the party making the misrepresentation, namely Lloyd’s and therefore refers to the Names’ continued membership of Lloyd’s. Resignation from Lloyd’s had to be given 4 months before the end of the preceding underwriting year. The Name was thus committed to Lloyd’s membership for the following year as at 1^st September. On any view that contract cannot have been concluded later than 1^st January of any underwriting year, whatever the date of finalisation of Syndicate participation.

On joining Lloyd's a Name charged a range of assets to Lloyd's which could be called on by Lloyd's, without the Name’s consent. The Name had to provide a bank guarantee or a charge over certain approved categories of assets to a specified level in order to support his underwriting through Agents with whom he would contract. Where bank guarantees were provided, the bank apparently invariably required cross security from the Name by a charge over the Name’s assets. The charges continued in being until the Name’s resignation from Lloyd’s became effective which could not occur until all his underwriting years were closed. The Name also assumed a liability to pay an entrance fee to Lloyd's and, for subsequent years, an underwriting subscription fee. The Name became liable to levies made by Lloyd's under the Central Fund Bye-law, which came into operation in 1983, and before that under the Central Fund Agreement of 10^th March 1927. When agreements were signed with Members Agents, fees became payable to those Agents and authority was given to the Agent to underwrite which was delegable to Managing Agents. The result of joining Lloyd’s was that the Name’s assets were immediately impacted because of his agreement that those assets should be available in respect of the underwriting which he authorised the Agent or Agents to carry out on his behalf. The charge on his assets represented a loss in value of his assets in consequence of the contingent liabilities he had assumed.

In the context of the Names’ claim in tort, Lloyd’s primary contention was that the cause of action arose at the latest at the point where the Name committed himself to underwriting for the year, giving authority to the Agent or Agent’s to incur liabilities on his behalf which could be later than the date he joined or renewed his membership of Lloyd’s. It was said that the Names suffered damage at that point. From that moment onwards the Name had assumed contingent liabilities for insurance and reinsurance contracts to be concluded or RITCs to be effected, in his name and with the authority he had given to the Agent in question. The Name had acted to his detriment. The UNO Names also accepted that time began to run when a Name assumed liabilities which would not have been assumed but for the misrepresentation namely when he committed himself to underwriting for the year in question, namely by signing the Syndicate List in reliance on the representation. An alternative argument was advanced that damage was suffered on the conclusion of transactions by the Agents, at which point the Name assumed liabilities, whether actual or contingent in respect of those transactions. On each piece of business written from 1^st January – 31^st December in each underwriting year, the Name assumed unlimited liability in respect of the contracts of insurance and reinsurance written on his behalf including any RITC and the cause of action accrued at that point in relation to each transaction negligently concluded. On Mrs Mackenzie Smith’s argument the cause of action only accrued as each claim was made on the Syndicate in respect of business written or RITCs concluded in the Underwriting year in question, or when the Name became aware of such a claim. Mrs Reisz maintained that no cause of action arose until Lloyd’s made a call on her for money.

The issues to be considered here have arisen in a number of authorities, which are not all easy to analyse or reconcile, but it is plain that damage must be considered in the light of the acts of which complaint is made. My attention was drawn to UBAF v European American Banking Corp [1984] QB 713, First National Commercial Bank v Humberts [1995] 2 AER 673, Forster v Outred [1982] 1WLR 86, D.W.Moore & Co v Ferrier [1988] 1WLR 267, Iron Trades Mutual Insurance Co. Ltd v. Buckenham [1990] 1AER 808, Gordon v JB Wheatley & Co QB ENI 2000/0166/A2 (CA) and Martin v Britannia Life [2000] CLD 412. What is clear is that if any loss capable of expression in monetary terms is suffered as the result of the alleged breach, or any detriment suffered in reliance on a representation, this is damage for the purposes of the completion of the tort and the commencement of any limitation period.

The losses claimed by the Names are all the underwriting losses in any year of account in which they were induced to underwrite by misrepresentation. Their case is that they would not have joined Lloyd’s or continued in membership but for the misrepresentations and in those circumstances would not have participated in any syndicate nor suffered any underwriting losses in the year in question. In assessing whether damage is suffered at any point it is necessary to examine the nature of the breach of duty complained of and the loss that is said to flow from it. Self evidently it is the misrepresentation of Lloyd’s that is the subject of complaint, not the individual underwriting decisions of the Syndicate Underwriters, whether in concluding insurance and reinsurance contracts or in effecting RITC. The alleged misrepresentation is that Lloyd’s had in place a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities, when in truth there was no such system in place. By joining or remaining in Lloyd’s and by signing Agency Agreements and Syndicate lists, allegedly in reliance on that representation, the Name submitted himself to underwriting within that system, and gave his underwriting pen to the Agent who was then able to write business for him. The Name had saddled himself with an onerous contract, charging his assets as security for the underwriting losses which might flow from underwriting in the inadequate system which had been represented as sound. It is said that each Name would not have continued in Lloyd’s or participated in syndicates if that representation had not been made (see paragraph 103 of the draft UNO pleading) and losses are claimed on that footing.

If the question is asked whether the Name was worse off at any time before individual risks were written for him by his Agent or a RITC was concluded, the answer is yes. If the Name had sued Lloyd’s immediately after joining or “rejoining” Lloyd’s or after signing Agency Agreements or Syndicate lists, he could have recovered damages for the misrepresentation in respect of the charges and fees that he had either paid or agreed to pay under those arrangements which were induced by the representation, even though there were no major financial underwriting losses as yet incurred as a result of the Agent using the authority given to him to write onerous business in the shape of insurance/reinsurance or RITC. The Name had incurred liabilities for those fees as a result of the misrepresentation which were measurable in monetary terms.

The Name had, as it now appears, entered into a contract or contracts of agency of an onerous nature, by giving authority to his agents to write business on his behalf in a market which was not that which had been represented to him, but whether or not these contracts of agency are capable of being evaluated differently from contracts of agency concluded in the context of a market with a rigorous audit system at the time they were made may be dubious (a warranty basis of assessment of damages). It is enough however to show that some loss was suffered by the Names when concluding these arrangements, even if not the major losses which flowed when the Agent started underwriting. The existence of some loss capable of being evaluated in money terms is conclusive as to the date of accrual of a cause of action in negligence. Moreover the charging of assets in respect of contingent liabilities is significant detriment as the authorities show.

It is also worth noting the problem of causation in this context. If no loss is suffered by the Name until the act of underwriting or RITC is effected, then is the loss caused by the misrepresentation and entry into the Agency agreement at all, or is there a new cause, namely the negligent underwriting by the Agent or auditing by the Syndicate auditors? If it is the former, this would point towards an inevitability of loss from the moment of concluding the arrangements with Lloyd’s and the Agents, and the suffering of damage at that juncture. If it is the latter, then the basis of the claim is misconceived. The Name cannot therefore maintain that no loss at all is suffered until any particular underwriting transaction gives rise to loss, whether it be the writing of insurance or reinsurance or a reinsurance to close nor at any later stage when called on to pay money. The essence of the claim is not for negligent underwriting but for a negligent misrepresentation by Lloyd's which gave rise to the Name entering into agreements which caused financial loss. The key element is therefore the conclusion of the relevant agreements.

This holds good both for initial joiners and for each succeeding year. As an underwriting year draws to an end, the Name has the option whether to cease underwriting at the beginning of the next year or to continue with the same syndicates and premium limits as before or to enter into fresh arrangements involving different syndicates and different limits. Subject, once again, to inefficiency or unusual circumstances, those arrangements would be concluded before the beginning of the new underwriting year. Documents in the shape of syndicate lists were signed which brought this about. The Name left the charging arrangements intact. It was these arrangements which were the result of any inducement by representations made in the brochures. Once again therefore loss was suffered by the Names at the point of entry into these arrangements.

An anomalous point also arises from the Names’ alternative argument in this respect. If the cause of action of a Name who joined or remained a member of Lloyd's for the 1980, 1981 and 1982 underwriting years of account did not accrue until the RITC took place, it would be postponed to the date of those RITC arrangements which were made in mid 1983, mid 1984 and mid 1985 respectively. Those causes of action would then unarguably fall within a period of time covered by the 1982 Act. The effect of the Names’ argument on this point therefore would be to bring 1979, 1980 and 1981 representations, leading to the signing of agreements for 1980, 1981 and 1982, within the potential ambit of the immunity given to Lloyd's by section 14(3) of the 1982 Act. Depending on the date of the relevant RITC for 1979 year in mid 1982 and the date when the 1982 Act came into force, any 1978 representations leading to 1979 joining of Lloyd’s might also be caught.

It is accepted by the UNO Names that the primary limitation period provided by section 2 of the Limitation Act 1980 is that which applies to the claims they seek to bring. It is also accepted that the six-year period from the date upon which the cause of action accrued in respect of those claims has expired for most Names, even if their arguments as to the date of the accrual of the cause of action were to be accepted. The claims are therefore prima facia time barred. If the Names’ case on accrual of the cause of action at the time of the transactions and the RITC were to be accepted, then in the case of Mssrs Laws, Thomas-Everard and Harris, underwriting losses and RITCs which occurred after 25.3.91, 22.1. 91 and 11.10.90 respectively would not be time barred. I consider that the Names have however no realistic prospect of success on this argument which I have rejected for the reasons already given.

In the case of Mrs Mackenzie Smith and Mr Thomas-Everard there is a potential claim for misrepresentations made in 1990 leading to underwriting in 1991. The writs issued against them were dated 14.10.96 and 21.1.97 respectively but, as appears hereafter, the attempt to introduce these claims in 2003 is made at a time when they are now time barred and reliance on CPR 17.4 is not possible because of the absence of any prior negligent misrepresentation claim for misrepresentations made after 5.1.83 and (subject to further submissions) any notification from Mrs Mackenzie Smith of a desire to rely on a Brochure misrepresentation at all.

The LMG Names and therefore some of the litigants in person relied also upon section 32 of the Limitation Act 1980, which provides, in certain circumstances for a postponement of the commencement of the running of time for limitation purposes. The UNO Names did not rely on this section for the good reason that the point is precluded by the decision of the Court of Appeal. Section 32 applies only where the action is based upon the fraud of the defendant or where any fact relevant to the claimants’ right of action has been deliberately concealed from him by the defendant.

It is clear that the burden of proof lies upon a claimant to bring himself within this section see Paragon Finance PLC v D.B.Thakerar & Co [1999] 1 AER 400 at page 418 and Cottrell v Lock (CA 4^th June 1997). More importantly the concealment must be of a fact without which the claimant’s cause of action would be incomplete as appears clearly from the decision of the Court of Appeal in Johnson v The Chief Constable of Surrey (CA 19^th October 1992). Facts which make the claimant’s case stronger or which constitute evidence do not fall into this category. The matter should be tested by reference to the case which is being advanced by the claimant in the pleadings.

A person can only deliberately conceal something if in fact he knows it himself. This obvious point is made plain by Lord Millett in Cave v Robinson, Jarvis & Rolf [2002] 2WLR 1107, at pages 1112 and 1113.

In the LMG Names’ pleading it is alleged that Lloyd’s deliberately concealed the Names’ right of action in respect of matters complained of in the Re-Re-Re-Amended Points of Defence and Counterclaim and, in particular, its failure to ensure that a proper audit was done, its failure to inform Names of the inadequacy of the RITCs and audit system and the results produced by it. Mrs Mackenzie Smith in argument additionally complained of failure to disclose the Cromer Report, the Neville Russell letter, other unspecified documents and failure to disclose the asbestosis problem at the Rota Committee Meeting.

When regard is had to the nature of the misrepresentation claim advanced and the particulars of negligence in paragraph 106J, the facts relevant to the Names’ cause of action, without which it would be incomplete are very limited. The representation was of a rigorous audit system involving the making of reasonable estimates of outstanding liabilities and the particulars of negligence assert a failure by Lloyd’s to ascertain that this was the case before making the representation. In order to deliberately conceal such facts relevant to the cause of action, Lloyd’s would have to be aware that the audit system did not produce such results and they had failed to ascertain that this was the case.

Section 32 deprives a defendant of a limitation defence in two situations, namely where he takes active steps to conceal his own breach of duty after he has become aware of it and where he is guilty of deliberate wrongdoing and conceals or fails to disclose it in circumstances where it is unlikely to be discovered for some time. It does not, however, deprive a defendant of a limitation defence where the allegation is one of negligence if, being unaware of his error or that he has failed to take proper care, there has been nothing for him to disclose. The point is made clear in the decision of the House of Lords in Cave v Robinson Jarvis & Rolf [Ibid] at paragraphs 23-25 and 60 (per Lord Millett and Lord Scott). There must be the intention to conceal a relevant fact or facts for section 32(1)(b) to apply. To this section 32(2) provides an exception inasmuch as deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty. For both subsections “unconscionable behaviour” is the rationale, though not required by the wording of the statute.

It is inherent in the decision of the Court of Appeal that Lloyd’s did not know that they had committed any wrongdoing at any time between 1978 and 1988, since otherwise they would have been guilty of fraud in making the repeated representations which continued as late as 1990. Had they been aware of the inadequacies of the audit system to produce reasonably accurate estimates of outstanding liabilities or of their failure to ascertain that, Lloyd’s would have been acting fraudulently or recklessly in making such representations. Moreover, there can only be deliberate concealment of a fact relevant to a cause of action during the period before the limitation period has expired in respect of that cause of action (see Sheldon v R H M Outhwaite (Underwriting Agencies) Limited [1996] AC 102). In reality there is no evidence to support any case of knowing concealment of a fact relevant to the Names’ current cause of action.

In these circumstances, the Names are unable to rely on the terms of Section 32 of the 1980 Act to postpone the running of time until 10^th October 1990 or later, to a period within six years of the issue of any relevant claim form.

I have already made mention of CPR 17.4 (2) and section 35(4) and (5) of the Limitation Act 1980. These provide as follows:

CPR 17.4.(2)

“The Court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.”

Section 35(4).

“Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose.”

Section 35(5).

“The conditions referred to in subsection (4) above are the following-

a)

In the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and

b)

In the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.

With the exception of any claim for negligent or statutory misrepresentation made in paragraph 108 of the pleading which was struck out by Cresswell J, there is no existing plea of the kind now made for negligent or statutory misrepresentation. Paragraph 108 of the Jaffray pleading referred to misrepresentations prior to January 5^th 1983 in relation to representations made in the 1980 Brochure received in 1981. The original misrepresentation pleas considered by the Court covered the period from 1978 – 1988 and were framed in fraud. They were expressed in different terms from those found by the Court of Appeal. Paragraph 108 of the Jaffray pleading referred to negligent misrepresentations in the same terms as the pleaded fraudulent misrepresentations, but only those made prior to 5^th January 1983. As appears from paragraphs 309-325 of the judgment of the Court of Appeal, the representations originally pleaded by the Names either did not appear in the Brochure and/or were not representations of fact and/or were framed in insufficiently precise terms, being too vague and wide in ambit. The Brochures could not be read as containing the kind of promise alleged in each of the pleaded representations set out in paragraph 285 and considered in paragraphs 317-318 of the judgment. Nonetheless the Court considered that the representations which it reformulated for the Names could be spelt out of the Brochure and were “representations which…were espoused in the various ways in which the Names’ argument was advanced in this court and were in effect addressed in argument by both sides” (paragraph 325).

The new pleas of statutory and negligent misrepresentation prior to 5^th January 1983 do constitute a new cause of action given the need to reformulate the representations in question and the need to establish reliance on them in their new form and damage flowing therefrom. Any new representation must constitute a new cause of action as the decision in Government of Zanzibar v British Aerospace [2000] 1 WLR 2333 at pages 2348 –50 shows. However, in the light of the Court of Appeal’s expressed views, they must be held to arise out of substantially the same facts as those in issue in paragraph 108 of the prior pleading. The Court felt able to spell out the representations from the evidence available to it in respect of the Brochures from 1981 to 1987. To the extent that prior brochures took the same or a similar format the representations would have been spelt out by the Court of Appeal in the same way, although the Court focussed on the “high watermark” of the Names’ case based on the 1981 Brochure.

It is right to point out, as Lloyd’s do, that the new representation pleaded refers to the system of auditing involving reasonable estimates of outstanding liabilities which are not limited to liabilities for asbestos related claims. Initially, in the Jaffray pleading matters additional to asbestosis, such as pollution and health hazards were included. Following exchanges between Counsel and the Judge the Names specifically abandoned claims in respect of anything other than asbestos and the pleading was then confined to asbestos related losses, as the judgment of Cresswell J confirms at page 4. Both the pre 1982 Act claim and the post 1982 Act claim were then advanced on the basis of asbestos related liabilities alone. The current plea is for a misrepresentation in relation to a system dealing with outstanding liabilities of all kinds including pollution, health hazards and all other causes. The form of the representation is different. I was however informed by Counsel for the UNO Names that their allegation was limited to asbestos related claims and that he was authorised to tell the Court that the claim was so limited, without reference to any other types of loss at all. The effect would be to change the pleaded representation to read:-

“Lloyd’s had put in place within the Lloyd’s market a rigorous system of auditing which involved the making of a reasonable estimate of outstanding asbestos related liabilities, including and unknown and un-noted losses”.

On this basis, given the judgment of the Court of Appeal, a new claim for this representation does arise out of substantially the same facts for the purpose of CPR 17.4 and section 35(5) of the Limitation Act 1980. To the extent that any Name wished to advance any other claim beyond this basis it would not however satisfy the terms of the rule or statute and no such amendment is permissible, for that reason alone. The same bar would operate in respect of any claim for negligent misrepresentation made by any Name in respect of damage suffered after 5^th January 1983, to the extent that it included matters other than asbestos related liabilities, quite apart from any other arguments against such an amendment. The same bar equally applies to any other form of representation which does not echo the Jaffray pleading or the Court of Appeal’s reformulation.

Paragraph 108 of the earlier pleading, given the history of the proceedings, must be treated as extant for the purpose of considering the draft amendment since, by virtue of the application to amend made before Cresswell J and the Court of Appeal, the action had not died following the Court of Appeal decision and the issue of amendment to allege negligent misrepresentation was left open by the Court of Appeal for later determination by this court. The alternative plea of negligence in relation to the prior pleaded representations in paragraph 108 of the pleading gives a starting point for the application of section 35(5) of the 1980 Act and CPR 17.4 to the plea for a negligent or statutory misrepresentation in the form espoused b y the Court of Appeal.

The issue arises whether the pleas now advanced in paragraphs 29-34 of the draft Re-Re-Re Amended Points of Defence and Counterclaim in respect of statutory and negligent misrepresentations after 5^th January 1983, which it is accepted constitute new causes of action, arise out of the same facts or substantially the same facts as those which “are already in issue on any claim previously made”or those of a claim in respect of which the Names have “already claimed a remedy inthe proceedings”.

Lloyd's raised a threshold difficulty for the advancement of any argument on this basis. Lloyd's said that, since the fraud claims had been dismissed in respect of the period 1978 to 1988, a new cause of action for negligent misrepresentation for the purposes of section 35(5) of the 1980 Act could not be said to arise out of the same facts or substantially the same facts as those “already in issue on any claim previously made in the original action” since there were no facts remaining in issue on such fraud claims. The same difficulty would not arise in relation to the wording of CPR 17.4, since, assuming that the new claim arises out of substantially the same facts as the fraud claim, the Names had already claimed a remedy in these proceedings.

The authorities show that it is section 35 of the 1980 Act which must primarily be applied, since it forbids the bringing of any new claim other than as provided by its own terms, although it was not argued that the CPR rule was ultra vires. There are however two answers to the apparent difficulty. First, the history of the proceedings must again be considered so that the application to amend must be treated as being made in the context of extant fraud claims, since these existed at the time of the original application to amend when made to Cresswell J and when made to the Court of Appeal. Secondly, the decisions of the Court of Appeal in Fannon v. Backhouse (30/7/87) and Stewart v. Engel [2000] 1 WLR 2268 show that words “in issue” do not mean “in dispute” but “material to”- see the latter decision at pages 2279-80. There is no need to resort to any principle of interpretation set out in Goode v Martin [2002] 1 WLR 1828 for this construction.

Whilst the claims for the post 5^th January 1983 negligent misrepresentations cannot be said to arise out of substantially the same facts as the pre 5^th January 1983 negligent misrepresentations which were pleaded, one essential ingredient of the later representations is the same as for the claim for fraudulent misrepresentations made between 1978 and 1988 which was self evidently material to the claim previously made in the action and material to the claim in those proceedings for which the Names had already claimed a remedy (namely the representations themselves). It is therefore necessary to go on to determine whether or not these new claims do in fact arise out of the same facts or substantially the same facts as the previous fraudulent misrepresentation claims, notwithstanding the framing of the claim in negligence as opposed to fraud.

In Lloyds Bank plc v Rogers [1996] 3 EGLR 83 at page 86, the Court of Appeal made reference to a previous decision in litigation of the same name where Hobhouse LJ had referred to the policy of section 35(5) of the Statute in the following way:

“The policy of the section is that, if factual issues are in any event going to be litigated between the parties, the parties should be able to rely upon any cause of action which substantially arises from those facts”.

Self evidently, the facts supporting the new cause of action do not have to be precisely identical to those which supported that which was already pleaded. There must however be sufficient overlap between the facts relied on and the word “substantially” must mean that the key facts for the new cause of action are the same as those which would be investigated in relation to the original pleaded cause. Here the Names simply say that the misrepresentations now pleaded as negligent misrepresentations are the same as those which were previously in issue as fraudulent misrepresentations. The damage is also said to be the same since the allegation is that, absent the representations, the Names would not have joined Lloyd’s or concluded agreements with Agents or continually renewed them from year to year.

Lloyd’s contend however that there is a sharp distinction to be drawn between claims in negligence and claims in fraud. The latter involves investigation of the state of mind of those against whom the allegation is directed, whilst the former requires an objective assessment of all the surrounding facts and matters which, in the context of a misrepresentation, should have caused the representors to appreciate that what they were saying was not true. Equally, for statutory misrepresentation an equivalent investigation must take place to ascertain whether or not the representors had reasonable grounds for belief in the truth of what they were saying, as well as exploring their subjective belief in the truth of what was said. Lloyd’s as a whole has to be considered including issues of attributability of knowledge and vicarious liability to persons at different levels within the structure of Lloyds. Exactly the same issues arise on statutory misrepresentations. There is therefore an additional element involved in the negligent and statutory misrepresentation allegations which was not present when the plea was one of fraud.

The Names have committed themselves to not pursuing any investigation of the way in which individual syndicates arrived at their figures for RITC, nor of the auditing of those syndicates on an annual basis. They intend to rely, as appears from the draft pleading, on the burden of proof which rests upon Lloyd’s in relation to statutory misrepresentation, but also in addition on material supplied to or emanating from Lloyd’s itself. Thus reliance is placed upon the April 1993 Business Plan issued by Lloyd’s to the Names and on AU38 and AU38(A) forms submitted to Lloyd’s by the syndicates. The Names said that they would not go behind these terms. In addition however at paragraph 106J, it is alleged that:-

“Lloyd’s was negligent in that it failed to exercise reasonable skill and care to ascertain prior to making the representation whether there was in fact a rigorous system of auditing in place which involved the making of a reasonable estimate of outstanding liabilities including unknown and un-noted losses”.

In Paragon Finance Plc v D B Thakerar & Co [1999] 1 AER 400, the Court of Appeal drew a clear distinction between actions of fraud and actions of negligence in the context of solicitors’ advice or failure to advise. Millett LJ (as he then was) made the following point, with which both the other Lords Justices agreed:-

“Whether one cause of action arises out of the same to substantially the same facts as another was held by this Court in Welsh Development Agency v Redpath Dorman Long Limited [1994] 1 WLR 1409 to be essentially a matter of impression. In borderline cases this may be so. In others it must be a question of analysis. In the Thakerar case Chadwick J observed that it would be contrary to common sense to hold that a claim based on allegations of negligence and incompetence on the part of a Solicitor involves substantially the same facts as the claim based on allegations of fraud and dishonesty. I respectfully agree. In all our jurisprudence there is no sharper dividing line than that which separates cases of fraud and dishonesty from cases of negligence and incompetence.”

Whilst this statement was made in the context of a proposed amendment to plead fraud when negligence had previously been pleaded, it is plain from the decision and indeed from any sensible analysis that an entirely different element is involved when amending to plead negligence, as opposed to fraud, as the terms of the Names’ draft pleadings shows.

The facts relied on as indicating negligence or lack of reasonable grounds for belief require an investigation of what Lloyd’s should and should not have done to investigate whether or not a rigorous auditing system was in place and whether that system “involved” the making of a reasonable estimate of outstanding liabilities. Despite abjuring any reference to any individual syndicates and their annual RITCs and despite the absence of any particulars as to what it was that Lloyd’s should or should not have done, it is hard to see how the process of ascertainment of the operation of the system could involve anything other than exploration of the operation of the system in practice. The reference to the Business Plan and to the AU38 and AU38 (A) forms once again reveals that an investigation would be required into what Lloyd’s should have understood about underwriting standards, about management information, about reserving standards and about the need for new regulatory principles in relation to accounting and auditing. It is clear that new and distinct issues arise which will not merely involve a re-run of the evidence heard at the Threshold Fraud Trial.

Furthermore, on the UNO Names’ case, the pleas of negligent and statutory misrepresentation were unsustainable prior to the enactment of the HRA. In order to make good their case for these forms of representations, the Names recognise that they must surmount the obstacle presented by section 14(3) of the 1982 Act. This they propose to do, by reference to the HRA and the principles referred to below arising out of the House of Lords’ decision in R v SSHD, ex parte Daly [2001] 2 WLR 1622. These principles require investigation of the legislative objective of the 1982 Act, the rational connection between that objective and the terms of the Act and consideration of the proportionality of the means achieved to obtain that objective. The question to be asked is whether the means used to impair the rights are no more than is necessary to accomplish the objectives. This, as the Names were at pains to point out in the context of arguing that their claims were not doomed to fail by reason of section 14(3) of the 1982 Act, requires exploration by the Court of matters of fact and policy by reference to evidence. In maintaining their argument that the point was arguable and that therefore permission to amend should be given in respect of it, the Names thus recognised that there was a new line of factual enquiry which had to be determined for the purpose of pursuing their claims for misrepresentation.

It is worth noting also that the Names themselves would have to establish a different form of reliance from that which was at issue in the Threshold Fraud Trial. The representations alleged are different from those previously alleged, notwithstanding the fact that argument in the Court of Appeal was addressed in part to the new formulation of the representations by the Court. The evidence of reliance by sample Names in the Threshold Fraud Trial would not constitute evidence of reliance on the different form of representations so that a different factual situation would have to be proved to make good the claim. It is also true to say that, in the context of pleas of negligence, there is room for both contributory negligence and Part 20 claims which indicate that the ambit of the enquiry is different.

It is clear that different factual evidence and different expert evidence would be required to establish Lloyd’s failure to meet the objective standards which the Names allege Lloyd’s should have met. Whilst much of the background was explored in the Threshold Fraud Trial and the Judgment of Cresswell J explored in detail the systems which operated at Lloyd’s, the focus there was upon the representations made, as originally pleaded by the Names, the accuracy of those representations and the state of mind of the 33 named individuals at Lloyd’s who were alleged to be responsible for those representations. The fundamental basis of the allegations for negligent misrepresentation is entirely different from that for fraud, requiring an exploration of matters which did not arise in the Threshold Fraud Trial. In practice, an investigation would be required of the way in which Lloyd’s regulated the market in order to ascertain whether or not it should have known of the deficient manner in which the audit system was working, both for the purpose of determining indemnity for the statutory claim and the common law claim.

This point is seen even more clearly when regard is had to the LMG Names form of pleading at paragraph 106 AA. In that paragraph, the LMG Names allege that there was a duty to ensure that an appropriate audit was taken and to determine the necessary reserves to be created on the syndicate accounts or to inform the Names of the inadequacy of those matters or the impossibility of them. The allegation is made that, in breach of statutory and common law duties, Lloyd’s failed to take the necessary steps whilst making the representations complained of. Reliance on the Cromer Report finding and the Fisher Report, the inadequacy of monitoring premium income limits as a means of assessing risk, the absence of obligation to maintain up-to-date records of aggregate exposures on a gross and net basis or of calculations of probable maximum loss, all show the wide ambit of enquiry that would be necessitated if a plea of negligent misrepresentation were to proceed.

For these reasons, in my judgment, both as a matter of analysis and as a matter of impression, it cannot properly be said that the new claims for negligent misrepresentation after 5^th January 1983 arise out of substantially the same facts as the prior pleaded claims for fraudulent misrepresentation in those later years. Only those Names who had previously been privy to a pleading which alleged negligent misrepresentations in the Brochures prior to 5^th January 1983, or whose Names appeared in the Schedules of those advancing such claims attached to Grower Freeman’s letter of 16^th September 1998 are able to assert that their new claims for negligent misrepresentation prior to 5^th January 1983 do arise out of substantially the same facts as those of the claims which they were previously advancing. Thus no claim for negligent misrepresentation post 5^th January 1983, even if not time barred at the date of issue of the Writ or claim form, is now capable of being pursued.

The only avenue available to the Names to escape the effect of section 2 of the Limitation Act is therefore section 14A when combined with the provisions of section 35(5) and CPR 17.4 which provide for amendments to be made, in circumstances referred to earlier, where the limitation period has expired at the time of the amendment. For the reasons already given this can only be available to Names who have already claimed for negligent misrepresentation prior to 5^th January 1983.

The Names place reliance upon section 14A of the 1980 Act which sets out a special time limit for negligence actions where facts relevant to the cause of action were not known at the date of the accrual of that cause of action. Section 14A (4)(b) provides for a limitation period of three years from the starting date, if that period expires later than the primary six year period provided by section 2 of the 1980 Act. The relevant sub-sections of section 14A are as follows:-

“14A(5) For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.

(6)

In subsection (5) above “the knowledge required for bringing an action for damages in respect of the relevant damage” means knowledge both-

(a)

of the material facts about the damage in respect of which damages are claimed: and

(b)

of the other facts relevant to the current action mentioned in subsection (8) below.

(7)

For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.

(8)

The other facts referred to in subsection (6)(b) above are-

(a)

that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

(b)

the identity of the defendant; and

(c)

if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.

(9)

Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.

(10)

For the purposes of this section a person’s knowledge includes knowledge which he might reasonably have been expected to acquire-

(a)

from facts observable or ascertainable by him: or

(b)

from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek:

but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.”

There is however a further “long stop” section in the 1980 Act, namely section 14B. This provides as follows:-

“14B. (1) An action for damages for negligence, other that one to which section 11 of this Act applies, shall not be brought after the expiration of fifteen years from the date (or, if more than one, from the last of the dates) on which there occurred any act or omission-

(a)

which is alleged to constitute negligence; and

(b)

to which the damage in respect of which damages are claimed is alleged to be attributable (in whole or in part).

(2)

This section bars the right of action in a case to which subsection (1) above applies notwithstanding that-

(a)

the cause of action has not yet accrued; or

(b)

where section 14A of this Act applies to the action, the date of which is for the purposes of that section the starting date for reckoning the period mentioned in subsection (4)(b) of that section has not yet occurred; before the end of the period of limitation, prescribed by this section.”

The effect of section 14B therefore is to over-ride the provisions of section 14A of the 1980 Act (see s.14(B)(2)). By CPR 17.3.4, amendments are to take effect from the date of the original document which is amended, in this case the date of the pleaded counterclaims in the sample actions. Since, for the purposes of limitation, counterclaims take effect from the date of commencement of the action in which they are brought, the critical date for applying the long stop fifteen year rule is the date of commencement of proceedings in each of the actions against or by the Names. The earliest date of any such action is 10^th October 1996, in the case of Mr. Harris and others. On this basis, no Name would be entitled to bring an action in respect of any representation made earlier than 11^th October 1981. Mr. Harris did not join Lloyd's until 1984, so the point is irrelevant to his cause of action in any event, but it is directly applicable to others. It seems that the majority of the claim forms were issued in 1997 or later so that the impact of the fifteen year rule may be to bar any claim for such a Name in respect of misrepresentations made in 1981 inducing a Name to join for 1982. This point is of significance since 1983 joiners are prima facie caught by the provisions of section 14(3) of the 1982 Act and the immunities afforded to Lloyd's thereby, as appears elsewhere in this judgment.

So far as 1982 Lloyd’s joiners or remainers are concerned, all depends on the date of the claim form and the date when the representations were made to them for the purposes of applying section 14(B). As the representations all induced the Names to join or remain at Lloyd’s for 1982 and it was accepted that this operated at 1^st January 1982 at latest, whilst underwriting arrangements were concluded before then or within the first months of that year, it is any representations made in the period of October 1981 – July 1982 which may not be barred in respect of claim forms issued in those months in 1996 – 1997. If in fact the representation was relied on to join or remain in Lloyd’s prior to 1^st January, 1982, and damage was thus suffered, then the operative representation would have been before this. If the first damage occurs at the point of conclusion of underwriting arrangements the timing issues will be different.

The key issue is whether the operative representation causing damage was made more than 15 years before the relevant claim form. Schedules 1, 3 and 4 to this Judgment show the position of the Names to whom section 14B may not constitute a bar.

13 Names can be identified as persons against whom Equitas Writs (claim forms) were issued on 10^th October 1996, 15^th October 1996 and 25^th October 1996, where the Name in question was a Member of Lloyd’s for the 1982 year and could perhaps be in a position to rely on a representation made in 1981. 4 of those Names did not ever advance a case of misrepresentation based upon the Brochure, namely Mr Hulse, Mr Kingsley, W.B. Piggott-Brown and Mrs Mackenzie Smith (although I have given leave for further submissions to be made on this point). For reasons which appear elsewhere in this Judgment in relation to the operation of section 35(5) of the Limitation Act and CPR 17.4, these 4 Names are unable to avail themselves of the provisions of section 14(A) since any claim which they now seek to advance for negligent misrepresentation in 1981 does not arise out of the same facts or substantially the same facts as any claim previously made by them. It seems that there are a further 28 Names who could possibly escape the effect of section 14(B) if the operative representation was made in 1982 less than 15 years before the issue of the Writ against them, with their underwriting arrangements concluded and their first damage suffered before 23.7.1982. These Names may fall the right side of the lines drawn by section 14(B) of the 1980 Act and of section 14(3) of the 1982 Act which prima facie provides Lloyd’s with an immunity from the suit they seek to bring. It is to these Names alone that issues arise in relation to section 14A, section 35(5) of the Limitation Act 1980 and CPR 17.4. if the effect of section 14(3) of the 1982 Act and the immunity enjoyed by Lloyd's is to bar claims on causes of action which post date 23 July 1982. Having reached the conclusion that the section does have this effect (see infra) I determine these points for those who are unaffected by section 14 of the 1982 Act, conscious that this may also present a further obstacle to Names who are prevented from suing Lloyd's by reason of the 1982 Act.

The first point to note is that section 14A applies only to an action for negligence. It has no application to an action for statutory misrepresentation and is therefore of no assistance to the Names in this respect.

The effect of reliance upon section 35(5) of the Limitation Act 1980 and CPR 17.4 on the Counterclaims of the Names for negligent misrepresentation would be to make them effective, for Limitation Act purposes, as from the date of the issue of the claim form. The earliest such claim forms were 10^th October 1996. The issue then arises as to whether or not the Counterclaims would still be time barred on that basis.

Section 14A provides for a period of extension, beyond the ordinary six year limitation period commencing on the date when the cause of action accrued. The three year extension is given from “the earliest date” upon which the claimant first had two kinds of knowledge and also had the right to bring the action. The two types of knowledge referred to are those set out in section 14A(6) which requires knowledge of material facts about the damage in respect of which the claim is made and knowledge of “the other facts relevant to the current action” which are set out in section 14A(8).

In the present case no issue arises in relation to “the material facts about the damage”, since long before October 1993, all the Names were well aware of the serious losses of which they complain and there is no doubt that any reasonable person would have considered such damage sufficiently serious to justify the instituting of proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment. In practice, all of these Names appear to have been members of different Lloyd’s Action Groups who pursued claims against their Members Agents and Management Agents in respect of these losses.

Two issues are raised by the UNO Names and the Litigants in person, as set out in the LMG Names’ Skeleton Argument. The first of these relates to the date when there was knowledge of the facts relevant to the action referred to in section 14A(8) whilst the second relates to the date when the Names had a right to bring the action. It is said by some of the Names that they had no right to bring an action until the passing of the HRA and so the period cannot commence until 2^nd October 2000. So far as the former is concerned the Names all say that they did not, and could not have had, the knowledge required by section 14A(8) until 1996 at the earliest.

It will be seen that in accordance with the terms of subsections (8), (9) and (10) of this section, there is room for both actual and constructive knowledge. A person’s knowledge is to include knowledge which he might reasonably have been expected to acquire from facts observable or ascertainable by him or from facts ascertainable with the help of appropriate expert advice which it is reasonable for him to seek. However there is no need for any knowledge that the acts or omissions were, as a matter of law, negligent. This is significant in the present case.

The UNO Names maintained that the three elements of knowledge set out in section 14A(8) were not met and that time did not commence to run against the Names at any time before the date when the R & R offer was received by them in August 1996. The basis for this contention was the requirement in section 14A(8)(a), which requires a claimant to know “that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence”. By the very nature of the plea of representation now advanced, the Names’ case is that they knew of the representations made in the Brochures and relied upon them. They knew therefore of the identity of the defendant from the outset, they knew of the misrepresentation and it is accepted that they knew before October 1993 of the damage which they suffered by relying upon that misrepresentation. None of that was in issue. The one element that was an issue was what was required to satisfy the provision of section 14A(8)(a).

In this context the Names relied upon the decision of the Court of Appeal in Hallam-Eames v Merrett Syndicates Limited [1995] CLC 173, a decision of the Court of Appeal and Driscoll-Varley Parkside Health Authority [1991] 2 MedLR 346, a decision of Hidden J. From these decisions the Names maintained that an essential element of the knowledge required for bringing the Names’ action was that the damage was attributable in whole or in part to Lloyd’s wrongful acts or omissions, namely Lloyd’s failure to ascertain whether there was a rigorous system of auditing in place which involved the making of a reasonable estimate of outstanding liabilities including unknown and un-noted losses, before they made representations to that effect (UNO Names’ pleading paragraph 106J). The Names maintained that no more generalised knowledge was sufficient. It was not enough to know that a representation had been made and that it was false. They had also to know the facts which gave rise to that representation being made negligently. The test advanced by Hidden J in Driscoll-Varley was to ascertain when the claimant first knew that the damage of which he complained was capable of being attributable to an act of which he had knowledge. Transmuted to the Names’ case, the question would be when they first knew, within the meaning of section 14, that Lloyd’s had failed to ascertain whether there was a rigorous system of auditing in place. It was said in argument that they might not know this until the facts were established at the trial.

In Broadley v Guy Clapham [1993] 4 MedLR 328, the Court of Appeal, including Lord Justice Hoffman, had to consider section 14 of the Limitation Act 1980 which takes an almost identical form to section 14A. The Court made it clear that it was not necessary for a claimant to know all matters necessary to establish negligence or breach of duty for the required level of knowledge to be reached. A less stringent test was appropriate based on the clear wording of section 14. It was not necessary for the claimant to know that the defendant’s act or omission was capable of being attributed to some fault on his part – it was sufficient to know of the essence of the act or omission to which the injury was attributable. The issue can be put in a number of different ways but there was no need for the claimant to know that he had a cause of action: he had simply to know that the injury or damage was capable of being attributed to the act or omission of the defendant of which he also had knowledge. The section, in these material respects identical to section 14A required that “one should look at the way the plaintiff puts his case, distil what he is complaining about and ask whether he had in broad terms knowledge of the facts on which that complaint is based”. The purpose of the section is to determine the moment at which the claimant knows enough to make it reasonable for him to begin to investigate whether or not he has a case against the defendant.

In Dobbie v Medway Health Authority [1994] 1 WLR 1234, the Court of Appeal, which included Sir Thomas Bingham MR, had cause to consider section 14. Once again the Court held that, on its plain words, section 14 did not require a claimant to know that the act or omission on which he founded his cause of action was arguably actionable or tortious. Time started to run against the claimant when he knew that the personal injury upon which he founded his claim was capable to being attributed to something being done or not done by the defendant whom he wished to sue. The Master of the Rolls emphasised that knowledge of fault or negligence was not needed to start time running. Broadley was followed by the Court and both decisions referred to the Law Reform Committee’s 20^th Report on limitation of actions in personal injuries claims where there was an express rejection prior to the passing of the 1980 Limitation Act, (which put its recommendations into effect), of a requirement of knowledge of anything more than the injured condition and of causation by a known act or omission of the defendant.

In Hallam-Eames Lord Justice Hoffman gave the judgment of the Court on behalf of himself, Sir Thomas Bingham MR and Saville LJ. Both Broadley and Dobbie were referred to in the judgment and the court held that the first instance Judge had misinterpreted these cases to mean that a claimant need only have known that his damage had been caused by an act or omission of the defendant rather than requiring the claimant to know the act or omission which was causally relevant for the purpose of the claim. What was necessary was that the claimant should know that the act is something of which he was prima facie entitled to complain. The action had been brought by Lloyd’s Names against the Managing Agents, Members Agents and the Auditors of the Merrett syndicates. The complaint was made in respect of the writing of 11 run-off contracts between 1978 and 1983 and the effecting of RITCs of the 1979 – 1984 years of account. It was not enough to know that losses had been suffered in consequence of the conclusion of the run-off contracts or the RITCs. What the Names also needed to know was that which was causally relevant for the purposes of an allegation of negligence. It is the idea of causal relevance which is key as is made plain at page 177C – 178C. There is no need for knowledge of fault or negligence but the words “knowledge that the damage was attributable …. to the act or omission which is alleged to constitute negligence” serve to identify the facts of which the claimant must have knowledge. He must know the facts which can fairly be described as constituting the negligence of which he complains. It was not simply the writing of the contracts, which could give rise to losses for any number of reasons, but the circumstances in which they were written which had to be known. In the circumstances in which the run-off contracts and RITCs were concluded, it was necessary for the Names to know that those contracts exposed them to potentially huge liabilities when the IBNR was incapable of reasonable quantification.

In Fennon v Hodari [2001] PNLR 183, the Court of Appeal in determining, under section 14A, the point of sufficient knowledge for a claimant to proceed against a firm of solicitors for failure to advise her on the nature of the document she was signing referred to Broadley, Dobbie and Hallam-Eames in reaching their conclusion. Once again, emphasis was placed upon the need to know the causal connection between the act or omission complained of and the damage. It was said that the claimant was unaware that the solicitor owed an obligation to advise her on the nature and consequences of signing the document until a point within three years of the date of commencement of proceedings. The Court held that this was irrelevant. The question was whether or not she knew before that three year period that the damage she had suffered by way of liability under the document was attributable in whole or in part to the omission to advise her on it. She did not need to know that solicitors owed her a duty of care and that they ought to have given her such advice. It was the causal connection that was critical.

It is clear from the authorities that “knowledge” does not mean “knowledge for certain and beyond possibility of contradiction”. It does mean however “knowledge with sufficient confidence to justify embarking on the preliminaries to the issue of writ, such as submitting a claim to the proposed defendant, taking legal and other advice and collecting evidence”. The search therefore is for the point at which the Names knew enough to make it reasonable for them to begin to investigate whether or not they had a case against Lloyd’s. The exact particulars of negligence which would need to be pleaded or established do not have to be known as long as the essence of the act or omission to which the injury is attributable is known.

None of the authorities to which I was referred concerned a misrepresentation, whether negligent or otherwise. It is self-evidently the case that in order to pursue a claim for negligent misrepresentation or statutory misrepresentation, the claimant needs to know of the representation, of its falsity, of reliance and of damage flowing from it. The Names accept the knowledge of the representation, reliance and sufficient damage before 1993 or to the extent that any Litigant in person did not accept that, the conclusion is inevitable from the case made on reliance and damage. There could self evidently be no reliance and damage without knowledge of the representation. Beyond these elements, knowledge of falsity is obviously required. For statutory misrepresentation, it would be sufficient to know that alone, because the burden of proof under the statute is upon the representor to show that he did believe and had reasonable grounds for belief in the truth of what was represented. In the context of negligent misrepresentation, however, the question is whether anything more is required for the claimant to be aware of the essence of the acts to which the damage is capable of being attributed. As already indicated the UNO Names maintained that it was necessary for them to know that Lloyd’s had failed to ascertain whether there was a rigorous system of auditing in place which involved the making of a reasonable estimate of outstanding liabilities as set out in paragraph 106J of the draft pleading. Yet this amounts to no more than saying that Lloyd’s failed to ascertain the truth of what it represented in the Brochures before making the representations. In reality, this is the same, or amounts to little more than, saying that Lloyd’s made the representations negligently.

When the nature of the representation and the falsity involved is examined, it can be seen that limited facts are required to be known in order to pursue the claim. The representation as formulated by the Court of Appeal was of an audit system which involved the making of reasonable estimates of outstanding liabilities in the sense of sufficiently accurate estimates to be relied on. The representation was not that the system of auditing involved estimates which were reasonable at the time they were made but of an audit system which produced reasonable estimates in the sense of reasonably accurate estimates when viewed in hindsight. That was the representation which was false. As already pointed out in the Introduction to this Judgment, the Court of Appeal made it plain that their findings should not be taken as indicating fault on the part of any particular Managing Agent or Auditor. No investigation of that had taken place. The Court of Appeal went out of its way to distinguish the representations which were made from any suggestion of any representation of the accuracy of any individual syndicate’s accounts or assessment of closed year’s liabilities. The falsity of the representation could be seen by reference to the under-reserving apparent at the time of R&R in 1996, because, at that stage, following a three year review of the reserves, it could then be seen that the system had not produced adequate reserves over the relevant period, however it might have appeared at the time.

The Court of Appeal did not question the Judge’s findings that there was in place a regulated audit system, that consideration had been given by Lloyd’s to the production of a system which produced proper RITCs, that the closure of the 1979 year of account was justified or that Lloyd’s could not tell at central level at the time whether under-reserving had taken place at Syndicate level because they did not have the wherewithal to “second guess” each individual syndicate’s figures. At no point did the Court of Appeal suggest that there was a misrepresentation based on facts known when the representations were made.

The point is clearly seen by reference to the Names’ draft pleadings. Not only is the misrepresentation pleaded in accordance with the Court of Appeal findings at paragraph 29 of the UNO Names’ draft, but the falsity, at paragraph 34 of the draft pleading, equally tracks the Court of Appeal decision, by reference to the position as it appeared at R&R. The point is reinforced by a sentence in the UNO Names Skeleton where the following appears:

“Whether or not the estimates of ultimate liability were reasonable at the time they were set is irrelevant”.

Since the representation and falsity can be seen from examination of the brochures and the figures as they ultimately turned out to be, and, as represented, the system was meant to produce reasonably accurate figures, any representation that the system did produce such figures could be seen to be false once the figures that had produced were shown to be sufficiently wide of the mark on a regular basis. Moreover, since Lloyd’s were responsible for the audit system in the sense of putting it in place and regulated the Market by reference to it, what more did the Names need to know in order to bring their current claim? If regard is had to the current pleading, it can be seen that there is nothing relied on, which was not known to the Names in 1993, apart from the Court of Appeal Judgement and R & R. The particulars of negligence, in alleging that Lloyd’s failed to ascertain whether there was a rigorous system of auditing in place, adds nothing at all to the substance of the plea of negligence. Whenever a negligent statement is made it is because inadequate care has been taken before making it, if necessary by carrying out some investigation as to the truthfulness of what is about to be said. There is therefore no new fact to which paragraph 106J of the pleading refers, which has come to the Names’ attention since 1992.

Although it is right to draw attention to paragraphs 106. E.1 and 106.E.2 of the draft pleading which are relied on by the Names as demonstrating that Lloyd’s had no reasonable grounds to believe in the truth of what it had represented for the purpose of the Names’ plea under the Misrepresentation Act, these are not alleged as particulars but are pleaded as facts and matters which demonstrate that Lloyd’s held no belief in the truth of what was said. In oral argument, it was then said that these matters demonstrated that Lloyd’s had no reasonable grounds to believe in the truth of what was represented, but these take the matter little further. Paragraph 106E.1 refers to admissions made by Lloyd’s in its Business Plan which was sent out to each of the Names, involving all the current litigating Names, in April 1993. Those matters were therefore known or constructively known by the Names at that stage in any event. Paragraph 106E.2 refers to AU38 and AU38(A) forms sent to Lloyd’s between 1986 and 1988 recording RITC deficiencies in earlier years and to other AU38 and AU38(A) forms which are missing, as well as to two particular such forms for the Merrett Syndicates as at 31^st December 1981 and 31^st December 1982. These forms showed the deterioration in the Reserves on an annual basis for each Syndicate but, as appears later in this Judgment, the same information on a market aggregate basis appeared in Lloyd’s Annual Reports and Global Accounts sent to each of the Names every year. They also appeared in documents sent to all the Names in 1992 and 1993 when the total figures for Lloyd’s across the Market were put together for a number of years showing continuous and constant deterioration in the Reserves.

In a case such as the present, the essential point that the Names had to know was that the representation was false since, from that point on, they were on notice that there were matters to be investigated to ascertain whether there was a cause of action as a matter of law. There may be particular circumstances in cases such as Hallam-Eames where, in order to know that damage is capable of being attributable to a negligent act or omission, there is a need to know the circumstances which surround the act itself. In the case of a misrepresentation however it is usually enough to know that damage has been suffered as a result of a representation which was false, the investigation thereafter being into whether due care had been taken in making it. In order to know of the causal connection between damage and a negligent misrepresentation, it is not normally necessary to know exactly what steps have or have not been taken by the representor before making the representation – it is enough to know that the representation has been made by someone who ought to be accurate in what he says and of its falsity. Indeed no such steps are pleaded as being taken or as steps which should have been taken. Since the Names alleged that they relied upon the representation because Lloyd’s regulated the Market and the audit system, any inaccuracy in a representation concerning it was one which they would automatically attribute to some failure on Lloyd’s part in ascertaining the truth of the matter before making the representation, the very matter which the Names allege in paragraph 106J.

In order therefore for the Names to have the knowledge required to bring the claim which they now bring, they did not in practice need to know more than the fact of the representation and its falsity, which knowledge they plainly had at the time of pleading the fraudulent misrepresentations. The question is how much earlier they had such knowledge or might reasonably be expected to have acquired such knowledge, with the aid, if necessary, of expert evidence in accordance with section 14A(10).

On an issue such as this, where there is a multiplicity of Names involved and their actual state of mind or “constructive” knowledge within subsection 10 is involved, there would normally need to be a full investigation of the evidence before a conclusion could be reached. Lloyd’s, however, point to a number of features from which, it says, the Court can be certain that there was such actual or constructive knowledge before October 1993.

The first of these appears from the pleadings in the Jaffray action as they stood at the time of the Threshold Fraud Trial. In the Points of Defence, the Names pleaded particulars of the falsity of the representations then alleged, together with particulars of Lloyd’s knowledge of that falsity at paragraphs 36 – 99. At paragraph 99, it was pleaded that the Lloyd’s did not disclose a sufficient picture of the impact of asbestosis losses on the Market “until 1993”. In paragraphs 113 and 119 of Lloyd’s Points of Reply and Defence to Counterclaim, a six year time bar was pleaded for all causes of action. In their Points of Rejoinder at paragraphs 31 and 34, the Names responded that it was “not until 1993” that Lloyd’s revealed the matters upon which complaint was based and that the Names could not have discovered those matters before then. The UNO Names thus accepted that they had knowledge of falsity in 1993. This is a most significant admission.

A number of documents were sent by Lloyd’s to all the Names. Some of those documents were extremely bulky and would have required extensive reading in order to appreciate what was being said. The context however in which those documents were sent in 1992 and 1993 was such that any Name who suffered losses of the kind that these Names did, could not have failed to appreciate the need to understand what such documents said and to consider his own position in the light of it, taking such advice as he thought appropriate.

The key documents which were sent before the end of 1993 by Lloyd’s to all Names or to all litigating Names were as follows:

This context of litigation or anticipated litigation lends weight to the documents which were supplied, in particular to the Task Force Report and the Business Plan. By January 1992, proceedings had been brought in the United States Southern District Court of New York against Lloyd’s by a significant number of US Names on the basis of Lloyd’s misleading representations about investment in Lloyd’s Syndicates. Whilst this action was indiscriminately against Lloyd’s and various Agents, the allegations were of representations that the Syndicates had adequate reserves for future losses that might arise from asbestos related claims and failure to disclose the insufficiency of reserves and RITCs. The Outhwaite Trial was underway with complaints against the Managing Agents for improper writing of run-off contracts and RITCs because of the unquantifiability of asbestos losses. The Neville Russell letter, the Donner campaign and the Selikoff Report all came to the fore in that litigation.

The crisis at Lloyd’s as a result of ever increasing losses, both from long tail and LMX claims had led to the formation of a Task Force in November 1990, which produced a report in January 1992. The objective was to look beyond the immediate future to identify the framework within which the Society could trade in 5 to 7 years time, assessing the advantages and disadvantages of the basis upon which capital had been provided to support underwriting at Lloyd’s up to that point. It was a report about the whole framework of Lloyd’s in the context of the large losses and problems which had arisen. It excited such attention, when sent to Names, that over 7000 Names attended 54 different presentations in relation to it. It looked at the 3 year accounting system, the one year Syndicate system, the attractions and drawbacks of individual membership and unlimited liability to Names and the organisation of the capital supporting underwriting in order to facilitate effective response to fluctuations in the insurance cycle.

During the course of 1992 proceedings were also instituted in Australia and New Zealand alleging fraudulent and negligent misrepresentation by Lloyd’s and relying upon representations in the Brochures, sometimes in connection with LMX and sometimes in connection with RITC.

The Annual Report and Global Accounts in mid 1992 made express reference the need to meet asbestos and pollution claims which had compounded the poor results of the 1989 year and figures were given for the strengthening of reserves in respect of earlier closed years of account and run-off years amounting to £395.6million as compared to a comparable figure the previous year of £577.7million.

In November 1992 Chatset published a guide to syndicate run-offs and commented on the serious under-reserving for syndicates with books of US casualty business stating that it was not in question, being found not only at Lloyd’s but right throughout the insurance industry. It was said that the problem was serious and that no one could make anything better than an educated guess at the final outcome. Tables were published of the increase in reserves made by the largest 10 syndicates in the years 1987, 1988 and 1989.

In a Lloyd’s Names Association Working Party document dated January 1993, reference is made to 25 Action Groups which were “up and running” and to the “asbestos time bomb” which was affecting the Lloyd’s Market. The letter makes reference to matters dealt with in the Jaffray trial including the Rokeby-Johnson alleged statement, a meeting of 10th November 1981 of Mr Kiln of the Lloyd’s Committee with the Lloyd’s Advisory Panel of Auditors about asbestosis, the Neville Russell letter, the closure of the 1979 account despite this and the alleged knowledge of Lloyd’s from 1979 onwards of the depth of the problem which it failed to disclose to 19,000 Names who had joined since. In the section headed “The Case against Lloyd’s” the Lloyd’s Names Association Working Party (LNAWP) said it had decided to sponsor an in-depth study in order to see if the Council and Society of Lloyd’s bore responsibility for what had happened, as it was well aware of the mounting weight of evidence that the Council had failed to regulate the Market properly and condoned standards of management and underwriting that were unacceptable. It was said that Lloyd’s immunity might not be so great in the face of some of the evidence which was beginning to emerge. Whilst this letter would not have been seen by all Names, it is indicative of the atmosphere in January 1993 where Action Groups were actively considering suing Members’ Agents and Managing Agents and consideration was also being given to the liability of Lloyd’s.

By March 1993, Mr Stockwell of the LNAWP and Chairman of the Panel on Open Years which was appointed to report on the problem to Lloyd’s, reported that half of Lloyd’s Names were now in law suits against Lloyd’s Agents and underwriters, trying to recover damages for what they considered to be the failure of regulation and lack of professional standards. Whilst this document was available to be seen it would not have been seen by all the Names. Reference is made to “unquantifiable and potentially under-reserved liabilities” in the context of RITC and the inability of the Panel to ascertain the full extent of the future liabilities facing the Market and the Names. The Report remarks that, given the widespread nature of the problem, the severity of Names’ losses and the inadequacy of Lloyd’s responses, it was unsurprising that at least 12 of the actions under preparation were directed squarely at the question of run-offs caused by latent liability and alleged historic under-reserving, with further cases being planned. The Panel calculated some 26,000 Names were on open years with exposure to US latent liabilities in the shape of asbestos and pollution. The open year problem was mainly attributable to this latent liability difficulty.

In April 1993, Lloyd’s circulated a Business Plan to all Names because of the “problems of the past”. The accompanying letter from the Chairman of Lloyd’s pointed out that the current results were the worst in Lloyd’s history, that many members had been brought to the brink of financial ruin, that others were fearful for the future, that confidence in the Society had been shaken and that radical action was required. The alternative was said to be bleak. If the membership and the Market would not unite behind the plan, then Lloyd’s itself might have no future. The extent of the crisis was apparent to anyone looking at this document. The plan was to act swiftly to end the uncertainties of open years and old liabilities and to build a new Lloyd’s with new independent regulation and higher professional standards, with lower costs and a strong growing capital base. The restructuring which would take place would “ring fence” the problems of the past.

In June 1993, the ALM sent out a newsletter referring to its initiation of all but three of the Names’ Action Groups and Associations which were reviewed in the letter. The letter listed action groups for 13 long tail Names’ groups and the progress they were making in pursuing Managing and Members’ Agents. The action against the Janson Green syndicate, Auditors and Members’ Agents had already commenced. Details of the allegations to be pursued in other actions were also set out. At the very end of the document two distinct features are worth noting. The first is the agreement between Lloyd’s and the group of 16 long tail action groups that a joint submission should be put before Sir Michael Kerr’s Legal Panel in the Autumn which would ensure that all long tail action groups had the opportunity of being heard. The second feature appears under the heading “Writs Response Group” and reads as follows:

“The Group was formed in July 1992 when Lloyd’s started issuing writs to Names who had either not paid their losses or had not met solvency as a result of 1988 and 1989 losses. To date, we believe 172 writs have been issued. The Writs Response Group has co-ordinated its defence of those writs and four writs have now been selected by Lloyd’s who wish to apply for summary judgement. Therefore all our defences stand or fall with those applications for summary judgment. The importance of these defences cannot be exaggerated. If those cases are lost, we are all open to having our entire fortune plundered by Lloyd’s.

Although the subscription is £350, we ask that everyone who may receive a writ to seek as much of that amount as they can afford towards their subscription together with post dated cheques for the balance. These funds are being used to co-ordinate a “master defence” which has taken the best points from the teams of lawyers who represented the original writ recipients.

In addition we are seeking to mount a counterclaim, although to do so one has to be able to show that Lloyd’s acted in bad faith. Out of these two approaches has arisen a complaint to the European Commission, under EC Competition Rules. The advantage of that complaint is that Lloyd’s has no immunity from suit in respect to it.”

Reference can be made to the June 1993 Annual Report and Global Accounts for comments about the strengthening of reserves for closed and run-off years of account in relation to asbestos, to the Guide to Corporate Capital which showed the figures for deterioration of reserves in earlier years in 1987 – 1990 and referred to litigation against Lloyd’s.

In December 1993, the Lloyd's settlement offer document was sent to approximately 22,000 Names to whom an offer was made. The Kerr Panel Report which dealt with all the long tail Names’ cases could have left no-one in any doubt as to the nature of the problems encountered by the syndicates in reserving for asbestosis and in RITC with the year on year increases in reserving because of the inability properly to quantify reserves at the end of each year. It explained the nature of the Names’ cases on the impossibility of affecting RITC because of the unquantifiability of asbestos related reserves and referred to the Neville Russell letter, the Murray Lawrence letter and the history of closure of the 1979 account in 1982.

Whilst the Lloyd’s settlement offer of 7^th December 1993 is on the very cusp of the three year period for writs issued in 1996 – 1997, the earlier documents to which I have made reference which did go to all Names, including the Global Reports and Accounts, the Task Force Report and the Business Plan, clearly informed Names that the auditing system at Lloyd’s had not succeeded in delivering accurate reserving figures for asbestosis over the years since 1980. The inaccuracy therefore of any representation made by Lloyd’s in the context where Lloyd’s had set up the system in order to achieve the desired result was therefore plain to any Name who read these documents. In the context of the complaints being made by the long tail Names’ action groups, anyone versed in these matters had enough knowledge to investigate claims against Lloyd’s in the same way as he was investigating claims against his Agents and Auditors. By October 1993 and a fortiori by the end of that year, no Name who read these documents and thought about it could have considered that the representation found by the Court of Appeal was anything other than false. The system had failed to deliver accurate reserves year by year from 1980 through to 1993. Since Names knew that Lloyd’s was responsible for setting up the audit system, for regulating the Market, for implementing Bye-laws relating to audit and RITC, and for monitoring syndicate and global results, any inaccuracy in a statement made about the system was enough for any Name to consider that his damage was capable of being attributed to Lloyd’s as much as it was capable of being attributed to his Members’ Agent, the relevant Managing Agent and the syndicate auditors against whom litigation had been commenced or was in prospect.

There were however several witness statements before the Court from Names including those of Mr Thomas-Everard, Mr Wilson, Mr Starkey, Mrs Mackenzie Smith and Mr Hulse, stating that they did not appreciate that the losses that they had suffered must have been the result of Lloyd’s failure to regulate the Market or Lloyd’s misrepresentations about the operation of the audit system until 1994, 1995 or 1996. They stated that they were not in a position to find out that the representation in the Brochure that the accounting/audit system was rigorous and effective in ensuring proper reserving was not true. It was also suggested by a number of Names that they were not in a position to know of the falsity of the misrepresentation until the Court of Appeal decision was published and, in some cases, it was said that they were not even in a position to identify the misrepresentation made until that point, which casts real doubt on any question of reliance.

Although it seems to me that all the Names needed to know was that there had been a history of under-reserving and a history of inadequate provision for RITC over many years in order to see that the Lloyd’s representation, as defined by the Court of Appeal, was false, since there are witness statements to the effect outlined, I cannot conclude that the Names’ position is not properly arguable even though I have seen much material which casts real doubt upon the evidence in those statements. The question of subjective knowledge must primarily be one of fact, determinable only upon the hearing of full evidence. Equally, it could not be right to conclude on the basis of the extensive documentary materials that were sent to the Names that, whether or not they had the subjective ignorance that they claimed, individual Names should be treated as knowing sufficient for section 14A purposes by virtue of section 14A(10) and the objective standards which that sets. Without fuller evidence it is not possible to determine whether the Names might reasonably be expected to acquire such knowledge from facts observable or ascertainable by them, or from facts ascertainable with the help of expert advice which it was reasonable for them to seek.

On the face of it, if the Names knew enough to sue their Members’ Agents, Managing Agents and syndicate auditors in respect of the negligent failure to make appropriate reserves and/or properly to effect RITC or properly to assess premium, because the asbestos related liabilities were unquantifiable, the Names must also have known that the figures had been historically wrong over the period of time since about 1980 and that Lloyd’s audit system had failed to produce reasonable estimates of outstanding liabilities during that period. Nonetheless, I cannot say that the Names’ case is doomed to fail at this point nor that they have no realistic prospect of success.

As to the absence of right to bring the claim until the enactment of the HRA, a point not relied on by the UNO Names because, no doubt, it emphasised the retrospective nature of the argument as to its applicability, I hold below that there is no such right.

Two rival dates are put forward by the parties. Lloyd’s maintains that section 14(3) came into force on 23^rd July 1982, the date when the Act received the Royal Assent, in accordance with section 4 of the Interpretation Act 1978. The Names maintained that, by virtue of paragraph 9 of Schedule 4 to the Act, section 14(3) did not take effect until the first meeting of the new Council of Lloyd’s which occurred on the 5^th January 1983. Paragraph 9 of Schedule 4 to the Act provides:-

“Until the first meeting of the Council, Lloyd’s Acts 1871 to 1951 shall, subject to the provisions of this Schedule, continue to have effect as though this Act had not been passed.”

The Names maintain that because section 14(3) of the 1982 Act referred to an immunity from damages and additional regulatory powers were given to Lloyd’s to be exercised by its Council, when formed, and those to whom the Council might delegate its functions, the immunity was intended to come into effect at the point where the newly formed Council first began to exercise its powers, duties or functions.

In maintaining this argument, the UNO Names recognised that they were inviting me to depart from the decision of Gatehouse J in Ashmore v. Corporation of Lloyd’s [1982] 2 LLR 620 where he determined this very point at pages 634-636. There, the learned Judge explored the construction of the Statute in some detail drawing attention to the transitional provisions of Schedule 4 which necessarily came into force on the date of the Royal Assent, to Schedule 1 which, it was common ground, also came into force on that date and to Schedule 3 which set out the statutes repealed, which plainly did not come into force until the first meeting of the new Council took place on 5^th January 1983. He drew attention to the importance of the date when the Act came into force in other contexts such as “divestment” and the absence of any connection between the period allowed for that to take place and the first meeting of the Council. Equally, he could see no reason to connect the immunity granted to the Society by reference to that first meeting. It is noteworthy that the immunity is granted to the Society itself and, in the absence of any indication in the Act that it should take effect at a later date, it seems to me, just as it seemed to Gatehouse J, that section 14 takes effect in the usual way, as at the date of Royal Assent. The earlier Lloyd’s Acts were to continue to have effect until the first meeting of the Council, in order that the governance of Lloyd’s should continue in that interim period. That however is no reason why the immunity should not operate in respect of acts attributable to Lloyd’s during that same period. The reference in section 14(3) to the exercise of

“any power, duty or function conferred or imposed by Lloyd’s Acts from 1871 onwards or any by-law or regulation made there under”

is apt, on its face, to cover the powers duties and functions exercised by the Society and predecessors to the Council between the date of Royal Assent and 5^th January.

For the reasons given by Gatehouse J, I hold that section 14(3) of the 1982 Act is effective as from 23^rd July 1982 and in accordance with its terms (without reference to the HRA), covers Lloyd’s in respect of acts or omissions since that date. There is no basis for saying that functions exercised by Lloyd’s, pursuant to the earlier Acts, by entities other than the new Council, do not attract such immunity and remain to be treated as if the 1982 Act had not been passed.

Section 14 of the Lloyd's Act provides:-

“14 - (1) This section shall only exempt the Society from liability in damages at the suit of a member of the Lloyd’s community.

(2)

For the purposes of this section a member of the Lloyd’s community shall be –

(a)

a person who is –

(i)

a member of the Society;

(ii)

a Lloyd’s broker;

(iii)

an underwriting agent;

(iv)

an annual subscriber;

(v)

an associate;

(vi)

a director partner of a Lloyd’s broker or an underwriting agent;

(vii)

a person who works for a Lloyd’s broker or underwriting agent as a manager; or

(b)

a person who has been a member of the Lloyd’s community in one or more of the capacities listed in paragraph (a) above; or

(c)

a person who is seeking or who has sought to become a member of the Lloyd’s community in one or more of the capacities listed in paragraph (a) above.

(3)

Subject to subsections (1), (4) and (5) of this section, the Society shall not be liable for damages whether for negligence or other tort, breach of duty or otherwise, in respect of any exercise of or omission to exercise any power, duty or function conferred or impose by Lloyd’s Acts 1871 to 1982 or any byelaw or regulation made thereunder –

(a)

in so far as the underwriting business of any member of the Society or the costs of his membership or the business of any person as a Lloyd’s broker or underwriting agent may be affected; or

(b)

in so far as relates to the admission or non-admission to, or the continuance of, or the suspension or exclusion from, membership of the Society; or

(c)

in so far as relates to the grant, continuance, suspension, withdrawal or refusal of permission to carry on business at Lloyd’s as a Lloyd’s broker or an underwriting agent or in any capacity connected therewith; or

(d)

in so far as relates to the exercise of, or omission to exercise, disciplinary functions, powers and duties; or

(e)

in so far as relates to the exercise, of or omission to exercise, any powers, functions or duties under byelaws made pursuant to paragraphs (21), (22), 23), (24) and (25) of Schedule 2 to this Act;

unless the act or omission complained of –

(i)

was done or omitted to be done in bad faith; or

(ii)

was that of an employee of the Society and occurred in the course of the employee carrying out routine or clerical duties, that is to say duties which do not involve the exercise of any discretion.

……….”

The wording of section 14(3) of the Lloyd's Act is clear in its effect. It is accepted by the UNO Names (but not by all the litigants in person) that, absent the Human Rights Act, there is no possibility of success in any claim against Lloyd's for negligent misrepresentation, statutory misrepresentation or negligence of any kind. The UNO Names were right to accept this, quite apart from the need to justify a failure to take any such a point before. As a matter of ordinary language and as a matter of decided authority, section 14 of the 1982 Act presents a complete defence to any such claim.

In Ashmore v. Lloyd's[1982] 2LLR 620 at page 634, Gatehouse J described the section as clear and unambiguous covering liability for every kind of damage and as giving immunity over the whole field of tort.

In Society of Lloyd's v. Leighs (1997) CLC 1, 398 at 1, 407-8, the Court of Appeal said:-

“Under section 14 of the Lloyd's Act 1982, the Society is (with irrelevant exceptions) immune from liability at the suit of Names unless the act or omission complained of was done in bad faith. To our minds, given the all embracing language used in the clause the fact that (to all intents and purposes) the only claims of any relevance against the Society by Names that could fall outside the statutory immunity would be claims of acting in bad faith…”

It is worth noting that, in Leighs, the complaint was that of fraudulent misrepresentation inducing the Name to enter membership of Lloyd's. The complaint was based in part on alleged misrepresentations in brochures, as set out in Mr. Leighs affidavits. The attempt was made to set off damages for the fraudulent misrepresentation against the claim for the Equitas premium. In construing the anti-set off clause which prevented any such successful reliance, both the first instance court and the Court of Appeal (page 1032g-1033 and 1047h –1048b) held that a reason why the anti-set off clause must, on an objective construction, be applicable to a cross claim in fraud, was the absence of any other realistic claims for negligence, breach of common law duty or breach of statutory duty, by virtue of section 14(3) of the 1982 Act.

Similarly in Price v. Society of Lloyd's, 22^nd October 1999 (Unreported) Colman J said

“in order to make good a claim for damages for breach of contractual common law or statutory duty, it is in any event necessary to establish that Lloyd's acted in bad faith under section 14(3) of the Lloyd's Act 1982. That means that the conduct relied upon as the breach of duty must be tainted by fraud or be in some material respect dishonest. Mere negligence is not enough. Nor is administrative incompetence. If in the absence of section 14(3) there would be no underlying enforceable duty to act, it is impossible to see how mere inactivity on the part of Lloyd's can be relevantly fraudulent or dishonest so as to provide a means of avoiding the effect of section 14(3).”

The terms of section 14(3) of the 1982 Act exempt the Society which is defined in section 2 to mean the society incorporated by the Act of 1871 in the name of Lloyd’s. Section 14 exempts “from liability at the suit of a member of the Lloyd’s community” as defined in ss 2(a) –(c) which expressly includes “a person who is seeking or has sought to become a member of the Lloyd’s community”. All the Names fell into that category when they allegedly relied on the representations, whether or not an intermediary first sought to recruit them before they showed any interest in joining Lloyd’s. In ss 3 reference is made to “liability for damages….for negligence, or other tort, breach of duty or otherwise ”. This combination of terminology in ss 1 and ss 3 has the effect that any member of the Lloyd’s community (as defined) could not bring a claim for damages on any such grounds without being met with this absolute bar, subject to the other terms of the statute.

It is said by the Names that, once the Human Rights Acts came into force on 2^nd October 2000, section 14 of the Lloyd's Act has to be read in the light of section 3 of the Human Rights Act which provides:-

“3(1) so far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect in a way which is compatible with the Convention Rights.

(2)

this section-

a)

applies to primary legislation and subordinate legislation whenever enacted;

b)

does not affect the validity continuing operation or enforcement of any incompatible primary legislation;”

Section 4 of the Human Rights Act provides:-

“(1)

subsection (2) applies in any proceedings in which a court determines whether a provision of primary legislation is compatible with a Convention right.

(2)

If a court is satisfied that the provision is incompatible with a Convention right, it may make a declaration of that incompatibility.

(6)

A declaration under this section (a declaration of incompatibility) –

a.

does not affect the validity continuing operation or enforcement of the provision in respect of which it is given;

b.

and is not binding on the parties to the proceedings in which it is made.”

If a declaration of incompatibility is to be made, notice to the Crown is required under section 5.

I have already found that the 1982 Act came into force on 23^rd July 1982 and was, in accordance with its own terms, effective in respect of acts or omissions committed by Lloyd's since that date. The argument put forward by the Names however is that the impact of the HRA is such that, even though the events and matters of which they complain all occurred prior to 2^nd October 2000, when the HRA came into force, that statute requires the 1982 Act to be interpreted in accordance with the Convention so that the Names’ right of access to Court to pursue Lloyd's in negligence, negligent misrepresentation and statutory misrepresentation is not barred and thus their right to a fair trial is not impeded.

The Names say that there is no question of retrospectivity in issue. So far as the Names are concerned, the only “public authority” which is relevant in the context of this issue, is the Court itself. The only relevant section is section 6 which makes it unlawful for a public authority to act in a way which is incompatible with a Convention right. It is then said that, if a Court is faced, after 2^nd October 2000, with a statute which, according to its pre-HRA interpretation, would impede a claimant’s access right, and therefore his right to a fair trial, the Court is then bound to construe that statute in accordance with Convention rights under the provisions of section 3 of the HRA. Section 3 of the HRA requires primary legislation to be read and given effect in a way which is compatible with Convention rights, whenever that primary legislation was enacted.

There are two insuperable problems that stand in the way of these arguments succeeding. The first is the impossibility of reading section 14(3) of the Lloyd's Act 1982 in a way different from the interpretation given to it in the decided authorities. The second is the line of authority commencing with R. v. Lambert [2002] 2 AC 545, [2001] UKHL 37 and culminating in Wainwright v. Home Office [2002] QB 1334, [2001] EWCA Civ 2081 and Lloyd's UDT Finance Ltd. v. Chartered Finance Trustholdings PLC [2002] STC 956, [2002] EWCA Civ 806.

In a series of decisions which include those referred to in the previous paragraph, Pye v Graham [2001] Ch 804, Wilson v First County Trust (No.2) [2001] 3 WLR 42, R. v. Kansal (No 2) [2002] 2AC 69, [2001] EWCA Crim 1260 and Pearce v. Governing Body of Mayfield Secondary School [2002] ICR 198, [2001] EWCA Civ 1347, the House of Lords and the Court of Appeal have considered the extent to which the HRA has any retrospective effect. Two other Court of Appeal decisions appear to have applied the HRA retrospectively without argument to the contrary, or at least without any discussion of the propriety of doing so. What clearly emerges from these decisions, where the issue was considered, is that the HRA itself has a particular provision which provides for the retrospective effect of one particular element of it. In section 22(4) of the HRA, it is provided that section 7(1)(b) applies to proceedings brought by or at the instigation of a public authority whenever the act in question took place, but that otherwise that subsection does not apply to an act taking place before the section came into force. Given the ordinary presumption against the retrospective effect of any legislation and the need for clear provision within legislation to show that such effect is intended, the terms of section 22(4) of the 1998 Act are highly significant. So far as the particular section is concerned, retrospectivity arises only in circumstances where proceedings are brought “by or at the instigation of a public authority”. Then and only then, so far as the subsection is concerned, is there any application to any action taking place before the section came into force. So far as the wider terms of the statute are concerned, the express provision of retrospectivity in these limited circumstances shows that there was no intention for any other retrospective effect in relation to any other section in the statute.

It is right that section 3 of the Human Rights Act applies to the interpretation of legislation whenever enacted, but, in the context of proceedings, it is section 7 which renders Convention rights enforceable. Section 7(a) is inapplicable in circumstances where there is no public authority concerned, other than the Court itself. It is section 7(b) which provides for reliance upon a Convention right or rights by a victim of an unlawful act and, in this context, section 22(4) makes it plain that, unless proceedings are brought by or at the instigation of a public authority, the subsection is inapplicable to an event which occurs before the coming into force of that section. All the events in question in this action took place long before section 7 came into force.

In Lambert the House of Lords concluded that it would be surprising if section 3, which has no express retroactive effect, nonetheless had such effect where section 22(4) and section 7(1)(b) did not (Lord Slynn at paragraph 11). Thus, a trial Judge’s direction to a jury in a trial which took place in 1999, lawful at the time, was not rendered unlawful thereafter by the enactment of the HRA. Whilst the argument put forward in that case was directed towards a situation where a trial had already taken place in a lower court, and the point was directed to the decision of an Appeal Court, the argument based upon section 6(1), namely that it was unlawful for the court deciding the matter to act in a way that was incompatible with Convention rights in relation to a past event which occurred prior to the enactment of the HRA, was specifically put and rejected by the House of Lords.

In Kansal (No.2) the House of Lords once again had cause to consider the effect of the 1998 Statute. The majority decided that Lambert had been incorrectly decided in drawing a distinction between “proceedings brought by or at the instigation of a public authority” and appeals in such proceedings but the principle of no retrospectivity was upheld. As however these proceedings, involving Lloyd's, do not on any view fall within section 22(4), the principles enunciated in relation to the general retrospectivity of the statute apply. Moreover, Lord Hope, at paragraph 83 confirmed that the interpretative obligation in section 3 (1) could not be applied so as to change retrospectively the meaning which was previously given to a provision in primary legislation.

The decisions of the Court of Appeal in Pearce, Wainwright and Lloyd's UDT Finance were all concerned with civil proceedings.

The Names argued that the authorities were limited to the denial of a retrospective effect for the HRA in circumstances where there had been a prior decision of the Court before the enactment of the HRA. It was accepted that the decisions showed that an appeal Court, considering the matter after the enactment of the HRA, could not apply the HRA in such a way as to invalidate an earlier decision of the Court which was correct according to the law at the time the decision was made. It was argued that there was nothing in these authorities which covered the position of a Court which now had to consider the interpretation of a statute in the light of section 3 of the HRA, in relation to past events where those past events were not alleged to infringe Convention rights, whether in the shape of a decision of a Court which infringed Article 6 or in the shape of acts or omissions which themselves infringed other Articles of the Convention. If the effect of the application of the HRA was, as the Names said it was, to affect the construction of a statute (the 1982 Act) which did not affect substantive rights, but presented a procedural bar, there was no retrospectivity involved since the only relevant unlawful act in issue was the prospective act of the Court in construing the statute, whilst past substantive rights remained unaffected. (The issue of the substantive effect of the 1982 Act is considered later in this Judgment).

The Names’ submission does not however reflect the current state of the authorities, both in the House of Lords and the Court of Appeal. The decision in Lambert contains both a narrow and a wider ratio. The narrow ratio is that an appeal Court cannot apply the Convention when reviewing the decision of an earlier Court prior to 2^nd October 2000. The broader ratio however is clear in stating that no court should apply Convention rights where the relevant events which are the subject of the decision predate 2^nd October 2000. All four of the majority speeches in Lambert support the broader ratio as do the subsequent Court of Appeal decisions and this broader ratio is the only possible explanation of the decisions in Wainwright and UDT. The first judicial decision in each of those cases was made after 2^nd October 2000. The attempt was made in Wainwright to restrict the decision in Lambert and Pearce to the narrow ratio to which I have made reference. In both Wainwright and UDT, the attempt was made to construe an earlier document (in the one case Prison Rules, in the other a statute), in accordance with section 3 HRA to produce a result, in respect of events prior to 2^nd October 2000, which accorded with Convention rights. In neither case did that argument succeed because the Court of Appeal considered the matter concluded by the earlier decision in Lambert and the wider ratio there set out. Whereas Pearce is explicable, on its facts by reference to the narrow ratio, neither Wainwright nor Lloyds UDT fall into this category. The point appears clearly in Lord Slynn’s speech in Lambert (see paragraphs 6,10 and 11) and from Lord Hope (paragraphs 99-100, 112-115), Lord Clyde (paragraphs 141-144) and Lord Hutton (paragraph 170). It is also clear in Kansal No 2 (Lord Hope at paragraphs 83-84), in Wainwright at paragraphs 24 to 29 and 40 in the judgment of Lord Woolf CJ, at paragraph 61 in the judgment of Mummery LJ, and at paragraph 122 per Buxton LJ. In the UDT case, Jonathan Parker LJ, with whom the other Justices agreed, was clear that the retrospective effect of section 3 of the HRA was no longer open to argument- see paragraphs 36 to 42, 54 to 57 and 84 to 92 (citing Hale LJ in Pearce at paragraph 33 and the judgments in Wainwright). From these authorities it is clear that section 3 of the HRA cannot be used by a Court after the passing of the HRA to construe a statute in such a way as to change the rights and obligations of parties under that statute in respect of events preceding the date when the HRA took effect.

The only extant authority which might be thought to bear on this issue in favour of the Names is Wilson v. First County Trust (ibid) which, in the Court of Appeal, predated all the other authorities save for Pye. That judgment however relates to section 4 and the question of a declaration of incompatibility which does not affect the operational enforcement of the provision which is the subject of the declaration and is not binding on the parties with respect to their rights. Moreover it is a decision in relation to what is, on its face a statutory provision which takes effect at the moment of the Court’s decision on enforcement (at the point of adjudication), not in relation to a cause of action or defence which has already accrued.

On the penultimate day of the hearing the House of Lords gave their decision in Bellinger v Bellinger [2003] UKHL 21 and made it plain that this question is concluded by the earlier decisions in Lambert and Kansal (see Lord Hope at paragraph 65 with whom Lords Hobhouse, Scott and Rodger agreed).

The key to all of the decisions against retrospectivity is that the HRA cannot be used to change the rights of the parties in respect of events which took place prior to the enactment of the HRA. In determining whether this is the case regard must be had to the effect of what is sought by the application of the HRA as appears from paragraph 12 of Lord Slynn’s speech in Lambert, paragraph 31 of Lord Woolfs CJ’s judgment in Wainwright and paragraph 92 of Jonathan Parker LJ’s judgment in UDT. The HRA interpretation of the earlier statute or rule cannot be applied to alter the rights and obligations of the parties in respect of events which predated the passing of the HRA.

It was accepted by Lloyd's that there could be cases where the HRA could be used to interpret a prior statute as set out in section 3(2) of the HRA, when the provision which is to be construed operates at the point of adjudication and not at the point that any cause of action arose, as perhaps is the case in Wilson, which predates the Lambert, Wainwright and UDT decisions, and is currently under consideration in the House of Lords.

The further argument advanced by the Names was that section 14 of the 1982 Act did not affect substantive law and excluded a remedy in damages rather than a cause of action. They maintained that their cause of action was founded in common law or statute and was not impacted by the HRA. There was no change in their substantive rights because section 14 of the 1982 Act was in the nature of a procedural bar to a properly constituted cause of action and the HRA applied solely in relation to that bar. Thus the granting of a remedy for such a cause of action in relation to past events would not involve applying the HRA retrospectively. There can however be no doubt that the effect of applying the HRA, in the manner that the Names would wish it to be applied, would be to create a liability where none had previously existed. Whereas it is accepted that the 1982 Act meant that no claim against Lloyd's for damages for negligence, negligent or statutory misrepresentation could succeed prior to the HRA, it is said that the effect of the HRA is to negate the exemption from liability in the 1982 Act so that the events which occurred in the years 1978 to 1990 which were, at the time, incapable of giving rise to liability, can now do so. This is plainly an alteration of the rights of the parties so that the HRA is not applied simply at the point of adjudication. It is nothing to the point in this respect that other remedies such as rescission or an injunction might be available. The impact of the bar affects the accrued rights of the parties as they had stood prior to 2^nd October 2000.

In this respect, the label that is applied to the nature of the right is ultimately of no significance and the presumption against giving an English statute retrospective effect so as to affect accrued rights and obligations of parties, is a strong one. In Yew Bon Tew v. Kenderaan Bas Mara [1983] 1AC 553, the Privy Council considered the position where there was a change in the impact of statutes of limitation. They refused to allow a claim to be brought which had become time barred under an earlier statute of limitations when a subsequent statute increased the period of time during which such claims could be brought with the result that, under the new statute, time had not expired for the claim. The statute could not be interpreted to give retrospective effect and it would be giving it such effect if it took away or impaired a vested right such as the right to plead limitation under the prior statute. If it created a new obligation or imposed a new duty, retrospectivity was involved and the general presumption against statutes having such application was to be applied, unless the statute was clearly intended to have the contrary effect. That decision has been followed as can be seen from Plewa v. Chief Adjudication Officer [1995] 1AC 249, where the House of Lords, in considering a change to Social Security legislation which removed a defence of “reasonable care” which had once been available to a claim for the recovery of overpaid benefits, held that if the effect of the change was to place a recipient under a liability which did not previously exist, the presumption against retrospectivity should apply. As it is put in Pearce at paragraph 33, albeit in the context of looking at a prior decision of the Court, it is wrong in principle to construe the law, by reference to a statute enacted after the events in question in order to impose liability where none previously existed.

Moreover, not only would the effect of such an interpretation be to deprive Lloyd's of a defence which it previously had to putative claims arising out of events since July 1982 but others whose position had been based upon such an immunity would also be affected:-

The Names contend that the effect of section 14 is to engage Article 6 of the Convention because it has the effect of impeding the access of the Names to the Court in respect of their claims for negligence or negligent or statutory misrepresentation. This restriction on their right of access to the Court (a right implied by Article 6- see Golder v. UK (1975) Ser. A. 18, paragraphs 34-35) is said to impair the essence of the right or not to represent a reasonable relationship of proportionality to any legitimate aim of the 1982 Act (see Ashingdane v. UK (1995) 7EHRR 528). The 1982 Act has the effect of preventing their pursuit of their non-fraud claims and thus also deprives them, it is said, of their right to a fair trial. Lloyd's argues that Article 6 is not engaged at all because that article is not concerned with the content of substantive domestic law but with due process and section 14 of the 1982 Act effects a change in substantive law. This issue as to whether Article 6 is engaged or not, was put by the Names, in the form of a question, relating to section 14; “Is this a provision that determines the scope of the tort or wrongdoing or is it a provision that prevents vindication of a cause of action?”

The recent decision of the House of Lords in Matthews v MOD [2003] 2 WLR435, [2003] UKHL 4, sets out the relevant criteria which can be summarised as follows:-

It is helpful to examine the history of a rule and the underlying policy to which it gives effect in order to determine the issue. It is also helpful to enquire:

As stated in Matthews, it is illogical but it is easier to treat restrictions on a newly created right as limitations of substantive law than it is to accord the same treatment to the withdrawal of existing legal rights. Plainly however the matter does not depend on whether prior rights existed or not, since any statute which abolished a cause of action as a matter of substantive law, would otherwise fall foul of the principle. This point is shown by Powell and Rayner v UK 12 EHRR 355 where it was argued that a right of action at common law in nuisance had been abrogated by section 76 of the Civil Aviation Act 1976 (and its predecessors). The European Court proceeded on the assumption that there was a previous right to claim in nuisance (para. 15) and decided that Article 6 was not engaged. In so doing they used language which showed that the allegation that there was a common law cause of action for which the remedy was barred by an offending statute did not mask the reality that substantive liability in common law nuisance had been altered by the statute with the resultant inability to claim relief.

The Names point out that prior to the 1982 Act, a claim in negligent misrepresentation or for statutory misrepresentation would have constituted a good arguable case against Lloyd's, although there would have been scope for argument about the existence of a duty of care or assumption of responsibility. The Names therefore say that they are not using the HRA to create a new cause of action in respect of prior events. The Names contend that the effect of section 14 is to prevent access to the Court by raising unnecessary restrictions in the shape of additional requirements to pursue what would otherwise be a perfectly good arguable cause of action in negligence, negligent misrepresentation or statutory misrepresentation. The additional restrictions are those imposed by the section, namely the requirement of “bad faith” or the alternative requirement that the acts or omissions be those of an employee carrying out routine or clerical duties not involving the exercise of any discretion.

The Names accept that it is not a question simply of looking at the specific wording of the 1982 Act, when construing it, but that it is necessary also to look at the substance of what it purports, by its language, to achieve. They nonetheless draw attention to the way in which it is expressed, namely an exclusion of liability “for damages whether for negligence or other tort, breach of duty or otherwise”. This does not impact upon the issue of an injunction or rescission and it is said therefore not to impact upon any of the ingredients of the torts or breaches of duty referred to. The section, it is said, does not impose nor take away any existing duties nor impact on any other constituent elements of the causes of action which would otherwise exist, namely breach and damage.

In my judgment such an approach is wholly unreal, as is illustrated by the Powell and Rayner decision and by the course of argument in the Matthews decision which turned on the effect of the executive certificate and not on the effect of the immunity given by the Crown Proceedings Act itself (see e.g. paragraphs 14,32,70-71,90 and 99). It is of course correct that, prior to the Lloyd's Act of 1982, (subject to issues of duty later determined by the Courts) an arguable case could have been made out in respect of causes of action against Lloyd's for negligence, negligent misrepresentation or statutory misrepresentation. The whole purpose of the Lloyd's Act 1982 was however to change the law so that Lloyd's was no longer to be open to such claims in particular circumstances, whilst remaining open to other claims in different circumstances. The practical effect, whether expressed in terms of an immunity or exemption, was that, from the moment the Lloyd's Act 1982 came into force, an additional ingredient was required for the successful pursuit of a cause of action in damages against Lloyd's, namely bad faith, if the complaint was made in respect of “any exercise of or omission to exercise any power duty or function conferred or imposed by the Lloyd's Acts or any byelaw or regulation made thereunder” - so far as the underwriting business of any member might be affected, whereas there was no such requirement in relation to the administrative or routine matters to which the subsection later refers, nor in relation to matters falling outside the terms of s 14(3)(a)-(e), nor in relation to acts causing death or personal injury, nor in relation to defamation.

In these circumstances, in order to succeed in such a claim against Lloyd's, an additional element has to be pleaded and established, namely the element of “bad faith”, if the act or omission in question otherwise falls within the exclusion of liability provided to the Society at the suit of members of it. This is self evidently a substantive requirement of English domestic law and does not constitute an exclusionary or procedural rule which has no reference to the facts of the case but instead constitutes a material fact which is required in order to constitute a claimant’s cause of action. There is not therefore an arbitrary limitation on an existing domestic right, but an element which defines the scope of the right of any Name who wishes to pursue a claim against Lloyd’s.

The issues in this action are far removed from those in Stran Greek Refineries v Greece (1994) Ser A 301-B where a statute deprived a litigant against the state of the fruits of his arbitration award, whether that decision is seen as affecting the right to a fair trial or the right of access. A statute can present an exclusionary or procedural bar to a substantive cause of action but this must be a rare event, since most statutes will directly impact substantive law. Wilson v First County Trust Ltd (No 2) [2001] QB 407 may present such a rare case because the terms of section 127(3) of the Consumer Credit Act prevent the making of an enforcement order in prescribed circumstances when the cause of action is otherwise good, but if the questions set out above are addressed, the answers uniformly give rise to the conclusion that the Names have never, since 23^rd July 1982 had a cause of action for damages in negligence, negligent misrepresentation or statutory breach of duty, in the absence of fraud, if the acts in question fall within the wording of section 14 of the 1982 Act.

It is fair also to point out that section 14 represents an allocation of rights and obligations which was to the potential benefit of the Membership of Lloyd’s who voted in favour of a Bill with wider immunity than the Act finally gave. At a Warncliffe Meeting, 99.57% of the attending members of Lloyd’s, being 72% of the total membership voted for such a Bill. The benefit Names obtained was that of the freedom of their Society from liability and the need to fund the Society in respect of any such liability at the suit of other Names. If Lloyd’s had to meet claims, then the only source of funds was a levy on the Names, absent insurance which was fully considered and rejected as a possibility before the private Bill was passed.

The 1982 Act represented a balance of rights and formed the basis of a bargain between Names who voted for it, or who had the chance to leave at the end of the 1981 year or who thereafter voluntarily joined a Society whose constitution made it clear that immunity had been given, since it both freed them from levies in respect of Lloyd’s liability, whether for E &O premium or directly in respect of a claim by other Names, and prevented them from suing Lloyd’s themselves. Further, from the underwriting year 1986 onwards, joining Names signed a verification form accepting the lack of recourse against Lloyd’s under the provisions of the 1982 Act. Lloyd’s is also entitled to refer to the provision as a form of disclaimer of liability, negativing an assumption of responsibility. All of these matters reinforce the conclusion that the 1982 Act was concerned with matters of substantive law concerning the position of Names and their rights as against Lloyd’s.

In these circumstances, Article 6 is not engaged and is not arguably engaged, at all.

The Names maintained that it was not impossible to construe section 14 of the 1982 Act in such a way as to be compatible with the HRA. In reliance on R. v. A (No 2) [2002] 1AC 45, they argued that the Court had to strive for a meaning which was compatible, even if this involved stretching the language used or implying terms which would not ordinarily be appropriate in the absence of the HRA. A declaration of incompatibility was to be a last resort. The Names said that this was an appropriate matter for the Court to determine at a trial, when the issue of proportionality could be considered, the extent of the vice delimited and the degree of reinterpretation required for compatibility ascertained. Yet there are limits to what a Court can do when engaged on this process of compatible construction. When regard is had to the decisions in Re S [2002] 2 AC 291(per Lord Nicholls at p 313) and R. v SSHD ex parte Anderson [2002] 3WLR 1800 (per Lords Bingham and Steyn at 1814 and 1825) and most recently Bellinger (Lord Hope and Lord Hobhouse at paragraphs 67 and 68), it can be seen that the Court cannot depart from a fundamental feature of the statute, nor do violence to its clearly expressed obvious objectives, since otherwise a declaration of incompatibility would never need to be made. The Court can only adopt a compatible constitution “so far as it is possible” to do so.

The Names did not espouse any particular alternative construction of section 14 of the 1982 Act. They maintained it was not necessary for them to do so since a litigant was entitled to take advantage of section 3 by raising the issue of incompatibility. Nonetheless “possible” readings of section 14 were suggested which it was said, would be compatible with Convention rights.

It was said that the words “power, duty or function” in the section could be read narrowly so as to be confined to the public law or regulatory functions of Lloyd’s which would justify a case for immunity, whilst acts or omissions in the managerial or commercial context to which it was said the Names’ claims were addressed, would fall outside the immunity. It was specifically accepted by the UNO Names (but not by some of the litigants in person), both in the draft pleading of Mr. Harris in paragraphs 114 and 117 and in the argument advanced by Counsel that there was no pre-Human Rights Act technique of construction which would enable section 14 to be given any meaning other than that which it had so far been assumed to bear, following the judgment of Gatehouse J, but the HRA justified this distinction being taken in relation to the words used.

The wording used in this respect is “any exercise of or omission to exercise any power duty or function conferred or imposed by Lloyd’s Act 1871 to 1982 or any byelaw or regulation made thereunder” which is very wide wording indeed. The suggested HRA compatible meaning involves ignoring the word “any” and creating a division of powers, duties or functions which cannot be spelt out of the 1982 Act.

To cut down the word “any” in this context, is simply not possible. The distinction suggested between one form of power and another is illogical, vague and unworkable. Lloyd’s is not a public authority and is not suggested to be such. The Lloyd’s Acts confer a wide range of powers upon Lloyd’s Council and its delegees to enable it to fulfil the wide-ranging objects set out in the Lloyd’s Acts themselves. Whatever Lloyd’s does, if within its powers, it does under the Lloyd’s Acts and its own byelaws and regulations and insofar as those acts or omissions relate to the matters set out in ss 3 (a)- (e), they cannot be said to be anything other than regulatory. To seek to distinguish between those functions which are “regulatory” and those which are “commercial” is unreal and would create uncertainty which would necessitate Lloyd’s seeking Errors and Omissions insurance cover for an indefinable category of acts or omissions, when the purpose of the immunity was, at least in part, as appears from the Parliamentary record, to obviate that need because of the practical problems presented by it. The Names suggested a number of activities in which Lloyd’s were involved which were not of a regulatory nature, such as the provision of buildings or services within buildings, the publication of Lloyd’s List and the handling of premium and claims processing, but these are catered for in the provisions of the 1982 Act itself in the distinctions drawn within it.

The Names’ suggested distinction makes no sense in the light of the distinctions drawn in the 1982 Act itself:

In this context and in these circumstances, to ignore or reinterpret the word “any” in section 14, so as to create a new distinction of the kind suggested by the Names over and against the distinctions already made in the 1982 Act, would create an unworkabledistinction and would amount to an act of “judicial vandalism”- an “interpolation” rather than an “interpretation” of the 1982 Act.

It was also suggested by Mrs Mackenzie Smith that judicial review was available in respect of public or governmental functions carried out by Lloyd’s and that the immunity from suit in damages was co-extensive with susceptibility to judicial review. In this context she relied upon the decision of Stanley Burnton J in Gerda Adele Doll-Steinberg v Society of Lloyd’s [2002] EWHC 419 (Admin). However the submission that the ambit of section 14(3) can be limited to “public” or “governmental” functions derives no support from that decision, nor from any of the other decisions which have considered attempts to subject particular activities of Lloyd’s to judicial review. Such applications have been made for review of Lloyd’s decisions to implement the draw down procedure on Names’ assets to meet underwriting calls and of the assessment of sums payable under the R&R arrangements. Those applications have been refused. In each case the function of Lloyd’s was plainly an exercise of a power, duty or function conferred or imposed by the Lloyd’s Act and/or Bye-laws or regulations made thereunder. The acts plainly fell within section 14(3) but judicial review was not available because the rights in issue were those between members of the Society and Lloyd’s rather than the performance of public functions. This was the basis of Stanley Burnton J’s decision also. It is irrelevant to the issue of the availability of judicial review whether Lloyd’s may be described as a regulator or that the system administered by Lloyd’s may be described as a regulatory regime – see Lloyd’s ex parte Susan Johnson 16^th August 1996 at pages 58 – 60 and 68 of the transcript.

The statute itself gives no support to any distinction of the kind suggested. In cases where it is otherwise available, the ability to seek judicial review is not removed by section 14(3) of the 1982 Act which precludes liability in damages. That liability is however not precluded when judicial review is available any more than such liability in damages could be said to be only precluded when declaratory or injunctive relief is available. Once again, the use of the word “any” in section 14(3) of the 1982 Act prevents any reading down of the immunity given.

The Names’ allegations relate to the truth of representations made in brochures relating to the adequacy of the Lloyd's audit system and what Lloyd's ought to have appreciated as a result of the audit results filed by syndicates and the information supplied to it by syndicates or their auditors, including in particular the Neville Russell letter. There was before Cresswell J a Statement of Agreed Facts concerning the rules and procedures governing the admission to underwriting membership of Lloyd's and related matters. In addition there was largely unchallenged evidence before Cresswell J upon which he also made findings. The effect is as follows.

A brochure entitled “Notes for Applicants for Underwriting Membership” was prepared by the Membership Department of Lloyd's in 1971 and was subsequently revised by that department up until 1979. The document was reviewed regularly during that period by the Membership Committee and the Committee of Lloyd's, with input from other departments and third parties.

In May 1980 the Fisher Working Party on self-regulation at Lloyd's produced its report. The terms of reference for the Fisher Report were:-

“Our terms or reference were:-

To enquire into self-regulation at Lloyd's and for the purpose of such enquiry to review:-

(i)

the constitution of Lloyd's (as provided for in Lloyd's Acts and Bye-laws);

(ii)

the powers of the Committee and the exercise thereof and:

(iii)

such other matters which, in the opinion of the Working party, are relevant to the enquiry.

Arising from the review, to make recommendations.”

The Fisher Report recommended that Lloyd's should be given statutory power “to regulate the admission and registration of Members, Agents and Brokers” and also made recommendations in relation to “the provision of adequate information by Agents to prospective and established Members”. At paragraph 9.15, the Report made the following recommendation:-

“We recommend that the Council should keep under constant review the requirements for disclosure to prospective Names, and should make the necessary Bye-laws and keep them up to date. We recommend in particular:-

a)

That the present instructions and recommendations (amended in the light of this report) should be made mandatory by Bye-law..

b)

That the council should prepare an informative brochure on the lines of the “Brochure for Applicants for Underwriting Membership”, which Agents can give to people who inquire about Membership, i.e. at a much earlier stage than at present. (We see no reason why the contents of this brochure should be regarded as confidential).

c)

That the same information should be supplied to all prospective Names, wherever they may reside.

d)

That all Agents should be required to furnish to the Membership Department details of the terms and conditions which they offer, and that the Membership Department should compile a register which anyone who satisfies the Membership Department that he is seriously contemplating an application for Membership or a change of Agent could consult. (If our recommendations about standardization are accepted the register would have to contain only the provisions which are left to the discretion of the Agent).”

The Fisher Report clearly saw the provision of such information as part of the Council’s functions in regulating admission to the Lloyd's market. It was that Report with its proposals and draft Bill, which led to the enactment of the 1982 Act. Complaints had been made about the information made available to prospective Names and the Fisher working party considered that positive action by the Council was called for in that context. It was seen as important that the Council should prepare an informative brochure for the Agents to give to potential Members so that those potential Members would be alive to the operation and regulation of the Lloyd's market. It was important also that all potential Members should receive the same information as can be seen from the terms of section 9 of that report. Direct communication was to be the exception rather than the rule, but the Council was to be free to communicate direct to Names where necessary. In December 1977 the Committee had issued detailed instructions to Underwriting Agents concerning the disclosure of information to be made to US Nationals and US resident applicants for Membership and in January 1979 the Committee again wrote to Underwriting Agents recommending that the same information be supplied to all Names joining an Agency and all Names joining a syndicate. The Report’s recommendation was that the same information should be supplied to all prospective Names, whatever their residence, and that the Council’s own brochure would be a feature of this information.

The functions of Lloyd's included regulation of admission of Members to underwriting as well as the framework within which that underwriting occurred on a day to day basis. In Ashmore v. Lloyd's [1992] 2 LLR 620, at page 634, Gatehouse J stated, in the context of section 14 of the 1982 Act, that “the terms on which applications for Membership are to be admitted are for Lloyd's to determine in the exercise of a power, duty or function conferred upon Lloyd's by its statutory constitution.” It was therefore of no surprise to him to find the explicit reference to admission to Membership in section 14(3)(b) of the 1982 Act.

It is to be noted that the objects of the Society, as set out in section 4 of the Lloyd's Act 1911 included “the collation publication and diffusion of intelligence and information” and “the doing of all things incidental or conducive to the fulfilment of the objects of the Society”. Although the former plainly originally related primarily to intelligence and information concerning the business of underwriting itself, as can be seen from section 10 of the Lloyd's Act 1871, the alteration in the terms of the objects implies a wider reference also and the latter object is very widely phrased indeed. Section 6 of the 1982 Act gave the Council the power and duty to manage and superintend the affairs of the Society and the power to regulate and direct the business of insurance at Lloyd's, lawfully exercising all the powers of the Society in accordance with the Lloyd's Statutes and Bye-laws, the latter of which it was entitled to create amend or revoke.

Not only is it plain from an examination of the brochures that they explain what Lloyd's does and how it is regulated, but they also the explain the process of admission to Membership and the operation of the audit system which is regulated by Lloyd's itself. Chapter 23 of the Fisher report was concerned with the audit system and made numerous recommendations as to accounting standards, auditing, syndicate accounts and auditors. There would be something very strange about categorising the supervision of the audit system as a regulatory function of Lloyd's but categorising any statements made with regard to the operation of such a system to Members or prospective Members as partaking of a different nature, when the object was to inform Members and prospective Members of the effect of such supervision.

In February 1986 the Brochure for Applicants for Underwriting Membership was replaced by the “Applicants Guide for Underwriting Membership”.

In 1986 the Neill Enquiry took place and made some limited criticisms of the current form of the brochure, suggesting the kind of additional information which might be appropriately included. Lloyd's then produced a new draft of the brochure in October 1986 which was approved by the Neill Enquiry. The Neill Report recommended an additional booklet which was to be called “Membership-the Issues” which was published in December 1986 and used for applicants from 1987 onwards.

The task of the Neill enquiry was to consider whether the regulatory arrangements at Lloyd's provided protection for Names comparable to that proposed for investors under the Financial Services Act 1986. In paragraph 1.13, the report refers to a number of recommendations made concerning detailed aspects of the process of recruiting Names and in particular the information and advice to be given to prospective Names both about membership of Lloyd's in general and about the performance of agents. That paragraph went on to say that “if those recommendations are implemented, Lloyd's will have a properly regulated recruitment process containing safeguards at least comparable with those envisaged elsewhere in the financial services sector”. It is plain therefore once again, that the Neill Report considered the information and advice to be given to prospective Names as a key element in the regulation of the recruitment process.

References to the regulatory nature of the information to be provided are legion in the Report- e.g. paragraph 2.5, 2.13, 4.2-4.6, 4.8, 4.14-4.16, 4.17, 4.40 and 5.10, the last of which refers specifically to the need for information in relation to the process of reinsurance to close. At paragraphs 4.14 to 4.17, in particular, the details of the “Applicants Guide for Underwriting Membership”, the content of a new draft brochure and the need for an additional booklet giving detailed information about agents were all specifically discussed. The Neill Enquiry looked at the February 1986 brochure and a draft produced in October 1986 which became the subsequent version.

It is these brochures, prior to and after 1986, which contained the representations complained of.

It is clear from the Fisher and Neill reports which had recommendations to make in the context of Lloyd's regulatory function and powers that the brochures were considered to play a significant part in the context of admission to Lloyd's of prospective members. The Fisher Report recommended the giving of statutory power to regulate such admission and registration and to ensure the provision of adequate information to Names. The Neill report was all about regulation. Both reports had things to say about the information the Council should supply to prospective Names.

The Insurance Companies Act of 1982 was passed to give effect to the EEC Insurance Directive relating to regulation of Insurers. In the context of Lloyd's, the DTI’s functions were more limited as Lloyd's itself was to exercise some regulatory control which was the responsibility of the DTI for other insurers in this country. It was suggested that unlike the FSA to whom immunity was given under Schedule 1, Part IV Paragraph 19 of the Financial Services and Markets Act 2000, Lloyd's has commercial functions as well as regulatory functions and the immunity only attached to those regulatory functions of a public law character, but the activities or omissions of which the Names complain fall fairly and squarely within a regulatory framework, even if such a distinction could readily be made, which in my judgment it cannot.

Furthermore, as a matter of pleading, the Names themselves at paragraph 106E assert the negligence of Lloyd's or lack of reasonable grounds for Lloyd's belief, when making representations by reference to Lloyd's regulatory functions for the market. I have already drawn attention to the terms of paragraph 108 of the existing pleading and the link which is there made between the representations and the regulatory functions exercisable by Lloyd's. Furthermore, at paragraph 30.2 of the Jaffray pleading the UNO Names asserted:

“Admission of new Names to membership was an important task for which the Committee and afterwards the Council assumed responsibility. The said Brochure was in this context an important document, being designed to provide accurate information as to the nature and functions of Lloyd’s and the nature of insurance business conducted at Lloyd’s”

There is therefore in reality no basis for distinguishing between the regulatory and management functions of Lloyd's on the one hand, and the promotional or advertising functions on the other, in the context of material supplied to prospective members as part of the process of admission into membership. The latter functions were part of the former for which regulation was required. All took place in the context of commercial activity, but commercial activity of the kind where Lloyd's, as a Society of Members, exercised the functions required of it under the various Lloyd's Acts.

The objects of Lloyd's, as set out in the 1911 Lloyd's Act were extremely wide. The 1982 Act vested all of the powers of the Society in the Council with power in the Council to delegate its powers or functions to the Committee. When therefore the Committee issued brochures and it is alleged that those brochures should not have contained the representations which they did because Lloyd's was negligent or lacked reasonable grounds for believing the truth of the statement made in relation to the audit system, it cannot be said that this was something which fell outside its powers, duties or functions. The diffusion of information both to current members and to prospective members about the regulated system, in the shape of the brochures, clearly fell within the objects of the Society and therefore within the powers, duties and functions of the Committee.

Further possible interpretations were put forward to cut down Lloyd's immunity. It was suggested that the words “bad faith” could be read as meaning something short of fraud or dishonesty, namely some form of unfairness or inequity. Not only is it hard to see how this would apply to the acts or omissions complained of, but this once again is plainly contrary to the meaning of the words actually employed. Bad faith has a perfectly clear meaning as a number of authorities confirm- see Cannock Chase DC v Kelly [1978] 1WLR 1, per Megaw LJ at page 6, Tee v Lautro Ch 1995 T No 2366, per Ferris J at page 26 and Three Rivers DC v Bank of England (ibid). It is untenable in the circumstances in which it appears in the 1982 Act to suggest that it could mean anything less than dishonesty or lack of genuine honest belief, particularly when applied to misrepresentations.

There is nothing to the argument of the Names that, as a private Act of Parliament, the 1982 Act has to be construed contra proferentem. Not only was this point decided by Gatehouse J in Ashmore at p 634, on a pre HRA issue of construction, but it does not assist in relation to the wording of the statute.

The Names also suggested that s 14(3), although applicable to negligence, might not be applied to a claim under the Misrepresentation Act. This is directly contrary to the decision of Gatehouse J and, in any event, the close link to a claim in negligence is plain from authorities such as Gran Gelato v. Richcliff Group Ltd [1992] Ch. 560 at p 573, Toomey v. Eagle Star [1993] 2 LLR 88 and HIH v. Chase Manhattan [2001] 1 Lloyd's Rep. 30 at p. 79(CA) and p.4 (HL). There is no legitimate distinction which can be drawn between negligence claims and Misrepresentation Act claims in construing the statute and it would be anomalous for the former to be covered by section 14 whilst the latter was not. The HRA can make no difference to this.

Nor can section 3 of the Misrepresentation Act 1967 have any effect. Section 14(3) of the 1982 Act is a statutory provision of law to which section 3 of the Misrepresentation Act can have no application.

A further idea advanced was that the reference in section 14 to an exclusion of liability in damages should be read as not preventing the court from making use of other remedies within its power such as the grant of a declaration of the validity of the Names’ cause of action, Lloyd's duty, Lloyd's breach and damage suffered by the Names, with a resultant refusal to enforce any judgment in favour of Lloyd’s or a permanent stay of Lloyd’s claims on that basis. Once however it is determined that, in order to pursue a cause of action in damages against Lloyd's, there is a necessity for a further ingredient in the claim, namely “bad faith”, save in circumstances where that is rendered unnecessary by the terms of the 1982 Act itself, there is no basis upon which a Court could grant relief since there would be no valid cause of action upon which to base it and, in the absence of a cross liability for a monetary sum, there is no juridical basis for preventing Lloyd’s pursuing its valid claims.

In these circumstances, however hard a Court might strive to find a construction of the 1982 Act which was compatible with the HRA, if compatibility involves some cutting back of Lloyd’s immunity under the terms of the 1982 Act in respect of negligence, negligent misrepresentation or statutory misrepresentation, such a construction is not possible.

In consequence, section 6(2) of the HRA applies, even if section 6 is engaged, since the Court cannot do anything other than apply the 1982 Act in accordance with its terms as previously interpreted by the Courts. There would then be no unlawfulness in this Court ruling that Lloyd’s had a complete immunity in respect of the claims made, by means of the same construction of the 1982 Act.

I hold that the Names have no realistic prospect of success on their HRA arguments and:

In consequence, I do not need to consider the three stage test set out by the House of Lords in R v SSHD, ex parte Daly [2001] 2 WLR 1622 and the issue of proportionality, which, it seems to me, is the kind of issue which is likely to be properly arguable in the context of an application for permission to amend.

(i) There is no basis in English law for the application of US Securities legislation to the situation envisaged in the draft pleading. No elements of foreign law have been pleaded upon which any decision could properly be made but the essence of the wrongdoing complained of is misrepresentation in Brochures issued in England giving rise to reliance upon them by signing contracts governed by English law. The detriment incurred arose in relation to those contracts. An application of the rules set out in Dicey & Morris in The Conflict of Laws, 13^th Edition (Rules 202 and 203), gives rise to the conclusion that it is substantially more appropriate for the applicable law for determining the issues arising here to be the law of England.

Lloyd’s made a number of distinct points on discretion which can be summarised as follows:

All of these are valid factors to be put into scales in considering whether permission to amend should be given. Yet if there is an arguable case for an innocent victim who has suffered extensive losses as a result of a misrepresentation, the Court will not lightly shut out a person from arguing his case if that person can overcome time bar difficulties and a fair trial is possible.

If the question is asked whether Lloyd’s can show a degree of prejudice which makes it more unjust for the case to proceed than for it to be shut out, the answer must be negative. There will be problems in any trial because of the staleness of recollection and lost documents but these are matters that any trial Judge would know how to take into account. Since no permission will be given for the statutory misrepresentation case because of the inapplicability of section 14A of the 1980 Act, because of the provisions of section 14(B) of the 1980 Act and because of the provisions of section 14(3) of the 1982 Act, the burden of showing negligence in making the misrepresentation will fall upon the Names who may be as much as disadvantaged in this respect by the lack of documents as Lloyd’s. A trial Judge can and will take into account such matters in assessing whether the Names can discharge the burden of proof and whether Lloyd’s has been adversely affected in putting forward its defence. Lloyd’s did not and could not say that a fair trial was not possible nor that they were unable properly to put forward a defence.

There is a considerable array of documents available to Lloyd’s even now and given the limited area of investigation that will be required if permission is given to Names to amend in relation to representations in the period immediately following 10^th October 1981, which is the very period to which so much attention has previously been directed, the prejudice to Lloyd’s does not outweigh the prejudice which would be suffered by the remaining Names who may have a claim to pursue in respect of that period. There is an extant body of material in relation to that period involving the Neville Russell letter, the Murray Lawrence letter and the various meetings of the Asbestos Working Party, the Panel Auditors and representatives of Lloyd’s, so that any hearing would be likely to cover well worn ground.

Moreover, the Names have confirmed that they will not be introducing any evidence of reserving/RITC at individual syndicate level, which limits the potential prejudice in this area, although I recognise, as I have stated earlier in this Judgment, that Lloyd’s may wish to do so themselves and could be restricted in what they can now adduce. Little of this prejudice is caused by the additional delay since the Jaffray pleading was formulated.

In all the circumstances, in my judgment, the interests of justice require that permission be given to Names who can properly particularise their claim with operative representations, and reliance within the limited identified period which is unaffected by section 14(B) of the 1980 Act and section 14(3) of the 1982 Act. Particulars of the date of receipt of the Brochure, perusal of the Brochure, commitment to membership of Lloyd’s and commitment to underwriting arrangements with Lloyd’s, by reference to the relevant documents insofar as they fall within the relevant period, must be given before any formal order for permission can be made.

It may very well be that the Names’ position under section 14A of the 1980 Act is such that a discrete point will arise and be capable of determination as a preliminary point. There are a multiplicity of documents which indicate that Names had or may be deemed to have the requisite knowledge for the purposes of the section, as already discussed. Permission to amend will therefore also be conditional upon a properly particularised pleaded case as to the Names’ knowledge for section 14A purposes, both actual and constructive.

In order to give the Names an opportunity to carry out this particularisation, I will direct that such particulars be given within a specified period after hearing submissions as to the time needed for this. Equally, since 4 Names were taken by surprise during the course of the trial, by Lloyd’s reliance upon the notification given on their behalf that they were pursuing claims for representations in the Global Reports and Accounts and not in the Brochures, I give liberty to apply to those 4 Names (and also to Brigadier Finch, Messrs. Hurst, St George and Griffith, who may also be in the same category) and to their previous solicitors to make further representations and adduce evidence on this limited point to the Court in order to clarify the position. The Names are identified in Schedule 4 to this Judgment.

In summary the following conclusions are beyond serious argument:

As a matter of discretion, notwithstanding the lateness of the plea, both generally and in the context of this litigation and notwithstanding Lloyd’s arguments as to prejudice, I have to bear in mind the overall objective of the CPR. Lloyd’s position is little worse now than when the plea of negligent misrepresentation was made in the Jaffray action, and in my judgment, permission to amend should in principle be given for any qualifying Names to plead, if they can properly do so, any negligent misrepresentations made after 11.10.81 and relied on by concluding arrangements with Lloyds and underwriting arrangements with Agents prior to 23.7.1982, provided section 14(B) does not apply. Such a plea must be properly particularised before an order granting formal permission would be made.

I will hear submissions on the consequential orders and directions to be made on a date to be fixed.