Henderson v Merrett Syndicates Ltd (Feltrim Underwriting Agencies Ltd v Arbuthnott, Gooda Walker Ltd v Deeny, Hughes v Merrett Syndicates Ltd, Hallam-Eames v Merrett Syndicates Ltd, The Lloyd’s Litigation: the Merrett, Gooda Walker and Feltrim Cases)

A person who undertakes to provide professional or skilled services for another may assume responsibility to exercise reasonable care. Where the recipient relies on that undertaking, a duty in tort may extend to pure economic loss. No further inquiry into whether liability is fair, just and reasonable is then required.

The duty may coexist with an equivalent contractual duty. The claimant may choose the more advantageous remedy unless the contract, properly construed, limits or excludes tortious liability. A contractual chain does not invariably prevent responsibility being assumed directly to another participant, although its structure may do so. Broad contractual discretion concerns the scope of authority and does not exclude the duty of care without clear words.

The conjoined appeals arose from preliminary issues in actions by underwriting members of Lloyd’s, known as Names, seeking recovery of losses from members’ agents and managing agents. The Merrett actions concerned underwriting and reinsurance to close under pre-1987 agreements. The Feltrim and Gooda Walker actions concerned agreements prescribed for 1987–1989.

Saville J decided the preliminary issues substantially in favour of the Names on 12 October 1993. The Court of Appeal unanimously affirmed his rulings on 13 December 1993. The agents appealed to the House of Lords.

The principal questions were whether managing agents owed direct and indirect Names a tortious duty to exercise reasonable care and skill; whether that duty could coexist with contractual duties; whether members’ agents were contractually responsible for underwriting delegated to managing agents; and which form of agreement governed the 1985 reinsurance to close.

The appeals were dismissed unanimously, with costs. Lord Goff of Chieveley delivered the leading speech. Lord Keith of Kinkel, Lord Browne-Wilkinson, Lord Mustill and Lord Nolan agreed with his reasons.

1. Per Lord Goff, the principle in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 rests on an objective assumption of responsibility coupled with reliance. It extends beyond information and advice to the performance of professional or skilled services. Once that principle applies, pure economic loss is recoverable and no further inquiry is required into whether liability is fair, just and reasonable.

2. Managing agents assumed responsibility to both direct and indirect Names. They held themselves out as having special underwriting expertise and knew that the Names relied on them to accept risks, obtain reinsurance and settle claims. They therefore owed the Names a tortious duty to exercise reasonable care and skill.

3. A contractual relationship does not automatically exclude an equivalent tortious duty. Lord Goff approved the concurrent-liability analysis in Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384. A claimant may select the more advantageous remedy unless the contract is inconsistent with, limits or excludes the tortious duty. The agreements before the House contained no such inconsistency. The contractual chain between indirect Names, members’ agents and managing agents also did not preclude the managing agents from assuming responsibility directly to the Names.

4. The agents’ “absolute discretion” governed the breadth of their authority. It did not exclude the standard of reasonable care and skill applicable when exercising that authority. Clear words would have been required to exclude liability for negligence.

5. On the true construction of the 1985 prescribed agreements, members’ agents undertook responsibility for underwriting on behalf of Names. Where a managing agent performed the underwriting as sub-agent, the members’ agent remained contractually responsible for its negligent performance. The prescribed forms created no direct contractual relationship between an indirect Name and the managing agent.

6. The 1985 Names wrote new insurance when accepting the reinsurance to close of the 1984 year. That transaction was therefore governed by the 1985 Byelaw form in force from 1 January 1987.

Lord Goff found it unnecessary to decide whether there was an equivalent fiduciary duty. Lord Browne-Wilkinson added that negligent performance by a fiduciary is not a separate head of liability, but an example of the general duty arising from assumed responsibility. He also emphasised that an underlying contract may shape or exclude duties which would otherwise arise.

1. House of Lords: The conjoined appeals, reported as [1995] 2 AC 145, were dismissed unanimously with costs.
2. Court of Appeal: On 13 December 1993 the court unanimously affirmed Saville J’s rulings for the reasons he had given.
3. Commercial Court: On 12 October 1993 Saville J determined the preliminary issues substantially in favour of the Names.