Society of Lloyd's v. Robinson

The House of Lords considered the scope of the Premium Trust Deed (PTD), in particular clause 2(a)(i), and the validity under clause 22 of the 1995 amendments which sought to bring litigation recoveries within the trust. The court held that clause 2(a)(i) is apt to catch damages awarded to a Name for negligent underwriting. However, damages for negligent advice about personal stop loss insurance and negligent advice about syndicate selection are not caught by clause 2(a)(i). The court also held that the 1995 amendments to the PTD were validly made under clause 22 and therefore litigation recoveries could be brought within the trust.

This appeal concerned the proprietary status of litigation recoveries paid to underwriting members (Names) of Lloyd's and the proper construction of the Premium Trust Deed (PTD) executed by each Name. The Society of Lloyd's sought to establish that litigation recoveries (including damages for negligent underwriting and for negligent advice) were captured by the trust fund constituted by clause 2(a)(i) of the PTD and, alternatively, that the Council validly amended the PTD in 1995 under clause 22 to bring such recoveries within the trust.

The House identified four questions: (1) whether damages for negligent underwriting against managing agents fall within clause 2(a)(i); (2) whether damages for negligent advice about personal stop loss insurance fall within clause 2(a)(i); (3) whether damages for negligent advice on syndicate selection fall within clause 2(a)(i); and (4) whether the 1995 amendments to clause 2 were validly made under clause 22.

The court's reasoning: (i) on issue (1) it preferred a commercial, contextual construction of clause 2(a)(i) and, taking into account the decision in Deeny v. Gooda Walker Ltd. that a Name carries on a single business at Lloyd's, concluded that damages for negligent underwriting are the economic equivalent of underwriting receipts and are therefore within clause 2(a)(i); (ii) on issue (2) it followed the reasoning in Society of Lloyd's v. Morris that personal stop loss receipts are not derived from the underwriting business of the syndicate and, accordingly, damages for negligent advice about personal stop loss were not caught by clause 2(a)(i); (iii) on issue (3) damages for negligent advice about syndicate selection were held too remote from the underwriting business to fall within clause 2(a)(i); and (iv) on issue (4) the court held that the power to amend in clause 22 could validly be exercised to extend the trust to litigation recoveries in the exceptional commercial circumstances confronting Lloyd's and that the 1995 amendments were within the scope of clause 22.

The action before the House was the culmination of prior proceedings including Saville J.'s decision in Napier and Ettrick v. R.F. Kershaw Ltd., the Court of Appeal decisions in Morris and Lloyd's v. Woodard, and the House's decision in Deeny. The practical relief sought by Lloyd's was recognition of a proprietary claim over litigation recoveries; the Names contested that claim. The House dismissed the appeal and allowed the cross-appeal, concluding that some categories of damages were within the unamended PTD while others were not, but that the 1995 amendments were validly made so as to capture litigation recoveries.

Appeal dismissed and cross-appeal allowed. The House held that clause 2(a)(i) of the PTD is apt to cover damages for negligent underwriting (so such recoveries are within the trust), but does not cover damages for negligent advice about personal stop loss insurance or syndicate selection. The 1995 amendments to the PTD were validly made under clause 22 and could bring litigation recoveries within the trust; for these reasons Lloyd's proprietary claim over litigation recoveries as effected by the amendments was upheld.

The dispute arose after a series of actions by Names against members' and managing agents and a line of interlocutory and substantive decisions: Saville J.'s decision in Napier and Ettrick v. R.F. Kershaw Ltd.; the Court of Appeal decision in Society of Lloyd's v. Morris [1993] 2 Re. L.R. 217; the House of Lords decision in Deeny v. Gooda Walker Ltd. (No. 2) [1996] 1 W.L.R. 426; trial judgment in Lloyd's v. Woodard (Sir Richard Scott V.-C., 17 May 1996); and subsequent Court of Appeal consideration. The present grant of leave brought the matter to the House of Lords which delivered its judgment on 25 March 1999.