ARB International Ltd. v Baillie

The court considered claims arising from a Mid Term Broker Change (MTBC) at Lloyd’s and whether the managing director of the outgoing broker had breached his duties in permitting transfer of business and files to an incoming broker, thereby causing loss of commission. The judge accepted expert evidence that there is no single market standard for MTBCs and held that, absent agreement to the contrary, commission for binding authorities, quota share treaties and declaration-based policies is earned when the business is written, ceded or declared. The court found that ARB was obliged to comply promptly with client instructions to transfer files and that the defendant did not breach his fiduciary or statutory duties, nor fail in supervision of delegated tasks, such that ARB suffered recoverable loss. The claim failed and the defendant’s counterclaim for wrongful dismissal succeeded.

Background and parties. ARB International Limited (ARB), a Lloyd’s insurance and reinsurance broker, alleged that its managing director, Mr Robert Steven Baillie, caused or allowed ARB to lose commission when a book of business was transferred mid term to Roanoke Insurance Brokers Limited (Roanoke), a broker associated with Watkins Syndicate 457 (Munich Re group). Mr Baillie was ARB’s managing director between January 2010 and March 2011.

Nature of the claim and relief sought. ARB sought damages for breach of duties by Mr Baillie, asserting that the MTBC resulted in ARB losing entitlement to commission on several categories of contracts (Watkins Service Company Binders, Non-Service Company Binders, quota share treaties, excess of loss and facultative and declaration-based policies). Mr Baillie counterclaimed for wrongful dismissal.

Issues framed by the court. The principal issues were: (1) whether there is a market standard for MTBCs; (2) when commission is earned for the types of contracts concerned; (3) the duties owed by Mr Baillie (fiduciary duty, statutory duties under section 174 Companies Act 2006, duty to supervise delegation); (4) ARB’s obligations as to client file transfer; (5) whether Mr Baillie breached his duties and, if so, causation and quantification of loss; (6) whether certain expense claims were improper; and (7) the counterclaim for wrongful dismissal.

Court’s findings and reasoning. The judge accepted expert evidence that there are no hard and fast market rules for MTBCs and that practice varies. The court set out the general legal position that, absent agreement to the contrary, commission on binding authorities, quota share treaties and declaration-based policies is earned when business is actually written under the binder, ceded to the treaty or declared under the policy; reporting arrangements evidence when this occurs. Client file transfers must be carried out promptly on client instructions and cannot be withheld as leverage in commission negotiations. The judge found that ARB’s practical bargaining position was weak, that Mr Baillie’s approvals and signature of certain transfer documents fell within the authority and business judgment of a managing director, and that his delegation and supervision were adequate in the circumstances. Although the judge criticised Mr Baillie’s lack of candour about a hotel expense, that did not undermine his overall credibility. On causation the judge concluded that even if a breach had been made out, ARB had not shown on the balance of probabilities that it would have obtained a better recovery in 2010 than the later 2012 settlement; the loss would have been the sum recoverable in negotiation and that was not shown to be greater. Accordingly the claim failed. The counterclaim for wrongful dismissal succeeded and quantum was agreed subject to tax deductions.

Contextual remarks. The court emphasised the variety of MTBC arrangements, the absence of a single market practice, and that each case turns on its facts; LIIBA draft guidelines did not establish a market standard in this instance.

First instance: The claimant’s claim is dismissed. The court held that (i) there is no single market standard for MTBCs; (ii) absent agreement to the contrary commission on binding authorities, quota share treaties and declaration-based policies is earned when business is written, ceded or declared; (iii) ARB was obliged to transfer client files on client instructions; (iv) Mr Baillie did not breach his fiduciary or statutory duties nor fail in his supervisory obligations in the circumstances; and (v) ARB did not establish causation and loss. The defendant’s counterclaim for wrongful dismissal succeeded and quantum was agreed subject to taxation deductions.