Equitas Ltd & Anor v Walsham Brothers & Company Ltd

A Lloyd’s broker’s duty to remit money received for its client is ordinarily performed reasonably promptly. Whether the duty is continuing depends on the parties’ relationship and the nature of the obligation. In this case, the broker’s long-term role in administering reinsurance business, maintaining accounts and handling receipts made the duty continuing, so a fresh breach arose each day that funds remained unpaid.

The broker owed equivalent duties in contract, tort and restitution to the syndicates and, following Reconstruction and Renewal, directly to Equitas. Commercial damages for late payment may ordinarily be assessed by reference to the conventional cost of borrowing, including compound interest. Contractual waivers and settlement provisions prevented the broker from asserting cross-claims by way of set-off.

Equitas, successor to Lloyd’s syndicates writing non-life business for 1992 and earlier years, claimed that Walsham, a Lloyd’s reinsurance broker, had failed to remit claims recoveries, return premiums and other receipts promptly, or at all. It sought principal sums and damages for lost investment income.

The trial concerned issues of principle ordered for determination before the factual and remaining limitation issues. The central questions included the nature and duration of Walsham’s duties, whether duties were owed directly to Equitas, the effect of the DAC letter and Broker Transfer Agreement, the recoverability and measurement of investment losses, the effect of waivers, and whether Walsham could rely on equitable set-off or deduct reinstatement brokerage.

1. Duties. Walsham owed the syndicates, and from 1 September 1996 directly to Equitas, duties in contract, tort and restitution to remit funds reasonably promptly after receipt. The contractual and restitutionary duty was treated as absolute, while a co-existing duty to exercise reasonable care and skill arose under section 13 of the Supply of Goods and Services Act 1982 and in tort. There was no inconsistency between those duties and the stricter contractual obligation.
2. Continuing obligation. The duty was continuing. The relevant factors were the enduring broker-client relationship, the broker’s central role in administering reinsurance policies, its continuing accounting and record-keeping responsibilities, and the syndicates’ reliance on it. A fresh cause of action arose on each subsequent day when funds that ought to have been remitted remained unpaid. For this action, remittance was due on the first day of the second month after receipt.
3. Equitas and contractual instruments. Following Reconstruction and Renewal, Walsham assumed the same responsibilities towards Equitas directly. The DAC letter confirmed continuing duties to identify and pay past and future receipts. It restarted limitation in respect of claims for unpaid principal receipts, but did not prevent limitation defences to damages for historic lost investment income. The Broker Transfer Agreement concerned future transfer of Outwards Protection broking functions and did not supersede the existing payment obligations.
4. Damages. Applying Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34, damages for loss caused by late remittance were recoverable. In the commercial context, loss from being kept out of money could ordinarily be inferred without detailed proof of the claimant’s actual use of the money. The appropriate conventional measure for pre-September 1996 losses was LIBOR plus 1 per cent, compounded with appropriate rests. For the post-Reconstruction and Renewal period, Equitas could recover its actual investment return because the duty was owed directly to it.
5. Other issues. Walsham was not entitled to deduct reinstatement brokerage. Its cross-claims had been waived by the Settlement Agreement and could not be asserted as set-offs. Any equitable set-off would in any event require assertion and would not automatically extinguish or reduce the principal claims.

First-instance determination of issues of principle. The remaining factual, limitation and quantum issues were left for a later stage.