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Henderson v Merrett Syndicates [1995] 2 AC 145

By Oxbridge Law TeamUpdated 04/01/2024 07:04

Judgement for the case Henderson v Merrett Syndicates

KEY POINTS

  • Insurance management oversees and administers insurance activities involving agreements between managing agents, agencies, and sub-agents with individual members, known as Names, at Lloyd's. The primary focus is on efficiently conducting and managing underwriting operations within the insurance framework.

  • The concept of duty of care in tort is crucial in the insurance context, addressing whether those in insurance management, including agents and managing agents, have a legal obligation to exercise reasonable care to prevent foreseeable harm or loss. Determining the scope of this duty is essential for assessing liability in negligence cases within the insurance industry.

  • The Lloyd's Agency Agreement, governed by Byelaw No. 1 of 1985, establishes the regulatory framework for relationships and responsibilities among entities within Lloyd's. This bylaw outlines legal parameters and expectations for agents, managing agents, and Names, ensuring a structured and regulated environment in the Lloyd's insurance market.

  • In the insurance landscape, negligence and the associated duty of care are critical considerations. This involves evaluating whether Lloyd's agents, representing Names, must exercise reasonable care in their actions. Understanding the interplay between negligence and the duty of care is essential for determining liability, prompting questions about potential concurrent liability in both tort and contract.

FACTS

  • Merrett Syndicates Ltd. and Merrett Underwriting Agency Ltd (‘Appellants’) Underwriting members ("Names") at Lloyd's brought legal proceedings against Ian Mcintosh Henderson, William Hallam-Eames, and Elise Heckman Hughes (‘Defendants’) underwriting agents—serving as members' agents, managing agents, or combined agents—alleging negligence and breaches of legal obligations in underwriting affairs.

  • Until 1990, Names entered underwriting agency agreements with members or combined agents, defining the relationship. If a combined agent manages part of a syndicate, the agreement also covers the managing agent's role. Direct Names belonged to such syndicates, while indirect Names in different syndicates had sub-agency agreements with their underwriting and managing agents.

  • Before January 1, 1987, there were no prescribed forms for these agreements, but standard clauses were commonly used. Lloyd's Act 1982 and bylaws No. 1 of 1985 made forms mandatory from January 1, 1987. The Merrett actions involved complaints related to negligent account closure and writing insurance contracts. The Feltrim actions concerned indirect Names alleging negligent underwriting during 1987-1989. In the Gooda Walker actions, Names asserted members' agents' contractual liability for managing agents' failure in underwriting.

  • During preliminary issues, Saville J. ruled in favour of the Names, a decision upheld by the Court of Appeal. The Merrett appeals considered the liability of managing agents to direct and indirect Names. In the Gooda Walker appeals, the focus was on agency agreements between Names and members' agents. Feltrim appeals addressed managing agents' liability to indirect Names and members' agents' liability under agency agreements, resembling the Gooda Walker appeals.

JUDGEMENT

  • In dismissing the appeals, it was held that managing agents owed a duty of care in tort to both direct and indirect Names.

  • Importantly, the existence of this duty of care was not excluded by the relevant contractual regime, whether under the pre-1985 agreements or the terms prescribed by the 1985 by-law.

  • The ruling clarified that Names were not precluded from pursuing their remedy in either contract or tort.

COMMENTARY

  • Lloyd's underwriting members ("Names") initiated legal proceedings against underwriting agents for negligence and breaches of legal obligations in underwriting. The complex case involved intricate relationships based on agency agreements, complicated by direct or indirect status. The evolving regulatory landscape, pre-1987 absence of prescribed forms, and subsequent mandates highlighted the case. Specific actions (Merrett, Feltrim, Gooda Walker) addressed complaints like negligent account closure and contractual liability assertions.

  • Saville J.'s pivotal ruling favoured Names during preliminary issues, upheld by the Court of Appeal. The dismissal of appeals clarified that managing agents owed a duty of care to both direct and indirect Names unaffected by the contractual regime. The judgment affirmed Names' freedom to pursue remedies in contract or tort, highlighting flexibility in addressing agent liability dynamics in Lloyd's underwriting.

ORIGINAL ANALYSIS

  • Plaintiffs entered a syndicate whereby Defendants would manage their funds. Some contracted directly with fund managers, while others had a contract to join the syndicate and their relationship with a fund manager was through the medium of a sub-agency agreement.

  • HL held that the more “indirect” plaintiff could still claim for tort damages as the relationship was proximate enough. 

Lord Goff

  • This type of relationship (investor and managing agent) is a typical circumstance where the Hedley-Byrne rules apply.

  • The agents held themselves out as having a special skill, they knew that Plaintiffs would be implicitly relying on their advice, since Plaintiffs gave Defendants the authority to take out insurance etc for them.

  • Knowledge of reliance + special skill + relationship between Defendant and Plaintiff that is either general or specific to a particular transaction (whereby Defendant assumes a responsibility to Plaintiff) = prima facie duty of care (subject to disclaimers).

  • He also says one can proceed either by analogy of circumstances to previous cases that come within the Hedley Byrne rules OR by principle from that case.

    • However he asserts that “the principle extends beyond the provision of information and advice to include the performance of other services.”

  • He acknowledges the criticism of the “assumption of responsibility” test in misrepresentation cases but says “in cases such as this” and “especially in a context concerned with a liability which may arise under a contract or in a situation ‘equivalent to contract,’” the benefit of asking whether, objectively, “responsibility should be held to have been assumed by the defendant” is that where one party assumes responsibility towards another he ought to be liable for loss flowing from it and hence, once it is established that a case falls within the Hedley Byrne principles (including assumption of responsibility), there is no need to ask whether it is fair, just and reasonable for liability to be imposed. 

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