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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Henderson v Merrett Syndicates [1994] UKHL 5 (25 July 1994)
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Cite as: [1994] UKHL 5, [1995] 2 AC 145, [1994] 3 All ER 506

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JISCBAILII_CASE_CONTRACT
JISCBAILII_CASE_TORT

    Parliamentary Archives,
    HL/PO/JU/18/254

    Arbuthnott (and others) (Respondents) v. Fagan and Feltrim
    Underwriting Agencies Limited (and others) (Appellants) and

    two other actions (1st Appeal)

    Arbuthnott (and others) (Respondents) v. Fagan and Feltrim
    Underwriting Agencies Limited (and others) (Appellants) and

    two other actions (2nd Appeal)

    Deeny (and others) (Respondents) v. Gooda Walker Limited (In
    Voluntary Liquidation) (and others) (Appellants)

    (Conjoined Appeals)

    Henderson (and others) (Respondents) v. Merrett Syndicates
    Limited and others (Appellants) and two other actions


    JUDGMENT

    Die Lunae 25° Julii 1994

    Upon Report from the Appellate Committee to whom were
    referred the Appeals Arbuthnott (and others) against Fagan and
    Feltrim Underwriting Agencies Limited (and others) and two other
    actions (two appeals), Deeny (and others) against Gooda Walker
    Limited (and others) and Henderson (and others) against Merrett
    Syndicates Limited and others and two other actions, That the
    Committee had heard Counsel as well on Tuesday the 15th as on
    Wednesday the 16th, Thursday the 17th, Tuesday the 22nd,
    Wednesday the 23rd, Thursday the 24th and Monday the 28th days
    of March last upon the Petitions and Appeals of the Defendants
    listed in the Schedule to the Writs of Summons in Actions 1992
    Folios 1856, 2423 and 3383; of Feltrim Underwriting Agencies
    Limited of Friary Court, 65 Crutched Friars, London EC3N 2NP; of
    the Defendant Members' Agents listed in Schedules 4 to 20, 22 to
    48 and 50 to 69 of the re-amended Writ of Summons in Action 1993
    Folio 335; and of Merrett Syndicates Limited and Merrett
    Underwriting Agency Management Limited, both of Arthur Castle
    House, 33 Creechurch Lane, London EC3A 5EB, praying that the
    matter of the Orders set forth in the Schedules thereto, namely
    Orders of Her Majesty's Court of Appeal of the 13th day of
    December 1993, might be reviewed before Her Majesty the Queen
    in Her Court of Parliament and that the said Orders might be
    reversed, varied or altered or that the Petitioners might have
    such other relief in the premises as to Her Majesty the Queen in
    Her Court of Parliament might seem meet; as upon the cases of
    Hugh Sinclair Arbuthnott and John Keithley Oxley Arbuthnott (and
    the others listed in the first Schedules to the Writs of Summons
    in Actions 1992 Folios 1856, 2423 and 3383); of Michael Eunan
    McLarnon Deeny (and the others listed in Schedules 1 to 71 of the
    Writ of Summons in Action 1993 Folio 335); and of Ian McIntosh
    Henderson, William Hallam-Eames and Elise Heckman Hughes (and the
    others listed in the Schedules to the Writs of Summons in Actions
    1992 Folio 1496 and 1993 Folios 145 and 545) lodged in answer to
    the said Appeals; and due consideration had this day of what was
    offered on either side in this Cause:

    Judgment: 25 July 1994

    HOUSE OF LORDS

    ARBUTHNOTT (AND OTHERS) (RESPONDENTS) v. PAGAN AND FELTRIM
    UNDERWRITING AGENCIES LIMITED (AND OTHERS) (APPELLANTS)
    AND TWO OTHER ACTIONS (1ST APPEAL)

    ARBUTHNOTT (AND OTHERS) (RESPONDENTS) v. PAGAN AND FELTRIM
    UNDERWRITING AGENCIES LIMITED (AND OTHERS) (APPELLANTS)
    AND TWO OTHERS ACTIONS (2ND APPEAL)

    DEENY (AND OTHERS) (RESPONDENTS) v. GOODA WALKER LIMITED
    (IN VOLUNTARY LIQUIDATION) (AND OTHERS) (APPELLANTS)

    (CONJOINED APPEALS)

    HENDERSON (AND OTHERS) (RESPONDENTS) v. MERRETT SYNDICATES
    LIMITED (AND OTHERS) (APPELLANTS) AND TWO OTHER ACTIONS

    Lord Keith of Kinkel
    Lord Goff of Chieveley
    Lord Browne-Wilkinson
    Lord Mustill
    Lord Nolan


    LORD KEITH OF KINKEL

    My Lords.

    For the reasons set out in the speech of my noble and learned friend
    Lord Goff of Chieveley. which I have read in draft and with which I agree,
    1 would dismiss these appeals.

    LORD GOFF OF CHIEVELEY

    My Lords.
    Introduction

    The appeals now before your Lordships' House arise out of a number
    of actions brought by underwriting members (known as Names) of Lloyd's
    against their underwriting agents, in an attempt to recoup at least part of the
    great losses which they have suffered following upon recent catastrophic

    - 1 -

    events, mainly in the United States of America, which have led to
    unprecedented claims being made upon Lloyd's underwriters.

    The actions in question form part of a large number of actions of this
    kind, which are now approaching trial in the Commercial Court. At the root
    of many of these actions lie questions of law, upon the resolution of which
    depends the nature of the legal responsibility which rested upon underwriting
    agents towards the Names for whom they acted. Accordingly, with the co-
    operation of the parties to the actions out of which the present appeals arise.
    Saville J. ordered that certain issues of principle should be decided as
    preliminary issues. Having heard argument upon these issues, he gave
    judgment on 12 October 1993, his rulings being favourable to the contentions
    advanced on behalf of the Names. On 13 December 1993, the Court of
    Appeal unanimously affirmed the decision of Saville J., for the reasons given
    by him. The matter now comes before your Lordships' House, with the leave
    of the House; and the hearing of the appeals has been expedited, in the hope
    that the fact that the appeals have come before the House will result in as little
    disturbance as possible to the programme now established for the hearing of
    the various Lloyd's actions in the Commercial Court.

    It is necessary for me now to identify, and place in their context, the
    various issues which fall for consideration on these appeals. But before I do
    so, it is desirable that I should first set out certain basic facts about the
    structure of Lloyd's, with special reference to the relationship between Names
    and their underwriting agents.

    Every person who wishes to become a Name at Lloyd's and who is not
    himself or herself an underwriting agent must appoint an underwriting agent
    to act on his or her behalf, pursuant to an underwriting agency agreement.
    Underwriting agents may act in one of three different capacities.

    1. They may be members' agents, who (broadly speaking) advise
      Names on their choice of Syndicates, place Names on the Syndicates chosen
      by them, and give general advice to them.

    2. They may be managing agents, who underwrite contracts of
      insurance at Lloyd's on behalf of the Names who are members of the
      Syndicates under their management, and who reinsure contracts of insurance

    and pay claims.

    (3) They may be combined agents, who perform both the role of
    members' agents, and the role of managing agents in respect of the Syndicates
    under their management.

    Until 1990, the practical position was as follows. Each Name entered
    into one or more underwriting agency agreements with an underwriting agent,
    which was either a members' agent or a combined agent. Each underwriting
    agency agreement governed the relationship between the Name and the

    - 2 -

    members' agent, or between the Name and the combined agent in so far as it
    acted as a members' agent. If however the Name became a member of a
    Syndicate which was managed by the combined agent, the agreement also
    governed the relationship between the Name and the combined agent acting
    in its capacity of managing agent. In such a case the Name was known as a
    direct Name. If however the Name became a member of a Syndicate which
    was managed by some other managing agent, the Name's underwriting agent
    (whether or not it was a combined agent) entered into a sub-agency Agreement
    under which it appointed the managing agent its sub-agent to act as such in
    relation to the Name. In such a case the Name was known as an Indirect
    Name.

    Before 1 January 1987, no forms of underwriting agency or sub-agency
    agreements were prescribed at Lloyd's; but standard clauses were in common
    use, and forms of agreement used by underwriting agents were similar, if not
    identical. For the purposes of the first group of actions now under appeal (the
    Merrett actions), which were concerned with that period, specimen agreements
    were placed before Saville J. for use by him in respect of those actions.
    These are to be found annexed to his judgment. However, pursuant to the
    Lloyd's Act 1982, Byelaw No. 4 of 1984 was made which prescribed forms
    of agency agreement and sub-agency agreement. These forms became
    compulsorily applicable as from 1 January 1987, and are the relevant forms
    in the other two groups of actions which are the subject of the present appeals,
    the Feltrim actions and the Gooda Walker actions. A subsequent Byelaw, No.
    8 of 1988, prescribed new standard forms of agreement for use in 1990 and
    subsequent years of account. With these forms, which swept away the
    distinction between direct and indirect Names, your Lordships are not directly
    concerned in the present appeals.

    I turn to the appeals now before your Lordships' House. These are (1)
    the Merrett Appeals, and (2) the conjoined Feltrim and Gooda Walker
    Appeals.

    (1) The Merrett Appeals.

    The appellants in these appeals (referred to as "Merretts") are in fact
    Merrett Syndicates Ltd. ("MSL") and Merrett Underwriting Agency
    Management Ltd. ("MUAM"). Up to 1 January 1986, MSL was a combined
    agent. It was the Managing Agent of Syndicate 418/417, and was also a
    members' agent. From 1 January 1986, MUAM became the Managing Agent
    of Syndicate 418/417, and MSL operated solely as a members' agent. There
    are three groups of Merrett actions brought by Names who were members of
    Syndicate 418/417. In all three groups of actions, there are complaints of
    negligent closure of a year or years of account into subsequent years by
    reinsurance to close ("RITC"). In one of them, there is also a complaint as
    to the writing of certain contracts of insurance; and in this case there is also
    an issue of limitation.

    - 3 -

    (2)(a) The Feltrim Appeals.

    The appellants are (i) Feltrim Underwriting Agencies Ltd. ("Feltrim"),
    which acted as a managing agent only; and (ii) about 40 members' agents-
    ("the Feltrim Members' Agents"), which are in fact unrelated to Feltrim. In
    the actions which are the subject of these appeals, Names who were members
    of Syndicates managed by Feltrim sue Feltrim as managing agents, and also
    sue the Feltrim members' agents as their members' agents. All the Names are
    indirect Names. The Names allege against Feltrim negligent underwriting
    during the years 1987-1989 arising out of their Syndicates' participation in the
    London Market Excess of Loss ("LMX") business, it being alleged that the
    underwriters assumed greatly excessive aggregate liabilities, and took out far
    too little reinsurance. The Feltrim members' agents are sued on the basis that
    they are contractually liable for the defaults of Feltrim as managing agents to
    whom the underwriting was delegated. There is no limitation issue.

    (2)(b) The Gooda Walker Appeals.

    The appellants are 65 members' agents ("the Gooda Walker Members'
    Agents"), against which it is alleged by Names that they are contractually
    liable to the Names for failure by the managing agents of the Syndicates of
    which the Names were members, to which the Gooda Walker Members'
    Agents had delegated the function of underwriting, to exercise reasonable care
    and skill in relation to such underwriting.

    It might have been expected that, in all three groups of appeals, there
    would be appeals by both the members' agents and the managing agents: and
    that in each case issues would arise whether there was liability on their part
    in contract, or in tort, or for breach of fiduciary duty. But that is not in fact
    the case. In the case of the Merrett Appeals, there is no issue before your
    Lordships between the Names and their members' agents acting as such.
    Except for one entirely distinct issue concerned with RITC, the appeals are
    concerned only with the issue of liability, either in tort or for breach of
    fiduciary duty, of Merretts as managing agents, whether to direct Names
    (where Merretts were combined agents) or to indirect Names. By way of
    contrast, in the Gooda Walker Appeals the Gooda Walker Managing Agents
    are not appealing to this House against the decision of the Court of Appeal,
    with the result that the ruling of the Court of Appeal that they owed a
    contractual duty to direct Names, and a duty of care in tort to indirect Names,
    will remain binding as between them and the Names in question. The only
    issue now before your Lordships on the Gooda Walker appeals arises in
    relation to the agency agreements entered into between Names and the Gooda
    Walker Members' Agents. So far as the Feltrim appeals are concerned,
    however, issues arise both as to Feltrim's liability as managing agents, viz.
    whether Feltrim owed a duty of care in tort, or as fiduciary, to the indirect
    Names who were members of the Feltrim Syndicates in the years 1987-1989,
    and as to the Feltrim Members' Agents' liability as such in relation to the

    - 4 -

    agency agreements entered into between them and Names, as in the Gooda
    Walker appeals.

    In the result, the following issues have been identified as arising for
    the decision of your Lordships' House on these appeals:

    Issue 1.

    (A). Merrett Appeals. Liability of managing agents to Names under
    the forms of agreement in force before 1987.

    (1) Duty of care - indirect Names. Did managing agents (who
    were not also members agents) owe indirect Names a duty under the pre-1985
    Byelaw form of underwriting agency agreement to carry out their underwriting
    functions with reasonable care and skill for the 1979 to 1985 years of account

    inclusive?

    (a) Does the law of tort impose any duty upon managing agents not
    to cause purely economic loss to Names?

    (b) Does the "absolute discretion" conferred upon managing agents
    under the pre-1985 Byelaw form of underwriting agency agreement preclude
    the implication of any duty other than duties to act honestly, rationally and

    loyally?

    (2) Duty of care - direct Names. Did Merretts as managing agents
    who were also members' agents owe direct Names a non-contractual duty
    under the pre-1985 Byelaw forms of underwriting agency agreement to carry
    put their underwriting functions with reasonable care and skill for the 1979
    to 1985 years of account inclusive?

    (3) Fiduciary duty. Did Merretts as managing agents (whether they
    were also members' agents or not) owe Names as fiduciary a duty to conduct
    the underwriting for the account of the Names with reasonable care and skill
    for the 1979 to 1985 years of account (inclusive) equivalent to the alleged duty
    of care in tort?

    (B). Feltrim Appeals. Liability of managing agents to names under
    the forms of agreement in force between 1987 and 1989.

    1. Duty of care - indirect Names. In tort Did Feltrim, a
      managing agent only, owe a duty of care in tort to the (indirect) Names on the
      Feltrim Syndicates to carry out the conduct and management of the
      underwriting business of the Feltrim Syndicates with reasonable care and skill
      at any material time between 1987 and 1989?

    2. Fiduciary duty. As fiduciary Did Feltrim owe Names a
      fiduciary duty equivalent to a duty of care in tort as described above?

    - 5 -

    Issue 2.

    Feltrim and Gooda Walker Appeals. Liability of members' agents to
    Names under the forms of agreement in force during the period 1987 to 1989;-


    Whether, in relation to, and on the true construction of, agency

    agreements entered into between Names and members' agents in the standard
    form provided for by Lloyd's Byelaw No. 1 of 1985:

    (1) It was a term of the said agency agreements that the actual
    underwriting would be carried on with reasonable care and skill, so that the
    members agents remained directly responsible to their Names for any failure
    to exercise reasonable care and skill by the managing agents of any particular
    Syndicate to whom such underwriting had been delegated.

    (2) There was a term of the said agreements that the members' agent
    was only required to exercise reasonable care and skill in relation to such
    activities and functions as members' agents by custom and practice actually
    perform for their Names personally.

    (3) There was a direct contractual relationship of principal and
    agent between Names and the managing agents of Syndicates in which the
    Names participated.

    Issue 3.

    Merrett Appeals. Reinsurance to close.

    Whether for Names who executed the new prescribed 1985 Byelaw
    form or underwriting agency agreement the contractual relationship between
    such Names for the 1985 underwriting year of account and their members'
    agents and between their members' agents and the managing agent in relation
    to the acceptance in about June 1987 by the Syndicate for the 1985
    underwriting year of account of the reinsurance to close the 1984 underwriting
    year of account was governed by the 1985 Byelaw form of agreement or by
    the pre-1985 Byelaw form of agreement.

    For the purpose of considering these various issues, I shall for
    convenience organise them a little differently, as will appear hereafter.

    I Merrett and Feltrim Appeals.

    A Duty of care - Liability of managing agents to Names (both direct and
    indirect Names) in tort.

    (1) Introduction

    - 6 -

    I turn now to the tortious issues which arise in the Merrett and Feltrim
    appeals. The first issue, in the order in which they are stated, is concerned
    with the question whether managing agents, which were not also members'
    agents, owed to indirect Names a duty of care in tort to 'carry out their
    underwriting functions with .reasonable care and skill. The second issue is
    concerned with the question whether managing agents, which were also
    members' agents, owed such a duty to direct Names.

    The first of these issues, relating to indirect Names, arises in both the
    Merrett appeals and the Feltrim appeals. However the issue in the Merrett
    appeals arises in the context of the pre-1985 Byelaw forms of agency and sub-
    agency agreements, whereas that in the Feltrim appeals does so in the context
    of the forms of agreement prescribed under the 1985 byelaw. The second of
    these issues, relating to direct Names, arises only in the Merrett appeals, in
    the context of the pre-1985 Byelaw forms.

    It is desirable that I should at once identify the reasons why Names in
    the Merrett and Feltrim actions are seeking to establish that there is a duty of
    care owed to them by managing agents in tort. First, the direct Names in the
    Merrett actions seek to hold the managing agents concurrently liable in
    contract and in tort. Where, as in the case of direct Names, the agents are
    combined agents, there can be no doubt that there is a contract between the
    Names and the agents, acting as managing agents, in respect of the
    underwriting carried out by the managing agents on behalf of the Names as
    members of the Syndicate or Syndicates under their management, the only
    question being as to the scope of the managing agents' contractual
    responsibility in this respect. Even so. in the Merrett actions. Names are
    concerned to establish the existence of a concurrent duty of care in tort, if
    only because there is a limitation issue in one of the actions, in which Names
    wish therefore to be able to take advantage of the more favourable date for the
    accrual of the cause of action in tort, as opposed to that in contract. Second,
    the indirect Names in both the Merrett and the Feltrim actions are seeking to
    establish the existence of a duty of care on the part of the managing agents in
    tort, no doubt primarily to establish a direct liability to them by the managing
    agents, but also, in the case of the Merrett actions, to take advantage of the
    more advantageous position on limitation. Your Lordships were informed that
    there is no limitation issue in the Feltrim actions.

    I turn next to the forms of agreement which provide the contractual
    context for these issues. I have already recorded that, so far as the pre-1985
    Byelaw forms are concerned, no form was prescribed, but those in use were
    substantially similar if not identical, and that specimen forms of agency and
    sub-agency agreement were agreed for the purposes of these preliminary
    issues and are scheduled to the judgment of Saville J. The most relevant
    provisions of the specimen forms are the following.

    (1) Agency Agreement

    - 7 -

    " 1. The Agent shall act as the underwriting agent for the Name
    for the purposes of underwriting at Lloyd's for the account of
    the Name policies and contracts of insurance reinsurance and
    guarantee relating to all classes of insurance business which
    with the sanction of the Committee of Lloyd's may be
    transacted at Lloyd's by the Syndicate.

    . . .

    4. The Agent shall have full power and authority to appoint and
    employ the Sub-Agent to carry on or manage the underwriting
    and to delegate to or confer upon the Sub-Agent all or any of
    the powers authorities discretions and rights given to the Agent
    by this agreement.

    . . .


    6. (a) The Agent shall have the sole control and management
    of the underwriting and absolute discretion as to the acceptance
    of risks and settlement of claims whether such claims shall in
    the opinion of the Agent be legally enforceable or not.

    . . .


    (d) The Name shall not in any way interfere with the exercise
    of the aforesaid control or management or discretion.

    7. The following provisions shall apply concerning the
    accounts of the underwriting:-

    . . .


    (e) The Syndicate account of any calendar year shall not be
    closed before the expiration of the two calendar years next
    following the calendar year in question and in order to close
    the Syndicate account of any year the Agent may:-

    (i) re-insure all or any outstanding liabilities in such
    manner and by debiting such account with such sum as
    the Agent shall in the absolute discretion of the Agent
    think fit as a premium for reinsurance and crediting the
    reinsurance premium to the Syndicate account of the
    next succeeding year or

    (ii) re-insure all or any outstanding liabilities of such
    account into the account of any other year then
    remaining open or in any other manner which the Agent
    thinks fit or

    (iii) allow the whole or part of a Syndicate account of
    any year to remain open until its outstanding liabilities
    shall have run off

    - 8 -

    . . .

    12.(a) The Agent may from time to time retain out of the
    profits of the underwriting which would otherwise be payable
    to the Name any moneys which the Agent may in the absolute
    discretion of the Agent (subject to any requirements prescribed
    by Lloyd's) think desirable to carry to reserve and such moneys
    may be placed on deposit at any bank or discount house of
    public or local authorities or building society or may be
    invested in such stocks funds shares or securities (including
    bearer securities) in any part of the world as the Agent may
    determine and the Agent shall not be responsible for any loss
    of principal or interest on such deposits or investments.
    Interest or dividends earned on any such deposits or
    investments shall be credited to the Name in respect to the
    Name's due proportion thereof."

    (2) Sub-Agency Agreement

    "2. The Sub-Agent agrees and is retained and authorised to act
    as Underwriting Sub-Agent for the Agent for the purpose of
    underwriting at Lloyd's in the Names and for the account of
    each of the Names policies and contracts of insurance
    reinsurance and guarantee relating to all classes of insurance
    business which with the sanction of the Committee of Lloyd's
    may be transacted as insurance business and of carrying on for
    each of the Names the business of Marine Underwriter at
    Lloyd's and the appointment of the Sub-Agent shall take effect
    in respect of each of the Names on and from the date specified
    in the second column of the Schedule hereto opposite the name
    of each of the Names.

    . . .


    5. The Agent delegates to the Sub-Agent the exercise of all
    such powers authorities discretions and rights conferred upon
    the Agent by the Underwriting Agency agreement as it may be
    in any way necessary for the Sub-Agent to have to enable the
    Sub-Agent or any underwriter or agent appointed by the Sub-
    Agent to carry on the underwriting for the Names and to close
    the accounts of the Names.

    6. Subject to the provisions of clause 7 hereof the
    underwriting shall be conducted and the accounts thereof shall
    be kept and made up and the profits ascertained in such manner
    as the Sub-Agent may for the time being think fit and the Sub-
    Agent shall have the sole control and management of the

    - 9 -

    underwriting and sole discretion as to the acceptance of risks
    and the compromise or settlement of claims.

    . . .


    8. All questions relating to the investment of premiums and
    other monies not required for the current service of the
    underwriting and to the time and manner of paying over profits
    and the placing of sums to a reserve shall be decided by the
    Sub-Agent and subject as aforesaid the Sub-Agent shall pay
    over the profits of the underwriting to the Agent for
    distribution to the Names."

    Turning to the forms of agency and sub-agency agreements prescribed
    by the 1985 Byelaw, I will set out the material provisions below when
    considering Issue 2, concerned with the liability of members' agents. These
    provisions will therefore be available for reference, and I do not propose to
    repeat them here.

    In the result, in neither the specimen agreements nor the agreements
    prescribed by the 1985 Byelaw is there any express provision imposing on the
    agent a duty to exercise care and skill in the exercise of the relevant functions
    under the agreement: but I understand it not to be in dispute that a term to
    that effect must be implied into the agreements. It is against that background
    that the question falls to be considered whether a like obligation rested upon
    the managing agents in tort, so that the managing agents which were also
    members' agents owed such a duty of care in tort to direct Names, with the
    effect that the direct Names had alternative remedies, in contract and tort.
    against the managing agents; and whether managing agents which were not
    also members' agents owed such a duty of care in tort to indirect Names, so
    that the indirect Names had a remedy in tort against the managing agents,
    notwithstanding the existence of a contractual structure embracing indirect
    Names, members' agents and managing agents, under which such a duty was
    owed in contract by the managing agents to the members' agents, and by the
    members' agents to the indirect Names. Furthermore, the question also arises
    whether, under the pre-1985 forms of agreement, the absolute discretion as
    to the acceptance of risks (and settlement of claims) vested in agents under
    clause 6(a) of the agency agreement, and delegated by them to sub-agents (the
    managing agents) under clauses 5 and 6 of the sub-agency agreement, was
    effective to exclude any duty of care which might otherwise have been
    imposed upon the managing agents, either in contract or in tort.

    Saville J. resolved all these issues in favour of the Names. He held
    that a duty of care was owed by managing agents in tort both to direct Names
    and to indirect Names, and that the existence of such a duty of care was not
    excluded by reason of the relevant contractual regime, whether under the pre-
    1985 specimen agreements, or under the forms of agreement prescribed by the
    1985 Byelaw. In particular, he held that the absolute discretion conferred on

    - 10 -

    the agent under clause 6(a) of the pre-1985 Byelaw specimen agency
    agreement, and delegated to the managing agent under clauses 5 and 6 of the
    related sub-agency agreement, did not exclude any such duty of care. On all
    these points Saville J,'s decision was, as I have recorded, affirmed by the
    Court of Appeal.

    (2) The argument of the Managing Agents

    The main argument advanced by the managing agents against the
    existence of a duty of care in tort was that the imposition of such a duty upon
    them was inconsistent with the contractual relationship between the parties.
    In the case of direct Names, where there was a direct contract between the
    Names and the managing agents, the argument was that the contract legislated
    exclusively for the relationship between the parties, and that a parallel duty of
    care in tort was therefore excluded by the contract. In the case of indirect
    Names, reliance was placed on the fact that there had been brought into
    existence a contractual chain, between Name and members' agent, and
    between members' agent and managing agent; and it was said that, by
    structuring their contractual relationship in this way, the indirect Names and
    the managing agents had deliberately excluded any direct responsibility,
    including any tortious duty of care, to the indirect Names by the managing
    agents. In particular, the argument ran. it was as a result not permissible for
    the Names to pray in aid, for limitation purposes, the more favourable time
    for accrual of a cause of action in tort. To do so, submitted the managing
    agents, would deprive them of their contractual expectations, and would avoid
    the policy of Parliament that there are different limitation regimes for contract
    and tort.

    Such was the main argument advanced on behalf of the managing
    agents. Moreover, as appears from my summary of it, the argument was not
    precisely the same in the case of direct Names and indirect Names
    respectively. However, in any event, I think it desirable first to consider the
    principle upon which a duty of care in tort may in the present context be
    imposed upon the managing agents, assuming that to impose such a duty
    would not be inconsistent with the relevant contractual relationship. In
    considering this principle, I bear in mind in particular the separate submission
    of the managing agents that no such duty should be imposed, because the loss
    claimed by the Names is purely economic loss. However the identification of
    the principle is, in my opinion, relevant to the broader question of the impact
    of the relevant contract or contracts.

    (3) The governing principle

    Even so, I can take this fairly shortly. I turn immediately to the
    decision of this House in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.
    [1964] AC 465. There, as is of course well known, the question arose
    whether bankers could be held liable in tort in respect of the gratuitous
    provision of a negligently favourable reference for one of their customers,

    - 11 -

    when they knew or ought to have known that the plaintiff would rely on their
    skill and judgment in furnishing the reference, and the plaintiff in fact relied
    upon it and in consequence suffered financial loss. Your Lordships' House
    held that, in principle, an action would lie in such circumstances in tort; but-
    that, in the particular case, a duty of care was negatived by a disclaimer of
    responsibility under cover of which the reference was supplied.

    The case has always been regarded as important in that it established
    that, in certain circumstances, a duty of care may exist in respect of words as
    well as deeds, and further that liability may arise in negligence in respect of
    pure economic loss which is not parasitic upon physical damage. But, perhaps
    more important for the future development of the law, and certainly more
    relevant for the purposes of the present case, is the principle upon which the
    decision was founded. The governing principles are perhaps now perceived
    to be most clearly stated in the speeches of Lord Morris of Borth-y-Gest (with
    whom Lord Hodson agreed) and of Lord Devlin. Lord Morris said, at
    pp. 502-503):

    "My Lords, I consider that it follows and that it should now be
    regarded as settled that if someone possessed of a special skill
    undertakes, quite irrespective of contract, to apply that skill for the
    assistance of another person who relies upon such skill, a duty of care
    will arise. The fact that the service is to be given by means of or by
    the instrumentality of words can make no difference. Furthermore, if
    in a sphere in which a person is so placed that others could reasonably
    rely upon his judgment or his skill or upon his ability to make careful
    inquiry, a person takes it upon himself to give information or advice
    to, or allows his information or advice to be passed on to. another
    person who, as he knows or should know, will place reliance upon it.
    then a duty of care will arise.

    Lord Devlin said, at p. 526:

    "The respondents in this case cannot deny that they were performing
    a service. Their sheet anchor is that they were performing it
    gratuitously and therefore no liability for its performance can arise.
    My Lords, in my opinion this is not the law. A promise given without
    consideration to perform a service cannot be enforced as a contract by
    the promisee; but if the service is in fact performed and done
    negligently, the promisee can recover in an action in tort."

    He then cited a number of authorities, and continued, at pp. 528-529:

    "I think, therefore, that there is ample authority to justify your
    Lordships in saying now that the categories of special relationships
    which may give rise to a duty to take care in word as well as in deed
    are not limited to contractual relationships or to relationships of
    fiduciary duty, but include also relationships which in the words of

    - 12 -

    Lord Shaw in Norton v. Lord Ashburton [1914] A.C. 932, 972 are
    'equivalent to contract,' that is, where there is an assumption of
    responsibility in circumstances in which, but for the absence of
    consideration, there would be a contract. Where there is an express
    undertaking, an express warranty as distinct from mere representation,
    there can be little difficulty. The difficulty arises in discerning those
    cases in which the undertaking is to be implied. In this respect the
    absence of consideration is not irrelevant. Payment for information or
    advice is very good evidence that it is being relied upon and that the
    informer or adviser knows that it is. Where there is no consideration,
    it will be necessary to exercise greater care in distinguishing between
    social and professional relationships and between those which are of
    a contractual character and those which are not. It may often be
    material to consider whether the adviser is acting purely out of good
    nature or whether he is getting his reward in some indirect form. The
    service that a bank performs in giving a reference is not done simply
    out of a desire to assist commerce. It would discourage the customers
    of the bank if their deals fell through because the bank had refused to
    testify to their credit when it was good.

    "I have had the advantage of reading all the opinions prepared by your
    Lordships and of studying the terms which your Lordships have
    framed by way of definition of the sort of relationship which gives rise
    to a responsibility towards those who act upon information or advice
    and so creates a duty "of care towards them. I do not understand any
    of your Lordships to hold that it is a responsibility imposed by law
    upon certain types of persons or in certain sons of situations. It is a
    responsibility that is voluntarily accepted or undertaken, either
    generally where a general relationship, such as that of solicitor and
    client or banker and customer, is created, or specifically in relation to
    a particular transaction."

    He said, at pp. 531-532:

    "Since the essence of the matter in the present case and in others of
    the same type is the acceptance of responsibility, I should like to guard
    against the imposition of restrictive terms notwithstanding that the
    essential condition is fulfilled. If a defendant says to a plaintiff: 'Let
    me do this for you: do not waste your money in employing a
    professional, I will do it for nothing and you can rely on me.' I do
    not think he could escape liability simply because he belonged to no
    profession or calling, had no qualifications or special skill and did not
    hold himself out as having any. The relevance of these factors is to
    show the unlikelihood of a defendant in such circumstances assuming
    a legal responsibility, and as such they may often be decisive. But
    they are not theoretically conclusive and so cannot be the subject of
    definition. It would be unfortunate if they were. For it would mean
    that plaintiffs would seek to avoid the rigidity of the definition by

    - 13 -

    bringing the action in contract as in De La Bere v. Pearson Ltd. [1908]
    1 K.B. 280 and setting up something that would do for consideration.
    That, to my mind, would be an undesirable development in the law;
    and the best way of avoiding it is to settle the law so that the presence'-
    or absence of consideration makes no difference."


    From these statements, and from their application in Hedley Byrne, we can
    derive some understanding of the breadth of the principle underlying the case.
    We can see that it rests upon a relationship between the parties, which may
    be general or specific to the particular transaction, and which may or may not
    be contractual in nature. All of their Lordships spoke in terms of one party
    having assumed or undertaken a responsibility towards the other. On this
    point. Lord Devlin spoke in particularly clear terms in both passages from his
    speech which I have quoted above. Further, Lord Morris spoke of that party
    being possessed of a "special skill" which he undertakes to "apply for the
    assistance of another who relies upon such skill". But the facts of Hedley
    Byrne
    itself, which was concerned with the liability of a banker to the
    recipient for negligence in the provision of a reference gratuitously supplied.
    show that the concept of a "special skill" must be understood broadly,
    certainly broadly enough to include special knowledge. Again, though Hedley
    Byrne
    was concerned with the provision of information and advice, the
    example given by Lord Devlin of the relationship between solicitor and client,
    and his and Lord Morris' statements of principle, show that the principle
    extends beyond the provision of information and advice to include the
    performance of other services. It follows, of course, that although, in the
    case of the provision of information and advice, reliance upon it by the other
    party will be necessary to establish a cause of action (because otherwise the
    negligence will have no causative effect), nevertheless there may be other
    circumstances in which there will be the necessary reliance to give rise to the
    application of the principle. In particular, as cases concerned with solicitor
    and client demonstrate, where the plaintiff entrusts the defendant with the
    conduct of his affairs, in general or in particular, he may be held to have
    relied on the defendant to exercise due skill and care in such conduct.

    In subsequent cases concerned with liability under the Hedley Byrne
    principle in respect of negligent misstatements, the question has frequently
    arisen whether the plaintiff falls within the category of persons to whom the
    maker of the statement owes a duty of care. In seeking to contain that
    category of persons within reasonable bounds, there has been some tendency
    on the part of the courts to criticise the concept of "assumption of
    responsibility" as being "unlikely to be a helpful or realistic test in most
    cases" (see Smith v. Eric S. Bush [1990] 1 AC 831, 864-865, per Lord
    Griffiths: and see also Caparo Industries Plc v. Dickman [1990] 2 AC 605,
    628. per Lord Roskill). However, at least in cases such as the present, in
    which the same problem does not arise, there seems to be no reason why
    recourse should not be had to the concept, which appears after all to have
    been adopted, in one form or another, by all of their Lordships in Medley

    - 14 -

    Byrne [1964] AC 465 (see, e.g., Lord Reid at pp. 483, 486 and 487; Lord
    Morris (with whom Lord Hodson agreed) at p. 494; Lord Devlin at pp. 529
    and 531; and Lord Pearce at p. 538). Furthermore, especially in a context
    concerned with a liability which may arise under a contract or in a situation
    "equivalent to contract", it must be expected that an objective test will be
    applied when asking the question whether, in a particular case, responsibility
    should be held to have been assumed by the defendant to the plaintiff: see
    Caparo Industries Plc v. Dickman [1990] 2 AC 605, 637, per Lord Oliver
    of Aylmerton. In addition, the concept provides its own explanation why
    there is no problem in cases of this kind about liability for pure economic
    loss; for if a person assumes responsibility to another in respect of certain
    services, there is no reason why he should not be liable in damages for that
    other in respect of economic loss which flows from the negligent performance
    of those services. It follows that, once the case is identified as falling within
    the Hedley Byrne principle, there should be no need to embark upon any
    further enquiry whether it is "fair, just and reasonable" to impose liability for
    economic loss - a point which is, I consider, of some importance in the
    present case. The concept indicates too that in some circumstances, for
    example where the undertaking to furnish the relevant service is given on an
    informal occasion, there may be no assumption of responsibility; and likewise
    that an assumption of responsibility may be negatived by an appropriate
    disclaimer. I wish to add in parenthesis that, as Oliver J. recognised in
    Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch. 384, 416F-
    G. (a case concerned with concurrent liability of solicitors in tort and contract,
    to which I will have to refer in a moment) an assumption of responsibility by,
    for example, a professional man may give rise to liability in respect of
    negligent omissions as much as negligent acts of commission, as for example
    when a solicitor assumes responsibility for business on behalf of his client and
    omits to take a certain step, such as the service of a document, which falls
    within the responsibility so assumed by him.

    (4) The application of the principle to managing agents at Lloyds

    Since it has been submitted on behalf of the managing agents that no
    liability should attach to them in negligence in the present case because the
    only damage suffered by the Names consists of pure economic loss, the
    question arises whether the principle in Hedley Byrne is capable of applying
    in the case of underwriting agents at Lloyds who are managing agents. Like
    Saville J. and the Court of Appeal, I have no difficulty in concluding that the
    principle is indeed capable of such application. The principle has been
    expressly applied to a number of different categories of person who perform
    services of a professional or quasi-professional nature, such as bankers (in
    Hedley Byrne itself); solicitors (as foreshadowed by Lord Devlin in Hedley
    Byrne,
    and as held in the leading case of Midland Bank Trust Co. Ltd v. Hett,
    Stubbs & Kemp
    [1979] Ch. 384, and other cases in which that authority has
    been followed); surveyors and valuers (as in Smith v. Eric S. Bush [1990] 1
    A.C. 831); and accountants (as in Caparo Industries Plc. v. Dickman [1990]

    - 15 -

    2 A.C. 605). Another category of persons to whom the principle has been
    applied, and on which particular reliance was placed by the Names in the
    courts below and in argument before your Lordships, is insurance brokers.
    As Phillips J. pointed out in Youell v. Bland Welch & Co. Ltd. (The-
    Superhulls Cover Case No.
    2) [1990] 2 Lloyd's Rep. 431, 459, it has been
    accepted, since before 1964, that an insurance broker owes a duty of care in
    negligence towards his client, whether the broker is bound by contract or not.
    Furthermore, in Punjab National Bank v. DeBoinville [1992] 1 Lloyd's Rep.
    7 it was held by the Court of Appeal, affirming the decision of Hobhouse J.,
    that a duty of care was owed by an insurance broker not only to his client but
    also to a specific person whom he knew was to become an assignee of the
    policy. For my part I can see no reason why a duty of care should not
    likewise be owed by managing agents at Lloyds to a Name who is a member
    of a Syndicate under the management of the agents. Indeed, as Saville J. and
    the Court of Appeal both thought, the relationship between Name and
    managing agent appears to provide a classic example of the type of
    relationship to which the principle in Hedley Byrne applies. In so saying, I
    put on one side the question of the impact, if any, upon the relationship of the
    contractual context in which it is set. But, that apart, there is in my opinion
    plainly an assumption of responsibility in the relevant sense by the managing
    agents towards the Names in their Syndicates. The managing agents have
    accepted the Names as members of a Syndicate under their management.
    They obviously hold themselves out as possessing a special expertise to advise
    the Names on the suitability of risks to be underwritten; and on the
    circumstances in which, and the extent to which, reinsurance should be taken
    out and claims should be settled. The Names, as the managing agents well
    knew, placed implicit reliance on that expertise, in that they gave authority to
    the managing agents to bind them to contracts of insurance and reinsurance
    and to the settlement of claims. I can see no escape from the conclusion that.
    in these circumstances, prima facie a duty of care is owed in tort by the
    managing agents to such Names. To me, it does not matter if one proceeds
    by way of analogy from the categories of relationship already recognised as
    falling within the principle in Hedley Byrne or by a straight application of the
    principle stated in the Hedley Byrne case [1964] AC 465 itself. On either
    basis the conclusion is, in my opinion, clear. Furthermore, since the duty
    rests on the principle in Hedley Byrne, no problem arises from the fact that
    the loss suffered by the Names is pure economic loss.

    This conclusion is, however, subject to the impact, if any, of the
    contractual context. In argument before your Lordships this was regarded as
    constituting the main basis for the managing agents' challenge to the
    conclusion on this point of the courts below. To this point I must therefore
    turn: but before I do so I propose to consider briefly, if only to put it on one
    side, the question whether, under the pre-1985 forms of agreement, a duty of
    care on the part of the managing agents was excluded by the absolute
    discretion vested in them under their contract with the direct Names, or with
    the members' agents in cases involving indirect Names.

    - 16 -

    (5) Absolute Discretion

    I can deal with this point briefly because, like the Court of Appeal, I
    agree with Saville J. that there is no substance in it. It was the submission of
    the managing agents in the Merrett appeals before your Lordships, as it had
    been before Saville J., that there was an unbroken line of authority supporting
    the proposition that the expression "absolute discretion" in the context of a
    private law agreement meant that the exercise of the power given by the
    agreement to the recipient of the power cannot be challenged by the donor or
    beneficiary of the power unless (a) the exercise of the power is in bad faith,
    or (b) (arguably) the exercise of the power is totally unreasonable. It
    followed, so the argument ran, that a duty to exercise due skill or care,
    whether contractual or extra-contractual, was inconsistent with the bargain
    and so must be excluded. However, it appears to me, as it did to the judge,
    that in the present context the words used cannot have the effect of excluding
    a duty of care, contractual or otherwise. Clear words are required to exclude
    liability in negligence; and in the present case the words can, and in my
    opinion should, be directed towards the scope of the agents' authority. No
    doubt the result is that very wide authority has been vested in the agents; but
    the suggestion that the agent should as a result be under no duty to exercise
    due skill and care in the exercise of his function under the agreement is, in the
    present context, most surprising. I am content to adopt the following passage
    from the judgment of Saville J. as my own:

    "As I have said in other cases, Lloyd's could not exist as an insurance
    and reinsurance market unless the business is conducted by
    professionals who must be given the widest possible powers to act on
    behalf of the Names. Thus the underwriting agency agreement makes
    absolutely clear that the Name must leave it exclusively to the
    underwriting agents actually to run the business. The standard of
    behaviour to be expected of the underwriting agents in carrying out
    this task is an entirely different matter. The underwriting agency
    agreement contains no express provisions in this regard, but I do not
    find this in the least surprising, since it seems to me literally to go
    without saying that the underwriting agents must act with reasonable
    care and skill in exercising their authority and carrying on the
    underwriting business on behalf of the Name. The very fact that the
    agents are given the widest possible authority to act on behalf of the
    Name, together with the fact that the Name's potential liability for the
    actions of the agents is unlimited and the further fact that the agents
    receive remuneration for exercising their professional skills on behalf
    of the Name, seem to me to point irresistibly to the conclusion that in
    such a relationship the law does (as a matter of common sense it
    should) impose a duty of reasonable care and skill upon the
    underwriting agents of the kind alleged by the Names, which could
    only be modified or excluded by clear agreement between the parties.
    I can find nothing in the underwriting agency agreement which
    indicates that this duty (the ordinary one owed by any professional

    - 17 -

    person) is in any way modified or excluded in the present cases, nor
    to my mind is there anything of relevance in this context in the sub-
    agency agreement."

    For these reasons I am, like both courts below, unable to accept the managing
    agents' argument on this point. With this point out of the way I can turn to
    the main argument on this part of the case, relating to the impact of the
    contractual context.

    (6) The impact of the contractual context.

    All systems of law which recognise a law of contract and a law of tort
    (or delict) have to solve the problem of the possibility of concurrent claims
    arising from breach of duty under the two rubrics of the law. Although there
    are variants, broadly speaking two possible solutions present themselves:
    either to insist that the claimant should pursue his remedy in contract alone.
    or to allow him to choose which remedy he prefers. As my noble and learned
    friend Lord Mustill and I have good reason to know (see J. Bracconot et Cie
    v. Compagnie des Messageries Maritimes (The Sindh)
    [1975] 1 Lloyd's Rep.
    372). France has adopted the former solution in its doctrine of non cumul.
    under which the concurrence of claims in contract and tort is outlawed (see
    Tony Weir in XI Int. Encycl. Comp. L., ch. 12. paras. 47-72, at para. 52).
    The reasons given for this conclusion are (1) respect for the will of the
    legislator, and (2) respect for the will of the parties to the contract (see: para.
    53). The former does not concern us; but the latter is of vital importance.
    It is however open to various interpretations. For such a policy does not
    necessarily require the total rejection of concurrence, but only so far" as a
    concurrent remedy in tort is inconsistent with the terms of the contract. It
    comes therefore as no surprise to learn that the French doctrine is not
    followed in all civil law jurisdictions, and that concurrent remedies in tort and
    contract are permitted in other civil law countries, notably Germany
    (see: para. 58). I only pause to observe that it appears to be accepted that no
    perceptible harm has come to the German system from admitting concurrent
    claims.

    The situation in common law countries, including of course England.
    is exceptional, in that the common law grew up within a procedural
    framework uninfluenced by Roman law. The law was categorised by
    reference to the forms of action, and it was not until the abolition of the forms
    of action by the Common Law Procedure Act 1852 that it became necessary
    to reclassify the law in substantive terms. The result was that common
    lawyers did at last segregate our law of obligations into contract and tort,
    though in so doing they relegated quasi-contractual claims to the status of an
    appendix to the law of contract, thereby postponing by a century or so the
    development of a law of restitution. Even then, there was no systematic
    reconsideration of the problem of concurrent claims in contract and tort. We
    can see the courts rather grappling with unpromising material drawn from the
    old cases in which liability in negligence derived largely from categories based

    - 18 -

    upon the status of the defendant. In a sense, we must not be surprised: for
    no significant law faculties were established at our universities until the late
    19th century, and so until then there was no academic opinion available to
    guide or stimulate the judges. Even so, it is a remarkable fact-mat there was
    little consideration of the problem of concurrent remedies in our academic
    literature until the second half of the 20th century, though in recent years the
    subject has attracted considerable attention.

    In the result, the courts in this country have until recently grappled
    with the problem very largely without the assistance of systematic academic
    study. At first, as is shown in particular by cases concerned with liability for
    solicitors' negligence, the courts adopted something very like the French
    solution, holding that a claim against a solicitor for negligence must be
    pursued in contract, and not in tort (see, e.g., Bean v. Wade (1885) 2 T.L.R.
    157): and in Groom v. Crocker [1939] 1 K.B. 194, this approach was firmly
    adopted. It has to be said, however, that decisions such as these, though
    based on prior authority, were supported by only a slender citation of cases,
    none of great weight; and the jurisprudential basis of the doctrine so adopted
    cannot be said to have been explored in any depth. Furthermore when, in
    Bagot v. Stevens Scanlan & Co. Ltd. [1966] 1 Q.B. 197. Diplock L.J. adopted
    a similar approach in the case of a claim against a firm of architects, he felt
    compelled to recognise (pp. 204-205) that a different conclusion might be
    reached in cases "... where the law in the old days recognised either
    something in the nature of a status like a public calling (such as common
    carrier, common innkeeper, or a bailor and bailee) or the status of master and
    servant". To this list must be added cases concerned with claims against
    doctors and dentists. I must confess to finding it startling that, in the second
    half of the 20th century, a problem of considerable practical importance
    should fall to be solved by reference to such an outmoded form of
    categorisation as this.

    I think it is desirable to stress at this stage that the question of
    concurrent liability is by no means only of academic significance. Practical
    issues, which can be of great importance to the parties, are at stake.
    Foremost among these is perhaps the question of limitation of actions. If
    concurrent liability in tort is not recognised, a claimant may find his claim
    barred at a time when he is unaware of its existence. This must moreover be
    a real possibility in the case of claims against professional men. such as
    solicitors or architects, since the consequences of their negligence may well
    not come to light until long after the lapse of six years from the date when the
    relevant breach of contract occurred. Moreover the benefits of the Latent
    Damage Act 1986, under which the time of the accrual of the cause of action
    may be postponed until after the plaintiff has the relevant knowledge, are
    limited to actions in tortious negligence. This leads to the startling possibility
    that a client who has had the benefit of gratuitous advice from his solicitor
    may in this respect be better off than a client who has paid a fee. Other
    practical problems arise, for example, from the absence of a right to
    contribution between negligent contract-breakers; from the rules as to

    - 19 -

    remoteness of damage, which are less restricted in tort than they are in
    contract; and from the availability of the opportunity to obtain leave to serve
    proceedings out of the jurisdiction. It can of course be argued that the
    principle established in respect of concurrent liability in contract and tort
    should not be tailored to mitigate the adventitious effects of rules of law such

    as these, and that one way of solving such problems would no doubt be 'to
    rephrase such incidental rules as have to remain in terms of the nature of the
    harm suffered rather than the nature of the liability asserted' (see Tony Weir,
    XI Int. Encycl. Comp. L. ch.12., para. 72). But this is perhaps crying for
    the moon; and with the law in its present form, practical considerations of
    this kind cannot sensibly be ignored.

    Moreover I myself perceive at work in these decisions not only the
    influence of the dead hand of history, but also what I have elsewhere called
    the temptation of elegance. Mr. Tony Weir (XI Int. Encycl. Comp. L.
    ch. 12., para. 55) has extolled the French solution for its elegance; and we
    can discern the same impulse behind the much-quoted observation of Lord
    Scarman when delivering the judgment of the Judicial Committee of the Privy
    Council in Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. [1986]
    A. C. 90. 107 B-D:

    Their Lordships do not believe that there is anything to the advantage
    of the law's development in searching for a liability in tort where the
    parties are in a contractual relationship. This is particularly so in a
    commercial relationship. Though it is possible as a matter of legal
    semantics to conduct an analysis of the rights and duties inherent in
    some contractual relationships including that of banker and customer
    either as a matter of contract law when the question will be what, if
    any, terms are to be implied or as a matter of tort law when the task
    will be to identity a duty arising from the proximity and character of
    the relationship between the parties, their Lordships believe it to be
    correct in principle and necessary for the avoidance of confusion in the
    law to adhere to the contractual analysis: on principle because it is a
    relationship in which the parties have, subject to a few exceptions, the
    right to determine their obligations to each other, and for the
    avoidance of confusion because different consequences do follow
    according to whether liability arises from contract or tort, e.g. in the
    limitation of action."

    It is however right to stress, as did Sir Thomas Bingham M.R. in the present
    case, that the issue in Tai Hing was whether a tortious duty of care could be
    established which was more extensive than that which was provided for under
    the relevant contract.

    At all events, even before Tai Hing we can see the beginning of the
    redirection of the common law away from the contractual solution adopted in
    Groom v. Crocker [1939] 1 K.B. 194, towards the recognition of concurrent
    remedies in contract and tort. First, and most important, in 1963 came the

    - 20 -

    decision of your Lordships' House in Hedley Byrne & Co. Ltd. v. Heller &
    Partners Ltd.,
    reported in [19641 A.C. 465. I have already expressed the
    opinion that the fundamental importance of this case rests in the establishment
    of the principle upon which liability may arise in tortious negligence in respect
    of services (including advice) which are rendered for another, gratuitously or
    otherwise, but are negligently performed - viz., an assumption of
    responsibility coupled with reliance by the plaintiff which, in all the
    circumstances, makes it appropriate that a remedy in law should be available
    for such negligence. For immediate purposes, the relevance of the principle
    lies in the fact that, as a matter of logic, it is capable of application not only
    where the services are rendered gratuitously, but also where they are rendered
    under a contract. Furthermore we can see in the principle an acceptable basis
    for liability in negligence in cases which in the past have been seen to rest
    upon the now outmoded concept of status. In this context, it is of particular
    relevance to refer to the opinion expressed both implicitly by Lord Morris of
    Borth-y-Gest (with whom Lord Hodson agreed) and expressly by Lord Devlin
    that the principle applies to the relationship of solicitor and client, which is
    nearly always contractual: see [1964] AC 465, 497-499 (where Lord Morris
    approved the reasoning of Chitty J. in Cann v. Willson (1888) 39 Ch.D. 39),
    and p. 529 (per Lord Devlin).

    The decision in Hedley Byrne, and the statement of general principle
    in that case, provided the opportunity to reconsider the question of concurrent
    liability in contract and tort afresh, untrammelled by the ancient learning
    based upon a classification of defendants in terms of status which drew
    distinctions difficult to accept in modern conditions. At first that opportunity
    was not taken. Groom v. Crocker [1939] 1 K.B. 194 "was followed by the
    Court of Appeal in Cook v. Swinfen [1967] 1 W.L.R. 457. and again in
    Heywood v. Wellers [1976] QB 446: though in the latter case Lord Denning
    M.R. (at p. 459) was beginning to show signs of dissatisfaction with the
    contractual test accepted in Groom v. Crocker a dissatisfaction which
    crystallised into a change of heart in Esso Petroleum Co. Ltd. v. Mardon
    [1976] QB 801. That case was concerned with statements made by
    employees of Esso in the course of pre-contractual negotiations with Mr.
    Mardon, the prospective tenant of a petrol station. The statements related to
    the potential throughput of the station. Mr. Mardon was persuaded by the
    statements to enter into the tenancy; but he suffered serious loss when the
    actual throughput proved to be much lower than had been predicted. The
    Court of Appeal held that Mr. Mardon was entitled to recover damages from
    Esso, on the basis of either breach of warranty or (on this point affirming the
    decision of the judge below) negligent misrepresentation. In rejecting an
    argument that Esso's liability could only be contractual. Lord Denning M.R.
    dismissed Groom v. Crocker [ [1939] 1 K.B. 194 and Bagot v. Stevens Scanlan
    Co. Ltd.
    [1966] 1 Q.B. 197 as inconsistent with other decisions of high
    authority, viz. Boorman v. Brown (1842) 3 Q.B. 511. 525-526 per Tindal
    C.J., and (1844) 11 Cl. & Fin. 1, 44 per Lord Campbell: Lister v. Romford
    Ice and Cold Storage Co. Ltd.
    [1957] AC 555, 587 per Lord Radcliffe;

    - 21 -

    Matthews v. Kuwait Bechtel Corporation [1959] 2 Q.B. 57; and Nocton v.
    Lord Ashbunon
    [1914] A.C. 932, 956, per Viscount Haldane L.C. He then
    held that, in addition to its liability in contract, Esso was also liable in
    negligence. The other members of the Court of Appeal. Ormrod and Shaw
    L.JJ., agreed that Mr. Mardon was entitled to recover damages either for
    breach of warranty or for negligent misrepresentation, though neither
    expressed any view about the status of Groom v. Crocker [1939] 1 K.B. 194.
    It was however implicit in their decision that, as Lord Denning held,
    concurrent remedies were available to Mr. Mardon in contract and tort. For
    present purposes, I do not find it necessary to comment on the authorities
    relied upon by Lord Denning as relieving him from the obligation to follow
    Groom v. Crocker, though I feel driven to comment that the judgments in
    Esso Petroleum Co. Ltd. v. Mardon [1976] QB 801 reveal no analysis in
    depth of the basis upon which concurrent liability rests. That case was
    however followed by the Court of Appeal in Batty v. Metropolitan Property
    Realisations Ltd.
    [1978] Q.B. 554, in which concurrent remedies in contract
    and tort were again allowed.

    The requisite analysis is however to be found in the judgment of Oliver
    J. in Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch. 384.
    in which he held that a solicitor could be liable to his client for negligence
    either in contract or in tort, with the effect that in the case before him it was
    open to the client to take advantage of the more favourable date of accrual of
    the cause of action for the purposes of limitation. In that case, Oliver J. was
    much concerned with the question whether it was open to him, as a judge of
    first instance, to depart from the decision of the Court of Appeal in Groom v.
    Crocker
    [1939] 1 K.B. 194. For that purpose, he carried out a most careful
    examination of the relevant authorities, both before and after Groom r.
    Crocker, and concluded that he was free to depart from the decision in that
    case, which he elected to do.

    It is impossible for me to do justice to the reasoning of Oliver J.. for
    which I wish to express my respectful admiration, without unduly prolonging
    what is inevitably a very long opinion. I shall therefore confine myself to
    extracting certain salient features. First, from his study of the cases before
    Groom v. Crocker, he found no unanimity of view that the solicitor's liability
    was regarded as exclusively contractual. Some cases (such as Howell v.
    Young (1826) 5 B.& C. 259) he regarded as equivocal. In others, he
    understood the judges to regard contract and tort as providing alternative
    causes of action (see In re Manby and Hawksford (1856) 26 L.J.Ch. 313, 317,
    and Sawyer v. Goodwin (1867) 36 L.J.Ch. 578, 582, in both cases per Stuart
    V.-C., and most notably Nocton v. Lord Ashburton [1914] A.C. 932, 956.
    per Viscount Haldane L.C.). However Bean v. Wade (1885) 2 T.L.R. 157,
    briefly reported in the Times Law Reports and by no means extensively
    referred to, provided Court of Appeal authority that the remedy was
    exclusively contractual; and it was that case which was principally relied
    upon by the Court of Appeal in Groom v. Crocker [1939] 1 K.B. 194 when

    - 22 -

    reaching the same conclusion. Oliver J. put on one side those cases, decided
    for the purpose of section 11 of the County Courts Act 1915. under which a
    different statutory test had to be complied with, viz. whether the action was
    one "founded on a contract" or "founded on a tort".

    It is evident that the early authorities did not play a very significant
    part in Oliver J.'s decision (see [1979] Ch. 384, 411 C-D). He loyally
    regarded Groom v. Crocker as prima facie binding upon him. His main
    concern was with the impact of the decision of this House in Hedley Byrne
    [1964] AC 465, and of subsequent cases in the Court of Appeal in which
    Hedley Byrne had been applied. As he read the speeches in Hedley Byrne, the
    principle there stated was not limited to circumstances in which the
    responsibility of the defendant had been gratuitously assumed. He referred in
    particular to the statement of principle by Lord Morris of Borth-y-Gest at pp.
    502-503. which I have already quoted, and said, at p. 411 E-F:

    "The principle was stated by Lord Morris of Borth-y-Gest as a
    perfectly general one and it is difficult to see why it should be
    excluded by the fact that the relationship of dependence and reliance
    between the parties is a contractual one rather than one gratuitously
    assumed, in the absence, of course, of contractual terms excluding or
    restricting the general duties which the law implies."

    Oliver J. went on (p. 412) to quote from the dissenting judgment of Denning
    L.J. in Candler v. Crane Christmas & Co. [1951] 1 K.B. 164. 179-180 (a
    passage approved by Lord Pearce in Hedley Byrne [1964] AC 465. 538) and
    said, at p. 413 B-D:

    "Now, in that passage, I think that it is abundantly clear that
    Denning L.J. was seeking to enunciate a general principle of liability
    arising from the relationship created by the assumption of a particular
    work or responsibility, quite regardless of how the relationship arose

    . . .

    "The inquiry upon which the court is to embark is 'what is the
    relationship between the plaintiff and defendant?' not 'how did the
    relationship, if any, arise' That this is so appears. I think, with
    complete clarity from subsequent cases."

    Later he said, at p. 415:

    "The matter becomes, in my judgment, even clearer when one looks
    at the speech of Lord Devlin in the Hedley Byrne case [1964] A.C.
    465, for he treats the existence of a contractual relationship as very
    good evidence of the general tortious duty which he is there
    discussing. He said, at pp. 528-529:

    - 23 -

    'I think, therefore, that there is ample authority to justify your
    Lordships in saying now that the categories of special
    relationships which may give rise to a duty to take care in word
    as well as in deed are not limited to contractual relationships or
    to relationships of fiduciary duty, but include also relationships
    which in the words of Lord Shaw in Nocton v. Lord Ashburton
    [1914] A.C. 932, 972, are 'equivalent to contract', that is,
    where there is an assumption of responsibility in circumstances
    in which, but for the absence of consideration, there would be
    a contract . . .'

    He expressed his conclusion concerning the impact of Hedley Byrne on the
    case before him in the following words, at p. 417 A-C:

    The case of a layman consulting a solicitor for advice seems to me to
    be as typical a case as one could find of the sort of relationship in
    which the duty of care described in the Hedley Byrne case [1964] A.C.
    465 exists: and if I am free to do so in the instant case. I would,
    therefore, hold that the relationship of solicitor and client gave rise to
    a duty in the defendants under the general law to exercise that care and
    skill upon which they must have known perfectly well that their client
    relied. To put it another way, their common law duty was not to
    injure their client by tailing to do that which they had undertaken to
    do and which, at their invitation, he relied upon them to do. That duty
    was broken, but no cause of action in tort arose until the damage
    occurred; and none did occur until August 17. 1967. I would regard
    it as wholly immaterial that their duty arose because they accepted a
    retainer which entitled them, if they chose to do so. to send a bill to
    their client."

    I wish to express my respectful agreement with these passages in Oliver J.'s
    judgment.

    Thereafter, Oliver J. proceeded to consider the authorities since Hedley
    Byrne.
    in which he found, notably in statements of the law by members of the
    Appellate Committee in Arenson v. Arenson [1977] A.C. 405 and in the
    decision of the Court of Appeal in Esso Petroleum Co. Ltd. v. Mardon [1976]
    Q. B. 801, the authority which relieved him of his duty to follow Groom v.
    Crocker [1939] 1 K.B. 194. But I wish to add that, in the course of
    considering the later authorities, he rejected the idea that there is some general
    principle of law that a plaintiff who has claims against a defendant for breach
    of duty both in contract and in tort is bound to rely upon his contractual rights
    alone. He said, at p. 420 A-B:

    "There is not and never has been any rule of law that a person having
    alternative claims must frame his action in one or the other. If I have
    a contract with my dentist to extract a tooth, I am not thereby

    - 24 -

    precluded from suing him in tort if he negligently shatters my jaw:
    Edwards v. Mallan [1908] 1 K.B. 1002."

    The origin of concurrent remedies in this type of case may lie in history; but
    in a modern context the point is a telling one. Indeed it is consistent with the
    decision in Donoghue v. Stevenson [1932] AC 562 itself, and the rejection
    in that case of the view, powerfully expressed in the speech of Lord
    Buckmaster (see, in particular, pp. 577-578), that the manufacturer or repairer
    of an article owes no duty of care apart from that implied from contract or
    imposed by statute. That there might be co-existent remedies for negligence
    in contract and in tort was expressly recognised by Lord Macmillan in
    Donoghue v. Stevenson, at p. 610, and by Lord Wright in Grant v. Australian
    Knitting Mills Ltd.,
    [1936] AC 85, 102-104. Attempts have been made to
    explain how doctors and dentists may be concurrently liable in tort while other
    professional men may not be so liable, on the basis that the former cause
    physical damage whereas the latter cause pure economic loss (see the
    discussion by Christine French in (1983) 5 Otago L.R. 236, 280-1). But this
    explanation is not acceptable, if only because some professional men. such as
    architects, may also be responsible for physical damage. As a matter of
    principle, it is difficult to see why concurrent remedies in tort and contract,
    if available against the medical profession, should not also be available against
    members of other professions, whatever form the relevant damage may take.

    The judgment of Oliver J. in the Midland Bank Trust Co. case [1979]
    Ch. 384 provided the first analysis in depth of the question of concurrent
    liability in tort and contract. Following upon Esso Petroleum Co. Ltd. v.
    Mardon [1976] QB 801, it also broke the mould, fn the sense that it
    undermined the view which was becoming settled that, where there is an
    alternative liability in tort, the claimant must pursue his remedy in contract
    alone. The development of the case law in other common law countries is
    very striking. In the same year as the Midland Bank Trust Co. case, the Irish
    Supreme Court held that solicitors owed to their clients concurrent duties in
    contract and tort: see Finlay v. Murtagh [1979] I.R. 249. Next, in Central
    Trust Co. v
    . Rafuse (1986) 31 D.L.R. 4th 481, Le Dain J., delivering the
    judgment of the Supreme Court of Canada, conducted a comprehensive and
    most impressive survey of the relevant English and Canadian authorities on
    the liability of solicitors to their clients for negligence, in contract and in tort,
    in the course of which he paid a generous tribute to the analysis of Oliver J.
    in the Midland Bank Trust Co. case. His conclusions are set out in a series
    of propositions at pp. 521-2 of the report: but his general conclusion was to
    the same effect as that reached by Oliver J. He said, at p. 522:

    ". . .A concurrent or alternative liability in tort will not be
    admitted if its effect would be to permit the plaintiff to
    circumvent or escape a contractual exclusion or limitation of
    liability for the act or omission that would constitute the tort.
    Subject to this qualification, where concurrent liability in tort

    - 25 -

    and contract exists the plaintiff has the right to assert the cause
    of action that appears to be the most advantageous to him in
    respect of any particular legal consequence."

    I respectfully agree.

    Meanwhile in New Zealand the Court of Appeal had appeared at first,
    in McLaren Maycroft & Co. v. Fletcher Development Co. Ltd. [1973] 2
    N.Z.L.R. 100. to require that, in cases where there are concurrent duties in
    contract and tort, the claimant must pursue his remedy in contract alone.
    There followed a period of some uncertainty, in which differing approaches
    were adopted by courts of first instance. In 1983 Miss Christine French
    published her Article on the Contract/Tort Dilemma in (1981-84) 5 Otago
    L.R. 236. in which she examined the whole problem in great depth, with
    special reference to the situation in New Zealand, having regard to the "Rule"
    in McLaren Maycroft. Her Article, to which I wish to pay tribute, was of
    course published before the decision of the Supreme Court of Canada in the
    Central Trust case. Even so. she reached a conclusion which, on balance.
    favoured a freedom for the claimant to choose between concurrent remedies
    in contract and tort. Thereafter in Rowlands v. Collow [1992] 1 N.Z.L.R.
    178 Thomas J., founding himself principally on the Central Trust case and on
    Miss French's Article, concluded that he was free to depart from the decision
    of the New Zealand Court of Appeal in McLaren Maycroft and to hold that
    a person performing professional services (in the case before him an engineer)
    may be sued for negligence by his client either in contract or in tort. He said.
    at p. 190:

    " The issue is now virtually incontestable; a person who has performed
    professional services may be held liable concurrently in contract and
    in negligence, unless the terms of the contract preclude the tortious
    liability."

    In Australia, too, judicial opinion appears to be moving in the same direction.
    though not without dissent: see, in particular. Aluminum Products (Qld.) Pty.
    Ltd. v. Hill
    [1981] Qd.R. 33 (a decision of the Full Court of the Supreme
    Court of Queensland) and Macpherson & Kelley v. Kevin J. Prunty &
    Associates
    [1983] 1 V.R. 573 (a decision of the Full Court of the Supreme
    Court of Victoria). A different view has however been expressed by Deane
    J in Hawkins v. Clayton (1987-88) 164 C.L.P. 539. 585. to which I will
    return later. In principle, concurrent remedies appear to have been accepted
    for some time in the United States (see Prosser's Handbook on the Law of
    Torts. 5th ed. (1984) p. 666), though with some variation as to the application
    of the principle in particular cases. In these circumstances it comes as no
    surprise that Professor Fleming, writing in 1992, should state that "the last ten
    years have seen a decisive return to the 'concurrent' approach" (see his Law
    of Torts,
    8th ed., p. 187).

    - 26 -

    I have dealt with the matter at some length because, before your
    Lordships, Mr. Temple Q.C., for the managing agents, boldly challenged the
    decision of Oliver J. in the Midland Bank Trust Co. case [1979] Ch. 384,
    seeking to persuade your Lordships that this House should now- hold that case
    to have been wrongly decided- This argument was apparently not advanced
    below, presumably because Oliver J.'s analysis had received a measure of
    approval in the Court of Appeal: see, e.g., Forster v. Outred & Co. [1982]
    1 W.L.R. 86, 99, per Dunn L.J. Certainly there has been no sign of
    disapproval, even where the Midland Bank Trust Co. case has been
    distinguished: see Bell v. Peter Browne & Co. [1990] 2 Q.B. 495.

    Mr. Temple adopted as part of his argument the reasoning of Mr. J.M.
    Kaye in an article The Liability of Solicitors in Tort (1984) 100 L.Q.R. 680.
    In his article, Mr. Kaye strongly criticised the reasoning of Oliver J. both on
    historical grounds and with regard to his interpretation of the speeches in
    Hedley Byrne. However, powerful though Mr. Kaye's article is, I am not
    persuaded by it to treat the Midland Bank Trust Co. case as wrongly decided.
    First, so far as the historical approach is concerned, this is no longer of direct
    relevance in a case such as the present, having regard to the development of
    the general principle in Hedley Byrne. No doubt it is correct that, in the 19th
    century, liability in tort depended upon the category of persons into which the
    defendant fell, with the result that in those days it did not necessarily follow
    that, because (for example) a surgeon owed an independent duty of care to his
    patient in tort irrespective of contract, other professional men were under a
    similar duty. Even so, as Mr. Boswood Q.C. for the Names stressed, if the
    existence of a contract between a surgeon and his patient did not preclude the
    existence of a tortious duty to the patient in negligence 'there is no reason in
    principle why a tortious duty should not co-exist with a contractual duty in the
    case of the broad duty of care now recognised following the generalisation of
    the tort of negligence in the 20th century.

    So far as Hedley Byrne itself is concerned. Mr. Kaye reads the
    speeches as restricting the principle of assumption of responsibility there
    established to cases where there is no contract; indeed, on this he tolerates
    no dissent, stating (at p. 706) that "unless one reads [Hedley Byrne\ with
    deliberate intent to find obscure or ambiguous passages" it will not bear the
    interpretation favoured by Oliver J. I must confess however that, having
    studied yet again the speeches in Hedley Byrne [1964] AC 465 in the light
    of Mr. Kaye's critique, I remain of the opinion that Oliver J.'s reading of
    them is justified. It is, I suspect, a matter of the angle of vision with which
    they are read. For here, I consider, Oliver J. was influenced not only by
    what he read in the speeches themselves, notably the passage from Lord
    Devlin's speech at pp. 528-529 (quoted above), but also by the internal logic
    reflected in that passage, which led inexorably to the conclusion which he
    drew Mr. Kaye's approach involves regarding the law of tort as
    supplementary to the law of contract, i.e. as providing for a tortious liability
    in cases where there is no contract. Yet the law of tort is the general law, out

    - 27 -

    of which the parties can, if they wish, contract: and, as Oliver J.
    demonstrated, the same assumption of responsibility may, and frequently does,
    occur in a contractual context. Approached as a matter of principle,
    therefore, it is right to attribute to that assumption of responsibility, together
    with its concomitant reliance, a tortious liability, and then to enquire whether
    or not that liability is excluded by the contract because the latter is
    inconsistent with it. This is the reasoning which Oliver J., as I understand it,
    found implicit, where not explicit, in the speeches in Hedley Byrne. With his
    conclusion I respectfully agree. But even if I am wrong in this, I am of the
    opinion that this House should now, if necessary, develop the principle of
    assumption of responsibility as stated in Hedley Byrne to its logical conclusion
    so as to make it clear that a tortious duty of care may arise not only in cases
    where the relevant services are rendered gratuitously, but also where they are
    rendered under a contract. This indeed is the view expressed by my noble
    and learned friend Lord Keith of Kinkel in Murphy v. Brentwood District
    Council
    [1991] 1 AC 398, 466, in a speech with which all the other
    members or the Appellate Committee agreed.

    An alternative approach, which also avoids the concurrence of tortious

    and contractual remedies, is to be found in the judgment of Deane J. in
    Hawkins v. Clayton (1987-88) 164 C.L.R. 539. 582-586. in which he

    included, at p. 585:

    On balance, however, it seems to me to be preferable to accept that
    there is neither justification nor need for the implication of a
    contractual term which, in the absence of actual intention of the
    parties, imposes upon a solicitor a contractual duty (with consequential
    liability in damages for its breach) which is co-extensive in content and
    concurrent in operation with a duty (with consequential liability in
    damages for us breach) which already exists under the common law
    of
    negligence."

    It is however my understanding that by the law in this country contracts for
    services do contain an implied promise to exercise reasonable care (and skill)
    in the performance of the relevant services; indeed, as Mr. Tony Weir has
    pointed out (XI Int. Encycl. Comp. L., ch. 12, para. 67), in the 19th century
    the field of concurrent liabilities was expanded "since it was impossible for the
    judges to deny that contracts contained an implied promise to take reasonable
    care, at the least, not to injure the other party". My own belief is that, in the
    present context, the common law is not antipathetic to concurrent liability, and
    that there is no sound basis for a rule which automatically restricts the
    claimant to either a tortious or a contractual remedy. The result may be
    untidy: but, given that the tortious duty is imposed by the general law, and
    the contractual duty is attributable to the will of the parties, I do not find it
    objectionable that the claimant may be entitled to take advantage of the
    remedy which is most advantageous to him, subject only to ascertaining
    whether the tortious duty is so inconsistent with the applicable contract that,

    - 28 -

    in accordance with ordinary principle, the parties must be taken to have
    agreed that the tortious remedy is to be limited or excluded.

    In the circumstances of the present case, I have nor regarded it as
    necessary or appropriate to embark upon yet another detailed analysis of the
    case law, choosing rather to concentrate on those authorities which appear to
    me to be here most important. I have been most anxious not to overburden
    an inevitably lengthy opinion with a discussion of an issue which is only one
    (though an important one) of those which fall for decision; and, in the context
    of the relationship of solicitor and client, the task of surveying the authorities
    has already been admirably performed by both Oliver J. and Le Dain J. But,
    for the present purposes more important, in the present case liability can, and
    in my opinion should, be founded squarely on the principle established in
    Hedley Byrne itself, from which it follows that an assumption of responsibility
    coupled with the concomitant reliance may give rise to a tortious duty of care
    irrespective of whether there is a contractual relationship between the parties,
    and in consequence, unless his contract precludes him from doing so, the
    plaintiff, who has available to him concurrent remedies in contract and tort,
    may choose that remedy which appears to him to be the most advantageous.

    (7) Application of the above principles in the present case

    I have already concluded that prima facie a duty of care was owed in
    tort on the Hedley Byrne principle by managing agents both to direct Names
    and indirect Names. So far as the direct Names are concerned, there is
    plainly a contract between them and the managing agents, in the terms of the
    pre-1985 Byelaw form of agency agreement, in which a term falls to be
    implied that the agents will exercise due care and skill in the exercise of their
    functions as managing agents under the agreement. That duty of care is no
    different from the duty of care owed by them to the relevant Names in tort:
    and, having regard to the principles already stated, the contract does not
    operate to exclude the tortious duty, leaving it open to the Names to pursue
    either remedy against the agents.

    I turn to the indirect Names. Here there is, as I see it, no material
    distinction between the claims of the Names in the Merrett actions, and those
    of the Names in the Feltrim actions. True, the former arise in the context of
    the pre-1985 Byelaw forms of agency and sub-agency agreements, whereas the
    latter arise in the context of the forms of agreement prescribed by the 1985
    Byelaw. However in both cases there must be implied into the sub-agency
    agreements a duty upon the managing agents to exercise due skill and care.
    A similar responsibility must rest upon the members' agents under the 1985
    Byelaw form of agency agreement, and I will assume that the same applies
    under the pre-1985 Byelaw form (though the point does not arise for decision
    by your Lordships). In neither case, however, is there any material difference
    between the relevant contractual duty and any duty which is owed by the
    managing agents to the relevant Names in tort. It is however submitted on
    behalf of the managing agents that the indirect Names and the managing

    - 29 -

    agents, as parties to the chain of contracts contained in the relevant agency
    and sub-agency agreements, must be taken to have thereby structured their
    relationship so as to exclude any duty of care owed directly by the managing
    agents to the indirect Names in tort.

    In essence the argument must be that, because the managing agents
    have, with the consent of the indirect Names, assumed responsibility in
    respect of the relevant activities to another party, i.e. the members' agents,
    under a sub-agency agreement, it would be inconsistent to hold that they have
    also assumed responsibility in respect of the same activities to the indirect
    Names. I for my part cannot see why in principle a party should not assume
    responsibility to more than one person in respect of the same activity. Let it
    be assumed (unlikely though it may be) that, in the present case, the managing
    agents were in a contractual relationship not only with the members' agents
    under a sub-agency agreement but also directly with the relevant Names,
    under both of which they assumed responsibility for the same activities. I can
    see no reason in principle why the two duties of care so arising should not be
    capable of co-existing.

    Of course I recognise that the present case presents the unusual feature
    that claims against the managing agents, whether by the members' agents
    under the sub-agency agreement or by the indirect Names in tort, will in both
    cases have the purpose, immediate or ultimate, of obtaining compensation for
    the indirect Names. In these circumstances, concurrent duties
    of care could,
    in theory at least, give rise to problems, for example in the event of the
    insolvency of the managing agents or the members' agents. Furthermore, as
    Mr. Temple Q.C. suggested in the course of his submissions on behalf of the
    managing agents, questions of contribution might, at least in theory, arise.
    But your Lordships' task, like that of the courts below, is to answer the
    questions
    of principle raised by the issues presented for decision: and in these
    circumstances it would be quite wrong to embark upon the examination
    of
    questions which do not arise on those issues, and indeed may never arise in
    practice. For myself, I am all the more reluctant to do so since, because the
    liability (if any) of the managing agents will in each case flow from claims by
    the indirect Names, it may well be that practical problems such as these will,
    it they arise, find a practical solution.

    I wish however to add that I strongly suspect that the situation which
    arises in the present case is most unusual; and that in many cases in which
    a contractual chain comparable to that in the present case is constructed it may
    well prove to be inconsistent with an assumption of responsibility which has
    the effect of. so to speak, short circuiting the contractual structure so put in
    place by the parties. It cannot therefore be inferred from the present case that
    other sub-agents will be held directly liable to the agent's principal in tort.
    Let me take the analogy of the common case of an ordinary building contract,
    under which main contractors contract with the building owner for the
    construction of the relevant building, and the main contractor sub-contracts
    with sub-contractors or suppliers (often nominated by the building owner) for

    - 30 -

    the performance of work or the supply of materials in accordance with
    standards and subject to terms established in the sub-contract. I put on one
    side cases in which the sub-contractor causes physical damage to property of
    the building owner, where the claim does not depend on an -assumption of
    responsibility by the sub-contractor to the building owner; though the sub-
    contractor may be protected from liability by a contractual exemption clause
    authorised by the building owner. But if the sub-contracted work or materials
    do not in the result conform to the required standard, it will not ordinarily be
    open to the building owner to sue the sub-contractor or supplier direct under
    the Medley Byrne principle, claiming damages from him on the basis that he
    has been negligent in relation to the performance of his functions. For there
    is generally no assumption of responsibility by the sub-contractor or supplier
    direct to the building owner, the parties having so structured their relationship
    that it is inconsistent with any such assumption of responsibility. This was the
    conclusion of the Court of Appeal in Simaan General Contracting Co. v.
    Pilkington Glass Ltd. (No. 2)
    [1988] QB 758. As Bingham L.J. put it, at
    p. 781:

    "I do not, however, see any basis on which the defendants [the
    nominated suppliers] could be said to have assumed a direct
    responsibility for the quality of the goods to the plaintiffs [the building
    owners); such a responsibility is, I think, inconsistent with the
    structure of the contract the parties have chosen to make."

    It is true that, in this connection, some difficulty has been created by the
    decision of your Lordships' House in Junior Books Ltd. v. Veitchi Co. Ltd.
    [1983] 1 AC 520. In my opinion, however, it is unnecessary for your
    Lordships to reconsider that decision for the purposes of the present appeal.
    Here however I can see no inconsistency between the assumption of
    responsibility by the managing agents to the indirect Names, and that which
    arises under the sub-agency agreement between the managing agents and the
    members' agents, whether viewed in isolation or as part of the contractual
    chain stretching back to and so including the indirect Names. For these
    reasons, I can see no reason why the indirect Names should not be free to
    pursue their remedy against the managing agents in tort under the Medley
    Byrne
    principle.

    I Merrett and Feltrim Appeals

    B. Fiduciary Duty

    The question arising under this issue is whether Merretts acting as
    managing agents (whether or not they are also members' agents) owed the
    Names a fiduciary duty to conduct the underwriting for the account of the
    Names with reasonable skill for the 1979 to 1985 underwriting years of
    account (inclusive) equivalent to the alleged duty of care in tort.

    - 31 -

    Both Saville J. and the Court of Appeal declined to address this
    question since having regard to the manner in which they decided the issue on
    the tortious duty of care, the question did not arise. Having regard to the
    conclusion which I have reached on the tortious duty, I likewise do not think
    it necessary for your Lordships' House to address the question of fiduciary
    duty.

    II. Feltrim and Gooda Walker Appeals

    Liability of members' agents to Names during the period 1987-1989

    Saville J. held that this issue should be decided against the members'
    agents, and his decision was affirmed by the Court of Appeal, for the same
    reasons. As a result it was held that, under agency agreements in the form
    prescribed by Lloyd's Byelaw No. 1 of 1985, members' agents are responsible
    to the Names for any failure to exercise reasonable skill and care on the part
    of managing agents to whom underwriting has been delegated by the
    members agents; and that the members agents are not required to exercise
    skill and care only in relation to those activities and functions which members'
    agents by custom and practice actually perform for the Names personally.

    This issue raises a question of construction of the prescribed form of
    agency agreement. Since however the prescribed forms of agency and sub-
    agency agreements together constitute the contractual regime established by
    the Byelaw, it follows that the agency agreement should not be considered in
    isolation, but as
    forming, together with the sub-agency agreement, a coherent
    whole which, in a case concerned with indirect Names, regulates the
    contractual relationship between Name, members' agent and managing agent.
    Furthermore it is not to be forgotten that, in a case concerned with a
    combined agent, the agency agreement may fulfil the dual function of
    regulating the functions of the combined agent both in its role as members
    agent, and in its role as managing agent in respect of any Syndicate under its
    management of which the Name is a member.

    In order to consider this question of construction I think it desirable
    that I should, like Sir Thomas Bingham M.R., first set out the terms of the
    most relevant provisions of the prescribed forms of agency and sub-agency
    agreements. These are as follows.

    AGENCY AGREEMENT

    1. DEFINITIONS:

    In this agreement the under mentioned expressions shall
    where the context so requires or admits have the following meanings:-

    - 32 -

    (a) The expression 'the Syndicate' shall mean the
    syndicate or, if more than one, each of the respective syndicates of
    which the Name is for the time being a member under the provisions
    of this agreement, being the syndicate or syndicates specified in the
    Schedule(s) attached hereto ....

    2. APPOINTMENT OF THE NAME'S AGENT AT
    LLOYD'S:

    1. The agent shall act as the underwriting agent for
      the Name for the purpose of underwriting at Lloyd's for the account
      of the Name such classes and descriptions of insurance business, other
      than those prohibited by the Council, as may be transacted by the
      Syndicate (hereinafter referred to as 'the underwriting business').

    2. In acting as underwriting agent for the Name the
      Agent shall at all times comply with the byelaws, regulations and
      requirements for the time being of the Council affecting the Name as
      an underwriting member of Lloyd's. Provided that if and to the extent
      that any provision of this Agreement shall be inconsistent with any
      such byelaw, regulation or requirement such inconsistent provision
      shall be deemed to be modified or cancelled so far as may be
      necessary or appropriate to the intent that the byelaw, regulation or
      requirement in question shall prevail and have full effect.


    . . .


    4 POWERS OF THE AGENT

    (a) The agent is authorised .... to exercise such
    powers as the agent may consider to be necessary or desirable in
    connection with or arising out of the underwriting business, including
    without prejudice to the generality of the foregoing:

    (i) the acceptance of risks and the effecting
    of reinsurance, including reinsurance for the purpose of clause 5(g)
    hereof;


    . . . .


    (b) Without prejudice to the generality of the

    provisions of sub-clause (a) of this clause, the agent shall have the

    following customary and/or special powers in connection with the
    conduct and winding-up of the underwriting business:


    . . . .

    (G) Delegation of agent's powers:
    - 33 -

    Power, subject to any requirements of the
    Council, to appoint or employ any person, firm or body corporate to
    carry on or manage the underwriting business or any part thereof, and
    to delegate to or confer upon any person, firm or body corporate all
    or any of the powers, authorities and discretions given to the agent by
    this agreement including this power of delegation and the other powers
    contained in this paragraph.

    5. CONTROL OF UNDERWRITING BUSINESS:

    (a) The agent shall have the sole control and
    management of the underwriting business and the Name shall not in
    any way interfere with the exercise of such control or management.


    . . . .


    (g) In order to close the underwriting account of any
    year the agent may:

    (i) reinsure all or any outstanding liabilities
    in such manner as the agent shall think fit, including the debiting of
    such account and the crediting of the underwriting account of the next
    succeeding year with such reinsurance premium as the Agent in its
    absolute discretion (subject to any requirements of the Council) thinks
    fair or

    (ii) reinsure all or any outstanding liabilities
    into the underwriting account of any other year then remaining open
    or in any other manner which the agent (subject as aforesaid) thinks
    fair.

    . . . .


    8. REMUNERATION:

    (a) The Name shall pay to the agent as remuneration for
    the services of the agent a fee at the rate per annum specified in the
    Syndicate Schedule.


    . . . .


    9. UNDERTAKING BY THE NAME TO PAY ALL

    LIABILITIES AND OUTGOINGS:

    (a) The Name shall keep the agent at all times in
    funds available for the payment of the liabilities, expenses and
    outgoings of the underwriting business . . . ."

    - 34 -

    "SUB-AGENCY AGREEMENT

    W H E R E A S the agent is the underwriting agent at
    Lloyd's for certain underwriting members of Lloyd's and it has been
    arranged between the agent and the sub-agent that the sub-agent shall
    act as the sub-underwriting agent for one or more of such underwriting
    members upon the terms hereinafter mentioned.

    NOW IT IS HEREBY AGREED AND DECLARED between
    the parties hereto as follows :-


    . . . . .


    1. The sub-agent shall act as sub-agent for the agent for the
      purpose of conducting in the names and for the account of each of the
      agent's Names that part of the underwriting business as defined in
      clause 2(a) of the agency agreement which is to be transacted by such
      Name as a member of the Syndicate (hereinafter called 'the Syndicate
      underwriting business'); ....

    2. (a) The sub-agent shall underwrite for the agent's
      Names as part of the Syndicate ....

    (b) The individual premium income limit to be
    allocated to the Syndicate in respect of each of the agent's Names shall
    be agreed from time to time between the sub-agent and the agent . .

    . .


    5. (a) The agent delegates to the sub-agent the
    performance of all such duties and the exercise of all such powers,
    authorities and discretions imposed or conferred upon the agent by the
    agency agreement (including without prejudice to the generality of the
    foregoing the power of delegation contained in that agreement) as it
    may be appropriate or necessary for the sub-agent to perform or
    exercise for the purpose of carrying on the Syndicate underwriting
    business.


    . . . .


    7. (a) The sub-agent shall conduct the Syndicate
    underwriting business in such manner as to comply with the provisions
    of the agency agreement and Lloyd's byelaws and regulations and is
    to have regard for Lloyd's Codes of Conduct or similar forms of
    guidance for the Lloyd's market.


    . . . .



    - 35 -

    12. (a) The agent undertakes to put and keep the sub-agent
    in funds to such extent as the sub-agent shall in its sole discretion
    determine for payment of all liabilities, expenses and outgoings from
    time to time payable in connection with the Syndicate underwriting
    business but (subject to any supplementary provision) only to the
    extent that the agent shall be able to enforce against a Name the
    provisions of the agency agreement.


    . . . . "


    The rival contentions of the parties centred upon the construction to be
    placed upon clause 2(a) of the agency agreement. For the Names in the
    Feltrim actions, it was submitted by Mr. Boswood Q.C. that clause 2(a)
    contains an express undertaking by the underwriting agent to act as the
    underwriting agent of the Name, with the effect that (except to the extent that,
    where the agent is a combined agent, it acts as managing agent of a Syndicate
    of which the Name is a member) members' agents are as such bound to
    underwrite insurance business for the Name. It was conceded that, if that
    submission was correct, there was an implied term that such underwriting
    should be carried out with reasonable care and skill. Mr. Boswood's
    argument on this point was supported by Mr. Vos Q.C. for the Names in the
    Gooda Walker actions.

    This argument was accepted by the courts below. But before the
    Appellate Committee it was subjected to a powerful attack by Mr. Eder Q C
    for the Gooda Walker members' agents, supported by Mr. Rowland for the
    Feltrim members agents. The argument ran as follows:

    (1) Mr. Eder began with clause 2(a) of the agency agreement, under which
    it is provided that the agent shall act as 'underwriting agent' for the Name.
    He then drew upon the definitions of 'underwriting agent' in Byelaw No. 4 of
    1984, and in paragraph l(c) of the Interpretation Byelaw No. 1 of 1983 (as
    amended), as showing that an underwriting agent may be either a member's
    agent or a managing agent, and submitted that appointment under clause 2(a)
    as underwriting agent' did not of itself indicate in which capacity the agent
    was agreeing to act.

    (2) Next he turned to clause 2(b). Here again he invoked Byelaw No. 4
    of 1984, and the definitions in Part A of both 'managing agent' and
    members agent' which show (1) that a managing agent performs for an
    underwriting member the function of (inter alia) underwriting contracts of
    insurance at Lloyd's and (2) that a members' agent does not perform any of
    the functions of a managing agent. Further, under paragraph 4(a) of Part B
    of the Byelaw, there is a prohibition against any person acting as a managing
    agent who is not registered as such under the Byelaw. Building on this
    prohibition, Mr. Eder developed an argument to the effect that, on a true
    construction of clause 2(a), members' agents could not as such have agreed

    - 36 -

    to do underwriting on behalf of the Names, when that was a prohibited
    activity under the relevant Lloyd's legislation.

    (3) Turning to clause 4 of the agency agreement, he stressed that the
    clause is concerned not with duties but with powers conferred upon the agent,
    specifying powers the exercise of which the agent may consider to be
    'necessary or desirable'. It followed from the fact that a member's agent is
    prohibited from acting as a managing agent that the exercise, in particular, of
    the power to accept risks and effect reinsurances could not properly be
    regarded as necessary or desirable for a members' agent. Furthermore, clause
    4(b)(G) falls into two parts, the former being concerned with a power to
    appoint another person to carry on or manage the underwriting business, and
    the latter with a power to delegate or confer upon another the powers, etc.,
    given to the agent. It was the submission of Mr. Eder that the effect of this
    sub-clause was, first, that the members' agent can appoint a managing agent
    to carry on the actual underwriting for the Name, even though the members'
    agent has itself no power to do so; and that the delegation of the broad
    authority conferred by clause 4(a) on the members' agent would have the
    effect of authorising the managing agent to underwrite on the Name's behalf.
    In his submission, clause 4(b)(G) envisaged that the person so appointed
    would be acting directly on behalf of the Name.

    (4) There was nothing in the agency agreement, and in particular nothing
    in clause 5, to indicate that the members' agents contracted to underwrite or
    to be responsible for the underwriting in the sense advanced by the Names.

    Impressed though I was by Mr. Eder's argument, in the end I feel

    unable to accept it.

    I start, like him, with clause 2(a). This is the central provision, which
    makes available to Names the opportunity of participating in underwriting at
    Lloyd's. Consistently with that evident object, it does not merely appoint the
    agent as "the underwriting agent" for the Name, but does so "for the purpose
    of underwriting at Lloyd's for the account of the Name such classes and
    descriptions of insurance business .... as may be transacted by the Syndicate
    (hereinafter referred to as 'the underwriting business')." Next. I have in the
    forefront of my mind the fact that, as I have already pointed out, the agency
    agreement is designed to enable it to perform a dual purpose so that it may
    apply not only to the functions of a members' agent as such, but also to the
    functions performed by a combined agent when it acts as managing agent in
    respect of a Syndicate of which the Name is a member. I have a feeling that
    this duality of function may lie at the root of the somewhat elliptical language
    in which clause 2(a) is expressed. However it follows in my opinion that
    appointment of the agent as underwriting agent under clause 2(a) must, in the
    case of a combined agent, impose upon it the duty of carrying out
    underwriting on behalf of the Name if entered as a member of a syndicate of
    which the agent is the managing agent. Furthermore, I find it very difficult
    to see how the same words in clause 2(a) can impose any different obligation

    - 37 -

    on the members' agent when the relevant Syndicate is not managed by it,
    either because it is a pure members' agent, or because the Syndicate in
    question is managed by some other managing agent. Here, I draw attention
    to the definition of 'the Syndicate' in clause l(a) of the agency agreement,
    under which no distinction is drawn in this context between Syndicates
    managed by a combined agent in its capacity as managing agent, and
    Syndicates managed by some other managing agent, in which the Name is
    entered as member pursuant to a sub-agency agreement with the members'
    agent.

    That the same obligation is in such circumstances imposed on the
    members' agent is, in my opinion, made clear beyond doubt when we read the
    agency agreement together with the sub-agency agreement, and discover from
    clause 2 of the latter that the managing agent acts as sub-agent for the
    members' agent in conducting the relevant part of the underwriting business
    as defined in clause 2(a) of the agency agreement. The position under clause
    2(a) is therefore that the obligation imposed on the members' agent under the
    clause with regard to underwriting is the same, whether it is acting as
    members agent or is a combined agent acting as managing agent in respect
    of a Syndicate of which the Name is a member. The only difference is that
    in the former case it carries out the underwriting through the agency of a
    managing agent, under the terms of the prescribed form of sub-agency
    agreement, whereas in the latter case it carries it out itself.

    Furthermore, like Saville J., I cannot see that such performance of its
    obligations by a members' agent can constitute any breach of the prohibition
    in paragraph 4 of Part B of the underwriting agents Byelaw, since in each case
    the function of managing agent will always be performed by a managing
    agent: indeed, on my understanding of the position, this is precisely what was
    intended by the draftsman of the agency and sub-agency agreements, who
    plainly intended that there should be no breach of the Byelaw.

    There is another consideration which strongly supports the conclusion
    that clause 2(a) of the agency agreement must be read as imposing
    responsibility on the members' agent in respect of underwriting for the Name.
    It is plain from the two prescribed forms of agreement that, in a case
    involving an indirect Name, they create no contractual relationship between
    the Name and the managing agent. On the contrary, as I have already
    indicated, there is a clear structure by virtue of which, under clause 2(a) of
    the agency agreement, the members' agent is appointed the Name's
    underwriting agent for the purpose set out in the sub-clause; and, under clause
    2 of the sub-agency agreement, it is provided (here mirroring the recital to
    that agreement) that the sub-agent (the managing agent) shall act as sub-agent
    for the agent (the members' agent). Consistently with these provisions, under
    clause 4 of the agency agreement all the necessary powers are vested in the
    underwriting agent (the members' agent), including the power to delegate
    contained in clause 4(b)(G); and clause 5(a) of the sub-agency agreement
    provides for the delegation by the agent (the members' agent) to the sub-agent

    - 38 -

    (the managing agent) of the performance of all duties and the exercise of all
    powers, authorities and discretions imposed or conferred upon the agent by the
    agency agreement as may be appropriate or necessary.

    It was submitted by Mr. Eder on behalf of the members' agents before
    Saville J. and the Court of Appeal, and again before the Appellate Committee,
    that in cases involving indirect Names there was indeed a contractual
    relationship between the Names and the managing agents, under which the
    managing agents were contractually responsible for the proper performance
    of the underwriting for the Names. In this connection, Mr. Eder relied in
    particular upon the fact that the recital to the sub-agency agreement recites
    that it has been arranged between the agent and the sub-agent that the sub-
    agent shall act as the sub-underwriting agent for the Names.

    However, the substantive provisions of the sub-agency agreement (in
    particular, clauses 2, 3, and 5) make it perfectly clear that, although the sub-
    agent has power to underwrite for the agent's names, i.e. to bind the Names
    to contracts of insurance, nevertheless there is no contractual relationship
    between the sub-agent and the Names, the only relevant contractual
    relationship of the sub-agent being with the agent. In this connection the true
    position in law is, in my opinion, accurately stated by Professor F.M.B.
    Reynolds in Article 36(3) of the 15th edition (1985) of Bowstead on Agency,
    p. 131, as follows:

    "But there is no privity of contract between a principal and a sub-agent
    as such, merely because the delegation was effected with the authority
    of the principal; and in the absence of such privity the rights and
    duties arising out of any contracts between the principal and the agent,
    and between the agent and the sub-agent, respectively, are only
    enforceable by and against the immediate parties to those contracts.
    However, the sub-agent may be liable to the principal as a fiduciary,
    and possibly in other respects."

    Of the three authorities cited by Mr. Eder in support of his submission
    on this point De Bussche v. Alt (1877) 8 Ch.D. 286, Powell & Thomas v.
    Evan Jones & Co. [1905] 1 K.B. 11 and Tarn v. Scanlan [1928] A.C. 34, the
    first two were concerned with the accountability of a sub-agent for secret
    profits, and the third with liability for income tax. Each was a decision on its
    own specific facts, and none provides Mr. Eder with assistance in the form
    of general guidance on the circumstances in which a contractual relationship
    may come into existence between a principal and a sub-agent. I am satisfied
    that no such relationship came into existence between the Names and their
    sub-agents in the present case.

    In these circumstances, Mr. Eder's argument leads to the extraordinary
    conclusion that, under the prescribed forms of agency and sub-agency
    agreements, neither members' agents nor managing agents assumed any
    contractual responsibility to the Names for the underwriting which was the

    - 39 -

    principal purpose of these agreements. Such a conclusion is, in my opinion.
    so improbable that it adds considerable support for the view that Mr. Eder's
    argument cannot be right, and that the true position must be that, on a true
    construction of clause 2(a) of the agency agreement, members' agents did
    indeed undertake to carry out underwriting for the Names, as was held by
    both courts below.

    I recognise, of course, that it might have been thought right to
    structure the agreements differently, so that the managing agents were put into
    a direct contractual relationship with indirect Names who are members of
    Syndicates under their management. This was what was in fact done under
    the new forms of agreement brought into force as from 1 January 1990. But
    it is plain that this was not the intention under the forms of agreement now
    under consideration under which, in cases involving indirect Names, the
    managing agent acts as sub-agent of the members' agent, and all the necessary
    powers, etc. are vested in the members' agent which then delegates the
    performance of them to the managing agent.

    In truth, once it is appreciated that the obligation to underwrite under
    clause 2(a) of the agency agreement may be performed by the underwriting
    agent either by itself in a case involving direct Names, or otherwise through
    a managing agent under the terms of the sub-agency agreement, everything
    falls into place. This is particularly true of clause 4 of the agency agreement,
    when read in conjunction with clauses 2 and 5 of the sub-agency agreement.
    As far as clause 4(b)(G) of the agency agreement is concerned, on which Mr.
    Eder placed such reliance, this can be seen to reflect precisely the position
    under clauses 2(a) and 4(a); the effect of the sub-clause is, as obviously
    contemplated by the draftsman of the two agreements, that under the first part
    the members agent will appoint the managing agent to act as its sub-agent for
    the purpose of conducting the relevant part of the underwriting business, under
    clause 2 of the sub-agency agreement, and under the second part delegate to
    it under clause 5(a) the performance of the relevant powers, etc., which,
    significantly, are vested in the members' agent under clause 4(a) of the agency
    agreement. The vesting of these powers in the members' agent is, in my
    opinion, a strong pointer against the construction of the agreements for which
    Mr. Eder contends. Had that construction represented the draftsman's
    intention, he would surely, in this respect at least, have drafted the agreements
    differently.

    For these reasons, which I understand to be the same as those given
    by Saville J., which were accepted by the Court of Appeal, I would on this
    issue accept the argument advanced on behalf of the Names, and reject that
    advanced on behalf of the members' agents.

    III Merrett Appeals

    Reinsurance to Close.

    - 40 -

    On this Issue, I can see no answer to the conclusion reached by Saville
    J. and the Court of Appeal. I agree with the submission advanced by Mr.
    Borwood Q.C. on behalf of the Names in the Merrett Appeals that when
    Names on the 1985 underwriting year reinsured Names on the 1984 year,
    although the 1984 Names were running off their business, the 1985 Names
    were writing new insurance business which could only be done pursuant to the
    1985 Byelaw form of agreement in force as from 1 January 1987, as held by
    the courts below.

    Conclusion

    For these reasons, I would answer all the questions in the same manner
    as Saville J. and the Court of Appeal, and I would dismiss the appeals of the
    members' agents and the managing agents with costs.

    LORD BROWNE-WILKINSON

    My Lords,

    I have read the speech of my noble and learned friend Lord Goff of
    Chieveley, with which I am in complete agreement. I add a few words of my
    own on the relationship between the claim based on liability for negligence
    and the alternative claim advanced by the Names founded on breach of
    fiduciary duty.

    The decision of this House in Hedley Byrne & Co. Ltd. v. Heller and
    Partners Ltd.
    [1964] AC 465, was, to a substantial extent, founded on the
    earlier decision of this House in Nocton v. Lord Ashburton [1914] A.C. 932.
    In that case, Lord Ashburton sought to be relieved from the consequences of
    having loaned money to, amongst others, his solicitor Nocton. Lord
    Ashburton's pleadings were based primarily on an allegation of fraud; in
    particular, there was no allegation on the pleadings either of breach of
    contract by Nocton or of negligence. The lower courts treated the case as
    being wholly dependent on proof of fraud. But in this House Nocton was held
    liable for breach of a fiduciary obligation owed by him as solicitor to his
    client. However, although the decision was based on breach of fiduciary
    duty, both Viscount Haldane L.C. and Lord Shaw expressed such fiduciary
    duty as being but one example of a wider general principle, viz., that a man
    who has voluntarily assumed to act on behalf of, or to advise, another in law
    assumes a duty to that other to act or to advise with care. Viscount Haldane
    said, at p. 948:

    "Although liability for negligence in word has in material respects
    been developed in our law differently from liability for negligence in
    act, it is nonetheless true that the man may come under a special duty
    to exercise care in giving information or advice. I should accordingly
    be sorry to be thought to lend countenance to the idea that recent

    - 41 -

    decisions have been intended to stereotype the cases in which people
    can be held to have assumed such a special duty. Whether such a duty
    has been assumed must depend on the relationship of the parties, and
    it is at least certain that there are a good many cases in which that
    relationship may be properly treated as giving rise to a special duty of
    care in statement."

    Viscount Haldane gave a further explanation of the decision in Nocton v. Lord
    Ashburton
    in Robinson v. The National Bank of Scotland Ltd. [1916] S.C.
    (H.L.) 154. 157:

    ". . .I wish emphatically to repeat what I said in advising this House
    in the case of Nocton v. Lord Ashburton, that it is a great mistake to
    suppose that, because the principle in Derry v. Peek clearly covers all
    cases of the class to which I have referred, therefore the freedom of
    action of the courts in recognising special duties arising out of other
    kinds of relationship which they find established by the evidence is in
    any way affected. I think, as I said in Nocton's case, that an
    exaggerated view was taken by a good many people of the scope of the
    decision in Derry v. Peek. The whole of the doctrine as to fiduciary
    relationships, as to the duty of care arising from implied as well as
    expressed contract, as to the duty of care arising from other special
    relationships which the courts may find to exist in particular cases, still
    remains, and I shall be very sorry if any word fell from me which
    suggests that the courts are in any way hampered in recognising that
    the duty of care may be established when such cases really occur."

    It was these passages from the speeches of Viscount Haldane, and others.
    which this House in Hedley Byrne took up and developed into the general
    principle there enunciated as explained by my noble and learned friend, Lord
    Goff of Chieveley.

    This derivation from fiduciary duties of care of the principle of liability
    in negligence where a defendant has by his action assumed responsibility is
    illuminating in a number of ways. First, it demonstrates that the alternative
    claim put forward by the Names based on breach of fiduciary duty, although
    understandable, was misconceived. The liability of a fiduciary for the
    negligent transaction of his duties is not a separate head of liability but the
    paradigm of the general duty to act with care imposed by law on those who
    take it upon themselves to act for or advise others. Although the historical
    development of the rules of law and equity have, in the past, caused different
    labels to be stuck on different manifestations of the duty, in truth the duty of
    care imposed on bailees, carriers, trustees, directors, agents and others is the
    same duty: it arises from the circumstances in which the defendants were
    acting, not from their status or description. It is the fact that they have all
    assumed responsibility for the property or affairs of others which renders them
    liable for the careless performance of what they have undertaken to do, not
    the description of the trade or position which they hold. In my judgment, the

    - 42 -

    duties which the managing agents have assumed to undertake in managing the
    insurance business of the Names brings them clearly into the category of those
    who are liable, whether fiduciaries or not, for any lack of care in the conduct
    of that management.

    Secondly, in my judgment, the derivation of the general principle from
    fiduciary duties may be instructive as to the impact of any contractual
    relationship between the parties on the general duty of care which would
    otherwise apply. The phrase "fiduciary duties" is a dangerous one, giving rise
    to a mistaken assumption that all fiduciaries owe the same duties in all
    circumstances. That is not the case. Although, so far as I am aware, every
    fiduciary is under a duty not to make a profit from his position (unless such
    profit is authorised), the fiduciary duties owed, for example, by an express
    trustee are not the same as those owed by an agent. Moreover, and more
    relevantly, the extent and nature of the fiduciary duties owed in any particular
    case fall to be determined by reference to any underlying contractual
    relationship between the parties. Thus, in the case of an agent employed
    under a contract, the scope of his fiduciary duties is determined by the terms
    of the underlying contract. Although an agent is, in the absence of contractual
    provision, in breach of his fiduciary duties if he acts for another who is in
    competition with his principal, if the contract under which he is acting
    authorise him so to do, the normal fiduciary duties are modified accordingly:
    see Kelly v. Cooper [1993] A.C. 205, and the cases there cited. The
    existence of a contract does not exclude the co-existence of concurrent
    fiduciary duties (indeed, the contract may well be their source); but the
    contract can and does modify the extent and nature of the general duty that
    would otherwise arise.

    In my judgment, this traditional approach of equity to fiduciary duties
    is instructive when considering the relationship between a contract and any
    duty of care arising under the Hedley Byrne principle (of which fiduciary
    duties of care are merely an example). The existence of an underlying
    contract (e.g. as between solicitor and client) does not automatically exclude
    the general duty of care which the law imposes on those who voluntarily
    assume to act for others. But the nature and terms of the contractual
    relationship between the parties will be determinative of the scope of the
    responsibility assumed and can, in some cases, exclude any assumption of
    legal responsibility to the plaintiff for whom the defendant has assumed to act.
    If the common law is not to become again manacled by "clanking chains" (this
    time represented by causes, rather than forms, of action), it is in my judgment
    important not to exclude concepts of concurrent liability which the courts of
    equity have over the years handled without difficulty. I can see no good
    reason for holding that the existence of a contractual right is in all
    circumstances inconsistent with the co-existence of another tortious right,
    provided that it is understood that the agreement of the parties evidenced by
    the contract can modify and shape the tortious duties which, in the absence of
    contract, would be applicable.

    - 43 -

    For these reasons, in addition to the much wider considerations
    addressed by Lord Goff of Chieveley, I would dismiss the appeals.

    LORD MUSTILL

    My Lords.

    I have had the advantage of reading in draft the speech prepared by my
    noble and learned friend Lord Goff of Chieveley, and for the reasons which
    he gives, I too would dismiss the appeals of the Members' Agents and the
    Managing Agents with costs.

    LORD NOLAN

    My Lords.

    I have had the advantage of reading in draft the speech prepared by my
    noble and learned friend Lord Goff of Chieveley, and for the reasons which
    he gives, I too would dismiss these appeals with costs.

    - 44 -



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