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Cite as: [2002] EWCA Civ 1101

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    Neutral Citation Number: [2002] EWCA Civ 1101
    Case Nos: A3/2000/3863A; A3/2000/3863B; A3/2001/2013/A; A3/2002/0069; A3/2002/0069B; A3/2002/0069C; A3/2000/3863; A3/2001/0162; A3/2001/0957; A3/2001/1913; A3/2001/2013; A3/2001/0163

    IN THE SUPREME COURT OF JUDICATURE
    COURT OF APPEAL (CIVIL DIVISION)
    ON APPEAL FROM THE HIGH COURT OF JUSTICE
    QUEEN’S BENCH DIVISION COMMERCIAL COURT
    (CRESSWELL J)

    Royal Courts of Justice
    Strand,
    London, WC2A 2LL
    26 July 2002

    B e f o r e :

    LORD JUSTICE WALLER
    LORD JUSTICE ROBERT WALKER
    and
    LORD JUSTICE CLARKE

    ____________________

    Between:
    JAFFRAY & ORS
    Appellants

    - and -


    SOCIETY OF LLOYD’S

    Respondent

    ____________________

    (Transcript of the Handed Down Judgment of
    Smith Bernal Reporting Limited, 190 Fleet Street
    London EC4A 2AG
    Tel No: 020 7421 4040, Fax No: 020 7831 8838
    Official Shorthand Writers to the Court)

    ____________________

    Mr Simon Goldblatt QC and Mr Vincent Nelson QC (instructed by More Fisher Brown) for certain of the appellants
    Mr Gordon Nardell and Mr Giles Richardson (instructed by Grower Freeman) for others of the appellants
    Sir William Jaffray Baronet, Mrs Heather Adams, Mr Sydney Butler, Mr Richard Carter, Mr Cary Harrison and Mrs Ann Strong appeared in person
    Mr Charles Aldous QC, Mr Richard Jacobs QC and Mr David Foxton (instructed by Freshfields) for the respondent
    Mr Colin Edelman QC (instructed by Barlow, Lyde & Gilbert) appeared on behalf of Equitas (intervening)

    ____________________

    HTML VERSION OF JUDGMENT
    AS APPROVED BY THE COURT
    ____________________

    Crown Copyright ©

      Index to the judgment

        paragraphs
      I INTRODUCTORY Overview ..............................................................
      1 to 14
        The threshold fraud issue ......................................
      15 to 30
        The judgment below ..............................................

      31 to 48
      II LEGAL ISSUES The tort of deceit ....................................................
      49 to 69
        Corporate knowledge, intention and bad faith .......
      70 to 74
        Approach of the Court of Appeal .....................

      75 to 79
      III THE FACTS The claimants and their witnesses ..........................
      80 to 95
        Working members of the Lloyd’s community .......
      96 to 122
        Chronological summary: before 1982 ....................
      123 to 148
        Chronological summary: 1982 ...............................
      149 to 180
        The Lloyd’s Act 1982 ............................................
      181 to 201
        Chronological summary: 1983-8 ...........................
      202 to 266
        Chronological summary: since 1988 .....................

      267 to 284
      IV
      THE ALLEGED REPRESENTATIONS

      Recapitulation of pleaded case ..............................

      The brochures ........................................................

      The judge’s reasoning ...........................................

      Representations as to the audit system .................

      The globals ............................................................


      285 to 287

      288 to 297

      298 to 308

      309 to 325

      326 to 343
      V
      THE AUDIT SYSTEM: WAS THE REPRESENTATION TRUE?

      Introduction ...........................................................

      Reserves and RITC ...............................................

      Solvency ...............................................................

      Conclusions ..........................................................


      344

      345 to 362

      363 to 373

      374 to 378
      VI
      LLOYD’S STATE OF MIND

      Introduction ...........................................................

      Before Neville Russell letter .................................

      After Neville Russell letter ....................................

      The names’ case (summary and discussion) ........



      Lloyd’s case ...........................................................

      Conclusions as to 1982 ..........................................

      Evidence as to 1983-8 ...........................................

      Discussion as to 1983-8 ........................................

      Conclusions as to 1983-8 ......................................

      General Conclusions .............................................


      379

      380 to 385

      386 to 390

      391 to 409

      paragraphs

      410 to 426

      427 to 432

      433 to 471

      472 to 474

      475 to 480

      481
      VII
      RELIANCE AND INDUCEMENT


      VIII FAIR TRIAL

      ....................................................................



      Introduction ...........................................................

      Correct approach ...................................................

      The Alleged unfairness ..........................................

      The Relevant circumstances ..................................

      Unacceptable pressure ...........................................

      The Documents: disclosure and trial bundles ........

      Redaction and relevance .......................................

      Confidentiality: general .........................................

      Attorney’s reports ..................................................

      Equitas reserving figures ......................................

      Finality statements ................................................

      LUNMA minutes ..................................................

      Adverse inferences ...............................................

      Witness statements ...............................................

      Timetable for final submissions ............................

      Role of litigants in person .....................................

      Disregard of submissions of litigants in person....

      Relationships between Lloyds, Equitas & LUNMA

      Conclusions on fair trial ........................................

      482 to 484



      485

      486 to 495

      496 to 497

      498 to 510

      511 to 518

      519 to 526

      527 to 529

      530 to 535

      536 to 537

      538 to 550

      551 to 554

      555 to 560

      561 to 569

      570 to 571

      572 to 574

      575 to 577

      578 to 579

      580 to 582

      583 to 586

      IX CONCLUSIONS

      ................................................................................ 587 to 589

      Lord Justice Waller:

      I INTRODUCTORY

      Overview

    1. This is the judgment of the court (to which we have all made a substantial contribution) on an appeal from an order of Cresswell J made in the commercial court on 3 November 2000. The judge decided what has become known as the threshold fraud issue (described below) adversely to the claimant names. He refused permission to appeal but permission on limited grounds was granted by this court on 8 October 2001, with the rest of the application for permission to appeal being adjourned to the appeal hearing.
    2. It is easy to understand the depth of feeling of those names who became members of Lloyd’s between 1977 and 1987. They joined Lloyd’s at a time when there were many syndicates infected with asbestos-related risks which were persistently underestimated. The procedure at Lloyd’s was that each year’s accounts were, at the end of a three-year period, closed into the next year’s accounts. The effect was that the new names inherited losses of massive proportions.
    3. Policies written in the fifties and sixties were coming alive again. Claims were being made in the 1970s and for many years thereafter by persons who suffered from cancer and other diseases caused by inhalation of asbestos during the 1940s and 1950s. Those claims were succeeding against producers and producers were claiming on policies written long before the names ever became members of Lloyd’s. Lloyd’s syndicates were claiming on reinsurances taken out with other Lloyd’s syndicates long before the names became members. Courts in the United States were apparently holding producers liable on any basis that gave the claimant the best prospect of succeeding in his or her claim, and were allowing producers to succeed on claims under their policies on any basis that would lead to insurers or reinsurers having to pay.
    4. The names say that by the time they joined Lloyd’s it was known by those in the market and at the centre of Lloyd’s that there were unquantifiable but potentially massive losses in the pipeline for which proper reserves had never been made, and about which the names were not warned. Indeed they say they were given the impression that all was under control and properly reserved for.
    5. Many actions have been brought against members’ agents and managing agents, and indeed against auditors. Some have succeeded by compromise or at trial, although not always with full recovery. The thrust of the actions has been to allege that the names were exposed to these losses only because of bad underwriting or poor advice and (so far as both the underwriters and the auditors are concerned) through failures relating to the RITC (reinsurance to close). It is said either that the premiums paid on reinsurances to close were totally inadequate in various years or that the reality was that certain years should never have been closed, leaving the names on those years to suffer the losses but not new names.
    6. Attempts have also been made to render the Corporation of Lloyd’s itself liable. Previous decisions have established first that there is no room for the imposition on Lloyd’s of a duty of care by statute or common law, and second that there is no room for the implication of terms in the contract between Lloyd’s and names who became external members of Lloyd’s. See Ashmore v Corporation of Lloyd’s [1992] 2 Lloyd’s Rep. 620; Ashmore v Corporation of Lloyd’s (No 2) [1992] 1 WLR 446; and Society of Lloyd’s v Clementson and v Mason [1994] CLC 71; [1995] CLC 117.
    7. In this action what is in issue is whether Lloyd’s are liable for making fraudulent misrepresentations. It is a fact to which the judge referred that the major part of the Lloyd’s litigation has been settled by the R&R Settlement (see paragraphs 280ff below), and this action is brought by a limited number of names that have refused to accept that offer. We stress that no inference should be drawn against the names who have chosen to continue with this action from any refusal to accept that offer, and indeed we do not understand Lloyd’s (through Mr Charles Aldous QC) to be suggesting that it should.
    8. What is alleged (putting it shortly) is that in brochures issued by Lloyd’s and in global accounts (“globals”) issued by Lloyd’s certain representations were made as to the quality of the Lloyd’s regulatory procedures and in particular the audit procedures described in the brochures as “rigorous”. It is alleged that the names relied on those representations in making their decisions to join Lloyd’s, and in their decisions to remain members and/or increase their underwriting capacity. It is alleged that those representations were untrue. Lloyd’s (it is said) did not have the quality of regulatory procedures, and in particular auditing procedures, which it was asserting it had. Furthermore it is said that those making the representations appreciated that fact.
    9. The key to the names’ case is a letter, “the Neville Russell letter”, written on behalf of a number of panel auditors on 24 February 1982. It will be necessary to look at that letter in detail, but for the present it is enough to set out the penultimate paragraph which said:-
    10. “We consider that the impossibility of determining the liability in respect of asbestosis falls into this category [ie requires to be reported to the Committee] and we accordingly ask for your instructions in this respect.”
    11. The names say that that letter establishes that it was in 1982 “impossible” to close accounts fairly because of the totally unquantifiable impact of asbestosis. The names say that Lloyd’s instead of facing up to that fact (a) sent out to underwriting agents (and then it is asserted only to managing agents) another key document (“the Murray Lawrence letter”) together with a letter to auditors signed by Mr Randall (then a senior employee of Lloyd’s), which in effect encouraged syndicates and auditors to continue to close their accounts although, as they all knew, no RITC could be fairly estimated; and (b) continued with the representations that the audit procedures were rigorous, thus allowing names to remain in ignorance of the fact that (as the names would allege) the audit procedures were not such as to enable any proper check on the assessment of the RITC.
    12. The names’ case has some potency when put as starkly as we have so far put it. But many names have gone further, and indeed in this case some names go further. They have suggested a dishonest conspiracy amongst those running Lloyd’s to keep quiet about the impact of asbestosis so as to enable the numbers at Lloyd’s to be increased so as to bring in more names to share the burden – “recruit to dilute”. As part of that dishonest conspiracy it has been suggested first that the cynical response to the Neville Russell letter was to produce the Murray Lawrence letter either as a letter for the file or at least as a letter with limited circulation so that the problem remained as far as possible undiscovered. It was said that members of the Committee of Lloyd’s looked after their own interests by reinsuring the liabilities of their own syndicates but left others to suffer. It has been alleged that Lloyd’s dishonestly fixed the minimum percentages for reserves so as to enable the syndicates to continue to close their accounts, and continue to declare profits. It has been alleged through Mr Bradley that as early as 1974 individuals at the centre of Lloyd’s knew the extent to which the asbestosis losses would rise and set about protecting their own syndicates and deliberately inflicted the losses on new names. This dishonest conspiracy was said to have continued over eleven years, each group of committee men and members of Council in succession carrying on a scheme designed to keep Lloyd’s afloat by disguising the extent of the problem from the individual names. The depth of feeling of the names has been such that almost any conduct of those at the centre has been interpreted by them as having an improper motive. Many of the allegations which were chased down at the trial took time and energy, although none succeeded and many have been abandoned on this appeal.
    13. On this appeal the grand conspiracy theory is not alleged. Furthermore although Sir William Jaffray in his submissions clung faintly to the point, it cannot be plausibly asserted that Lloyd’s dishonestly recommended low minimum percentages as reserves. The allegation of a limited circulation of the Murray Lawrence letter is persisted in, but in reality it is not a key point in the essential case which the names make.
    14. We believe that the other points have detracted and do detract from what is essentially a straightforward case, which (as we should say at the outset) cannot be dismissed lightly. There is no question but that by brochures, and to a lesser extent globals issued by Lloyd’s throughout the relevant period, the impression was being given to any reader that Lloyd’s was an institution that could be relied on with controls and in particular auditing controls which were of a high order. There is furthermore no question but that history demonstrated that many syndicates were throughout the period under-reserved. The syndicates were in fact under-reserved in the 1950s and 60s when workmen were breathing in the asbestos dust. They were also under-reserved through the 1970s and 1980s, as the building up of claims was to demonstrate. Thus it was that new names were on any view taking on claims for which inadequate premiums had been paid to them by their predecessors on the RITCs. Issues arise as to whether the impressions given by the brochures amount to representations, and as to whether those representations were relied on by the names, but the central question seem to us in reality to be – was it at any time appreciated by those at the centre of Lloyd’s that syndicates’ accounts were being closed when in fact no fair assessment of the RITC premium could be made? If that was appreciated, and yet a false impression was being created so far as names were concerned, it would be the basis for a strong claim of deceit.
    15. To understand the names’ case and the Lloyd’s answer it is necessary now to go into much more detail. The history needs to be spelt out, and the important characters identified. It is also necessary to address in some detail certain factual issues which underlie consideration of the case that representations were made, that they were relied on, that they were untrue, and that they were known to be untrue.
    16. The threshold fraud issue

    17. The trial before the judge was limited to a single issue which was defined in an order made by Colman J on 30 June 1998 as follows:
    18. “The Threshold Fraud Point refers to the issue whether Lloyd’s made representations which it knew to be untrue and/or as to which it was reckless whether they were true or false and whether such representations were communicated to the Names and if so, when.”

      The order of 30 June 1998 further contained directions as to which names should be bound by a determination of the threshold fraud point. Thereafter all concerned proceeded on the basis that the trial would be limited to the threshold fraud point as defined, subject only to some refinement as follows.

    19. Paragraph 4 of a further order made by Colman J on 16 March 1999 provided that the trial be limited to three selected individual claimants, namely Sir William Jaffray, who joined Lloyd's in 1982, Mrs Dona Evans, who joined in 1988 and an individual claimant who joined Lloyd's in 1979 to be nominated by Sir William, or perhaps by the names. Captain Hindle was subsequently chosen. There were thus three sample names. By paragraph 4 of a further order made by Cresswell J, on 1 July 1999, it was directed that the issues to be determined would include, in addition to those ordered by Colman J on 30 June 1998, the question whether each of the sample names relied upon any of the pleaded misrepresentations during the relevant period.
    20. The relevant period was defined by paragraph 1 of that order as 1978 to 1988. The order also identified those individuals against whom allegations of fraud were made. As set out in chapter 7(1) of the judgment under the heading the Names’ Pleaded Case, they were the following:
    21. “(i) Certain members of the Council and/or Committee of Lloyd’s: Sir Peter Green, F Barber, Richard Ballantyne, D J Barham, J R K Beckett, I R Binney, P G Bird, B J Brennan, A H Chester, M H Cockell, D E Coleridge, P T Daniels, R D Hazell, C O Gibb, C D D Gilmour, A W Higgins, V V Hudson, R J Kiln, W N M Lawrence, S R Merrett, Sir Peter Miller, C K Murray, E E Nelson, A Parry, I R Posgate, Sir David Rowland, C H A Skey (including, where relevant, their membership of Audit and Membership Committees and their statements in the Global Reports and Accounts as LUNMA Chairmen respectively during the Relevant Period). The Names say that where any one or more of these persons acted during any year between 1978 and 1988 as Chairman or a Deputy Chairman of the Committee/Council of Lloyd’s they carried special responsibilities in the oversight and administration of the Lloyd’s market and had particular influence which was likely to be decisive in matters relevant to the problem of asbestos-related claims.
      (ii) K E Randall.
      (iii) H R Rokeby-Johnson, Robin Jackson, Bryan Kellett and Michael Williams (the other LUNMA Chairmen who contributed to the Global Reports and Accounts in the Relevant Period).
      (iv) Certain members of the Asbestos Working Party during the Relevant Period (E E Nelson, H R Rokeby-Johnson, R A G Jackson, D Tayler, C H A Skey). ”
    22. In these circumstances it was, as we understand it, common ground at the trial that the only cause of action being considered by the judge was the tort of deceit based upon various alleged fraudulent misrepresentations which we identify further below. Both Lloyd's and all relevant names were to be bound by the decision made on the issues determined, which included whether the names had established the ingredients of the tort of deceit on the facts, subject to questions of reliance and loss. Issues of reliance were to be determined only in the case of each of the three sample names. Issues of loss were to be postponed for later decision if necessary.
    23. No other issues fell for determination at the trial. It follows that, in the absence of permission being obtained from this court to raise new issues, no other issues fall for decision in this appeal. On 8 October 2001 this court, then consisting of Lord Phillips MR, Waller LJ and Clarke LJ, granted permission to appeal against the decision of the judge on the threshold fraud point, and stood over to the hearing of the full appeal the question whether permission to appeal should be granted on the ground of unfair trial. That is a distinct point which we deal with in Part VII below.
    24. The names subsequently sought to include in the appeal for which they had permission a number of points which were not advanced before the judge. However, on 21 January 2002, having heard and read detailed submissions on all sides, we directed that the appeal be limited to an appeal on the threshold fraud point. The reasons for that decision are set out in the judgment of Waller LJ given on that day. As explained in that judgment, it will ultimately be a matter for the judge to decide the extent to which (if at all) further points can be raised by the names in the light of this judgment.
    25. It is of great importance to have in mind throughout that we are concerned in this appeal only with the names’ case in deceit. It follows that in order to succeed the names must establish the ingredients of the tort of deceit. We are not considering other possible causes of action, including allegations of negligent misrepresentation. That is not only because of the way the threshold fraud issue was formulated as a preliminary issue in these proceedings but also because of the way in which the courts have decided other actions against Lloyd's.
    26. For example, the question whether Lloyd's owed names a duty of care was raised in Ashmore v Corporation of Lloyd's [1992] 1 WLR 446. In the course of his consideration whether Gatehouse J should have ordered a preliminary issue which included the question whether Lloyd's owed names a duty of care, Lord Templeman said at pp 451H-452A:
    27. “If Lloyd's owe a duty by statute or contract, then the preliminary issue will be decided in favour of the plaintiffs. But if no duty was imposed by statute or contract it does not appear to me that a duty could have arisen in tort. If statute or contract between Lloyd's and a name do not impose an obligation on Lloyd's to convey information to a name concerning his managing agent, an obligation to convey information could not arise just because and whenever information was obtained by Lloyd's.”

      At the trial of the preliminary issues before Gatehouse J, [1992] 2 Lloyd's Rep 620, the question whether Lloyd's owed a duty of care in tort was not pursued: see p 623.

    28. Gatehouse J also considered the question whether certain terms should be implied into the contract or whether duties in similar terms were imposed by statute. The specific duties contended for by the plaintiffs were
    29. “(a) a duty to take reasonable steps to alert the plaintiff names about matters which might seriously affect their underwriting interests and (b) a duty to impose a premium income monitoring system even if it was only an ad hoc system of monthly monitoring of the syndicates managed by an agent in trouble.”
    30. He concluded against the plaintiffs, and made this observation in relation to good faith at p 631:
    31. “This led to the limited proposition that it is the duty of a regulator to exercise its powers and discretions in good faith and that where the regulator secures for itself contractual powers and discretions it is a necessary legal incident of such contract that (unless expressly excluded) the regulator will exercise its powers and discretions in good faith. A well-known example is Weinberger v Inglis, [1919] AC 606, in which this proposition was assumed by the House of Lords. The duty extends no wider, said Mr Simon. Whether an attempt expressly to exclude any duty of good faith could survive the Unfair Contract Terms Act 1977 was not canvassed and, in any case, does not arise; Lloyd’s accepted (obviously correctly) an unqualified duty to act in good faith. But I know very little about the self-regulating bodies which, it is claimed, constituted a type or category of contractual relationship and I do not feel able to say that there is such a type, of which Lloyd’s contract with a Name is an example. I remain of opinion that the Lister v Romford principle has no application.”
    32. In Society of Lloyd’s v Clementson and v Mason [1994] CLC 71; [1995] CLC 117 the terms contended for by Mr Clementson and Mr Mason respectively were in the following form:
    33. Clementson
      (1) that Lloyd’s would regulate and direct the business of insurance at Lloyd’s with care and diligence and/or lawfully;
      (2) that Lloyd’s would manage and superintend the affairs of the Society with care and diligence;
      (3) that Lloyd’s would advance and protect the interests of members of Lloyd’s in connection with the business carried on by them with care and diligence and/or lawfully; and
      (4) that Lloyd’s would collect, publish and diffuse intelligence and information to members of Lloyd’s including the defendant in connection with the business carried on by them, with care and diligence and/or lawfully.
      Mason
      (1) that Lloyd’s would comply with the provisions of the Lloyd’s Acts 1871-1982, any subordinate legislation made thereunder and any direction given or provision or requirements made or imposed by the Council or any person(s) or body acting on its behalf pursuant to such legislative authority;
      (2) that Lloyd’s would regulate the business of insurance at Lloyd’s lawfully and/or in good faith and/or with reasonable care and diligence; and
      (3) that Lloyd’s would advance and protect the interests of members of Lloyd’s in connection with the business carried on by them as members of Lloyd’s lawfully and/or in good faith; and with reasonable care and diligence.”
    34. The decision of Saville J that no such terms fell to be implied was upheld by the Court of Appeal. Observations in relation to the obligation of Lloyd’s to act in good faith were made by Saville J, Steyn LJ and Hoffmann LJ. We do not understand there to be a difference between them, but Hoffmann LJ spelled out the position in this regard at pp 133-134:
    35. “1. Implied terms
      Mr Beveridge said that agreements by which members of an organisation agreed to be bound by its rules and regulated by a committee or similar body were a type of contract into which certain obligations on the part of the organisation (if corporate) or its committee were customarily implied. He said that the powers of regulation were regarded as fiduciary and had to be exercised in good faith and for the purpose intended by the rules. From this he said it was a short step to the implication of a duty to members to exercise regulatory powers with reasonable care.
      In my view the fallacy of this argument is to confuse the extent of the powers conferred on the organisation or committee with its contractual obligations to its members. The fiduciary nature of the powers means that a purported exercise of those powers in bad faith or for an improper purpose will be invalid. It does not follow that the mere invalid exercise of the power will be a breach of contract for which the organisation is liable in damages, although it may mean that the organisation will be unable to justify an act (such as depriving an expelled member of the benefits of membership) which would be wrongful in the absence of a valid exercise of the power. Once it is appreciated that an improper exercise of the power is not in itself a breach of contract but simply a nullity, the basis for implying a contractual obligation not to act otherwise than in good faith and for a proper purpose disappears. A fortiori, there can be no foundation on which to build an implied term to exercise the power with reasonable care.”
    36. We shall return below (paragraphs 303ff) to the reasons given by Saville J and this court for rejecting the implied terms proposed in Clementson because in chapter 22, where the judge gave his reasons for rejecting the names’ case that Lloyd's made a series of fraudulent representations to names and prospective names, he relied upon some of the reasoning in Clementson.
    37. It is no doubt because of the decisions and reasoning in some of these cases that we are not concerned with a case which alleges that Lloyd's are liable to the names because of a breach of contract. Nor are we concerned with the breach of an alleged duty of care, whether committed in bad faith or otherwise. In particular, we are not concerned with a case based upon the allegation that Lloyd's fraudulently failed to disclose material facts to prospective names. Any such case is not within the threshold fraud issue.
    38. This is important because a significant amount of the argument of the litigants in person, and particularly Sir William Jaffray, sought to advance just such a case. For example it was said that Lloyd's motto is “Fidentia”, that Lloyd's owed the names a duty of the utmost good faith and that Lloyd's was in breach of that duty in that it fraudulently failed to give information to prospective names as to the risks associated with asbestos related claims because it knew that, if it did, prospective names would be put off. Submissions along these lines were advanced with great vigour and conviction, but they cannot assist the names in this appeal because in order to establish the tort of deceit the names must establish relevant fraudulent misrepresentations. Mere omissions are not sufficient.
    39. It follows that, in so far as it is said that the appeal should be allowed on the ground that the judge reached the wrong decision, we focus in this judgment solely upon the threshold fraud point and thus on the tort of deceit.
    40. The judgment below

    41. The trial occupied 64 days between 6 March and 14 July 2000, after the judge (who was already very familiar with the case through his case-management responsibilities) had spent some considerable time pre-reading. There were ten days of oral opening submissions and over 40 days of oral evidence. There was a huge volume of documentary evidence. The parties put in lengthy written closing submissions and produced numerous agreed (or partly agreed) statements of fact on particular topics. In opening this appeal Mr Simon Goldblatt QC referred to the judge having had to assess about two million spoken words, and about twenty million written words.
    42. The conduct of a trial of such length, with so great a volume of written material, would in any circumstances have been a heavy burden for any judge. Cresswell J’s burden was increased by the number of litigants in person who were appearing before him (in addition to the three teams of counsel) and by the strength of the names’ feelings which pressed on the crowded court-room throughout the trial. The judge had to deal with frequent interruptions for ‘housekeeping’ points and peripheral issues of every sort. Often he had to begin the day by complaining of letters which had been sent to him either by litigants in person or by non-litigating names, and directing (unfortunately to little effect) that names should not attempt to communicate with him otherwise than in open court. On occasions (especially during the oral evidence of Sir Peter Miller) the judge had to give a stern warning that any attempt to intimidate or insult a witness amounted to a serious contempt of court.
    43. It will be necessary to return to the course of the trial in more detail in connection with the application for permission to appeal on the ground that the names have not received a fair trial. For the present it is sufficient to say that the complete transcript of the trial conveys a strong first impression that Cresswell J performed a very difficult task with enormous patience and good humour, and sensibly gave the litigants in person a great deal of latitude (while showing firmness on those occasions when it was called for).
    44. When he reserved judgment on 14 July 2000 the judge said that he hoped to deliver judgment in the last week of October or the first week of November. He achieved that aim. On 3 November 2000 he handed down a judgment divided into 25 chapters and four appendices, extending to 635 pages in all.
    45. In preparing his judgment the judge had the benefit of five lengthy statements of facts which had been wholly or largely agreed between the parties. These dealt with (i) the administrative structure and governance of Lloyd’s and its insurance market; (ii) the regulatory background as regards accounts and auditing; (iii) the rules and procedures governing admission to underwriting membership; (iv) the chronology of information relevant to asbestos-related claims between 1978-88 (“the relevant period”); and (v) cases in the United States concerned with asbestos-related claims during the relevant period. There was also prepared a chronology of matters relevant to Lloyd’s treatment of asbestos-related liability during the relevant period (this was not agreed). The first three of these statements were supplemented by numerous appendices and supporting documents.
    46. The judge drew on this material in the narrative parts of his judgment, the scheme of which is summarised in chapter 4. The chapters most directly derived from the statements of facts are chapters 10 (administrative structure and governance), 11 (regulatory background for the auditing and accounting regime), 12 (rules and procedures governing membership), 13 (RITC – general principles and the role of the managing agents/underwriter), 14 (RITC – the role of the auditors) and 16 (overview of the nature and development of asbestos-related claims). There is a useful glossary and list of abbreviations and acronyms in chapter 3.
    47. This background material is likely to be familiar to most of those who will read this judgment, and so it is unnecessary to reproduce it here at length. As factual material it is largely uncontroversial (although part of the appellants’ case is that the judge erred, in deciding that there had been no representations made by Lloyd’s, by placing too much weight on the constitutional and regulatory framework and too little on what was actually said in the brochures and global reports on which the appellants relied).
    48. For the purposes of this appeal the most important chapters of the judgment are chapter 15 (the witnesses) and chapter 22 (analysis and conclusions on the issue of threshold fraud). It is in those chapters that the reader looks to find the reasons for the judge’s conclusions, and it is mainly on what is said (or omitted) in those chapters that the grounds of appeal have focused.
    49. In chapter 15 the judge identified all the witnesses who had given evidence orally or by witness statement, and gave an indication (sometimes quite detailed, but in most cases brief) of the topics covered in their evidence. The judge was to some degree critical of several of the witnesses for the names (including Mr Stockwell, Mrs Mackenzie-Smith, Mr Steel and Mr Bradley, of whom the judge was most critical). The judge commented favourably on the evidence of Mr Fredjohn, Sir Eddie Kulukundis and Mr Sturge. In relation to each of the three sample names the judge said that he was not persuaded that he or she relied on any of the alleged fraudulent misrepresentations. He did not enlarge on his reasons beyond saying that Sir William Jaffray probably relied on conversations with his two successive members’ agents (and possibly also on conversations with his cousin) and that Mrs Evans probably relied on conversations with her members’ agent.
    50. The judge did not make any adverse comments on any of the witnesses for Lloyd’s, beyond using the word “surprisingly” to describe Sir Peter Miller’s evidence that he was not aware that twenty years or more may elapse between exposure to asbestos and the manifestation of serious asbestos-related illness. The judge made favourable comments about the evidence of a number of the Lloyd’s witnesses, including Sir Peter (“articulate”), Sir David Rowland (“highly articulate”), Mr Lord (“impressive”), Mr Murray (“a highly professional and skilful underwriter”), Mr Keeling (“a particularly astute underwriter”) and Mr Rayment (“a highly conscientious claims man ... I was greatly assisted by his evidence”). In relation to Mr Lawrence the judge made a clear finding that he accepted as accurate his evidence about the distribution of the Murray Lawrence letter.
    51. At the end of chapter 15 the judge added this observation:
    52. “Lloyd’s did not call a number of witnesses whose witness statements were exchanged. In reaching the conclusions set out in this judgment I have had regard to the fact that Lloyd’s did not call these witnesses and I have considered whether any adverse inferences should be drawn.”

      The most important uncalled witness in this category was probably Mr Randall. It appears that the judge must have decided not to draw any adverse inference from the failure to call the witnesses, since the judge did not again refer to this point in his judgment.

    53. In chapter 22 the judge began by referring to his summaries of the competing cases and the relevant legal principles (chapters 7, 8 and 9). He reminded himself of the names’ pleaded case as to the alleged misrepresentations. It was pleaded that the brochures represented that a name joining Lloyd’s:
    54. “(i) Could have confidence in Lloyd’s as an institution to safeguard his/her interests;
      (ii) Could trust those who were chosen by Lloyd’s to regulate the Lloyd’s market and manage its affairs;
      (iii) Because of the way in which Lloyd’s regulated and monitored underwriting accounts year by year:
      (a) could rely on syndicate accounts;
      (b) could in underwriting and/or deciding whether to remain a member of Lloyd’s have confidence in the audited syndicate results, for results of past years;
      (c) could be sure that Lloyd’s as part of its regulatory duties would ensure that when prospective liabilities were reinsured by one syndicate year into another, such liabilities were being fairly assessed and quantified as between the two syndicate years.”
    55. It was also pleaded that the globals represented to a name who read them:
    56. “(a) that the Lloyd’s market was in a sound financial condition;
      (b) that Names could safely join Lloyd’s and/or continue their membership of Lloyd’s and/or increase their Premium Income Limit with confidence that known and projected claims had been prudently and adequately reserved to ultimate.”
    57. The judge then stated his conclusion that neither the brochures nor the globals made the alleged representations. In relation to the brochures the first five of his stated reasons (elaborated in three further subparagraphs) were as follows:
    58. “(i) The whole of each Brochure must be considered.
      (ii) The starting point is the actual words used in the Brochures.
      (iii) A useful question is as follows: What would a reasonable applicant for membership of Lloyd’s/Name understand when reading the Brochure as a whole?
      (iv) The alleged representations are not contained in any of the express words used in the Brochures.
      (v) The alleged representations (a) are not necessary to give business efficacy; (b) do not represent the obvious, but unexpressed, intention of the parties; and (c) are inconsistent with the express words used in the Brochures.”

      In relation to the globals his stated reasons were very similar. In relation to both he summarised his reasoning by observing that the alleged representations were unclear in their terminology, did not accord with the administrative structure and governance of the Lloyd’s market and the regulatory background, and were inconsistent with what the documents in question had actually said.

    59. The judge then went on, in case he was wrong about the absence of any representations, to find that the other ingredients of the tort of deceit had not been made out: in particular, that fraud (in the relevant sense) had not been made out. He observed that the names’ case was limited to the alleged known impossibility of proper reserving for asbestos-related claims, as part of a wider picture which included pollution and other long-tail claims, several catastrophic losses between 1987 and 1990, and the LMX spiral. He also observed (and this is, we think, a dominant and recurring theme of the judgment) that the names’ case must be judged against the way the Lloyd’s market and the Lloyd’s regulatory system operated.
    60. He developed this theme by reference to a number of topics as follows: (a) market associations; (b) the role of the DTI; (c) minimum percentage reserves; (d) developments in the Lloyd’s regulatory environment for auditing and accounting; (e) managing agents; (f) panel or registered auditors; (g) meetings of panel auditors; (h) members’ agents; and (i) the Rota committee. In this and the following sections of the chapter the judge made four important findings of fact (or conclusions representing his assessment of the facts):
    61. (i) “The Committee/Council of Lloyd’s was generally entitled to assume that auditors were performing their duties competently.”
      (ii) At the annual meetings when Mr Lawrence, Mr Nelson, Mr Rokeby-Johnson and Mr Jackson addressed the panel auditors about asbestos-related claims, they “did so (in the case of Mr Nelson probably did so) honestly and responsibly.”
      (iii) “ ... the Murray Lawrence letter and the Randall letter were an honest response to the issues raised by the Neville Russell letter.”
      (iv) The view that RITC should be left to managing agents and auditors, and should not be second-guessed by the Council, was “representative of the then current thinking of the Committee/Council, and in my judgment reflected the distinction between the role of the Committee/Council and the duties and responsibilities of managing agents/underwriters and auditors of individual syndicates.”
    62. The judge then considered three particular contentions which had been relied on by the names as part of their case: the allegation that Lloyd’s deliberately chose not to make an independent investigation and assessment of the overall exposure of the Lloyd’s market to asbestos-related claims (the so-called ‘back of an envelope’ issue); the allegation that Lloyd’s deliberately followed a policy of expanding its membership in order to place part of the burden of under-reserving on new names who were not told of the risks (the so-called ‘recruit to dilute’ policy); and the allegation that the 1979 year of account should have been left open by syndicates affected by asbestos-related claims. The judge rejected all of these contentions. On the ‘back of an envelope’ point he relied on the evidence of Mr Rayment and Mr Lord as to the task being both enormously complicated (as was shown by the Equitas reserving project) and inappropriate to the Lloyd’s system. On the ‘recruit to dilute’ policy he said that it was a matter for agents, not for Lloyd’s. On the closure of the 1979 year of account he referred to his own judgment in the Merrett case and also to the Kerr report on syndicate 418/417’s closed year.
    63. The judge concluded that if he were wrong in his view that no representation had been made, the claim would still fail, especially on the issue of fraud. The judge did not in that part of his judgment add to his brief findings (in chapter 15) as to the failure to prove reliance on the part of the three sample names. Nor did he add to what he had said in chapter 9 (relevant legal principles) as to the representor’s intention to convey a false meaning, or as to the issue of attribution of intention to a corporation (he cited, without comment, a passage from Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500, 506). He did not in terms deal with the reference in the early brochures to a ‘rigorous audit’, a fact which no doubt reflects the way in which the names’ case has developed in this court.
    64. II LEGAL ISSUES

      The tort of deceit

    65. The names rely upon a number of representations which they say are contained in various Lloyd's brochures and in annual statements known as globals. In the case of each alleged representation, in order to recover damages for deceit a name must establish the following:
    66. i) that Lloyd’s made the representation;

      ii) that the representation was material;

      iii) that the representation was untrue;

      iv) that when it made the representation, Lloyd's knew or believed that it was untrue or made it recklessly, careless whether it be true or false;

      v) that when it made the representation, Lloyd's intended that the representation should be relied upon by the name;

      vi) that the name in fact relied upon the representation; and

      vii) that the name has suffered loss as a result.

      It is convenient to consider each of those ingredients in turn in the context of a case of this kind.

      i) The Representation

    67. The names must establish that Lloyd’s made the representation alleged, which involves two questions, namely whether a relevant representation was made and, if so, whether Lloyd's made it. As to the second question, since the alleged representations are all contained either in the brochures or in the globals, and since both the brochures and the globals were prepared and published by Lloyd's, we do not think that there can be any doubt that a representation contained in either publication was made by Lloyd's.
    68. As to the first question, namely whether a relevant representation was made, the representation must be a representation as to a past or existing fact and not as to the future: see eg Yorkshire Insurance Co v Craine [1922] 2 AC 542 per Lord Atkinson, giving the judgment of the Judicial Committee of the Privy Council, at p 553.
    69. Whether any of the alleged representations was made involves a consideration of each brochure or set of globals relied upon in order to see what the words used in the relevant document mean. The particular words used must of course be read in their context, which involves considering them in the context of the particular brochure or set of globals as a whole. Further, just as the words used must not be read in isolation, so the document must itself be considered against the relevant surrounding circumstances. In particular, it is necessary to have regard to the purpose for which the document came into existence, why the statements contained in it were made and by whom they were intended to be read.
    70. It follows that the words used may have a meaning other than their literal meaning. They may also have a meaning which is not expressly stated, but which is implicit. However, as we see it, their meaning, whether explicit or implicit, should be arrived at by a process of construction and, subject to one point, not by a process of implication. In particular, whether the relevant document contains a particular representation does not depend upon a process of implication of the kind which is appropriate in answering the question whether a particular term is to be implied into a contract.
    71. Mr Goldblatt submitted that the test is simply whether an ordinary person in the position of a prospective or existing name would have understood the document in question, read as a whole, to carry or contain the representation contended for. We agree. There has been some debate as to what attributes should be given to the person reading the brochure as a prospective name. In this regard Mr Goldblatt submitted that the ordinary person of reasonable intelligence in the position of a prospective (or indeed existing) name should not be treated as someone with previous knowledge of the insurance market generally or Lloyd's in particular. Again we agree.
    72. The point seems to us to be well demonstrated by the following statement made by Langley J in Sumitomo Bank Ltd v Banque Bruxelles Lambert SA [1997] 1 Lloyd’s Rep 487 at 515:
    73. “It is well established in law that the question whether any kind and if so what particular representation was made depends upon an objective assessment of what was said or done and its likely effect on the alleged representee in the context in which the particular parties were concerned. In other words, what would the documents and exchanges relied upon have conveyed to a prudent banker in the position of the plaintiff banks?”

      In the instant case we are not concerned with the prudent banker, who is already versed in the world of banking, but with prospective names who may have no previous knowledge of the world of insurance.

    74. There is one respect in which the courts have sometimes spoken of implied representations. This can be seen, for example, in the judgment of Bowen LJ in Smith v Land and House Property Corporation (1884) 28 Ch D 7, where he said at p 15:
    75. “… if the facts are not equally known to both sides, then a statement of opinion by one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justifies his opinion.”

      That principle has recently been considered by Evans-Lombe J in Barings Plc v Coopers & Lybrand [2002] EWHC 461 (Ch) at paragraphs 46 to 50.

    76. As Evans-Lombe J observed at paragraph 49, in Brown v Raphael [1958] Ch 636 Lord Evershed MR said at p 642:
    77. “… it suffices for the application of the principle if it appears that, between the two parties, one is better equipped with information or the means of information than the other.”

      In that case it was held that the test was met where the vendor’s solicitors expressed an opinion in sale particulars as to an important aspect of the property about which the purchaser could know nothing. Lord Evershed continued at p 643:

      “What would be the effect of this language upon the mind of a possible purchaser? Clearly, I should have thought, it would flow from the language used and would be intended to be understood by a reader of the particulars that persons who knew the significance of this matter and who were experienced and competent to look into it were expressing a belief founded upon substantial and reasonable grounds.”
    78. Those cases were considered by this court in the context of section 20 of the Marine Insurance Act 1906 (applied in a non-marine context) in Economides v Commercial Assurance Co Plc [1998] QB 587, where (at p 599B) Simon Brown LJ stressed that in the passage from the judgment of Bowen LJ in the Smith case quoted above Bowen LJ had said that in circumstances in which the representor knows the facts a statement of opinion will very often amount to a statement of fact “for he impliedly states that he knows facts which justify his opinion”. As to Brown v Raphael, Simon Brown LJ said (at p 598H to 599A) that the representation there, purporting as it did to come from the vendor’s solicitors, would inevitably carry with it the implication that there were reasonable grounds to support the belief.
    79. These cases seem to us to show that all depends upon the circumstances. In each case it is necessary to ask the question identified above, namely what would the reasonable person in the position of the representee understand by the words used in the document. In our opinion there is no rule of law that any particular statement carries with it any particular implication. All depends upon the particular statement in its particular context. So, here, as already stated, the question is whether the particular brochure or set of globals relied upon would be reasonably understood by the ordinary applicant for membership of Lloyd's to have the meaning alleged. That meaning might either be explicit in the words used or implicit (and in that sense implied) from the words used. We shall return in Part IV below to the distinction between a representation and an implied term in a contract.
    80. ii) The materiality of the representation

    81. Although it is doubted (with some force) in paragraph 6-040 of volume 1 of the 28th edition of Chitty on Contract and in paragraph 15-36 of the 18th edition of Clerk & Lindsell on Torts, the traditional view is that in order to succeed in the tort of deceit the claimant must prove that the representation was material. Thus, in Downs v Chappell [1997] 1 WLR 426 Hobhouse LJ, with whom Roch and Butler Sloss LJJ agreed, said at p.433:
    82. “For a plaintiff to succeed in the tort of deceit it is necessary to prove that (1) the representation was fraudulent, (2) it was material and (3) it induced the plaintiff to act (to his detriment). A representation is material when its tendency, or its natural and probable result, is to induce the representee to act on the faith of it in the kind of way in which he is proved to have in fact acted.”

      iii) The Truth of the Representation

    83. The representation must be untrue or, in other words, false.
    84. iv) Lloyd's knowledge, belief or recklessness

    85. If a representation is shown to be untrue or false, it must further be shown that Lloyd's knew or believed it to be false or that Lloyd's made it careless whether it be true or false. As the judge put it, in order to prevent a false statement from being fraudulent, there must be an honest belief in its truth. The position was summarised thus by Lord Herschell in his classic statement in Derry v Peek (1889) 14 App Cas 337 at p 374:
    86. “I think the authorities establish the following propositions: First, in order to sustain an action in deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement from being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief. Thirdly, if fraud is proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.”
    87. There is a further principle which may be of relevance here. In the 18th edition of Clerk & Lindsell the editors say:
    88. 15-07 Continuing Representations The tort is complete only when the representation is acted upon. Where there is an interval between the time when the representation is made and the time when it is acted upon, and the representation relates to an existing state of things, the representation is deemed to be repeated throughout the interval. …. If, during the interval of time between making the representation and the plaintiff acting upon it, the defendant perceives the statement to be false or circumstances change to render it false, liability may be incurred.
      15-22 Defendant’s later knowledge … where the defendant does not acquire knowledge of the untruth of his statement until after it has been made, but comes aware of it before the plaintiff has acted upon it, it follows from general principle that he is bound to communicate the truth and will be answerable in damages if he does not.
      15-23 Statement becoming untrue ex post facto Where the statement complained of was in fact true at the time when made, but before being acted upon by the party to whom it was made had been rendered untrue by reason of a fact coming into existence to the knowledge of the party making it, the balance of authority is in favour of regarding it as deceit.”

      Those paragraphs seem to us accurately to summarise the relevant principles and are potentially relevant on the facts here because one view of the facts is that some of the representations in the brochures may have been true when they were made but may have become untrue subsequently. We shall return to these principles below, in so far as necessary in the light of our conclusions on the facts.

    89. As to the standard of proof, in Goose v Wilson Sandford & Co (No 2) [2001] Lloyd's Rep PN 189, Morritt LJ, giving the judgment of the court, said in paragraph 39 at p 198:
    90. “In considering whether the elements in the tort of deceit had been established the judge correctly directed himself as to the relevant standard of proof by reference to the statement of Lord Nicholls of Birkenhead in Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563, 586 that:
      “… the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence.”

      See also eg Hornal v Neuberger [1957] 1 QB 247 and The Ikarian Reefer [1993] 2 Lloyd's Rep 68 per Cresswell J at pp 71-2 and the cases there cited.

    91. Where an individual has the relevant knowledge, belief or recklessness, before that knowledge, belief or recklessness could be imputed to Lloyd's it would be necessary to identify the legal basis upon which it could be so imputed to Lloyd's as a corporate body. The names allege fraud against a total of 33 individuals identified above. We shall return, so far as necessary, below to the question whose knowledge, belief or recklessness would be the knowledge, belief or recklessness of Lloyd's, and to the associated question whether Lloyd's is liable in deceit in respect of the deceit of any one or more individuals. It is convenient, before doing so, to consider the facts in detail and to set out the conclusions which we have reached as to the facts relevant to these questions.
    92. v) Lloyd's intention

    93. This is an important ingredient of the tort because it is one of the features of the tort which has led to it being considered as involving fraud on the part of the tortfeasor. As the judge observed in chapter 9(2) under the heading the Tort of Deceit, the tortfeasor does not have to be dishonest in the sense in which that word is used in the criminal law. On the other hand it is no defence to a charge of knowingly making a false statement that the person who made it believed that he was justified in doing so or that no harm would come of it or that it would be for the best: see eg Standard Chartered Bank v Pakistan National Shipping Corporation (No 2) [2000] 1 Lloyd’s Rep 218 per Evans LJ at 221.
    94. The tortfeasor must intend the representation to be acted upon: see eg Clerk & Lindsell at paragraph 15-27 but compare Chitty at paragraph 6-42. Moreover, in Goose v Wilson Sandford & Co (No 2) Morritt LJ said in paragraph 41 at p 199:
    95. “To establish liability in deceit it is incumbent on the representee to show that the representor intended his statement to be understood by the representee in the sense in which it is false.”

      The court relied upon Akerhielm v De Mare [1959] AC 789, per Lord Jenkins, giving the advice of the Judicial Committee of the Privy Council, at 805 and upon Gross v Lewis Hillman Ltd [1970] Ch 189. Thus, if the representor honestly believes the statement to be true in the sense in which he intended it to be understood it he will not be liable in deceit.

      vi) Reliance

    96. Each of the three particular names must establish that he or she relied upon the representation concerned in the sense that he or she was influenced to become or remain a member of Lloyd's in reliance upon it. It is not necessary for us to discuss here any distinction that there may be between inducement and reliance: cf Downs v Chappell per Hobhouse at p.433.
    97. vii) Loss

    98. In order to recover damages each name would in the future have to establish that he or she suffered loss as a result. We are not, however, concerned with the question of loss in this appeal.
    99. Corporate knowledge, intention and bad faith

    100. The allegation of deceit is made against the Corporation of Lloyd’s itself, that is as a body corporate incorporated under the Lloyd’s Act 1982 (“the 1982 Act”) and earlier legislation. The names’ case does not depend on vicarious liability. That brings into play the ‘rules of attribution’ as explained by Lord Hoffmann giving the opinion of the Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500, 506:
    101. “Any proposition about a [body corporate] necessarily involves a reference to a set of rules. A [body corporate] exists because there is a rule (usually in a statute) which says that a persona ficta shall be deemed to exist and to have certain of the powers, rights and duties of a natural person. But there would be little sense in deeming such a persona ficta to exist unless there were also rules to tell one what acts were to count as acts of the [body corporate]. It is therefore a necessary part of corporate personality that there should be rules by which acts are attributed to the [body corporate]. These may be called “the rules of attribution”. ”
    102. As appears from our analysis of the tort of deceit, the state of mind of a person alleged to have made a fraudulent misrepresentation may arise on more than one point (in addition to the bare fact of whether the defendant was the person who made the representation, on which no issue arises here):
    103. i) Did the defendant intend the representation to be understood in a particular way?

      ii) Did the defendant intend the representation to be acted on?

      iii) Did the defendant know that it was false, or was the defendant reckless as to its truth or falsity?

    104. As indicated in paragraph 65 above, we think it better to reach our conclusions on a number of factual issues before going far into the rules of attribution as they would apply to the allegations made against Lloyd’s in this case. But it may be useful to give a brief summary of the opposing submissions. In this context it must be borne in mind that (as explained below in more detail) the governing body of Lloyd’s was, until 31 December 1982, the Committee. Thereafter it was the Council, but much of the important decision-making was delegated to the Committee, which consisted of the members of the Council other than the external members (that is Council members who were not working names).
    105. Both sides have accepted that the general principles which apply are those stated by the Privy Council in Meridian Global, as anticipated, to some extent, by this court in El Ajou v Dollar Land Holdings plc [1994] 2 AER 685. But the names have in their submissions put forward alternative tests with the common characteristic (as stated in their skeleton argument, paragraph 153) that
    106. “ ... they identify those people with de facto control over the insertion, or not, [in the brochures and the globals] of any health warning or qualification: the people with knowledge of the systemic defects in asbestos reserving, who chose not to disclose that to the members of the Committee and Council who were reliant on them.”

      The names have criticised the judge for equating the positions of the Council and the (post-1982) Committee because the external members of the Council were in a state of ignorance, since asbestos-related problems were never discussed in Council.

    107. Lloyd’s on the other hand, have submitted that the names would have to establish the relevant state of mind in a majority of the members of the Committee or Council present when the decision was taken to approve any particular brochure or set of globals. For this they rely on the decision of the House of Lords in Jones v Swansea City Council [1990] 3 AER 737 and on The Ardent [1997] 2 Lloyd’s Rep 547. In Jones the claimant brought an action for misfeasance in public office (a tort involving dishonesty) against the Swansea City Council, alleging bad faith against every member of the Labour group on the council. This court (by a majority) reversed the trial judge and the House of Lords restored his judgment. The case turned ultimately on a pleading point and the assistance which it gives is therefore limited. If it were necessary to go further into this point we would start from a position of some scepticism as to whether a process of counting heads would be the right approach.
    108. Approach of the Court of Appeal

    109. In this case the judge acquitted of fraud both Lloyd's and all the individuals against whom allegations of fraud had been made. The names say that he was wrong to do so. They invite us to say that, contrary to the conclusions of the judge, who had the advantage of seeing many witnesses give evidence over a number of days, many of the individuals were guilty and so was Lloyd's as an institution.
    110. The correct approach of the Court of Appeal to this kind of case has been considered many times in the past. It is, we think, sufficient to refer to the way in which this court identified the approach in The Ikarian Reefer [1995] 1 Lloyd's Rep 455, where in the event the court reversed the decision of the trial judge that the plaintiff insured shipowners had not deliberately scuttled their vessel or cast her away. Giving the judgment of the court, Stuart-Smith LJ addressed the correct approach as follows (at pp 458-9):
    111. “(1) The burden of showing that the trial Judge was wrong lies on the appellant. …
      (2) When questions of the credibility of witnesses who have given oral evidence arise the appellant must establish that the trial Judge was plainly wrong. Once again there is a long line of authority emphasizing the restricted nature of the Court of Appeal’s power to interfere with a Judge’s decision in these circumstances though in describing that power different expressions have been used. In SS Hontestroom v SS Sagaporak … [1927] AC 37 at p 47 Lord Sumner said:
      “None the less not to have seen the witnesses puts appellate Judges in a permanent position of disadvantage as against the trial Judge and unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at merely on the results of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case.”
      ….
      Finally in Mersey Docks and Harbour Board v Proctor [1923] AC 253 at p 258, Viscount Cave LC said:
      “In such a case … it is the duty of the Court of Appeal to make up its own mind not disregarding the judgment appealed from and giving special weight to that judgment in cases where the credibility of witnesses comes into question, but with full liability to draw its own inferences from the facts proved or admitted and to decide accordingly.”
      (3) When a party has been acquitted of fraud the decision in his favour should not be displaced except on the clearest grounds. This proposition is not in contest and is supported by the House of Lords in Akerhielm v De Mare [1959] AC 789 at p 806, where the earlier authority of Glasier v Rolb (1889) 42 ChD 436 is cited.”
    112. Another way of putting essentially the same approach is to say, as was said in Gross v Lewis Hillmann [1970] Ch 445 at 459C-460B, that the Court of Appeal must be completely satisfied that the judge was wrong. It follows that the names have a difficult task in front of them, but that does not mean that in an appropriate case it is not the duty of this court to reverse a trial judge who has acquitted a party of fraud. As already stated, it did so in The Ikarian Reefer. Another example of a well-known case in which this court reversed the conclusions of the trial judge based on the credibility of the witnesses is Armagas Ltd v Mundogas SA, The Ocean Frost, [1985] 1 Lloyd's Rep 1.
    113. We recognise that all those cases were decided when the Rules of the Supreme Court were in force, which provided by RSC Order 59 rule 3 that “an appeal to the Court of Appeal shall be by way of rehearing”. The present appeal is governed by the CPR, which by rule 52.11(1) provides:
    114. “Every appeal will be limited to a review of the decision of the lower court unless –
      (a) a practice direction makes different provision for a particular category of appeal; or
      (b) the court considers that in the circumstances of an individual appeal it would be in the interests of justice to hold a re-hearing.”

      Neither party invited the court to say that it should hold a re-hearing within the meaning of rule 52.11(1)(b) (and not a review).

    115. Equally neither party submitted that the traditional principles stated above should not apply, or that the approach should be different depending on whether the appeal were treated as a review or a re-hearing. We are inclined to think that in this class of case the position should be the same. In any event we shall follow the principles stated above in our approach to this appeal.
    116. III THE FACTS

    117. In the following sections of this judgment we identify the individual protagonists and other important witnesses on both sides, and proceed to a chronological summary of the development of asbestos-related claims and losses. Changes in the governance of Lloyd’s, and other important events, are noted as they occurred. The chronological summary starts before the beginning of the relevant period and continues (with some digressions and deviations from strict chronological sequence) until the inception of this litigation. It is largely drawn from undisputed documentary material, although there are many disputed issues as to the inferences which the judge did or did not draw from the documents. Parts of the summary are covered again, in more detail, in Parts IV, V and VI of this judgment. But some degree of repetition is unavoidable in such a complex case.
    118. The claimants and their witnesses

    119. There were 216 claimants (almost all of whom were in fact counterclaimants in actions commenced by Lloyd’s) concerned in the threshold fraud issue. Under the case-management orders directing that issue three individuals – Captain Donald Hindle, Sir William Jaffray Baronet and Mrs Dona Evans – were selected as sample cases for the issue of reliance. Sir William has appeared as a litigant in person and so have some other appellants who were not selected as sample cases: Mrs Heather Adams (appearing by her husband), Mr Sydney Butler, Mr Richard Carter, Mr Cary Harrison and Mrs Ann Strong. We summarise the circumstances in which these persons became names, and then identify the most important non-party witnesses who gave evidence for the claimants.
    120. Mrs Adams was admitted as a name in 1977 and started underwriting in 1978. She did not give evidence at trial but according to her husband she asked to be put on low-risk syndicates but found herself on the Merrett and Outhwaite syndicates. Mr Adams made well-structured and moderate submissions to the court.
    121. Captain Hindle had a distinguished career as a sea captain, commanding the two biggest ships in the world. He stopped going to sea in 1979 but continued working as an expert consultant, based in Malaysia. He was admitted as a name in 1978 with an initial premium limit of £100,000 spread equally between three marine and two non-marine syndicates. The judge doubted whether he was ever an appropriate candidate for membership of Lloyd’s. Captain Hindle frequently increased his premium limit, ultimately (in 1989) to £1.5m. He made profits for every year until 1986 for which he had records (those for 1981 and 1982 were lost).
    122. Sir William Jaffray, Baronet (who was born in 1951 and succeeded his father in 1953) was admitted as an external name late in 1981. He began underwriting in 1982 with a premium limit of £200,000 (increased to £300,000 in 1985 and later further increased). Initially he made some profits but he suffered substantial losses in numerous years from 1983, particularly on Gooda Walker syndicates. He made submissions which were carefully prepared and eloquently delivered, but not always relevant to the issues before the court.
    123. Mr Butler became a name in 1986 and began underwriting in 1987 on a Poland syndicate which had no E & O cover. He did not give evidence at trial but he made clear and forceful submissions in this court.
    124. Mrs Evans became a name in 1987 and began underwriting in 1988, with R W Sturge as her members’ agent. She was then married but she has since divorced. She has been a prominent member of names’ action groups. She gave evidence at trial. The judge doubted whether she was ever an appropriate candidate for membership of Lloyd’s.
    125. Mr Carter is a chartered surveyor and property consultant. He became a name in 1988 and began underwriting in 1989. His first and worst losses arose in his first year of underwriting from his participation in the parallel marine and non-marine Feltrim syndicates. He made clear submissions which were no less effective for being moderately expressed.
    126. Mr Harrison is an American resident in London. He is retired. He has a liability to a bank which guaranteed, and has discharged, his liability to Lloyd’s. He forcefully submitted that he would have preferred to conduct his own case separately rather than being what he called a ‘free rider’ in the group litigation.
    127. Having identified the sample names and the litigants in person who appeared in this court we will mention briefly some of the most important witnesses for the names. Mr Christopher Stockwell became a Lloyd’s underwriter in 1979 and joined the Outhwaite (Combined) Agency. He was the first-named claimant in the action against Mr Richard Outhwaite which Saville J tried in 1991 (and which was settled before judgment). He was a prominent campaigner throughout the Lloyd’s litigation. The judge had serious reservations about his evidence and gave substantial reasons for his reservations.
    128. Mrs Catherine Mackenzie-Smith became a name in 1974. She is a member of the bar and has also been prominent in Lloyd’s action groups. Her evidence was directed mainly to her contact with, and information which she derived from, another barrister who was also a name, Mr John Osbrey-Taylor (who died in 1999). The judge said that Mrs Mackenzie-Smith found it difficult to distinguish between the role of a witness and that of an advocate.
    129. Mr Roger Bradley was a working name who joined Janson Green in 1967. In 1977 he became an equal partner and joint underwriter in the Bryan P Barrie Underwriting Agency, on syndicates 901 (marine) and 921 (non-marine). From 1993 he began to work (after some years of hardship) for the Names Defence Association. The judge found his evidence unsatisfactory (for reasons set out at some length in the judgment).
    130. Mr Colin Mackinnon was the active underwriter on marine syndicate 927 and was also underwriter on two specialist stop-loss syndicates. Mr Mackinnon’s witness statement was quite short (relating to his having no recollection of seeing the Murray Lawrence letter before 1995) but he did in the course of his cross-examination answer many questions about practice and procedures at Lloyd’s. The judge described him as an articulate witness.
    131. Mr Robin Kingsley became a working name in 1959. In 1976 or 1977 he became founder chairman of three members’ agencies. He was also from 1977 to 1989 a director of Hardcastle Underwriting Agencies Ltd, a managing agency later renamed Cutler. One of his members’ agencies arranged for Sir William Jaffray’s underwriting between 1982 and 1987, when Sir William changed his members’ agent. Mr Kingsley was cross-examined on various topics. He stated in his witness statement that he did not see the Murray Lawrence letter until the early 1990’s.
    132. Mr Anthony (generally known as Charles) Sturge left A L Sturge & Co in 1972 and formed Chatset (a specialised information service about Lloyd’s syndicates) in 1981. He gave evidence about the market’s perception at different times of asbestos-related problems. The judge described him as a careful witness who gave a reasonably balanced account.
    133. There were numerous other witnesses for the names including two individuals who were the first external names to serve on the Council of Lloyd’s after the coming into force of the Lloyd’s Act 1982. They were Mr Dennis Fredjohn, whom the judge described as a distinguished industrialist and a generally reliable witness, and Sir Eddie Kulukundis, a well-known philanthropist whom the judge described as an impressive witness.
    134. Working members of the Lloyd’s community

    135. The reamended defence and counterclaim (quoted in paragraph 17 above) names 33 individuals, all working members of the Lloyd’s community at some time during the relevant period, whose knowledge ought (it is pleaded) to be imputed to the Society of Lloyd’s so as to arrive at a finding of bad faith against the corporation itself. Nine of these individuals are dead. All but five of them were at some time members of the Committee or (after its institution in 1983) the Council of Lloyd’s and some served as Chairman or as one of the two Deputy Chairmen (after 1983 the Chief Executive was also designated as a third Deputy Chairman). Six of them gave oral evidence at trial (and the witness statement of Mr Rokeby-Johnson was admitted under CPR 33.2). Others had made witness statements which were exchanged (and were, it seems, read by the judge) but they were not in the event called to give evidence. In the following paragraphs we identify, in alphabetical order, some of the working members of the Lloyd’s community who appear most frequently in our chronological summary. Those who are impugned in the pleadings are denoted by an asterisk. The specialised committees established by Lloyd’s at different periods are summarised in paragraph 188 below.
    136. Mr Frank Barber* was on the Committee of Lloyd’s in 1978-80 and 1982 and on the Council and Committee in 1983-5 and 1987. He was Deputy Chairman in 1983-4. He was a member of the Membership Committee in 1978. He was on the Committee of LUNMA (Lloyd’s Underwriters Non-Marine Association) in 1978-80.
    137. Mr Arthur Chester* (deceased) was on the Committee of Lloyd’s in 1978 and 1980-2 and on the Council and Committee in 1983. He was on the Audit Committee in 1980-3, chairing it in 1980, 1982 and 1983.
    138. Mr Michael Cockell* was on the Council and Committee of Lloyd’s in 1984-7 being Deputy Chairman in 1986. He was on the Audit Committee in 1984. He was on the Committee of LUNMA in 1978-85 and 1987, being Deputy Chairman of LUNMA in 1982 and Chairman in 1983.
    139. Mr David Coleridge* was on the Council and Committee of Lloyd’s in 1983-6 and 1988, being Deputy Chairman in 1985 and Chairman in 1988. He was on the Committee of LUNMA in 1978-85 and 1987, being Deputy Chairman in 1982 and Chairman in 1983.
    140. Mr Ian Hay Davison was appointed as the first Chief Executive of Lloyd’s in 1983, the year in which the Lloyd’s Act 1982 came into force. He was an accountant who had had a distinguished business career. His appointment was widely believed to have been influenced by the Bank of England, which was concerned to improve and modernise the regulation of the Lloyd’s market. Relations between Mr Davison and the Council of Lloyd’s were not entirely harmonious and he resigned early in 1986 (being succeeded by Mr Alan Lord). Mr Davison subsequently wrote a book entitled ‘A View of the Room’ about his time at Lloyd’s. A copy of this book was provided to the court (as it had been provided to the judge) but (like the judge) we have not read it (except for a few excerpts which were actually put to witnesses in cross-examination, and so appear on the transcript).
    141. Mr Charles Gibb* (deceased) was on the Committee of Lloyd’s in 1978-81, being Deputy Chairman in 1978-80. He was on the Membership Committee in 1978.
    142. Sir Peter Green* (deceased) was on the Committee of Lloyd’s in 1979-82, being Deputy Chairman in 1979 and Chairman in 1980-2. He was then the first Chairman of the newly-instituted Council and Committee in 1983. He was therefore very closely involved in the promotion of the Bill which became the Lloyd’s Act 1982. He was knighted in 1982. Subsequently disciplinary proceedings were taken against him over a matter in which he had a serious conflict of interest and he was censured and resigned from Lloyd’s.
    143. Mr Robin Jackson* was never on the Council or Committee of Lloyd’s but he was between 1980 and 1988 a leading member of LUNMA (of which he was Chairman in 1986) and of the AWP (Asbestosis Working Party) of which he was Chairman from 1984 to 1988. He began his career in 1956 with C T Bowring Group, a firm of Lloyd’s brokers. He worked in the United States from 1960 to 1971 underwriting reinsurance of liability business (referred to in the United States as casualty business). He returned to England in 1971 as chief underwriter for an American insurer. In 1976 he became the active underwriter for the Merrett non-marine syndicate (later called syndicate 799). He stopped full-time underwriting in 1988 but remained as a consultant until 1990. During the relevant period he was very closely involved in the problems of asbestos-related claims, and from 1994-6 he worked on the Equitas Project. It was suggested to the court, without contradiction, that he and Mr Rayment (see paragraph 117 below) were probably as knowledgeable about asbestos-related claims as anyone at Lloyd’s. Mr Jackson gave evidence which the judge summarised without any comment (whether favourable or adverse).
    144. Mr Richard Keeling was during the 1970’s deputy underwriter to Mr Lawrence (see paragraph 108 below) on syndicate 360 (a composite syndicate which later split, the non-marine element becoming syndicate 362). As Mr Lawrence took on other commitments Mr Keeling assumed more responsibility and was formally appointed active underwriter of syndicate 362 in 1984, a position he occupied until the end of 1996. Mr Keeling gave evidence and the judge described him as a particularly astute underwriter. His evidence covered, among other topics, the allegations made against Mr Lawrence, including the reinsurance which Mr Lawrence effected with the Outhwaite and Meacock syndicates and disputes which arose over that reinsurance cover.
    145. Mr Bryan Kellett* was a member of the Members’ Solvency and Security Committee (“MSSC” – the successor of the Audit Committee) of Lloyd’s in 1985-6. He was a leading member of the Committee of LUNMA in 1983-88, being Chairman in 1987. He was on the Council and Committee after the end of the relevant period. He had set up his own non-marine syndicate 993/994 in 1973 and he was an active underwriter until the end of 1989. He gave evidence about his own underwriting activities (which included writing run-off policies) and about a meeting with the Inland Revenue in 1984. The judge made no particular comment on his evidence except to say that his remarks to the Inland Revenue (“we are under-reserved”) had to be seen in the context in which they were made.
    146. Mr Robert Kiln* (deceased) was on the Committee of Lloyd’s in 1978, 1979 and 1981. He was on its Audit Committee in 1979, 1981 and 1982, being Chairman of that committee in 1979 and 1981. He had set up syndicate 510/511 in 1963 and was its active underwriter until 1974, with Mr Murray as his deputy. In his witness statement Mr Murray described Mr Kiln as a man of the highest integrity and ‘the least greedy of men’, a view supported by a statement of Mr Holman put in by Mr Harrison.
    147. Mr Murray Lawrence* is of central importance in this matter, since it was he who as Deputy Chairman wrote the ‘Murray Lawrence letter’ dated 18 March 1982 in indirect response to the ‘Neville Russell letter’ dated 24 February 1982. Mr Lawrence was on the Committee of Lloyd’s in 1979-82 (being Deputy Chairman in 1982) and on the Council and Committee of Lloyd’s in 1984-8, being Deputy Chairman in 1984-7 and Chairman in 1988. He was also on the committee of LUNMA in 1978-83, being Chairman in 1978. He had become active underwriter on composite syndicate 360 in 1970 and from 1980 (after syndicate 360 split) he was active underwriter of syndicate 362. In 1979 Mr Lawrence became Chairman of the Computer Leasing Working Party. In 1982 he placed an unlimited liability run-off policy (with an excess of $55m) with the Outhwaite and Meacock syndicates (which underwrote two-thirds and one-third respectively). This later led to disputes and arbitrations. In 1985 Mr Lawrence set up his own managing agency, Murray Lawrence and Partners, which was incorporated in 1989. Mr Lawrence gave evidence and was cross-examined over four days. The judge summarised his evidence and expressly accepted his evidence as to the distribution of the Murray Lawrence letter but did not otherwise comment on its quality.
    148. Mr Alan Lord became Chief Executive of Lloyd’s in March 1986 in succession to Mr Davison. He held that position until 1992. He had (as the judge said) previously had a distinguished career with the Inland Revenue, the Treasury, the Department of Trade and Industry and Dunlop, as well as serving on the Court of the Bank of England. The judge described Mr Lord as an impressive witness.
    149. Mr Stephen Merrett* was a leading underwriter whose agency was successfully sued for negligence by names who were on his syndicate. He was on the Committee of Lloyd’s in 1981-2 and on the Council and the Committee in 1983-4 and 1987-8. He was on the Audit Committee (or its successor the MSSC) in 1982-5 and 1988 (being Chairman in 1985 and 1988) and on the Membership Committee in 1981. He was on the committee of LUNMA in 1981-3.
    150. Sir Peter Miller* began work with Thomas R Miller & Son, a Lloyd’s broking firm concerned with marine business, in 1954. Throughout his career he was mainly concerned with marine liability broking, and he became Chairman of the Committee of Lloyd’s Insurance Brokers in 1976. He was on the Committee of Lloyd’s in 1978-80 and 1982 and (after the Lloyd’s Act 1982 came into force) on the Council and Committee of Lloyd’s in 1983-88. He succeeded Sir Peter Green as Chairman and held that office in 1984-7. He was on the Membership Committee in 1979-80. He gave evidence at trial and the judge described him as an articulate witness.
    151. Mr Colin Murray* was with C T Bowring from 1953 to 1963 and then joined Mr Kiln’s agency as deputy underwriter to syndicate 510/511 (set up by Mr Kiln). Mr Murray became active underwriter in 1974. He was on the Committee of LUNMA from 1979 to 1984. He was on the Council and Committee of Lloyd’s in 1983-6, and on the MSSC in 1985-6 (being Chairman in 1986). He gave evidence at trial. The judge described him as a highly professional and skilled underwriter and said that he was assisted by his evidence. He attached particular importance to Mr Murray’s evidence about the influential character of the Conning Report (a report produced in 1982 on the impact of asbestos-related diseases on the insurance industry).
    152. Mr Edward Nelson* was closely involved in the problems of asbestos-related diseases between 1978 and 1983. He was on the Committee of Lloyd’s in 1980-2 and on the Council and Committee in 1983. He was on the Audit Committee in 1982-3 and on the Membership Committee in 1980-3 (being Chairman in 1983). He was a founder member of the AWP (1980-3) and its first chairman (1980-1). He was on the committee of LUNMA in 1978-83 being Deputy Chairman in 1978 and Chairman in 1979. Later a disciplinary committee of Lloyd’s found him guilty of discreditable conduct.
    153. Mr Alan Parry* was on the Committee of Lloyd’s in 1979-82 and on the Council and Committee in 1987-8, being Deputy Chairman in 1987-8.
    154. Mr Ian Posgate* was a controversial figure who was implicated in some of the more serious scandals at Lloyd’s. He was on the Committee of Lloyd’s in 1982 and on the Council and Committee in 1983-4.
    155. Mr Kenneth Randall* was a senior employee of Lloyd’s who was in that capacity in attendance at the Audit Committee in 1980-4 and the Membership Committee in 1984. He was closely involved in the preparation of the Murray Lawrence letter in March 1982. He was perhaps the most surprising of those whose witness statements were exchanged but who were not in the event called to give evidence.
    156. Mr Keith Rayment worked in the claims department of R W Sturge, a Lloyd’s underwriting agency, from 1969 to 1990. He was concerned with non-maritime business, primarily that of syndicate 210, and in 1979 he became claims director of that syndicate. From 1980 he was concerned almost exclusively with long-tail United States casualty business. He was a member of the AWP from 1983 (having joined its claims sub-committee in 1981) and he also sat on its reinsurance sub-committee. He was a director of Topliss & Harding (Asbestos Services) Ltd, a service company established by the AWP. He was involved (between 1982 and 1985) in negotiations for the Wellington Agreement which was finally concluded in June 1985. He had an exceptional knowledge of the insurance implications of asbestos-related diseases. He was himself a name from 1980 to 1990. The judge spoke most highly of his evidence:
    157. “Mr Rayment struck me as a highly conscientious claims man who worked tirelessly to assist the market in relation to the handling of asbestos-related and other long-tail claims. I was greatly assisted by his evidence.”
    158. Mr Ralph Rokeby-Johnson* was a leading underwriter who was active underwriter of Sturge syndicate 210 from 1974 to 1987. He was a member of the AWP from its inception in 1980, being Deputy Chairman in 1981-2 and 1983-8 and Chairman in 1982-3. He was on the committee of LUNMA from 1978 to 1987, being Deputy Chairman in 1983 and Chairman in 1984.
    159. Sir David Rowland* began working at Lloyd’s with Matthews Wrightson, insurance brokers, in 1956. From 1964 he was involved in the management of Matthews Wrightson and other companies with which that company merged. He was on the Council and Committee of Lloyd’s in 1987-90, and then served on the task force investigating the future capital structure of Lloyd’s. He was Chairman from 1993 to 1997. In the early part of 1995, as Chairman, he gave evidence to the House of Commons Select Committee which in May 1995 produced a report entitled ‘Financial Services Regulation: Self-Regulation at Lloyd’s of London’. It was under his chairmanship and guidance that R&R took place. Sir David Rowland gave evidence at trial and the judge described him as a highly articulate witness.
    160. Mr Charles Skey* was a member of the Committee of Lloyds in 1978-81. He was a founder member of the AWP and was on the committee of LUNMA from 1978-85.
    161. Mr Don Tayler* (deceased) was a member of the AWP from 1980 to 1983. He was its first deputy chairman (1980-1) and its second chairman (1982). He was the active underwriter of Pulbrook syndicate 90 and as such he effected reinsurance (early in 1982) for the syndicate’s old years. It was suggested that he used ‘inside’ information for this purpose. Sir David Rowland (who was chairman of the holding company of the Pulbrook managing agency) described him as a sensible, serious and cautious underwriter. Mr Tayler died in 1983.
    162. The other individuals impugned in the pleadings were Mr Richard Ballantyne, Mr David Barham, Mr Richard Beckett (deceased), Mr Ivor Binney, Mr Patrick Bird, Mr Brian Brennan (deceased), Mr Peter Daniels, Mr Charles Gilmour, Mr Richard Hazell, Mr Alec Higgins (deceased) and Mr Michael Williams.
    163. Chronological summary: before 1982

    164. Asbestos is (as the judge stated in chapter 3),
    165. “A fibrous silicate material which achieved wide usage by reason of its physical properties such as the ability to withstand fierce heat, corrosion and decay under almost every condition of temperature and moisture. Its uses included roofing, plasterboard and fireproof wallboard, floor tiles, an ingredient in paints and sealants, car brake linings and clutch facings.”

      Exposure to asbestos is a causative factor in many diseases, including mesothelioma, lung cancer, gastric cancer and asbestosis. These diseases are typically contracted by workmen who have been exposed to asbestos at their workplace, especially in shipbuilding and the construction, insulation and demolition of buildings of all sorts. Some conditions developed only after prolonged exposure but the most serious (mesothelioma) could result from even a single brief exposure. An important epidemiological study was published in the United States by Dr Selikoff and others in 1964.

    166. Claims by workers against their employers for asbestos-related injury were covered by Lloyd’s under third party general liability policies extending to cover product liability. Until the advent of asbestos-related claims, such policies had been profitable for underwriters. That changed dramatically with the rapid growth in the manifestation of asbestos-related diseases and changes in tort law in the United States. The first landmark case establishing strict liability was Borel v Fibreboard 493 F2d 1076, decided by the Federal Court of Appeals for the Fifth Circuit in 1973. But during the 1970s the number of claims was still relatively small and most were settled for modest sums. Rather under 1000 had been filed in US Federal Courts by 1980 (that figure must be compared with about 100,000 claims by the end of the relevant period in 1988, and about 450,000 claims by 2000).
    167. Mr Bradley gave evidence of a conversation at a golf match in 1973 at which Mr Rokeby-Johnson spoke of asbestos as “going to change the wealth of nations” but the judge found his evidence to be unreliable. Mr Rokeby-Johnson’s own evidence (given in 1996 to the Syndicate 210 Loss Review Committee) about his perception in 1974 was as follows:
    168. “Q Do you remember whether pollution was one of the concerns that you had when you were arranging the run-off reinsurance in 1974, or were you worried about particular types of liabilities or at that stage were you thinking that you wanted to deal with the whole of the back years?
      A I think my – I cannot call them “doubts” – certainties about the likely run-off of casualty underwriting in the United States overall more than any specific thing. I do not believe that we were aware of the depths and heights and horrors of asbestos, for instance, back then. The potential in this new law was there so it would have been part of it, but I think you were thinking about medical malpractice, trains, cars, all the contractors, all the stuff that had been written quite gaily for all these years, I was thinking much more of that. The overall rather than the particular.”
    169. Not all experienced lead underwriters took a pessimistic view during the 1970s. Between 1974 and 1982 three well-known underwriters, Mr Outhwaite, Mr Merrett and Mr Meacock wrote run-off contracts which involved heavy exposure to asbestos-related risks. In consequence several syndicates including Outhwaite syndicates 317 and 661 incurred very heavy losses which were the subject of an inquiry conducted by Freshfields. Claims in respect of run-off losses featured largely in litigation brought by names against managing agents and members’ agents. The first case which went to trial was Stockwell v Outhwaite, which went to trial in October 1991 but was settled in January 1992 before judgment. Three of the cases went together to the House of Lords and have contributed to the development of the English law of tort (Henderson v Merrett Syndicates [1995] 2 AC 145).
    170. The run-off contracts (and in particular those written by Outhwaite syndicates 317 and 661) are covered in chapter 17 of the judgment. They are an important strand in this tangled story, because as well as producing very large losses they led to suspicions of malpractice by insiders, including those who had special knowledge of asbestos-related problems from their work on the Asbestos Working Party (see paragraph 138 below). These suspicions were raised by a working member of Lloyd’s, Mr John Donner, and were investigated by Lloyd’s during November and December 1989. (Mr Donner was to have been called by the names but his ill-health prevented that. His witness statement was put in evidence but Lloyd’s attacked its credibility.)
    171. The investigators appointed by Lloyd’s did not find the suspicions substantiated but the interviews which were conducted are a valuable source of evidence which can be tested against the contemporary documents. At a meeting on 20 December 1989 Mr Donner said that his real concern was not to suggest conspiracy:
    172. “He had been concerned for some time, having known Mr Outhwaite, Mr Merrett and Mr Meacock as intelligent underwriters, that he could find no answer to the question of why they wrote the run-off policies. He could only conclude that they had written those policies on the basis of certain information, which raised the question of whether all information that was in the hands of those that ceded the run-offs was made available to Mr Outhwaite. This was one of the specific questions raised in the early days of Mr Donner’s enquiries. He emphasised that the doctrine of caveat emptor was not relevant in the context of insurance, although it had been suggested to him at a previous meeting that it did apply. Mr Donner said that he believed that he now knew approximately what had happened and that he would explain this to Mr Lord and would be able to produce corroborative evidence. Focusing on the period of 1981 and 1982, Mr Donner recalled that the insurance market worldwide faced an unparalleled series of losses from asbestos-related diseases. Some American insurance companies talked openly of going into liquidation and Lloyd’s also faced a difficult position. At the time that the 1979 account was being closed at December 1981, there were two practical alternatives available to underwriters with an asbestos involvement. The first was to make full provision for the losses in line with information then available which would have resulted in many syndicates remaining open and some going out of business. The alternative was to roll the losses forward so that claims arose in the future and future Names had to pay. This involved massaging the audit at December 1981. The Lloyd’s panel of auditors made clear their view of the gravity of the situation to some individuals in senior positions of authority at Lloyd’s and there was general talk of these losses breaking Lloyd’s. Senior people in the Market concluded that they could not face this and there was a considered decision by some of those in authority, underwriters and auditors to view the 1979 account as far as asbestos claims were concerned in the most favourable light possible. The result of this would have been to roll forward the losses to later years.”

      This passage gives the general flavour of actual and alleged events (especially during 1981 and 1982) which this court, like the judge, has had to look at in some detail.

    173. On 28 October 1977 the active underwriters of over fifty syndicates initialled a memorandum of agreement as to the negotiation of a settlement of claims in respect of asbestosis made against Bell Asbestos. This document was relied on as showing that in 1977 the market already had general knowledge of asbestos-related risks. In February 1979 there was produced the first edition of the Asbestos Litigation Report, a publication which subsequently appeared at monthly intervals.
    174. The growth in asbestos-related claims gave rise to acute differences of legal opinion as to whether liability under general liability policies was related to the period of exposure or to the time when the disease manifested itself (after a time lapse which could be as long as 20 years). The impact of these developments was discussed at an important meeting held on 19 June 1979 at the offices of US attorneys (referred to for reasons of confidentiality as H) instructed on behalf of Lloyd’s underwriters. Representatives of attorneys G, K and I were also present. The attorneys made a joint recommendation of a gross reserve of $75,000 for every claim. Their summary stated:
    175. “The one certain fact about the asbestos litigation is that at present we cannot estimate the number of claims that will eventually be brought against your assureds. We do know that the number of lawsuits has increased dramatically each year since 1973. While some experts believe the number and severity of claims will peak within the next year or two, there are others such as The National Cancer Institute who estimate more than two million people will die from asbestos-related cancer. It should be noted that anticipated claims were taken into account to some extent in arriving at the figures recommended above.”
    176. By the end of 1979 (the year in which Captain Hindle began underwriting) there were several declaratory actions on foot seeking to clarify the basis of liability. A letter dated 10 December 1979 to Mr Nelson (as chairman of LUNMA) referred to
    177. “ ... the Market split into two camps; one supporting the manifestation approach and the other that of exposure.”

      This letter may reflect the genesis of the Asbestos Working Party (“AWP”) which was formed in 1980 (see paragraph 135) and of which Mr Nelson was a leading member.

    178. At a meeting of the Committee of Lloyd’s on 14 December 1979 Mr Lawrence (who later became a Deputy Chairman and in 1988 Chairman) drew attention to the problem of long-tail business being aggregated with other types of business under the rubric of “All other” business. The minutes record that
    179. “He suggested that consideration should be given to breaking down the “All Other” Account in order to extract the very Long Tail business and that premium income was not the appropriate yardstick upon which to base the reserves for the older Accounts.”
    180. In the five years spanning the start of the relevant period the results of general liability insurance at Lloyd’s were in striking contrast to the general profitability of all classes of business combined. That appears from the five-year summary set out in Lloyd’s global accounts 1982, the first to appear in the new format. (In considering these and other tabulated figures it is necessary to keep constantly in mind the built-in time-lag resulting from the Lloyd’s system of keeping every accounting year open for a further two years, followed normally by RITC into the next open year. So when new names were shown the results for the last seven closed years the figures would be between four and ten years old.)
    181.   overall
      general liability general liability general liability
        underwriting
      profit
      investment
      income & gains
      underwriting loss investment
      income & gains
        £000 £000 £000 £000
      1976 96.5 83.2 (27.7) 15.8
      1977 99.9 110.9 (13.2) 29.6
      1978 110.8 169.3 (1.7) 47.1
      1979 37.1 233.6 (35.8) 66.4
      1980 21.7 374.4 (118.8) 114.2

      These figures also show how far the overall profit was coming to depend on investment income and gains. Sir Peter Green (who was Chairman from 1980 to 1983 inclusive and was knighted in June 1982) wrote in his statement preceding the accounts:

      “To those whose business is insurance these figures are something of a paradox. While satisfactory enough as a return on capital they are, from a professional point of view, a cause for some concern. It is a sobering thought that pure underwriting profit in 1980 accounted for only £22 million or 8.25% of the overall profit and did not cover the management expenses. ”
    182. The documentary evidence shows that during the 1970s the problems on the general liability side were identified primarily with computer leasing rather than asbestos-related risks. A Computer Leasing Working Party (chaired by Mr Lawrence) was formed in 1978. But by 1980 that had changed. Computer leasing problems were mostly in the past by about 1982. Mr Rokeby-Johnson’s evidence in 1996 put it as follows:
    183. “Q: Can I ask you one thing linked to that. At the time when the placing was taking place the ultimate position on the 1969 and previous liabilities looked very much more like a banking operation for a payment of, say, I think it was in the region of $20 to 25 million, there was an ultimate liability of $35 million ----
      A: A perceived ultimate liability, not an ultimate liability.
      Q: Yes. A projected ultimate of $25 million [?$35 million] and that was projected to be reached by about 1980. Then by 1977 or 1978 that ultimate position had been projected to reach $90 million. There was a sort of sea change in the projection within a reasonably short time of its placement. Do you recall any underlying reason for that dramatic change?
      A: It is called asbestos.
      Q: Had that just come into a -----
      A: I think if you look, as I recall, at Hady Wakefield’s projections, take out asbestos and they were about right. They were remarkably accurate. The thing that turned the coracle upside-down was asbestos, which was enormous.”
    184. The appellants have drawn attention to numerous documents dating from 1980 and 1981 (including both internal Lloyd’s documents and letters from attorney G, attorney H and other attorneys) showing that asbestos-related claims were by then being recognised as a very serious and unpredictable problem. At the end of 1980 claims were being filed in the United States at the rate of about 100 a month (although a letter dated 24 December 1980 from attorney H to Mr Nelson reported that 286 claims had been filed so far that month, and by 1982 the monthly average was about 400; the letter identified three categories of claim and suggested settlements of up to $50,000, $100,000 to $250,000 and up to $450,000 for the three categories).
    185. On 27 March 1980 Mr Jim Ayliffe of Merrett-Dixey syndicates (who was very knowledgeable about asbestos-related risks and later was on the claims subcommittee of the AWP) wrote to Mr Jackson reporting on his visit, shortly before Christmas 1979, to a meeting of the Non-Marine Association. He stated that it became apparent that that association’s committee did not fully appreciate the impact which asbestos-related disease would have. Mr Ayliffe wrote that so far reserve recommendations had been based on known cases only. American attorneys were seeking guidance and support from the market to
    186. “ ... their putting up reserves which do take into account a projection of something in the region of four years. Not unnaturally the size of the figures that would then be recommended would be very large and if indeed the Market wishes that the matter be dealt with in this manner it is also necessary that people such as [attorneys H and I] and others also approach the problem in the same way. Inevitably the impact of projected reserves on our Market will be substantial and I feel that it would be extremely difficult for the leads to make this type of determination by reason of the implications which it carries.”
    187. On 1 April 1980 the Manager of Lloyd’s Underwriting Agents and Audit Department wrote to panel auditors in the following terms:
    188. “The Deputy Chairman, Mr Gibb, has requested that Auditors be informed of the following “facility” which has been offered to certain Syndicates in Lloyd’s and which was intended as a form of reinsurance when a Syndicate was closing its Accounts, particularly those with a long tail element where the settlement in respect of the year-end provision might not be made for many years.
      The following is an example of how the reinsurance would operate:-
      “A Syndicate had known outstandings of £100,000 and an IBNR Load of the same amount – total provision £200,000. On the basis that the top 10% slice of the reserve (£20,000) would not be needed for (say) 10 years £10,000 the Syndicate would be indemnified for £20,000 in excess of £180,000 aggregate losses after 10 years. The anticipated reinsurance recoveries of £20,000 would be deduced from the total audit provision for an outlay of £10,000. Payment of the recovery would be guaranteed by a Letter of Credit for £20,000 payable in 10 years time.”
      I am to advise you that the Audit Committee does not consider such a reinsurance recovery can be used to reduce a Syndicate’s Audit provision because all anticipated recoveries brought into account at the end of the third year must be immediately available.”

      The appellants’ case is that this letter was describing so-called ‘time and distance’ (“T and D”) policies and was expressing disapproval of their use for the stated purpose; nevertheless, the appellants say, they continued to be used for that purpose to the knowledge of members of Lloyd’s Committee and (after 1982) Council.

    189. In August 1980 some leading non-marine underwriters formed the AWP. This was an unofficial but influential group whose primary function was to collect and disseminate information about asbestos-related claims and problems. Another function was to work towards a common market view on problems about coverage (these problems included, but were not limited to, the exposure/manifestation debate). The AWP had no agency or other formal relationship with Lloyd’s and its membership was not limited to those working in the Lloyd’s market (although its chairman regularly wrote, as he was entitled to do, on Lloyd’s headed writing paper) and some members of the Lloyd’s community appeared to think that it had official status. It continued in existence until 1996. Most of its early meetings were attended and minuted by Mr Stephen Mitchell, a solicitor and partner in Elborne Mitchell. Much of the work was carried out by the claims subcommittee (later called the direct claims subcommittee) and the reinsurance subcommittee; these met more frequently than the full AWP committee.
    190. The AWP was not a secret body – indeed its purpose was to provide information – but it had to respect the confidentiality of much of the information which it obtained. That is illustr