Arbuthnott et al. v. Fagan and Feltrim Underwriting Agencies Ltd. et al., (1994) 173 N.R. 173 (HL)

• Case Date: July 25, 1994
• Jurisdiction: Canada (Federal)
• Citations: (1994), 173 N.R. 173 (HL)

Arbuthnott v. Fagan (1994), 173 N.R. 173 (HL)

MLB headnote and full text

Arbuthnott (and others) (respondents) v. Fagan and Feltrim Underwriting Agencies Limited (and others) (appellants) and two other actions (1st appeal)

Arbuthnott (and others) (respondents) v. Fagan and Feltrim Underwriting Agencies Limited (and others) (appellants) and two other actions (2nd appeal)

Deeny (and others) (respondents) v. Gooda Walker Limited (in voluntary liquidation) (and others) (appellants) (conjoined appeals)

Henderson (and others) (respondents) v. Merrett Syndicates Limited (and others)

(appellants) and two other actions

Indexed As: Arbuthnott et al. v. Fagan and Feltrim Underwriting Agencies Ltd. et al.

House of Lords

London, England

Lord Keith of Kinkel, Lord Goff of Chieveley, Lord Browne-Wilkinson,

Lord Mustill and Lord Nolan

July 25, 1994.

Summary:

Certain underwriting members of Lloyd's suffered great losses. The underwriting members sued their underwriting agents for negligence concerning the advice given and the operation of various syndicates. The actions were framed in negligence, breach of contract and breach of fiduciary duty. Before the trial of the actions commenced, certain preliminary matters had to be determined including whether the agents owed a duty of care to the members, was there a duty in tort not to cause purely economic loss to the members and whether there was a non-contractual duty to carry out their underwrit­ing functions with reasonable care and skill.

The trial court decided the preliminary issues in favour of the members. The agents appealed.

The Court of Appeal of England dismissed the appeals. The agents appealed.

The House of Lords dismissed the appeals.

Damages - Topic 531

Limits of compensatory damages - Re­moteness - Torts - Recoverable damages, purely economic loss - Hedley Byrne principle - Certain underwriters (Names) at Lloyd's sued their managing agents in tort under the Hedley Byrne principle and in contract to recover their losses resulting from the operation of various syndicates - The agents submitted that they should not be liable in tort because the losses were purely economic - The House of Lords stated that "there is no problem in cases of this kind about liability for pure economic loss; for if a person assumes responsibility to another in respect of certain services, there is no reason why he should not be liable in damages for that other in respect of economic loss which flows from the negligent performance of those ser­vices. ... Furthermore, since the duty rests on the principle in Hedley Byrne, no problem arises from the fact that the loss suffered by the Names is pure economic loss" - See paragraphs 42 and 43.

Torts - Topic 46

Negligence - Standard of care - Insurance agents and sub-agents - Certain under­writers (Names) at Lloyd's contracted with members' agents to manage their affairs - The agency agreement allowed the mem­bers' agents to enter into subagency agreements with managing agents who would actually manage the syndicates - Subsequently, the Names sued the mem­bers' agents for negligence in the operation of the syndicates - The House of Lords held that "members' agents are responsible to the Names for any failure to exercise reasonable skill and care on the part of managing agents to whom underwriting has been delegated by the members' agents; and that the members' agents are not required to exercise skill and care only in relation to those activities and functions which members' agents by custom and practice actually perform for the Names personally" - See paragraphs 70 to 87.

Torts - Topic 79

Negligence - Duty of care - Factors limiting or reducing scope of duty of care - Certain underwriters (Names) at Lloyd's sued their managing agents in tort under the Hedley Byrne principle and in contract to recover their losses resulting from the operation of various syndicates - The agents submitted that they should not be liable in tort because the management agreement gave the agents "absolute dis­cretion" in the operation of the syndicates - The House of Lords stated that "in the present context the words used cannot have the effect of excluding a duty of care, contractual or otherwise. Clear words are required to exclude liability in negligence; and in the present case the words can, and in my opinion should, be directed towards the scope of the agents' authority" - See paragraph 45.

Torts - Topic 79

Negligence - Duty of care - Factors li­miting or reducing scope of duty of care - Certain underwriters (Names) at Lloyd's sued their managing agents in tort under the Hedley Byrne principle and in contract to recover their losses resulting from the operation of various syndicates - The agents submitted that they should not be liable in tort because the Hedley Byrne principle was limited to instances of gratu­itous advice - The House of Lords stated that the Hedley Byrne principle would give rise to a duty of care when the services rendered were under a contract the same as if they were rendered gratuitously - See paragraph 60.

Torts - Topic 80

Negligence - Duty of care - Concurrent liability - The plaintiffs sued the de­fen­dants in both contract and tort - The House of Lords held that there could be concur­rent liability - Their Lordships stated "that an assumption of responsibility coupled with the concomitant reliance may give rise to a tortious duty of care irre­spective of whether there is a contractual relation­ship between the parties, and in conse­quence, unless his contract precludes him from doing so, the plaintiff, who has a­vailable to him concurrent remedies in contract and tort, may choose that remedy which appears to him to be the most ad­vantageous" - See paragraphs 62 and 94.

Torts - Topic 81

Negligence - Duty of care - Requirement that duty be owed to plaintiff - Certain underwriters (Names) at Lloyd's engaged members' agents to represent them under an agency agreement - The members' agents then entered into subagency a­gree­ments with managing agents to operate the various underwriting syndicates - Subsequently, the Names sued the manag­ing agents in negligence under the Hedley Byrne principle - The managing agents submitted that because of the contract chain of agency and subagency agree­ments, the parties structured the relation­ship so as to preclude a duty of care owed by the managing agents to the Names (now indirect Names) - The House of Lords held the managing agents owed a duty of care in tort to the indirect Names - See paragraphs 63 to 67.

Torts - Topic 4137

Suppliers of services - Negligence - Management company - [See first Torts - Topic 79 ].

Words and Phrases

Absolute discretion - The House of Lords considered whether the words "ab­solute discretion" in an insurance syndica­te's management agreement would exempt the syndicate's manager for negligence in the operation of the syndicate - See para­graph 45.

Cases Noticed:

Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465 (H.L.), appld. [para. 40].

Smith v. Bush, [1990] 1 A.C. 831; 104 N.R. 355 (H.L.), refd to. [para. 42].

Caparo Industries v. Dickman et al., [1990] 2 A.C. 605; 108 N.R. 81 (H.L.), refd to. [para. 42].

Midland Bank Trust Co. v. Hett, Stubbs & Kemp, [1979] Ch. 384, apprvd. [para. 42].

Youell v. Bland Welch & Co. (Superhulls Cover Case No. 2), [1990] 2 Lloyd's Rep. 431, consd. [para. 43].

Punjab National Bank v. De Boinville et al., [1992] 1 Lloyd's Rep. 7 (C.A.), consd. [para. 43].

Braconnot (J.) et Cie v. Compagnie des Messageries Maritimes, [1975] 1 Lloyd's Rep. 372 (C.A.), refd to. [para. 46].

Bean v. Wade (1885), 2 T.L.R. 157 (C.A.), refd to. [para. 48].

Groom v. Crocker, [1939] 1 K.B. 194 (C.A.), not folld. [para. 48].

Bagot v. Stevens, Scanlan & Co., [1966] 1 Q.B. 197, consd. [para. 48].

Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd., [1986] A.C. 80 (P.C.), consd. [para. 50].

Cann v. Willson (1888), 39 Ch. D. 39, refd to. [para. 51].

Cook v. Swinfen, [1967] 1 W.L.R. 457 (C.A.), not folld. [para. 52].

Heywood v. Wellers, [1976] Q.B. 446 (C.A.), not folld. [para. 52].

Esso Petroleum Co. v. Mardon, [1976] Q.B. 801 (C.A.), apprvd. [para. 52].

Boorman v. Brown (1842), 3 Q.B. 511 (Ex Ch.), affd. (1844), 11 Cl. & Fin. 1 (H.L.), refd to. [para. 52].

Lister v. Romford Ice and Cold Storage Co., [1957] A.C. 555 (H.L.), refd to. [para. 52].

Matthews v. Kuwait Bechtel Corp., [1959] 2 Q.B. 57 (C.A.), refd to. [para. 52].

Nocton v. Ashburton (Lord), [1914] A.C. 932 (H.L.), consd. [para. 52].

Batty v. Metropolitan Property Realisations Ltd., [1978] Q.B. 554 (C.A.), apprvd. [para. 52].

Howell v. Young (1826), 5 B. & C. 259; 108 E.R. 97, refd to. [para. 54].

Norton v. Cooper; Manby and Hawksford, Re; Ex parte Bittleston (1856), 26 L.J. Ch. 313, refd to. [para. 54].

Manby and Hawksford, Re - see Norton v. Cooper.

Sawyer v. Goodwin (1867), 36 L.J. Ch. 578, refd to. [para. 54].

Candler v. Crane, Christmas & Co., [1951] 2 K.B. 164 (C.A.), refd to. [para. 55].

Arenson v. Arenson, [1977] A.C. 405, refd to. [para. 56].

Donoghue v. Stevenson, [1932] A.C. 562 (H.L.), refd to. [para. 56].

McAlister (Donoghue) v. Stevenson - see Donoghue v. Stevenson.

Grant v. Australian Knitting Mills Ltd., [1936] A.C. 85 (P.C.), refd to. [para. 56].

Finlay v. Murtagh, [1979] I.R. 249 (Eire Sup. Ct.), refd to. [para. 57].

Central Trust Co. v. Rafuse and Cordon, [1986] 2 S.C.R. 147; 69 N.R. 321; 75 N.S.R.(2d) 109; 186 A.P.R. 109; 37 C.C.L.T. 117; 42 R.P.R. 161; 31 D.L.R.(4th) 481; 34 B.L.R. 187, folld. [para. 57].

McLaren Maycroft & Co. v. Fletcher Development Co., [1973] 2 N.Z.L.R. 100, not folld. [para. 58].

Rowlands v. Collow, [1992] 1 N.Z.L.R. 178, folld. [para. 58].

Aluminum Products (Qld.) Pty Ltd. v. Hill, [1981] Qd. R. 33 (Queensland S.C.), folld. [para. 58].

Macpherson & Kelley v. Prunty (Kevin J.) & Associates, [1983] 1 V.R. 573 (Victoria S.C.), folld. [para. 58].

Hawkins v. Clayton (1988), 164 C.L.R. 539, consd. [para. 58].

Forster v. Outred & Co., [1982] 1 W.L.R. 86 (C.A.), refd to. [para. 58].

Bell v. Peter Browne & Co., [1990] 2 Q.B. 495 (C.A.), refd to. [para. 58].

Murphy v. Brentwood District Council, [1991] 1 A.C. 398; 113 N.R. 81 (H.L.), refd to. [para. 60].

Simaan General Contracting Co. v. Pilk­ington Glass Ltd. (No. 2), [1988] Q.B. 758 (C.A.), consd. [para. 67].

Junior Books Ltd. v. Veitchi Co., [1983] A.C. 520 (H.L.), refd to. [para. 67].

De Bussche v. Alt (1878), 8 Ch. D. 286 (C.A.), refd to. [para. 83].

Powell & Thomas v. Jones (Evan) & Co., [1905] 1 K.B. 11 (C.A.), refd to. [para. 83].

Tarn v. Scanlan et al., [1928] A.C. 34 (H.L.), refd to. [para. 83].

Robinson v. National Bank of Scotland Ltd., [1916] S.C. (H.L.) 154, consd. [para. 91].

Kelly v. Cooper, [1993] A.C. 205; 144 N.R. 307 (P.C.), refd to. [para. 93].

Statutes Noticed:

Common Law Procedure Act, 1852 (U.K.), 15 & 16 Vict., c. 56, generally [para. 47].

County Courts Act, 1915 (U.K.), sect. 11 [para. 54].

Latent Damage Act, 1986 (U.K.), gen­erally [para. 49].

Lloyd's Act, 1982 (U.K.), Bylaw No. 4 of 1984 [para. 10]; Bylaw No. 4 of 1984, Part A, Part B, para. 4(a) [para. 75]; Bylaw No. 1 of 1985 [para. 24]; Bylaw No. 8 of 1988 [para. 10]; Inter­pretation Bylaw No. 1 of 1983, para. 1(c) [para. 75].

Authors and Works Noticed:

Bowstead on Agency (15th Ed. 1985), F.M.B. Reynolds in article 36(3), p. 131 [para. 82].

Fleming, John G., The Law of Torts (8th Ed. 1992), p. 187 [para. 58].

French, Christine, The Contract/Tort Dilemma (1983), 5 Otago L.R. 236, pp. 280 to 281 [paras. 56, 58].

Kaye, J.M., The Liability of Solicitors in Tort (1984), 100 L.Q.R. 680, p. 706 [para. 60].

Prosser, William L., Handbook on The Law of Torts (5th Ed. 1984), p. 666 [para. 58].

Weir, Tony, International Encyclopedia of Comparative Law, vol. 11, c. 12, paras. 52, 53 [para. 46]; 55 [para. 50]; 58 [para. 46]; 67 [para. 61]; 72 [para. 49].

Counsel:

John Rowland and K. Houghton, for the appellants, Fagan and Feltrim Under­writing Agencies Ltd. and others, in the first appeal;

Bernard Eder, Q.C., and David Foxton, for the appellants, Fagan and Feltrim Under­writing Agencies Ltd. and others, in the second appeal;

A. Boswood, Q.C., and S. Moriarty, for the respondents, Arbuthnott and others, in the first and second appeal;

Bernard Eder, Q.C., for the appellants, Gooda Walker Ltd. (in voluntary liqui­dation) and others;

Geoffrey Vos, Q.C., and Jonathan Gais­man, for the respondents, Deeny and others;

A. Temple, Q.C., and J. Rowland, for the appellants, Merrett Syndicates Ltd. and others.

Agents:

Clifford Chance, for the appellants, Fagan and Feltrim Underwriting Agencies Ltd. and others, in the first appeal;

Elborne Mitchell, for the appellants, Fagan and Feltrim Underwriting Agencies Ltd. and others, in the second appeal;

Richards Butler, for the respondents, Arbuthnott and others, in the first and second appeal;

Elborne Mitchell, for the appellants, Gooda Walker Ltd. (in voluntary liquidation) and others;

Wilde Sapte, for the respondents, Deeny and others;

Reynolds Porter Chamberlain, for the appellants, Merrett Syndicates Ltd. and others;

A. Boswood, Q.C., and S. Moriarty, for the respondents, Henderson and others.

These appeals were heard on March 15, 16, 17, 22, 23, 24, 25 and 28, 1994, at London, England, before Lord Keith of Kinkel, Lord Goff of Chieveley, Lord Browne-Wilkinson, Lord Mustill and Lord Nolan of the House of Lords.

On July 25, 1994, the decision of House of Lords was given and the following speeches were delivered:

Lord Keith of Kinkel - see paragraph 1;

Lord Goff of Chieveley - see paragraphs 2 to 89;

Lord Browne-Wilkinson - see para­graphs 90 to 95;

Lord Mustill - see paragraph 96;

Lord Nolan - see paragraph 97.