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BW ALERTS
November 2011
Amendments to the Home Building Act 1989
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August 2011
Clarification of 'wasted cost orders' by the Land and Environment Court
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May 2011
Challenges for Developers under the new Unfair Contracts Law
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February 2011
Retail Leases Amendments Bill 2011
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November 2010
Blackstone Waterhouse Taking Lexis Affinity Library to the Cloud
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October 2010
Up in the Clouds
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August 2010
Owners Corporations and Builders Battle for Control: The Proportionate Liability Defence and the Home Building Act 1989 (NSW)
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July 2010
The ACT parliament adopts a security of payment regime
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March 2009
An Australian Perspective on the New Convention to Replace the Hague Visby Rules on the Carriage of Goods by Sea
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May 2007
Insurers beware – words may fail you!
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January 2006
How to manage risk – a few tricks of the trade
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Wednesday, 23 May 2007
Brokers duty in relation to historic business may well be open to debate, but let’s all be reasonable!
Equitas v Horace Holman [2007] EWHC 903 (Comm.)
In recent English Commercial Court proceedings, Equitas (as assignee of the rights of members of Lloyd's Syndicates for 1992 and prior) sought to require Horace Holman (Lloyd's brokers in run off since January 2003) to provide a detailed account of funds held that were due and payable. It also sought damages and the delivery of all documentation held by Horace Holman relating to the placement and subsequent administration of various reinsurance protections, including hard copy ledgers or other accounting documents. Further, it required the account and payment of money found to be due as a result of taking an account.
The dealings between the parties and, particularly the proceedings themselves, were long drawn out. Some information was provided and payments made along the way, but Equitas wished to test the composite account information which Horace Holman had provided. Horace Holman responded that that was neither practicable nor justified. Equitas ultimately accepted that Horace Holman's records were in such a poor state that it was not practical to seek a meaningful account, so that the court's focus at the final hearing in January this year was to assess the reasonableness of the parties' approach to resolving the difficulties that had arisen to determine and who should pay the costs incurred.
A range of evidence was presented to the Court. Horace Holman argued that criticism of their accounting systems was unfair and exaggerated, but the Court took the view that the relevant point was the level of duty Horace Holman owed to the Equitas Syndicates as their principal. Horace Holman admitted that they owed the Syndicates a duty to take reasonable care to maintain proper and adequate records which would allow the Syndicates to ascertain the true state of the account with them and what sums were owing. They also admitted that they owed the Syndicates a duty to "preserve and be constantly ready with correct accounts of all its dealings and transactions on behalf of each ……….. syndicate". The Court specifically noted that whatever the state of Horace Holman's records, where relevant information is inextricable from records relating to other principals, "it is for them to provide some means of extracting what is relevant from the mass of their materials. If such means cannot be devised with sufficient with expedition, the [principal] will have to see the irrelevant material insofar as it is inseparable from the relevant", as previously concluded by Colman J in Yasuda v Orion Underwriting Limited [1995]QB 174.
In relation to certain sums which were described in records as "previously paid", it was clear that there was an "unexplained difference". Equitas argued, by reference to the established principle (per Bowstead on Agency) that "when the agent cannot explain what has happened to money or property, presumptions may be made against him which will impose substantial liabilities", but the Court did not feel it appropriate to make such a presumption in this case and only certain limited funds were found to be due to Equitas.
On the question of costs, and the underlying issue of the reasonableness of both parties' dealings, however, the Court did not accept that information previously provided by Horace Holman amounted to a settled account so that Equitas should not be taken to have waived or lost its right to challenge what Horace Holman said and to call for production of the documents. Citing long established principles from English case law, the Court confirmed that "where an agent is provided with accounting information that is inadequate or unsatisfactory, either the Court may decide that it would not be equitable to accept this as an account and order that the account be taken afresh or the Court may say that because of errors in the information, while it will be taken as a starting point for an account, the principal has liberty to challenge it by way of surcharging and falsifying". In this case, the state of Horace Holman's records was such that any account taken by reference to the claims file alone would be vulnerable to errors of just the kind that were indeed found. Horace Holman challenged the legitimacy of Equitas' approach at various stages of the dealings between them, but ultimately the Court concluded that Equitas had largely behaved reasonably and was justified in pursuing their claim. Since Horace Holman's records were such that they were not able satisfactorily to demonstrate how they had dealt with funds that they had received and had not been able to provide proper documentation then Equitas should be awarded the greater part of their costs.
This decision serves to underline the difficulties that are often faced in tracking information relating to old account balances. Much will depend upon the particular nature of the parties' respective operations and how dealings have proceeded over the years, but, ultimately, if records are inadequate it is likely that a Court will support a principal's reasonable endeavours to achieve clarification and may be ready to reach presumptions that impose a liability for loss on the broker. There is no particular reason why the principal's records should be given greater credence than those of the agent where a discrepancy arises, but there is obviously a vulnerability which will be relevant to everyone involved in unravelling less than clear historic insurance and reinsurance records. The wisdom of dealing with such needs in a reasonable and commercially realistic way must be clear.
Colin Porter
Partner
Blackstone Waterhouse Lawyers
Phone: 61 2 8216 1515
cporter@blackstonewaterhouse.com.au
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