Henderson v Merrett Syndicates Ltd
Encyclopedia
Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 was a landmark House of Lords
case. It established the possibility of concurrent liability in both tort
and contract
.
, an insurance market, is organized in syndicates - groups who share the business, risk, and reward, of underwriting insurance policies and similar projects. The syndicate acts as a market which offers insurance on the one hand and investment opportunity on the other. The active business of a syndicate is run by underwriting
agents. The liability of an investor (known as a "name") is unlimited - names share the profits but are also exposed to unlimited liability in the event of losses.
In the present case, hurricanes in America had led to unprecedented losses for insurers. After the hurricanes, Lloyd's called upon the investors to cover their share of these losses. Litigation followed in which the names sued the people running the underwriting agents for negligent management of the investment fund. Mr Henderson was one of the names and Merrett Syndicates Ltd was one of the underwriting agents.
It was accepted that the underwriting agents had a duty to exercise due care and skill (see for instance, s 13 Supply of Goods and Services Act 1982
). The question was whether the agents could be liable to the indirect investors (the names behind in the syndicate which had formed another syndicate). The problem was that there was a contractual relationship between the head syndicate managers and its direct members, but not necessarily a contractual relationship between the head syndicate managers and the members of the sub-syndicate. This led to the question of whether a duty could arise in tort, raising the matter of "assumption of responsibility".
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....
case. It established the possibility of concurrent liability in both tort
Tort
A tort, in common law jurisdictions, is a wrong that involves a breach of a civil duty owed to someone else. It is differentiated from a crime, which involves a breach of a duty owed to society in general...
and contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
.
Facts
Lloyd's of LondonLloyd's of London
Lloyd's, also known as Lloyd's of London, is a British insurance and reinsurance market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals or corporations, come together to pool and spread risk...
, an insurance market, is organized in syndicates - groups who share the business, risk, and reward, of underwriting insurance policies and similar projects. The syndicate acts as a market which offers insurance on the one hand and investment opportunity on the other. The active business of a syndicate is run by underwriting
Underwriting
Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...
agents. The liability of an investor (known as a "name") is unlimited - names share the profits but are also exposed to unlimited liability in the event of losses.
In the present case, hurricanes in America had led to unprecedented losses for insurers. After the hurricanes, Lloyd's called upon the investors to cover their share of these losses. Litigation followed in which the names sued the people running the underwriting agents for negligent management of the investment fund. Mr Henderson was one of the names and Merrett Syndicates Ltd was one of the underwriting agents.
It was accepted that the underwriting agents had a duty to exercise due care and skill (see for instance, s 13 Supply of Goods and Services Act 1982
Supply of Goods and Services Act 1982
The Supply of Goods and Services Act 1982 is an Act of the Parliament of the United Kingdom that requires traders to provide services to a proper standard of workmanship...
). The question was whether the agents could be liable to the indirect investors (the names behind in the syndicate which had formed another syndicate). The problem was that there was a contractual relationship between the head syndicate managers and its direct members, but not necessarily a contractual relationship between the head syndicate managers and the members of the sub-syndicate. This led to the question of whether a duty could arise in tort, raising the matter of "assumption of responsibility".
Judgment
It was held that Merrett Syndicates was liable to both types of shareholders, as there was enough foreseeability to extend pure economic loss liability to "un-proximate" third parties. The major significance here was, however, the allowance of claims in both contract and tort, which blurred the divide between the two. Some of the first party Names claimed in tort to overcome the three-year limit in which an action must be taken in contract. In allowing such an action, the House of Lords expressly overruled Lord Scarman's ruling in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986], in which it was held that: "there is nothing advantageous to the law's development in searching for a liability in tort where the parties are in a contractual relationship." The allowance of concurrent actions was immensely controversial, as it ran contrary to legal orthodoxy.See also
- Caparo Industries plc v Dickman
- Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9, an clause excluding liability in tort for a builder of a home with a latent defect was not unreasonable under UCTA 1977 and so the home owner could not avail itself of the longer limitation period in tort than contract.