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This important case examines the brokers' duties on the provision
of services on discontinued accounts. It concludes that a runoff company
is authorised to demand accurate information relating to its accounts
and to seek legal redress if it is not provided.
In this long running dispute, Equitas brought proceedings seeking damages
on the basis that Horace Holman, as a broker on various outwards contracts
of reinsurance written to protect Lloyd's syndicates for 1992, were
in breach of their duties. Equitas also sought "delivery up"
of all documents relating to the placement and the subsequent administration
of the outwards protections as well as an account and payment of any
monies found to be due.
The litigation as Smith J put it "proved to be time consuming and
expensive". The pleadings were referred to as "prolix and
unhelpfully argumentative". The Judge expressed regret that the
parties had spent "so much to achieve so little".
It was agreed between the parties that Horace Holman owed the Syndicates
duties to:
(i) take reasonable care to maintain proper and adequate records;
(ii) preserve and be constantly ready with correct accounts of all its
dealings and transactions on behalf of each syndicate; and
(iii) provide their records to the principal insofar as they relate
to transactions done as the principal's agent.
With reference to the third duty, however, Horace Holman argued that
they were not obliged to disclose or provide copies of documents created
for their own purpose including their IBA ledgers, cash books and nominal
ledgers. The Judge roundly dismissed this. He said that Horace Holman
was obliged to provide copies of those documents insofar as they recorded
transactions that were carried out as Equitas' agent.
Horace Holman had prepared a "composite account", based on
"a thorough review of the claims files that were delivered to it
by Equitas". They claimed that once they had provided the composite
account, they were home and dry.
Again, the Judge disagreed. He accepted that generally, it was a defence
to a claim for an account that the accounting party had already provided
one. However, in this case, no account was adjusted between the parties
and no balance struck - it was, in essence, not sufficient simply for
the accounting party to state an amount acknowledged to be due.
In addition, where the accounting information was inadequate or unsatisfactory,
the simple provision of an account was not a good defence.
He concluded that Horace Holman's records were vulnerable to errors,
the composite account was not presented in sufficient detail and it
was impossible for Equitas to challenge them on the basis of the claims
files with which they had been provided, alone.
As such, Equitas was justified in bringing proceedings and were entitled
to their costs - this point had, as the Judge acknowledged, become an
important issue even though the amounts involved in the account were
minor.
So, even though the servicing of discontinued accounts must be an unattractive
proposition fro any broker, this ruling makes it clear that they must
be serviced as effectively as those that are live.
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