Henderson v Merrett Syndicates [1994] UKHL 5 (25 July 1994)

Lloyd's Names sued their managing agents for losses suffered from negligent underwriting. The House of Lords held that managing agents owed a duty of care in tort to both direct and indirect Names, based on the Hedley Byrne principle of assumption of responsibility. Concurrent liability in contract and tort was permitted.

Facts

The appeals arose from actions brought by underwriting members (Names) of Lloyd’s against their underwriting agents to recover losses from catastrophic insurance claims. At Lloyd’s, Names must appoint underwriting agents who may act as members’ agents (advising on syndicate choice), managing agents (conducting underwriting), or combined agents (performing both roles). Direct Names had contracts with combined agents, while indirect Names had contracts with members’ agents who appointed managing agents as sub-agents under separate sub-agency agreements.

Pre-1985 and Post-1985 Byelaw Arrangements

Before 1985, no standard forms were prescribed but similar agreements were used. From 1987, Byelaw No. 4 of 1984 prescribed standard forms of agency and sub-agency agreements. The agency agreements vested broad powers and ‘absolute discretion’ in agents regarding acceptance of risks.

Issues

The principal issues were: (1) Whether managing agents owed a duty of care in tort to indirect Names despite the absence of direct contract; (2) Whether managing agents owed concurrent duties in contract and tort to direct Names; (3) Whether the ‘absolute discretion’ clause excluded any duty of care; (4) Whether members’ agents were contractually responsible for the underwriting carried out by managing agents to whom they delegated.

Judgment

The Hedley Byrne Principle

Lord Goff delivered the leading speech. He held that the relationship between managing agents and Names provided a classic example of the type of relationship to which the Hedley Byrne principle applies. The managing agents had assumed responsibility to Names by accepting them as syndicate members, holding themselves out as possessing special expertise in underwriting, and being aware that Names relied implicitly on that expertise.

Concurrent Liability

Lord Goff conducted an extensive review of the authorities on concurrent liability in contract and tort. He approved the analysis of Oliver J in Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384, and endorsed the approach of the Supreme Court of Canada in Central Trust Co v Rafuse (1986) 31 DLR (4th) 481. He concluded that there was no rule requiring claimants to pursue contractual remedies alone where concurrent tortious duties existed. The tortious duty could co-exist unless the contract was inconsistent with it.

Indirect Names

Regarding indirect Names, Lord Goff held that there was no reason why managing agents should not assume responsibility to more than one party for the same activity. The contractual chain between Name, members’ agent and managing agent did not exclude the direct tortious duty owed by managing agents to indirect Names.

Absolute Discretion

The ‘absolute discretion’ clause did not exclude liability for negligence. Clear words were required to exclude such liability, and the clause was directed to the scope of the agents’ authority rather than the standard of care.

Members’ Agents’ Liability

On the construction of the 1985 Byelaw agency agreements, Lord Goff held that members’ agents undertook to carry out underwriting for Names, performing this obligation either themselves (as combined agents) or through managing agents as sub-agents. Members’ agents remained contractually responsible for the underwriting.

Lord Browne-Wilkinson’s Observations

Lord Browne-Wilkinson added observations on the relationship between negligence and fiduciary duty. He stated that the duty of care imposed on fiduciaries is not a separate head of liability but the paradigm of the general duty to act with care imposed on those who assume responsibility for others’ affairs. Contractual terms can modify but not necessarily exclude concurrent tortious duties.

Implications

This decision is of fundamental importance to English law. It established that concurrent liability in contract and tort is generally permissible, allowing claimants to take advantage of whichever remedy is more favourable (particularly regarding limitation periods). It confirmed that the Hedley Byrne principle of assumption of responsibility applies equally to gratuitous and contractual relationships. The case also clarified the basis of professional liability, grounding it in assumption of responsibility rather than status or historical categorisation. The decision has had lasting influence on claims against professional advisers and on the development of the law of negligence for pure economic loss.

Verdict: Appeals dismissed. Managing agents owed a duty of care in tort to both direct and indirect Names. Members' agents were contractually responsible for underwriting delegated to managing agents.

Source: Henderson v Merrett Syndicates [1994] UKHL 5 (25 July 1994)