Focus Insurance Company Ltd v Hardy and Others 1992 Civil Appeal No 15
Jurisdiction | Bermuda |
Judgment Date | 25 November 1992 |
Date | 25 November 1992 |
Docket Number | Civil Appeal No. 15 of 1992 |
Court | Court of Appeal (Bermuda) |
In the Court of Appeal for Bermuda
Roberts, P.
da Costa, J.A.
Henry, J.A.
Civil Appeal No. 15 of 1992
-and-
Julian Hall for D1 and D4 to D9
Coles Diel for D2
Richard Aitkens Q.C. for D3
John Cooper for D3
Saul Froomkin Q.C. for the Company
Re City Equitable Fire Insurance Co. Ltd.ELR [1925] 1 Ch 407
Dovey v CareyELR [1901] AC 477
Gould v Mount Oxide Mines Ltd.UNK (1916) 22 DLR 490
West Rand Central Gold Mining Co v R [1905] 2 KR 391
Intercontinental Natural Resources Ltd v Dill 1981 Civil Appeal No. 14
The Companies Act 1981, s. 97, s. 98
Claim by liquidator of plaintiff company for willful negligence and default by first 3 defendants — Application by first 3 defendants to strike out statement of claim as disclosing no reasonable cause of action — Application by plaintiff for leave to amend writ to add 6 new defendants — Chief justice allowed joinder of new defendants, denied strike out application — Appeal by all defendants against chief justice's order — Liability of directors — Allegation that 2nd and 3rd defendants abrogated their duties by leaving it to 1st defendant to run company as he wished — Whether company's bye-laws effective to protect directors against claim — Bye-laws not in conflict with Companies Act
Roberts, P.
On 5th July, 1991, a statement of claim was issued by the plaintiff, an insurance company, duly incorporated by registration under the Companies (Incorporation by Registration) Act, 1970. The plaintiff was, at the date of such issue, in liquidation and proceedings were taken on behalf of the liquidator.
At that stage, there were three defendants. who appear above as the first (D1), second (D2) and third (D3) defendants.
A summons was filed by D3 on 26th July 1991, seeking the striking out of the plaintiff's writ and statement of claim.
A similar summons was issued on 27th July, 1991 on behalf of D2, seeking the same relief.
Although the summons of D2 was returnable on 31st July 1991, there is nothing in the record which suggests that this was pursued.
On 7th November, 1991. the statement of claim was amended. The original statement of claim had alleged that, by reason of their acts or omissions as directors or officers of the plaintiff, D1, D2 and D3 were liable for losses caused thereby to the plaintiff. The amended statement of claim on 7th November, 1991 alleged wilful negligence and default by the three defendants.
A summons dated 5th March,' 1992 was issued by D1 seeking the striking out of the amended statement of claim, on the ground that it disclosed ‘no reasonable cause of action’ against D1. The summons was to be heard on 6th April, 1992.
On the same date, 6th April, 1992. the plaintiff sought to amend its statement of claim so as to add the fourth to ninth defendants (D4 to D9) for the first time, as well as to make other amendments.
It was agreed by all parties that the application to strike out should proceed on the basis of the reamended statement of claim. There were before the Chief Justice applications by D1, D2 and D3 to strike out and by the plaintiff to reamend its statement of claim.
The applications to strike out were brought on the ground that the pleadings, as reamended, disclosed no reasonable cause of action.
In his judgment, delivered on 11th May, the Chief Justice set out what were, in his view, the important parts of the statement of claim, concluding that the material particulars given by the plaintiff were in sufficient conformity with the rules of pleading to enable the defendants to meet the plaintiff's claim and be able to plead to it.
He commented that there was no allegation of fraud or dishonesty, only that the defendants acted with wilful negligence and default arising from their acts and omissions. He found that the facts given in the statement of claim would, if proved, show a wilful disregard of their duties by the directors and would be evidence that they had acted in a negligent manner. He was thus satisfied that the plaintiff had pleaded the material facts on which it relied to show the state of mind of the defendants.
There were submissions to the Chief Justice as to the effect of bye-law 108 of the plaintiff company which confers protection upon directors of the plaintiff for the neglect or. default of another director. This bye-law should, he said. be considered in conjunction with other bye-laws and sections 97 and 98 of the Companies Act. He also commented that he was only concerned as to whether the plaintiff had properly pleaded its case and found that it had, with the exception of paragraph 8 of the reamended statement of claim. which he struck out.
With regard to the joinder of D4 to D9, the Chief Justice found that 0.15 r.6 gives the necessary authority to join and that the plaintiff had discharged the burden of satisfying him that they were necessary parties to the dispute raised in the action. He therefore ordered that they be joined and allowed service of notice of the writ out of the jurisdiction.
He refused to strike out the writ and reamended statement of claim (save that he struck out paragraph 8) and allowed the plaintiff to reamend its statement of claim in terms of the draft put before him.
An application for leave to appeal was heard, inter partes, by the Chief Justice on 24th June, 1992. All defendants sought leave to appeal. This was refused by the Chief Justice, on the ground that there was ‘no arguable point to be reviewed’.
The applications were renewed before us, ex parte, on behalf of all the defendants on 20th July, 1992.
After hearing argument that leave should be given, we decided that we should hear the application for leave at the next sitting of the Court. At that sitting, all parties should be ready to argue the merits of the appeal and all documents should be before the Court which would be required as if the hearing were an appeal, and not merely an application for leave.
The grounds of appeal put forward on behalf of D1 can be summarized as follows—
(1) The Chief Justice was wrong in finding that, because of the wording of section 97 and 98 of the Companies Act, the defendants could be held liable for mere negligence if they did not ‘exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances’.
(2) The Chief Justice was wrong in law in stating that ‘at this stage I am concerned only to see whether the plaintiff has properly pleaded their case’.
(3) The Chief Justice erred in holding that the plaintiff, except for paragraph (8), had properly pleaded its case.
(4) D4 and D9 were improperly joined as they were made parties only for purposes of discovery.
(5) No cause of action was made out in pleadings against D4 to D9.
(6) Amendments to the statement of claim, so far as D4 to D9 are concerned, were not necessary to determine the real question between existing parties to the action.
(7) Service of the amended statement of claim was in breach of 0.11 R.S.C.
D2 and D3 put forward their grounds of appeal.
Paragraph (1), (2) and (3) raise, in essence, the same issues as D1.
In (4), it is said that the Chief Justice incorrectly failed to distinguish D2 and D3 from D1 and to consider how the pleadings applied to their separate circumstances.
(5) The Chief Justice misapplied the principles of pleading set out in Bermuda Civil Appeal No. 14 of 1981, Intercontinental Natural Resources Ltd. v. Dill and others. (see para. 3(e) of D1's grounds).
(6) The pleadings are in breach of 0.18 and 12(1)(b) R.S.C. (see para. 3(a) of D1's grounds).
(7) A proper distinction was not drawn as to distinction between primary and conclusory facts. (see para. 3(g) of D1's grounds).
(8) The Chief Justice was wrong to conclude that an allegation of the existence of a duty and failure to perform it are sufficient to establish wilful neglect. (see para. 3(c) of D1's grounds)..
(9) The Chief Justice was wrong to reject the principles of Lipkin Gorman v. Karpnale Ltd.WLR(1987) 1 W.L.R. 1340, to the effect that a plea of ‘ought to have known’ is equivocal and an unacceptable plea.
(10) That the Chief Justice was wrong in law in failing to hold that the reamended statement of claim was an abuse of process.
The defendants contend, for the reasons given above, that the reamended statement of claim should be struck out against all the defendants.
The plaintiff was originally incorporated in Bermuda by registration on 8th August, 1979, under the name of the Trenwick Insurance Company Ltd. Its principal objects were, among other things, to engage in all types of insurance and reinsurance business.
The plaintiff underwrote insurance of various kinds unit1 1986 when it ceased active underwriting and went into ‘run-off’.
D1 and D3 were directors and officers of the plaintiff at all material times. D2 was such a director and officer from December 1987 to September 1989 and from May 1990 to September 1990.
The plaintiff went into voluntary liquidation on 19th September 1990. Joint provisional liquidators were subsequently appointed by order of the Supreme Court on 8th November, 1990. The plaintiff went into compulsory liquidation by order of that Court on 5th February, 1991.
Forum Reinsurance Co. Ltd. (‘Forum Re’) was incorporated by registration about 4th July 1985. Its principal objects were to engage in all types of insurance and reinsurance business. D1, D2 and D3 were...
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