Case Nos: A3/2003/2396 & 2397
Neutral Citation Number: [2004] EWCA Civ 792
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
Mr Jonathan Hirst QC
[2003] EWHC 2269 (Comm)
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Wednesday 23rd June 2004
Before :

LORD PHILLIPS OF WORTH MATRAVERS MR
LORD JUSTICE CLARKE
and
LORD JUSTICE WALL

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Between :

	HEATH LAMBERT LIMITED
	Claimant/
Respondent	
	- and -		
	(1) SOCIEDAD DE CORRETAJE DE SEGUROS
(2) BANESCO SEGUROS CA	Defendants/
Appellants	

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(Transcript of the Handed Down Judgment of
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Jeffery Onions QC and Daniel Jowell (instructed by Cozen O’Connor) for the Respondent
Gavin Geary (instructed by Prettys) for the First Appellant
Richard Millett QC (instructed by Le Boeuf, Lamb, Green & MacRae) 
for the Second Appellant 

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Judgment
Lord Justice Clarke: 
Introduction
1.	This is the judgment of the court in an appeal from part of an order made by Mr Jonathan Hirst QC in the Commercial Court sitting as a Deputy High Court Judge.  The appeal is brought with the permission of the judge.  It arises out of an order dated 14 October 2003 on applications by the defendants, which we will call “SCORT” and “Banesco” respectively, to set aside the order of Tomlinson J made on 7 October 2002 granting permission to serve the claim form out of the jurisdiction in Venezuela.  The applications were made on a number of grounds, including the ground that all the claims were plainly time barred and could not succeed.  The judge held that some of the claims were plainly time barred and some were not.  The appeals are brought in respect of those claims which were held not to be plainly time barred.  The claimant (“Heath Lambert”) has not sought to appeal in respect of those issues which it lost.     
The facts
2.	A Venezuelan company called Instituto Nacional de Canalizaciones (“INC”) placed insurance for its fleet of vessels with Banesco, which is or was a Venezuelan insurer which essentially operated as a fronting insurer.  SCORT, which is or was a firm of Venezuelan insurance brokers, placed that insurance and was also instrumental in obtaining reinsurance for Banesco in the London market.  There is an issue between the defendants as to whether, in acting in the latter capacity, SCORT was acting as a producing broker for Banesco or in some other capacity.  Thus it is in dispute between the defendants as to which is liable for any premium due under the reinsurance.  It is, however, common ground that one or other is liable and that for the purposes of the issues in this appeal it does not matter which.  It is also common ground that, although there are two appeals before the court, they raise the same questions and either both succeed or both fail.
3.	One or other of SCORT or Banesco successively asked Heath Lambert to place back to back reinsurance for Banesco in the London market.  Heath Lambert did so and duly placed the reinsurance with a number of Lloyd’s syndicates, some London market companies and a few companies outside London.  The reinsurance was in the form of a slip policy, although no-one has produced the slip.  It is, however, common ground for the purposes of this appeal that the agreement is evidenced by a cover note dated 26 January 1996 issued by Blackwell Green Limited, which is now Heath Lambert.      
4.	The cover note describes the cover as “Marine Facultative Reinsurance” and the form as an “MAR (Slip Policy)”.  It describes the reassured as Banesco and gives the names of the various assured and of the various vessels covered.  There are ten such vessels, although the appeal relates only the tenth vessel, the dredger ICOA.  The conditions include the following:
“All clauses, terms and conditions as original and to follow settlement of same.
…
Brokers Cancellation Notice Clause as attached.
…
Subject to Venezuelan Law and/or Venezuelan Jurisdiction if required.
…
Warranted premium payable on cash basis to London Underwriters within 90 days of attachment.”
	The Brokers Cancellation Clause included the following:
“Notwithstanding anything contained in this Policy to the contrary, Blackwell Green Limited, in addition to their lien on the policy, shall be entitled to cancel this Policy in the event of any premium not having been paid to them when due and the Underwriters hereby agree to cancel this Policy on presentation at the request of Blackwell Green Limited and to return any premium payable thereon in excess of a pro rata premium up to the date of the cancellation.”

5.	The only provision in the underlying insurance, which is governed by the law of Venezuela, to which it is necessary to refer is Article 3.  It provides:
“ARTICLE 3 – Premium and Forms of Payment.  The “Insured” is under obligation to pay to “The Company” the premiums stipulated in the Policy Schedule at the actual moment the Policy is contracted, against presentation of a printed Premium Receipt by “The Company”, signed by an authorised representative.”

6.	It is not in dispute that Heath Lambert paid the premiums (or all but one tranche of them) to the reinsurers or that neither SCORT nor Banesco has reimbursed Heath Lambert in respect of any of them.  The claim form was issued on 23 July 2002 claiming total premium of US$687,366.44, which was reduced in the particulars of claim to US$526,090.40.  Details of how the claim was made up are set out in sub-paragraphs 7(i) to (vii) of the judge’s judgment.  All the claims were held to be plainly time barred except the claim for premium in respect of the extension agreed by reinsurers on 3 July 1966 for the period from 2 July until 31 December 1996.
7.	The extension slip (which has been produced) was scratched by the leading underwriter.  It is not (as we understand it) in dispute that the leading underwriter had authority to bind the following market.  The slip includes the following:
“Dredge “ICOA” – Port Risk
Noted and agreed following original, cover is extended on Port Risk basis on same terms and conditions from 2nd July 1996 to 31st December 1996 at slip rates.
…
All other terms and conditions remain unaltered.”
Heath Lambert issued a debit note on 15 July 1996 addressed to SCORT showing a net sum due of US$261,532.81, which it can be seen is almost half of the total claim.
The judge’s decision
8.	Before the judge there were three issues.  The first issue was whether SCORT or Banesco was liable for the premium.  The judge took the view that the case against SCORT was much stronger than that against Banesco but concluded that there is a reasonable prospect that SCORT is not liable and that it is not possible to say at this stage which defendant is liable.  He accordingly declined to accede to the application of either defendant on this point.  Neither defendant has sought to challenge this part of the judge’s judgment and, as already stated, it is common ground for the purposes of this appeal that one or other is in principle liable for the premium.
9.	The second issue was whether Heath Lambert paid the premium to underwriters as a volunteer so that there was nothing in respect of which its principal (SCORT or Banesco) was liable to indemnify it.  The judge discussed Mr Millett’s submission to that effect in paragraphs 16 to 23 of his judgment.  He rejected it and there is no appeal against that part of his decision.  In the course of that discussion the judge held that section 53(1) of the Marine Insurance Act 1906 (“the 1906 Act”) applied to a case of this kind.  Section 53(1) provides:
“Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium, and the insurer is directly responsible to the assured for the amount which may be payable in respect of the losses, or in respect of returnable premium.”

10.	The third issue before the judge involved a consideration of two questions, first when Heath Lambert’s cause of action to recover the premiums arose and second whether SCORT or Banesco acknowledged its liability so as to create a fresh accrual of the cause of action under section 26 of the Limitation Act 1980.  As to the second question, the judge held that neither defendant acknowledged its liability and his conclusion to that effect is not the subject of this appeal.
11.	As to the first question, (as already stated) he held that all the claims were plainly time barred except the claim for premium in respect of the extension agreed by reinsurers on 3 July 1966 for the period from 2 July until 31 December 1996.  He held that the effect of the clause which provided 
“Warranted premium payable on cash basis to London Underwriters within 90 days of attachment”
was that the premium was only due within 90 days of attachment and not earlier, with the result that the cause of action did not accrue more than six years before the claim form was issued on 23 July 2002.
Discussion  	
12.	The defendants say that the judge was wrong so to hold and that he should have held that the premium was due when the contract extending the reinsurance was made on 3 July 1996, so that Heath Lambert’s cause of action accrued more than six years before the claim form was issued.  The sole question in this appeal is whether the judge was correct on this point.
13.	In answering that question, it is important to note that it is not (as we understand it) suggested that the case falls outside section 53(1) of the 1906 Act.  This is a case in which the policy was effected on behalf of the re-assured by a broker, namely Heath Lambert, so that the effect of section 53(1) is that, ‘unless otherwise agreed’, Heath Lambert was directly responsible to the reinsurers for the premium and the reinsurers would have been liable to the re-assured for any losses under the policy.  It is also common ground (as it was in Chapman & Co Ltd v Kadirga Denizcilik Ve Ticaret [1998] Lloyd’s Rep Insurance and Reinsurance 377 at 385) that ‘unless otherwise agreed’ it is the general rule in these circumstances that the broker (Heath Lambert) has a cause of action in its own right against the re-assured in respect of unpaid premiums.
14.	Since it is not suggested that it was ‘otherwise agreed’, it follows that it is common ground that SCORT or Banesco was in principle liable to Heath Lambert for the premium.  The question is when its cause of action for the premium accrued.  It seems to us that the answer to that question should in principle depend upon the terms of the relevant policy.  As Sir Brian Neill put it in the Kadirga case (at p 386), in the light of section 53(1) of the 1906 Act, each of the broker, the assured and the insurer has independent rights and obligations.  As we see it, absent any specific agreement between the individual parties, those rights and obligations stem from the terms of the policy.  
15.	Here there is no evidence of any separate agreement as to the payment of premium between any two of the parties outside the policy.  Moreover the terms of the brokers cancellation clause quoted above show that Heath Lambert was a party to the terms of the policy, at least for some purposes.  Thus the reinsurers’ right against Heath Lambert to the premium stems from the policy, as does Heath Lambert’s right to recover premium from SCORT or Banesco and Banesco’s right to recover any relevant losses under the policy from the reinsurers.  In our opinion all depends upon the true construction of the policy.         
16.	We are not sure that this is in dispute between the parties, although we were somewhat concerned during the argument as to the true nature of a broker’s claim for the premium from the assured.  This stems from the custom of the market which underlay the 1906 Act and which has been discussed both in the text books and in a number of cases. 
17.	In Arnould on Marine Insurance 16th edition at paragraph 170, the editors say that the position is briefly but comprehensively described by Bayley J in Power v Butcher (1829) 10 Br & 329 at 340 as follows:
“According to the ordinary course of trade between the assured, the broker and the underwriter, the assured does not in the first instance pay the premium to the broker, nor does the latter pay it to the underwriter.  But, as between the assured and the underwriter, the premiums are considered as paid.  The underwriter, to whom, in most instances, the assured are unknown, looks to the broker for payment and he to the assured.  The latter pay the premiums to the broker only, who is a middleman between the assured and the underwriter.  But he is not merely an agent: he is a principal to receive the money from the assured, and to pay it to the underwriters.”      
As Rix J observed in Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc [1998] 2 Lloyd’s Rep 326 at 334, in the same case Parke J said at p 347:
“By the course of dealing, the broker has an account with the underwriter; in that account the broker gives the underwriter credit for the premium when the policy is effected and he, as the agent of both the assured and the underwriter, is considered as having paid the premium to the underwriter, and, the latter having lent it to the broker again, and so becoming his creditor.  The broker is then considered as having paid the premium for the assured.”

18.	In paragraph 171 the editors of Arnould quote this passage from the judgment of Collins J in Universo Insurance Co of Milan v Merchants’ Marine Insurance Co [1897] 1 QB 205 at 209:
“It is a well-recognised practice in marine insurance for the broker to treat himself as responsible to the underwriter for the premiums; by a fiction he is deemed to have paid the underwriter, and to have borrowed from him the money with which he pays.  If that is a correct explanation of the origin of the custom, it is as applicable to this form of policy as to a Lloyd’s policy.  No doubt there is here a contract to pay by the assured, but by custom the broker is treated as personally liable, the same fiction being applicable, namely, that the broker has paid the premium, and has so absolved the assured from his liability, having first borrowed the money from the underwriter to make the payment.”
The policy contained an express promise by the assured to pay the premiums to the insurer but it was nevertheless held by Collins J that the broker and not the assured was liable for the premium so that the insurer was not entitled to recover the premiums from the assured.  His decision was upheld by this court: [1897] 2 QB 93.  As Lord Esher put it at p 96 in another passage quoted by Rix J:
“It has never been supposed hitherto that that course of dealing is in contradiction of the terms of the policy, but a mode of carrying them out.  The policy says that the assured is to pay the premium, but the mode in which the payment made is according to the custom.”

19.	Those decisions were followed by Rix J in Prentis v Leed & Leeds, where he upheld a submission that an automatic termination clause cannot operate under English law to forfeit the policy because the assured’s obligations in respect of premium will always have been timeously discharged.  As we understand it, that is because of the fiction that the broker is treated as having paid the premium even when it has not in fact done so.  The position is summarised in this way in paragraph 172 of Arnould:
“It further follows from what has been above stated that, as a general rule, the assured is liable to the broker for premiums as for money paid, whether they have in fact been paid over by the broker to the underwriter or not.  This is because, in accordance with the system which we have just explained, the premiums are, as between the broker and the underwriter, considered as paid.  The broker, being thus deemed to have paid the underwriter, can at once recover the amount from the assured as money paid to his use.  Similarly, in case the assured becomes entitled to claim a return of premiums, inasmuch as they are deemed to have been paid by the broker to the underwriter on account of the assured, they can at once be recovered from the underwriter by the assured as money had and received  “without any reference as to whether or not the year during which the broker generally has credit has run out, so as to make them payable in cash by the broker to the underwriter.””

20.	On that footing the broker’s cause of action for payment of the premium is not for an indemnity in respect of premium actually paid, in which case its cause of action would presumably accrue on payment, but for an indemnity in respect of premium deemed to have been paid.  It follows that its cause of action accrues when the broker is deemed to have paid the premium.  The only date on which the broker can be deemed to have paid the premium for this purpose is the date on which the premium was due as between the broker and reinsurer, which depends upon the terms of the policy. 
21.	We would only add this.  Some doubt as to the appropriateness of the fictions identified in the cases was expressed in the Kadirga case, where Sir Brian Neill, with whom Chadwick and Waller LJJ agreed, referred to the decisions on the custom which was in operation before the 1906 Act including the Universo Insurance case and to the text books, and said at p 385:
“The authorities and the text books throw valuable light on the genesis of the custom and its rationale.  One therefore sees the background against which these policies must be construed, though I agree with the judge that since the enactment of the 1906 Act one is concerned primarily with a scheme regulated by statute.”

22.	In considering the status of the broker in the ordinary case he said (at p 385) that he had been assisted by a passage in Professor Merkin’s chapter in The Modern Law of Insurance by Professor Thomas, where, having referred to the rule that the broker must pay the insurer whether or not the assured has himself paid the broker, Professor Merkin continued: 
“Perhaps the most important consequence of the rule is that if the broker becomes insolvent before the premium has been paid, the insurer cannot look to the assured for payment but must prove in the broker’s liquidation.  The rule is rooted in market practice, and has been reconciled by legal principle only by the adoption of the fiction that the premium has been received by the broker and loaned back to the broker.  A more realistic explanation is that the broker is acting as a principal in his own right or under some form of dual agency, and not merely as the agent of the assured.”
Sir Brian Neill added that the concept of the broker acting as a dual agent (or to use the words of Lord Ellenborough in Shee v Clarkson (1810) 12 East 507 at 511 “common agent”), or as an independent intermediary, provides a useful starting point for considering the words “unless otherwise agreed”.
23.	We respectfully agree.  It seems to us that it is in this regard care should be taken before having regard to the fiction to which the cases refer.  Thus for example, could it be said on the facts of a case like this that the broker is deemed to have paid the premium on account of the assured and that it follows that the premium is deemed to have been paid to the underwriter so that there was no breach of warranty?  No-one suggested that such an argument could be successfully advanced on the basis of the policy in this case.  Mr Millett and Mr Geary submitted that on the true construction of the policy the premium was payable when the contract was made and Mr Onions submitted that it was payable within 90 days of attachment.  No-one suggested that the warranty did not have effect as a warranty because of the fiction.
24.	We turn finally to the true construction of the policy, as extended by the slip dated 3 July.  It is common ground that in the absence of an express term in the policy the premium is payable when the contract was made.  It follows that, in the absence of agreement to the contrary, but for the clause the premium would have been payable when the contract was made on 3 July 1996.  The appellants submitted that there is either no such express term in the policy or that the combined effect of the condition “all clauses, terms and conditions as original” and Article 3 of the underlying insurance was that the parties agreed that the premium was payable when the relevant contract was made.  As we understand it, Mr Onions accepted that by one or other such route that would be the position but for the clause upon which he relied, namely:
“Warranted premium payable on cash basis to London Underwriters within 90 days of attachment”.

25.	In our opinion all depends upon the true construction of that clause.  The issue between the parties is whether it provides solely for a warranty or whether it also provides for payment of the premium.  The judge held that it was the latter.  In our judgment he was right so to construe the clause.  There are two strong indications in the language of the clause which support the judge’s construction.  The first is the use of the word ‘payable’ and not ‘paid’.  The word ‘payable’ naturally refers to the moment when the duty to pay arises.  Thus the premium was not payable when the contract was made but ‘on cash basis to London Underwriters within 90 days of attachment’.  
26.	We do not see how the premium can be both payable when the contract was made and ‘within 90 days of attachment’.  So far as the time for payment is concerned, the use of the word ‘payable’ naturally means that the obligation to pay the premium was only to pay before the expiry of 90 days from attachment.  Whose obligation was it?  As already indicated, the effect of section 53(1) of the 1906 Act, unless otherwise agreed (which is not suggested here), is that that obligation is the obligation of the broker and not the assured.  It follows that Heath Lambert could not be in breach of its obligation to pay the premium until the 90 days expired.  
27.	The judge contrasted this clause with that in the Kadirga case, where the warranty was that each instalment of premium would be “paid to underwriters within 75 days of due date” and the due dates were separately set out.  We agree with the judge that a warranty as to when premium will in fact be paid is different from a warranty as to when premium is payable.  For the reasons given above, a warranty as to when premium will be paid suggests that the premium was payable earlier, whereas a warranty as to when it is payable indicates when the obligation to pay arises.       
28.	The second indication is the use of the words ‘in cash’.  In the absence of a clause requiring payment in cash, the obligation of the broker to pay the premium to the underwriter would be discharged in the ordinary way, which (as we understand it is common ground) in most cases would be in account between them.  This clause makes it clear that the premium is payable in cash, not in any other way.  In our view the natural meaning of the clause is that the broker was agreeing to pay the premium in cash within the 90 days.  Purported payment otherwise than in cash would not satisfy the clause.
29.	As Mr Millett recognised in argument, the appellants’ case has to be that there was an obligation to pay the premium when the contract was made which would be satisfied by a payment by the broker to the underwriter otherwise than in cash but that, if the premium was not further paid in cash within 90 days of attachment, there would be a breach of warranty which, in the absence of waiver or affirmation (or the like), would discharge the underwriters from liability under the policy.  That seems to us to make no commercial sense and to be inconsistent with the natural meaning of the clause.  We can see no reason why the parties should agree that the premium should be paid, as it were, twice in this way.
30.	We accept Mr Onions’ submission on behalf of Heath Lambert that the natural meaning of the clause in its context is to give 90 days’ credit to the broker in respect of the payment of premium.  No premium is due immediately but is payable within 90 days of inception and in cash failing which there is a breach of warranty.  Mr Geary submitted that the clause is not concerned with the payment of premium by the broker to the underwriter, or at least not with the deemed payment of premium at the outset under the fiction described above, but with the repayment in cash of the deemed loan by the underwriter to the broker.  He submitted that that cash obligation lay only on the broker and not on the assured, whereas the assured warranted to the underwriters that if the broker’s cash obligation was not discharged as stipulated underwriters would come off risk.
31.	That is an ingenious argument but we are unable to accept it.  The time when premium is payable under the policy depends upon its true construction.  Here, for the reasons we have given, we think that on the true construction of the clause premium was not payable when the contract was made but later.  The broker cannot be deemed to have paid the premium until it was due.  We accept Mr Onions’ submission that there is no indication in the clause that the credit was granted to the broker alone and not also to the assured for the repayment of the premium.  As Mr Onions put it, how would premium remain payable if it was deemed to have been paid?  
32.	We further accept Mr Onions’ submission that the provision that premium is payable on a cash basis displaces the fiction that the broker is deemed to have paid the premium when due.  It seems to us that the combined effect of the clause and section 53 of the 1906 Act is that premium is payable in cash by the broker to the underwriters within 90 days of attachment and that the assured are liable to the broker on the same basis and that there is no room for a fiction that the broker paid the underwriters in cash when it did not.
33.	It was submitted on behalf of the appellants that the judge’s construction of the clause is uncommercial.  However, we do not agree.  On his construction the underwriter provided the broker with credit and took the risk of his insolvency in the 90 days, but that is the effect of any provision of credit.  There was nothing in the contract to prevent the broker from seeking payment from SCORT or Banesco immediately in order to put itself in funds to pay the premium in cash before the expiry of the 90 days.  Indeed debit notes were sent out within that period.  It was suggested that the debit notes somehow supported the appellants’ case on the basis that Heath Lambert would otherwise be seeking payment of the premium before it was due.  However, the sending out of debit notes is equally consistent with Heath Lambert seeking payment within the 90 days in order to ensure that the underwriters were paid in time in order both to discharge its own obligations to the underwriters and to avoid a breach of warranty.  It was in the appellants’ interest to ensure that there was payment in time in order to put Heath Lambert in funds to pay the underwriters and avoid a breach of warranty and also to avoid the risk of Heath Lambert exercising its rights under the broker’s cancellation clause.
34.	If the assured were to become insolvent the broker would be in difficulty, but we see nothing odd about that.  The assured was Heath Lambert’s client and it was for Heath Lambert to decide what risks to take.  If the terms of the policy involved some risk to the broker, it was a risk it chose to take.
35.	We should stress that in reaching these conclusions we are not seeking to resolve all the questions which can arise in a case of this kind.  All depends upon the terms of the agreements between the three parties, namely the assured, the broker and the underwriters.  Thus there may be agreements between the assured and the broker and/or between the broker and the underwriters and/or between the assured and the underwriters which may affect the position.  Here, as already stated, no-one suggests that there are any such agreements save as expressed in the policy.
36.	As we see it, the policy works in this way in the light of section 53(1) of the 1906 Act.  Heath Lambert owed a duty to the underwriters to pay the premium in cash within 90 days of attachment of the risk.  Failure to pay would put the assured in breach of warranty. There is scope for argument as to when the premium became due from the assured to Heath Lambert.  It appears to us that, if Heath Lambert had in fact paid the premium to the underwriters in cash within the 90 days, it would have been entitled to be indemnified by Banesco or SCORT.  Having paid the premium (as Parke J put it) for the assured, Banesco or SCORT would become liable to indemnify Heath Lambert, at any rate on receiving notice of payment.  If the premium was not paid to Heath Lambert in those circumstances, it could activate the brokers cancellation clause.
37.	In the present case Heath Lambert did not pay the premium before the expiry of the 90 days.  The judge held that the effect of the clause was that it was the obligation of Banesco or SCORT to put Heath Lambert in funds in time to pay the premium in cash to the underwriters within the 90 days but that in these days of electronic bank transfers that would be a very short time before the premium was due to underwriters.  We see no reason to disagree with that conclusion.  The critical point for present purposes is that Heath Lambert’s cause of action did not accrue on or before 23 July 1996, which was only some 20 days or so after the extension was agreed, so that it did not accrue more than six years before the claim form was issued on 23 July 2002.  It follows that Heath Lambert’s claim for premium in respect of the extension was not time barred.            
38.	Finally we should add that we do not think that the combined effect of the term “all clauses, terms and conditions as original” and Article 3 of the underlying insurance leads to any different conclusion because the parties to the reinsurance made a specific agreement as to the payment of premium. 
CONCLUSION
39.	For these reasons we have reached the conclusion that the judge’s construction of the reinsurance contract was correct.  The premium in respect of the extension from July to December 1996 was not payable more than six years before the action was commenced on 23 July 2002 because it was payable within 90 days of 2 July 1996 so that no writ could have been issued by the underwriters against Heath Lambert or by Heath Lambert against Banesco or SCORT before 23 July 1996.  It follows that the judge was right to hold that these claims were plainly not time barred and it further follows that the appeals must be dismissed.    
Order: Appeals dismissed and the fist Appellant to pay 50% of Respondents costs of appeals second Appellant to pay remaining 50 % of Respondents costs of appeals, and subject to a detailed assessment. Permission to appeal was refused.
(Order does not form part of the approved judgment)