UK: Commercial Court Considers Brokers’ Duties, Limitation and Recoverability of Funds and Investment Return
In Equitas Limited v Walsham Brothers & Company Limited  EWHC 3264 (Comm), Equitas claimed that the defendant broker, Walsham, received substantial sums (claims on outwards policies and premiums on inwards policies) which it should have remitted to the syndicates (or, after an assignment to Equitas in 1996, to Equitas). As Walsham had not remitted the funds, Equitas had lost substantial investment income. Walsham’s defence was that, although it had this duty to remit (but had not failed to so, putting Equitas to proof), any claim by Equitas was now time barred.
The Commercial Court considered the nature of brokers’ duties in relation to reinsurance policies. Among other things, it found that Walsham owed a duty to remit funds to the syndicates (on both inwards (in respect of premium) and outwards (in respect of claims) reinsurance policies) and after the assignment, to Equitas. Further, after the assignment, this duty was owed to Equitas directly, not only as an assignee.
The Commercial Court found that the duty to remit funds was breached afresh each day funds were not remitted. Therefore, Equitas could recover damages in respect of the breaches of duty in the six years prior to the commencement of proceedings. However, this did not extend to breaches committed any earlier than that unless Equitas could establish that it or the syndicates did not know of the facts relevant to a cause of action against Walsham or that there had been deliberate concealment by Walsham. This would suspend the running of the limitation period (this issue was held over for a later hearing).
The Commercial Court noted that damages were in principle recoverable for breach of duty to remit funds, subject to remoteness and mitigation. The Court noted that ordinarily this would be interest at the market rate at the time. It also noted that compound interest was the only basis on which money can be borrowed commercially. Subject to the ultimate conclusion on the limitation issue (see above), the Court awarded interest for the period up to the assignment (1996) at a rate of LIBOR plus 1% with appropriate rests (to be determined in the absence of agreement but which the court suggested should be quarterly in line with the practice in London arbitration).
As regards the period after the assignment, the Commercial Court noted that Walsham owed a duty to remit funds to Equitas directly. Therefore, Equitas’s claim for investment return was not confined to that of an assignee. The Court found that, subject to limitation, Equitas was entitled to recover at the rate of return achieved on its investment funds during the period after the assignment.
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