The recent judgment in Equitas v Walsham highlights the need for
brokers to maintain careful records of payments and receipts.
In 2005 Equitas began a ‘cash flushing
project’ to identify unremitted receipts. This resulted
in a series of payments from Walsham (the “Broker”) to
Equitas. However, the Broker believed that credit should be
given for large historical overpayments in favour of syndicates and
Equitas continued to make further claims. This eventually
resulted in the issuing of proceedings for unremitted receipts and
lost investment returns in 2011.
Equitas was set up in 1996 as part of a settlement agreement aiming
to bring an end to extensive litigation resulting from significant
Market turmoil in the 1990s. As such, it was obliged to
reinsure 100% of syndicates’ non-life liabilities for the
relevant period and in return took an assignment of all of the
syndicates’ rights in relation to that business. Its
claim was founded on that assignment.
Between the creation of Equitas and the commencement of the cash
flushing project, there were two notable events. In 2002
Equitas’ solicitors sent a letter to the Broker, which the
Broker signed and returned, confirming that it was under a
continuing duty to pay remittances and that all identifiable
balances had been paid. Following that, in 2003 the
Broker’s role as broker to the syndicates was effectively
ended by a broker transfer agreement.
This hearing was not a full trial, but rather produced rulings on
several principles. The main ones of interest here
1) The duties owed relating to remittance of receipts.
2) Calculation and proof of lost investment income.
The Broker was found to be in breach of duty in
relation to unpaid funds and, although the judge did not wish to
set general rules on the matter, he stated that in his opinion the
duty to remit funds to the client was an absolute one and not just
one of due diligence. Although the obligation to remit funds
would generally only require a one-off performance, this would
depend on the facts of a particular case. Here the features
in a broker’s ongoing relationship with syndicates meant that
a continuing obligation would be created. This impacted on
limitation, as a continuing obligation would arise each day,
effectively resetting the limitation period.
The Broker’s signature of Equitas’ solicitors’
letter, also acted to waive limitation for the unpaid sums.
However, neither the existing continuing obligation nor the letter
were sufficient to waive limitation on claims for damages for
investment returns on the unpaid sums (although if the letter had
explicitly included them it would have been sufficient). On
the other hand, the broker transfer agreement was not sufficient to
end the Broker’s liability.
The judge also found that there would be a presumption that awards
for investment income would be based on the cost of borrowing the
money owed. Although this could be rebutted, the burden of
proof would clearly be on the Broker to demonstrate that such an
award should not be made (or Equitas to show that an award should
be higher). The judge stated that, in a commercial context,
no specific evidence would be required for a claimant to
demonstrate a loss of investment returns along these lines.
In this particular case the general commercial weight placed by
syndicates on prompt payment by brokers was sufficient
Although the judgment was only concerned with
certain principles applicable the matters in dispute, it
highlighted some useful points.
Brokers should be aware of the likelihood that their obligation to
remit receipts is ongoing in nature and so any limitation defence
is likely to face substantial difficulties. However, they can
take some comfort from the fact that this obligation is only
applicable to the duty to remit and so claims for investment
returns will still be subject to the standard limitation
periods. It also highlights the danger that acknowledging a
potential debt, as the Broker did when it signed the 2002 letter,
can restart a limitation period.
The ruling on claims for investment income has a more general
applicability and potential defendants should be aware of the
possibility that the courts will hold that there is a presumption
that claimants will be able to claim for the cost of borrowing any
To read the full judgment please click here