Case No: 2000 Folio 249
[2003] EWHC 1636 (COMM)
 
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 8 July 2003

Before : 

THE HONOURABLE MR JUSTICE THOMAS

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Between :

	SPHERE DRAKE INSURANCE LIMITED
(FORMERLY (1) SPHERE DRAKE INSURANCE PLC
(2) ODYSSEY RE (LONDON) LIMITED	

Claimant	
	- and -		
	(1) EURO INTERNATIONAL UNDERWRITING LIMITED
(2) JOHN HUBERT WHITCOMBE
(3) CHRISTOPHER REGINALD COLIN HENTON
(4) STIRLING COOKE BROWN REINSURANCE BROKERS LIMITED
(5) STIRLING COOKE BROWN INSURANCE BROKERS LIMITED
(6) NICHOLAS BROWN
(7) JEFFREY RONALD BUTLER	

Defendants	
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Jonathan Hirst QC, Andrew Lydiard QC and Colin West (instructed by Clyde & Co) for the Claimants
David Railton QC, Raymond Cox QC and Marcus Smith (instructed by Richards Butler) for the Fourth to Seventh Defendants
The Second and Third Defendants appeared in person and represented the First Defendant
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Approved Judgment: Part III

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
.............................
Mr Justice Thomas

INDEX TO PART III

Paragraph No.

Introduction	1
(1)	Early 1997	4
D1-3:  Clarendon	4
D4-6: Homestead	7
D7-10: CIRCL	11
D11: Clarendon/National Bankers	15
D12-14: Feasey Syndicate 95	18
D15: Reliastar Life	22
D16-17: Zurich Re	25
D18-19: Realm National	31
(2)	May – December 1997	35
D20: CIGNA Re USA	36
D21: Kuwait Airways	39
D22: John Hancock (per Hackett)	43
D23: Lincoln National	47
D24: Legion	51
D25-26: Credit General	53
D27-28: New Cap Re	58
D74: Phoenix	60
D29: McCall	63
D65: Stuchberry	67
D30: Kombit/IEPD Limited	70
D31: Bankers Insurance Group	73
D71: Krassimir Balakov	76
D32: Indonesia Diners Club	78
D33: Antarctic Expedition	81
D34: Enviroserve South Africa	85
D35: Isrotel Hotels	88
D36: PT Diners Jaya Indonesia	91
D37: CIGNA (Europe)	95
D38-40: Realm National	100
D41: La Previsora	103
D42: Standard Bank of South Africa and Diners Club South Africa	107
D43: Hong Leong Assurance	111
D44: BDNI Assuransi	114
D68-70: Keyport Life	117
D73: Lugt Sobbe	120
(3)	New Year's Eve 1997 and thereafter	124
D45-47: Catlin Syndicate 1003	124
D48-50: First Allmerica per SRRF	127
D51: Clarendon/National Bankers	130
D52-56: United Pacific per RRM	133
D57: Lincoln National	138
D58: SCB PA and Health Carveout Lineslip	140
D59: John Hancock	143
D60: Clarendon	145
D61: Overseas Partners Re	149
D62: Homestead	152
D63: All American per WEB	156
D64: All American per WEB	157
D72: Jackson Syndicate 779	161
(4)	Contracts difficult to date	165
D66: Caisse Centrale	165
D67: Lloyd Thompson	167
(5)	Conclusion on the Declinatures	168

Mr Justice Thomas: 
Introduction
1.	This Part deals with contracts that were shown to EIU which were identified by EIU as risks that they had declined.
2.	It was Mr Henton’s evidence that from the time at which he had commenced underwriting under the binder he had taken copies of risks shown to him but which he had declined, so that he could build up an information bank about the market. He would be able to use the information so that he had something with which to compare risks presented to him by brokers.
3.	Just as in the case of the programmes where the programmes were on occasions referred to as P with a number after it, the declinatures are referred to in this appendix as D with a number after it. Consideration of these risks can conveniently be made by examining them in relation to three periods – early 1997, May to December 1997 and New Year’s Eve 1997 and thereafter.
(1)	Early 1997
D1-3:  Clarendon
4.	On 27 January 1997 (the day on which Mr Henton wrote the first programmes), Mr Henton was shown by Mr Butler three XL PA reinsurances of Clarendon, the lowest layer being $400,000 xs $100,000.   
5.	EIU pleaded that the reason for the declinature was rate reduction; Mr Henton’s evidence was that this had been written on the slip as the reason for the declinature, but he could not recall when that was written onto the slip. SD’s case was that the stated reason was meaningless in view of the programmes that EIU had written, for example, Programmes 1 and 2. Further there was no reduction on the rates in D2 and D3 as the rates of 4.705% for D2 and 2.196% for D3 were the same as for those in 1996; SD also submitted that D2 and D3 were written by EIU in 1998 despite the lack of adequate information. 
6.	The evidence was that Mr Henton offered to write the risks but that they were then not taken up because SD were not acceptable security to Clarendon. Mr Henton accepted that this was the case.
D4-6: Homestead
7.	On 27 January 1997, Mr Henton was shown by Mr Butler three XL reinsurances of Homestead’s WC account which he did not write; these were very high layers with the lowest layer being $5m xs $5m.
8.	EIU stated in the schedule that the reason for the declinature was that the lines were too small, as that had been noted on the slip. Mr Henton’s evidence was that because of the high level of the cover, even a small line would have produced a lot of aggregate on a per person basis (which SCB submitted would have to be taken into account by Mr Henton in his vertical protections), and that the premium on these reinsurances was small; he accepted that he wrote programmes later with very high limits on high layers.
9.	SD contended that it was difficult to see why these reinsurances of Homestead would have been declined in light of the acceptance, by EIU, of programmes like Programme 1 and Programme 2; it was submitted that the real reason for the declinature was that Mr Henton was writing for income and that these reinsurances would not have produced much income. 
10.	I am sure that the reason he did not write this was that it would not have generated enough premium income for EIU as there was no other credible reason. He was at that time not interested in writing business that did not generate premium income for EIU as he was writing for income. 
D7-10: CIRCL
11.	On 27 January 1997 (or possibly after), Mr Henton was offered by SCB four XL reinsurances of CIRCL in respect of bodily injury; the lowest layer was $750,000 xs $250,000; these had already been fully placed with John Hancock. Mr Henton could not recall if he was offered the risk on 27 January 1997; it could have been at a later date.
12.	The reason given by EIU in their schedule as to their declining to write these risks was that the rate was too cheap; he had written at the time “declined”. When cross-examined on behalf of SCB, it was his evidence that he could not recall anymore; he speculated about various possibilities, including that he might have taken it away to consider it further; he could not explain the note on one of the documents “JW did not like”.  Mr Henton’s evidence, when cross-examined on behalf of SD, was that although the rate of 11% was in itself not too cheap, the premium income that would have been generated would have been too low to justify writing on a net basis; he accepted that it was not entirely accurate to have stated that the rate on these risks were too cheap.
13.	SD submitted that Mr Henton’s evidence as to the reason for the declinature was consistent with their submission that the true reason that these risks were not accepted was because the premium income generated would not have been much. Further it was contended that EIU’s stated reason for the declinature, in that the rate was too cheap, was meaningless, in view of the acceptance of programmes like Programme 1 and Programme 2 by EIU.
14.	I am sure that Mr Henton declined these contracts for the same reason as he declined  D4-6 as there was not enough premium income for EIU.
D11: Clarendon/National Bankers
15.	On 27 January 1997, Mr Henton was offered by SCB one XL reinsurance of WC business for Clarendon/National Bankers for  $500,000 xs $200,000 in the aggregate for a premium of $140,000; it had been written 100% by JEH Re on 27 November 1996 and cover noted on 28 January 1997.
16.	EIU pleaded that the reason for declining the contract was that the aggregate was too low; by that Mr Henton meant that $200,000 was a low aggregate excess point on a $3.5m book of business. It was Mr Henton’s explanation that the slip provided that only losses of $10,000 any one occurrence could be brought into account; that would have made the risk a bad net write as each loss would have to be taken gross. Indeed EIU would have been unreinsured for this until they had the aggregate stop loss protection. Mr Henton later discovered that SD were unacceptable security to Clarendon/National Bankers.
17.	This was a contract considered at the first meeting; it appears that Mr Henton declined this was as there was no aggregate stop loss protection in place.
D12-14: Feasey Syndicate 957
18.	Mr Henton’s initial evidence was that EIU were offered three XL reinsurances of Feasey Syndicate 957’s accident and health business; these were low layers with the lowest being $40,000 xs $10,000. This was Mr Cackett’s old syndicate; he had written, as reinsurer of his old syndicate, 100% of these contracts at Centaur on 2 January 1997 and it had been cover noted on 20 January 1997. 
19.	The reinsurances contained a variable premium income provision under which the premium was adjusted in the light of the losses. It was Mr Henton’s evidence that he was not familiar with the concept of variable premiums and had a vague recollection of discussing it with Mr Whitcombe and SCB. Mr Henton could not recall when he was shown this; his evidence was that he may have discussed variable premiums with Mr Butler and as Mr Butler had an example of such a contract, he gave him  a copy.
20.	It was SCB’s submission that the reason given by EIU was probably a bad reason for declining the contracts as the “swing burn” nature of the variable premium would have ensured that the premium payable would have been adjusted upwards in line with losses; nevertheless this showed Mr Henton taking a line that was independent of the SCB Defendants. SD pointed out that the cover note of these reinsurances pre-dated the inception of the binder.
21.	In the light of the fact that this had been cover noted on 20 January 1997, it is most unlikely that this was offered to Mr Henton. The very high probability is that this was provided by Mr Butler to Mr Henton as an example of a variable premium contract which Mr Henton kept in his file along with the declinatures. It was not a declinature. 
D15: Reliastar Life
22.	On 27 January 1997, Mr Henton declined to write one XL PA reinsurance of Reliastar Life for the layer $250,000 xs $250,000.
23.	EIU pleaded that the reason for this was because the business that was to be covered under the contract included medical expenses. Mr Henton’s evidence was that the writing of medical expenses business was excluded by the terms of the binder.
24.	This contract was declined because EIU was not authorised to write it.
D16-17: Zurich Re
25.	EIU’s case was that they were offered between 27 and 31 January 1997 two XL WC/health reinsurances of Zurich Re with the lower layer being $125,000 xs $125,000; this appeared to be Section A WC carveout.
26.	EIU’s stated reason for the declinature was that the reinsurances were too cheap; this had been written on the slip but Mr Henton could not recall when.
27.	It was Mr Henton’s explanation that the premium income that was to be received by EIU for writing the risks were too low for the exposure that they would have received. There was also a note which referred to the Californian exposure. Mr Henton was not sure about that and was unable to recall the discussion.
28.	On 27 January 1997, this had been accepted 100% by Lincoln National under the Big Ben facility and the programme was cover noted on 31 January 1997. As this line would be reinsured by SD under Programme 4, Mr Henton accepted that he would be reinsuring it for an even lower premium than if he had written a line, but maintained that he would have had the benefit of the retention by Lincoln National.
29.	It was SCB’s case that this showed Mr Henton as not being prepared to write everything that had been presented to him by SCB.  
30.	I reject as highly unlikely, the explanation that the rate was too cheap; Mr Bird had written the risk 100% and it is highly unlikely that he would have written it if it was too cheap. The probability is that this was never offered to Mr Henton, given the timing of Mr Bird’s acceptance. Mr Henton clearly cannot have rejected it because of the Californian content, in view of his decision to write Programme 34 in 1998 reinsuring Unicare, a Californian writer of WC business, on a very large contract. If he had declined it for that reason in 1997, then the acceptance of the Unicare programme in 1998 would demonstrate the degree to which he had by then become subservient to the interests of SCB.
D18-19: Realm National
31.	Sometime in early 1997, Mr Henton was offered by SCB two XL reinsurances of Realm National; one was for Alternative Risk Transfer (ART) XL cover for a layer $250,000 xs $10,000 and one for Business Owners Programme (BOP) XL cover for a similar layer. These were covers for SCB schemes. Lines had been put down on 6 January 1997 by Mr Billyard for 100% and the contracts were cover noted on 21 April 1997; Lincoln National and Clarendon (per Raydon) subscribed, in addition to the line put down by Mr Billyard.
32.	EIU pleaded that they declined the risks because the deductions were too high; Mr Henton had written “too high” on the slip against the paragraph which stated:
“Estimate Net Written Premium Income hereon US$1,000,000 (being gross written premium income less 32.5% acquisition costs).”
He had also circled 32.5%. In cross-examination on behalf of SCB, Mr Henton’s evidence was that the deductions on the ART contract was 32.5%; as the brokers wanted brokerage of 15%, the deductions were too high to be within what was permitted under the binder. SD contended that this could not be the reason as the deductions were as high as those on other contracts; Mr Henton was referred in his cross-examination to the deductions on Programme 17 (Clarendon Temps) which are set out at paragraph 459 of Part II; under that scheme, the deductions totalled 37.5% plus tax whereas on these contracts they were 32.5%. Mr Henton was unable to explain the reason he thought that the deductions were too high. 
33.	It was suggested by SD that Mr Henton had retrospectively inserted the words “too high” on the slips as a means of showing that EIU had written the account with great care. Mr Henton denied that this was the case. 
34.	Mr Henton’s evidence was contradictory; if his evidence in cross-examination by SCB was correct, then his explanation was that he had no authority to write this business. However, if that was not correct and the deductions were to be treated as on other contracts, then the explanation that the deductions were too high was untruthful. In the light of the way in which commissions were taken on other programmes, the explanation given was clearly untruthful. However, whichever of these explanations was correct, these contracts lend no support to EIU’s case.
(2)	May – December 1997
35.	This was the period in which EIU were not writing business.
D20: CIGNA Re USA
36.	On 27 May 1997, Mr Henton was offered by JP Woods/Aon, an XL reinsurance of CIGNA Re USA. This was a per risk XL for the layer $1m xs $1m. 
37.	It was pleaded by EIU that the reason for the declinature was because CIGNA Re USA were touting for cheap quotes for the reinsurance; Mr Henton’s evidence was that CIGNA Re USA were requesting quotes from a number of reinsurers in the market and that that was something that he had not wanted to be involved in.
38.	In fact, the XL was an RAD contract under which they were able to bind treaties with a period of up to 24 months and facultative business with a period of up to 36 months. Mr Henton accepted that he did not have the authority to accept a contract with those periods. I am sure that this was reason and Mr Henton invented the reason pleaded to give a semblance that he was motivated in considering business by considerations that were proper.
D21: Kuwait Airways
39.	On 19 June 1997, Mr Henton was offered by Buckenham a reinsurance of Gulf Insurance’s insurance of Kuwait Airways.
40.	It was EIU’s plea that the reason for the declinature of this risk was because the risk had been placed elsewhere. Mr Henton rejected the suggestion that he had declined to write the contract because it was not SCB-produced; his evidence was that the placing broker on this contract (Buckenham) had been introduced to EIU by a contact of Mr Zuberi’s and EIU had been keen to expand their business with brokers other than SCB. There were calculations on the file which, after initial uncertainty, he accepted were for a quote. 
41.	Mr Henton accepted the suggestion that this risk was different from the US WC business that EIU were accustomed to writing; it was more akin to a traditional direct PA risk as it covered fixed benefits.
42.	It seems clear that Mr Henton had calculated a quote for this risk and that the risk was probably eventually placed elsewhere. The fact that he worked out a quote is a feature that distinguishes this contract from almost all the business he wrote for SCB as he wrote almost all that business at the rate offered to him by SCB.
D22: John Hancock (per Hackett)
43.	On 18 July 1997, Mr Henton was offered by WFD an aggregate stop loss cover of John Hancock (per Hackett).
44.	EIU’s pleaded reason for the declinature was that there was insufficient information on the contract. In his first witness statement, Mr Henton explained that the pleaded reason was wrong and that the real reason the contract was declined was probably because it was outside the scope of the binder (as it covered business written during a 36 month period commencing 1 January 1994).
45.	Mr Henton’s evidence was that he was interested in writing this contract; he had carried out an analysis and done calculations; he would have been prepared to take it to Mr Broad for a special acceptance (as the period clause of 36 months during the period commencing 1 January 1994 precluded acceptance by EIU without Mr Broad’s specific approval). However, Mr Whitcombe told Mr Henton that he was not interested in writing the contract; one of the documents contained the remark in Mr Whitcombe’s hand: “Chris, not interested”.
46.	I reject as untruthful, Mr Henton’s evidence that he would have taken the contract to Mr Broad for his specific approval; he would not have done so for similar reasons as those in respect of Programme 16 (Unum). 
D23: Lincoln National
47.	Sometime before 5 August 1997, Mr Henton was offered by SCB an XL reinsurance of Lincoln National’s PA direct business for the layer $10m xs $5m for the period 1 January 1997. It is not clear when the offer was made but the contract was cover noted on 5 August 1997.
48.	EIU’s stated reason for the declinature was that there were unlimited reinstatements at that level; that was noted in Mr Henton’s hand on the file. Mr Henton’s evidence was that although there were five reinstatements at 100% additional premium, there were thereafter unlimited reinstatements at no additional premium. 
49.	Mr Henton rejected SD’s suggestion that the reason for the declinature was only noted on the slip sometime after the risk had been declined; he rejected the suggestion that the real reason for declining this risk was the low level of premium income on the contract; he also rejected the suggestion that the reason for the declinature was due to the lack of information that was provided – the information he was given was of the sort that he would have expected to be provided with.
50.	In view of the uncertainty of the timing of the presentation of the risk and the circumstances surrounding its presentation, I cannot reach any conclusion as to why the risk was declined. 
D24: Legion
51.	Sometime after 6 August 1997, Mr Henton was offered by brokers, GHC, a participation in Legion’s QS of group health business that had been written by Bankers Life.
52.	It was EIU’s plea that this was declined because the underlying business of the QS (medical health insurance) was outside the scope of the binding authority. That was clearly correct.
D25-26: Credit General
53.	Sometime between 3 June 1997 and 22 August 1997, Mr Henton was offered two XL reinsurances of Credit General’s WC business; the layers were xs $2m. 
54.	The pleaded reason for the declinature was that the contracts were too cheap; Mr Henton had recorded this. SCB had noted on a document, the reason as being that the line was too small and therefore not worth writing. Mr Henton considered that this meant the same thing. Mr Henton was unable to explain why a rate of 1.5% for the layer of $3m xs $2m on the Credit General programme was too cheap but a rate of 1% for a similar layer on Programme 4 was not.
55.	Mr Henton rejected SD’s submission that the reason for the declinature had not been recorded contemporaneously; he also did not accept that EIU had refused these contracts because Reliastar had already done so. SD further submitted that these contracts had been presented at a time when EIU had ceased underwriting, although Mr Henton explained that they had retained the option to use Mr Broad’s reinsurance notwithstanding.
56.	SCB suggested that Mr Henton might have declined these contracts on the ground that as they were high level covers, Mr Henton would have been assuming a great deal of aggregate (which would have had to be taken into account in his vertical protections) for very little premium.
57.	On the limited evidence, I find that this was declined because, for the reasons explained in Part I, EIU were not writing this type of business at this time; in any event the premium was too small.
D27-28: New Cap Re
58.	Sometime between 19 June 1997 and 22 September 1997, Mr Henton was offered by SCB a facultative XL reinsurance of New Cap Re for a layer $4m xs $1m; he was offered a second layer for $5m xs $5m sometime between 27 August 1997 and 22 September 1997.
59.	It was EIU’s stated reason that the risks were declined because the underlying business included three year contracts, which was outside the scope of the binding authority. That was clearly correct.
D74: Phoenix
60.	Sometime on or about 12 August 1997, Mr Henton was presented with a reinsurance of Phoenix that was probably broked by WFD. This risk was not identified as a declinature in the schedule to EIU’s Defence; it also appears to have been nothing more than an enquiry which was not pursued by the broker as no slip could be found on file.
61.	There were handwritten notes which appeared to suggest that Mr Henton had been prepared to offer a quote. Mr Henton thought he had declined it.
62.	There was insufficient evidence on which I could reach a conclusion.
D29: McCall
63.	Sometime in October 1997, Mr Henton was offered by the McCall group a reinsurance of Ian McCall Aviation PA lineslip for microlights (as referred to at paragraph 1030 of Part I).
64.	The pleaded reason for the declinature was that the reinsurance was too cheap. Although EIU were prepared to write the risk 100%, Mr Henton’s evidence was that Mr Broad was not prepared to accept it as it was too cheap.
65.	The relevance of this contract is that it was declined by Mr Broad.
66.	There was also discussion with McCall about a proposal for writing a line on their light aviation account, but Mr Henton’s evidence was that there was no firm proposal for that.
D65: Stuchberry
67.	Sometime between in October 1997, Mr Henton was offered by Monument a reinsurance of Stuchberry (as referred to at paragraph 1030 of Part I). There was a TBE (to be entered) entry for this risk in EIU’s TBE and NTU (not taken up) bordereau for business written as at 31 October 1997.
68.	Mr Henton’s evidence was that although he had wanted to write the risk, it had been rejected by Mr Broad when it was put to him for a special acceptance. There were calculations in the file. According to Mr Henton, Mr Broad did not agree with the rates that had been suggested by the broker; he had declined the risk, particularly because it would have guaranteed the assured a profit.
69.	The relevance of this risk is that it was declined by Mr Broad
D30: Kombit/IEPD Limited
70.	On 30 September 1997, Mr Henton was offered by CE Heath a reinsurance of Kombit/IEPD Ltd. in respect of the handling of ammunition.
71.	It was EIU’s plea that this was a declinature and that the contract had been declined because insufficient information about the contract had been provided. Mr Henton’s explanation was that he had requested further information but that this had not been provided.  
72.	This was in fact not a declinature. The brokers never came back with the further information.
D31: Bankers Insurance Group 
73.	Sometime in October 1997 or during 1998, Mr Henton was approached by Mr Johnson of WFD about a reinsurance of Bankers Insurance Group (of which American Reliable were a part) in respect of two travel schemes. This was traditional PA business. However, although there were notes recording a detailed discussion with Mr Johnson, it appears to have been nothing more than an enquiry which was not pursued by the broker.
74.	This was pleaded by EIU as a declinature with the stated reason for the declinature being that there was insufficient information on the contracts. It was Mr Henton’s evidence that he had requested for further information but thought that it had never been given. 
75.	This was in fact not a declinature, but an enquiry that had gone no further.
D71: Krassimir Balakov
76.	Sometime on or about 14 October 1997, Mr Henton was asked by JIB to participate in a PA contract in respect of Krassimir Balakov.
77.	The period of the risk was pleaded as the reason for the declinature. According to Mr Henton, he had declined to write the contract as its maximum period was longer than 18 months and was therefore outside the scope of the binder. This was clearly correct.
D32: Indonesia Diners Club
78.	On 30 October 1997, Mr Henton was approached by Windsor about a reinsurance of Indonesia Diners Club. This risk was not identified as a declinature in the schedule to the EIU Defence; this appears to have been nothing more than an enquiry that was not pursued by the broker.
79.	According to Mr Henton, there was some discussion of the risk with Mr Everett, who was then employed by the broker, Windsor. However, the risk was not taken any further when Mr Everett left Windsor. Mr Henton added that the risk was something that EIU had intended to write at the time.
80.	This was in fact not a declinature, but an enquiry that had gone no further.
D33: Antarctic Expedition
81.	On 30 October 1997, Buckenham approached Mr Henton about a reinsurance in respect of an expedition from Peru to the Antarctic. 
82.	This was pleaded as a declinature and the reason for the declinature was that there was not enough information. Mr Henton’s evidence in his statement was that much of the reinsurance offered by Buckenham was too risky and its rate was too low. 
83.	Mr Henton’s evidence was that he was asked to quote a premium, but after he had asked a number of questions, the broker from Buckenham did not provide the answers and took the business elsewhere. He needed that information as this was traditional PA business; if the information had been satisfactory, he might have written it.
84.	This was in fact not a declinature as the brokers never returned to put the risk to him.
D34: Enviroserve South Africa
85.	On 30 October 1997, Mr Henton was approached by Buckenham in respect of  a reinsurance of Enviroserve South Africa’s group PA. 
86.	This was pleaded as a declinature and the reason pleaded for the declinature was that there was not enough information. Mr Henton’s evidence was that he had asked some questions about the business but that no answers had been provided; he had worked out some rates and had been willing to quote. He had written “Aids excl”. Mr Henton could not recall if the risk had not been written because the broker did not revert, or that the broker did but that he had declined to write the business. SD suggested that it was the former.
87.	On the evidence this could have been a declinature or an enquiry that went no further. It was not possible on the evidence to reach a conclusion.
D35: Isrotel Hotels
88.	On 30 October 1997, Buckenham approached Mr Henton about Isrotel Hotels’s sickness fees insurance.
89.	EIU’s plea was that the risk had been declined because of “sickness”. It was Mr Henton’s explanation that EIU had not written the contract because the payment under it was due to sickness. SD suggested that this was not the real reason for the declinature, alternatively that there had not been a declinature at all; Mr Henton, however, was unable to recall the actual reason for the declinature.
90.	On the evidence, I cannot reach draw any conclusion as to this contract.
D36: PT Diners Jaya Indonesia
91.	On 3 November 1997, Buckenham approached Mr Henton to write a contract in respect of PT Diners Jaya Indonesia’s corporate card.
92.	According to the schedule to EIU’s Defence, the risk had been declined because it was too cheap and the terms had changed. Although Mr Henton had quoted for this with the intention of writing it under the binder from SD and the binder which EIU held from Lloyd Thompson, the business was eventually written by someone else. There was also a TBE entry for the risk in EIU’s TBE  and NTU bordereau for business written as at 31 October 1997, indicating that Mr Henton had been prepared to accept the risk up to that date at the very earliest. Mr Henton’s evidence was that he withdrew from the risk because the terms had changed and they must have reduced the premium.
93.	Mr Henton accepted that there was nothing on file to show that he had refused to write the risk because the rates had dropped, but rejected the suggestion that the reason for the declinature was false. 
94.	On the evidence available, I could not reach a firm conclusion as to whether this was a risk Mr Henton had declined because the rate had dropped.
D37: CIGNA (Europe)
95.	On 3 November 1997, Mr Henton was approached by Carpenter Bowring to write one XL reinsurance of CIGNA Europe for a layer £10,000 xs £6667 xs  £20,000 in respect of its travel account.
96.	The stated reason for the declinature was that the rate was too cheap. Mr Henton’s evidence was that he had not been prepared to offer a quote at the price that the broker and CIGNA Europe had wanted; the risk involved exposure to a lot of low level losses and he therefore had to be satisfied that this was a good gross write. He had performed some calculations and the price the broker wanted was too low.
97.	SD suggested that the prudent approach adopted by Mr Henton in making calculations and examining the documents before deciding whether to write this risk was explicable on the ground that this risk had been broked by some broker other than SCB. Mr Henton did not accept this. He had done this as this was business he was intending to write on a gross basis.
98.	SD also submitted that this was another risk about which there was some negotiation but where there had been no actual declinature.
99.	This was a risk declined by Mr Henton because he could not get the rate he wanted on what was traditional PA business being considered in a traditional manner.
D38-40: Realm National 
100.	Sometime between 7 August 1997 and 4 November 1997, Mr Henton was approached by SCB to write three XL reinsurances of Realm National in respect of carveout business for coal mining operations. Two of the contracts were XL with the lower layer being $750,000 xs $250,000 and one contract was an aggregate XL. They had been written 100% by Mr Billyard on 7 August 1997. 
101.	According to the schedule to EIU’s Defence, the risk was declined because it was coal mining business; there was no annotation on the file, save that coal mining was underlined. Mr Henton’s evidence was that coal mining was an area of business that he was not interested in getting involved in. Mr Henton had, however, written in January 1997, risks which had a mining involvement as the statistics for American Reliable noted that its largest loss was from South African mining business (Val Reef). When it was suggested to him that this could not be written because EIU had no reinsurance, his evidence was that he could not recall that being the reason.
102.	This was WC carveout business of an SCB company. I am sure that the reason Mr Henton did not write this risk was because EIU had ceased underwriting for the reasons set out in Part I. I reject as untruthful, the reason that this involved coal mining.
D41: La Previsora
103.	On 26 November 1997, Mr Henton had been approached by Buckenham to write a reinsurance of La Previsora’s group accident and PA account.
104.	It was EIU’s plea that the reinsurance was declined because there was insufficient information on the risk. Mr Henton’s evidence was that he had been prepared to give a quotation subject to further information; that the contract had been declined because it was too risky and was priced at too low a rate. 
105.	There were again detailed notes on the file showing that Mr Henton had made calculations. Mr Henton accepted that there were more notes on other risks that were broked by Buckenham than there were on all the programmes that had been written for SCB; his evidence was that the Buckenham risks covered various types of direct business.
106.	The risk was, however, not actually considered under the binder from SD, but rather under the binder from Lloyd Thompson; the documents on the file made that clear. Mr Henton’s evidence was that it was considered under the other binder because the contract may have been viewed as containing medical expenses. It is clear that it should not have been included on the schedule. 
D42: Standard Bank of South Africa and Diners Club South Africa
107.	On 4 December 1997, Mr Henton was approached by Buckenham to write a reinsurance of Aegis Insurance Co in respect of a master policy for a PA card scheme operated by Standard Bank of South Africa and Diners Club South Africa.
108.	EIU pleaded that the contract was declined and the reason given was that the commission was too high. It was Mr Henton’s evidence that the rate was 37.5% to which had to be added 5%; however, there was a note on file which indicated that although the acquisition costs were too high, the broker had been prepared to change this. 
109.	Moreover, there was a note on the file which recorded that Mr Henton had advised the broker that he was unable to lead.
110.	I am sure that the reason that this did not proceed was the fact that Mr Henton could not lead the risk.
D43: Hong Leong Assurance
111.	On 5 December 1997, Mr Henton was offered by Buckenham a reinsurance of Hong Leong Assurance for a policy that had been written in respect of Tan Sri Lim Goh Tong who was 80. Mr Henton declined the risk.
112.	EIU’s stated reason for the declinature was that the insured individual was too old. 
113.	SD accepted that this was a genuine declinature.
D44: BDNI Assuransi
114.	On 5 December 1997, Mr Henton was offered by Buckenham a contract for BDNI Assuransi in respect of a credit card scheme. 
115.	According to Mr Henton, the risk had been declined because it was too cheap; there was a note on file which appears to suggest he asked the broker for “the same terms”. 
116.	There was otherwise too little information to understand the writing of the risk and in particular whether it was in fact declined. I cannot reach a conclusion.
D68-70: Keyport Life
117.	As set out at paragraphs 1081 and following of Part I, Mr Henton was asked by WFD to write reinsurances of Keyport Life in connection with the proposed exclusive arrangement with WFD. The failure of the arrangements is fully explained in those paragraphs.
118.	However, the failure of the arrangements was identified as a declinature and the reason pleaded by EIU for the declinature was that there was to be “no leading”. A sheet in Mr Henton’s handwriting that was found on file gave the reason as “no leading, no xl on xl”. 
119.	This was not a declinature at all, but the result of the failure of the scheme for an exclusive arrangement with WFD. It is important, however, because the manuscript note on the file did not express the true reason why these contracts had not been carried through. I am sure that in this declinature, the note was added later as an attempt to provide some evidence for the suggestion that the contracts had been declined because EIU were not allowed to lead. Mr Henton’s evidence given on day 50 of the trial in connection with this declinature was a fabrication.
D73: Lugt Sobbe
120.	Sometime in December 1997 or January 1998, Mr Henton was asked by Monument to participate on the Lugt Sobbe Group binding authority on which the lead line had been put down on 16 December 1997.
121.	“Period terms commission” was cited in the schedule to the EIU Defence as the reason for the declinature. Mr Henton’s evidence was that the risk had been declined because its period was for longer than 18 months and was therefore outside the scope of the SD binder; SD also pointed out that EIU were not authorised to sub-delegate their underwriting authority under the binder.
122.	There was also a note on the slip which stated “could not write because a totally Lloyd’s policy”.
123.	The participation on the binding authority was not written because there was no authority to participate.
(3)	New Year’s Eve 1997 and thereafter
D45-47: Catlin Syndicate 1003
124.	On New Year’s Eve 1997, Mr Henton was offered by SCB, WC carveout XL reinsurances of Catlin Syndicate 1003 from 1 January 1998 during the same meeting as when the New Year’s Eve programmes were accepted. 
125.	According to EIU’s pleading, three layers had been written but were not taken up as SD were not considered adequate security; Mr Henton’s oral evidence was that he had written either one or some of the layers of this reinsurance, but that what was written had not been taken up because SD were unacceptable security; he had declined the remaining layers.
126.	It is clear that at least one layer was written but not taken up because of SD’s security; there was only Mr Henton’s evidence that he declined the other layers and I do not accept it.
D48-50: First Allmerica per SRRF
127.	On the same occasion as the New Year’s Eve programmes were accepted, Mr Henton was offered by SCB three XL WC carveout reinsurances of First Allmerica per SRRF. The lowest layer was $400,000 xs $100,000.
128.	EIU’s stated reason for the declinature was because SD were unacceptable security. Mr Henton had written lines on the three layers.
129.	This was not a true declinature.
D51: Clarendon/National Bankers
130.	Sometime between 11 December 1997 and 2 February 1998, Mr Henton was offered one XL reinsurance of Clarendon/National Bankers for $40,000 xs $10,000. Mr Billyard had written 100% on 11 December 1997. It is possible that this risk was presented at the meeting on New Year’s Eve 1997.
131.	The reason for the declinature, according to EIU’s pleading, was that the reinsurance was too cheap; there was no note of the reason in the file. Mr Henton’s evidence in cross-examination by SD and SCB was that what he meant was that this was not a gross write; he did not consider this risk worth writing on a net basis because the premium was too small to cover the significant retention he would have to carry, as his retention at that time was $20,000.   
132.	On the basis of his oral explanation (which was different to what was in the schedule), this was declined because it would be unprofitable on a net basis.
D52-56: United Pacific per RRM
133.	On 6 February 1998, Mr Henton was offered by Mr Smith of HHI five XL reinsurances of United Pacific per RRM; the lowest layer was $4m xs $1m; the contracts were to include PA and WC carveout, sports, credit card and XL. It appeared that Mr Smith had been to a conference of European brokers and was asked to place these contracts.
134.	The pleaded reason for the declinature was that the risks “include[d] LMX and terms”. It was SD’s case that the pleaded reason was meaningless when it was considered that Mr Henton had accepted programmes like Programme 1 and Programme 2, as well as other programmes where LMX and XL on XL business had been written. LMX retro business had been specifically excluded under these contracts.
135.	Mr Henton had made a note in the file as to the reasons for declining the contracts; his evidence was that the writing of these contracts had raised concerns about aggregation within the vertical limits of his programme; there were large aggregate limits on these contracts and, as he said in his evidence when cross examined by SCB, the contracts would have had to count towards his aggregate limits and were not worth writing at the price. There were also ten year sunset clauses and he was not prepared to give these. Although Mr Henton could have written very small lines on the layers, his evidence was that he had not done so as he had wanted to write lines that would have been profitable to SD on a net basis.    
136.	Mr Henton rejected the suggestion that he only wrote LMX and XL on XL business for SCB as they had provided reinsurance coverage for him. Mr Henton accepted that the contracts were not obviously gross loss making as they were at the higher layers. 
137.	I am sure that the reason he declined this contract was because he had obtained reinsurance from SCB on the understanding (which, as set out in Part I, was common in this market) that it would be used for retro business for only SCB as the provider of the reinsurance; as there was retro business within the account, it would, as he stated, have counted against his aggregates.
D57: Lincoln National
138.	Sometime before 12 February 1998, Mr Henton had been presented by SCB with an 80% QS of Lincoln National.
139.	Mr Henton had accepted this risk but it was not taken up; there was also a TBE entry for the risk in EIU’s TBE and NTU bordereau for business written as at 30 April 1998.
D58: SCB PA and health carveout lineslip
140.	Sometime before 19 March 1998, SCB offered Mr Henton a participation in the SCB PA and health carveout lineslip.
141.	According to EIU’s pleading, this was declined because a Lloyd’s policy was required. Mr Henton had attempted to obtain a Lloyd’s policy front in order to write this reinsurance; his failure to do so meant that he had no alternative but to decline the contract. SD pointed out that EIU were not authorised to sub-delegate its underwriting authority under the binder.
142.	This was not a declinature – it was a contract that Mr Henton wanted to write but could not for the reasons set out above.
D59: John Hancock
143.	Sometime before 13 May 1998, SCB offered Mr Henton participation in an XL reinsurance of John Hancock’s facultative reinsurance of CIGNA for a layer $40,000 xs $10,000 with effect from 1 October 1997.
144.	According to EIU’s pleading, this was declined because the original policy period was too long. It was Mr Henton’s evidence that this probably came to them in February 1998 before the endorsement in respect of original policy periods was agreed. At that time the original policy period (24 months) was outside the scope of the binding authority.
D60: Clarendon
145.	Sometime between 10 December 1997 and 2 June 1998, Mr Henton was offered by SCB an XL reinsurance of Clarendon’s reinsurance of bodily injury cover for scaffolders and similar employment. It had been written by Mr Billyard on 10 December 1997.
146.	The reason given in EIU’s pleading for declinature was the class of the business (cranes and scaffolders). Mr Henton explained that it was possible that he was not interested in the class of the business; he was unable to recall the precise reason this risk had been declined.
147.	In any event, Mr Henton accepted that since the risk had been written by JEH Re, EIU would have received the risk from JEH Re after JEH Re’s retention had been exhausted. 
148.	I find it difficult to accept that Mr Henton declined this for the reason he gave. If he did not like this class of business which Mr Billyard was writing, it is simply not credible that he would have agreed to reinsure Mr Billyard’s account by being prepared to provide him with a reinsurance for the facility from MSC (described at paragraphs 1447 and following of Part I).
D61: Overseas Partners Re
149.	Sometime before 25 June 1998, Mr Henton was offered by SCB an aggregate stop loss policy covering Overseas Partners Re.
150.	EIU’s pleading indicated that the reason this risk had been declined was because EIU had participated in the 95% QS of John Hancock (Programme 28) and the stop loss policy covered Overseas Partner’s line on the same 95% QS – see paragraph 619 of Part II.  Mr Henton could not recall the specific reason he was not interested in writing this risk; it was SD’s submission that the fact that Mr Henton had written the original contracts on other risks had not deterred him from reinsuring those risks.
151.	I accept that Mr Henton probably declined this risk for the reason he gave in the pleading.
D62: Homestead
152.	Sometime between 10 December 1997 and 25 June 1998, an XL WC reinsurance of Homestead was presented by SCB to Mr Henton; it was for a layer $4m xs $1m.
153.	Mr Henton claimed to have declined the risk although he was unable to recall the reason for this; he thought that it might have something to do with the fact that there was a large limit ($4m) on the contract.
154.	It was submitted on behalf of SCB that this declinature showed Mr Henton taking a line that was independent of SCB.
155.	On the evidence, it is not possible to reach a conclusion as to why this was declined.
D63: All American per WEB
156.	The circumstances surrounding the renewal of Programme 30 (the variable QS) are set out at paragraph 797 of Part II; E&O coverage was not authorised under the binder.
D64: All American per WEB
157.	Sometime between 26 March 1998 and 29 July 1998, Mr Henton was offered by SCB an XL of All American per WEB for a layer $75,000 xs $25,000 for 12 months from 1 January 1998. Mr Billyard had written this 100% on 26 March 1998.
158.	EIU pleaded that the reason for the declinature was because this was an LMX account; Mr Henton was concerned about aggregation within the vertical limits of his programme. Mr Henton could not recall, in his oral evidence, the actual reason he had declined to write this risk; SD submitted that it was not even clear that the risk had actually been declined. 
159.	SD submitted that as Mr Billyard had eventually written the layer 100%, the losses arising under this contract could have been ceded to Programme 33; the losses could therefore have been borne by EIU in any event. Mr Henton accepted that he would have known that this outcome was a possibility as a result of writing Programme 33.
160.	On the evidence before the court, I cannot reach a conclusion as to the reason for the declinature.
D72: Jackson Syndicate 779
161.	Sometime on or about 1 January 1998, Mr Henton was asked by Carpenter Bowring to participate on a backup layer of an XL reinsurance of Jackson Syndicate 779’s temporary life account.
162.	EIU stated that they declined and that the reason for this was because the risk included suicide. It was Mr Henton’s evidence that he was not prepared to reinsure an accident policy which included suicide.
163.	There was a quote for this risk on file. It was SD’s contention that this quote had been provided by EIU. Mr Henton, although not entirely sure, thought that the syndicate had obtained the quote from some other reinsurer.    
164.	I accept Mr Henton’s explanation.
(4)	Contracts difficult to date
D66: Caisse Centrale
165.	Sometime on or after 23 December 1996, Mr Henton was approached by SCB to write a high level war stop loss reinsurance of Caisse Centrale.
166.	The stated reason for this was that a Lloyd’s policy was required; Mr Henton could not therefore write this risk.
D67: Lloyd Thompson
167.	There was listed the Lloyd Thompson facility; this was not considered in the evidence.
(5)	Conclusion on the declinatures
168.	It was EIU’s case that the fact there were the number of contracts set out above which were declined for the reasons given, illustrated the careful way in which they had approached the underwriting under the binder. 
169.	It was SCB’s submission that consideration of these contracts showed that Mr Henton had declined a number of SCB risks which he could have accepted and which, if SD’s case was right, he would have been expected to accept; it was also submitted that in most cases, the reasons for the declinatures were good, given Mr Henton’s net underwriting approach. 
170.	SD submitted that the declinatures did not assist EIU in showing that the 35 programmes had been carefully and honestly written; in fact, many of the declined risks had been declined for reasons other than the merits of the business itself (for instance, because the underlying business was outside the scope of the binder). There were also two declined risks, D60 and D64, which were in any event ceded to SD under the binder.
171.	I am sure that a number of the contracts characterised by EIU as declinatures did not support their contention; the following categories were of no support to their case:
i)	Contracts which had been rejected by SD and not by EIU;
ii)	contracts which were merely enquiries that were not pursued by the broker;
iii)	contracts which were outside the scope of the biding authority;
iv)	contracts which had been placed elsewhere by the placing broker when further information was sought;
v)	contracts which were not taken up; and
vi)	contracts which were considered as net writes when EIU had no reinsurance.
172.	If those contracts are eliminated, there were very few contracts which could be considered declinatures which might lend some support for EIU’s case. However, in relation to those few, it must be borne in mind that: 
i)	By about the end of March 1997, EIU had written up to the then applicable premium income limit and would therefore not have had the capacity to write further business until that limit was increased.
ii)	Similarly, during 1998, EIU had written up to its applicable premium income limit.
173.	In the result there were very few contracts which can be viewed as cases where Mr Henton could be said to be acting honestly in the interests of SD. Of the risks involving SCB, the fact that there were three (D11, D51 and D61) where Mr Henton declined to write contracts proffered by SCB (for reasons that were in the interests of SD) does not detract from the overwhelming number of occasions where he acted in a dishonest manner which was manifestly contrary to their interests in the circumstances set out in Parts I and II.
174.	I accept that some of the contracts considered in this Part show that Mr Henton was prepared to try and write business to other brokers, but that does not in any way detract from the conclusions to which I have come as to the dealings between SCB and EIU.
175.	But quite apart from the fact that these further contracts lend no support to the case advanced by EIU and SCB, they lend further support to the conclusions of dishonesty and collusion to which I have arrived at:
i)	More than half of the declined risks were SCB risks; the preponderance of evidence demonstrates that Mr Henton adopted a more rigorous approach to underwriting when considering non-SCB risks. There were two standards that Mr Henton adopted when undertaking an underwriting assessment: one for SCB risks and another for risks which were produced by other brokers.      
ii)	As I have set out above, I am sure that one of Mr Henton’s handwritten notes on the declinature files had been added retrospectively.