The recent case of Absalom v TCRU drives home how vital contract certainty is, says Stephen Kilner.
Contract certainty is very topical in the insurance and reinsurance industry. Another example of disputed contractual effect, in the context of a broker's claim to be entitled to brokerage, arose in the recent case of Absalom (on behalf of Lloyd's Syndicate 957) v TCRU Ltd.
This case is also interesting because the claim to brokerage entitlement arose not by way of a broker's claim against those reinsurers who subscribed contracts placed by the brokers concerned, TCRU, but by way of a defence and counterclaim to claims brought against the brokers by a client reinsured.
There were two main issues in the case, each tried together as preliminary issues. The first was the interpretation of a brokerage clause in reinsurance contracts that TCRU had placed for the claimant. The principal clause under consideration stated that TCRU was entitled to brokerage on premium at “15% applicable to deposit premium and minimum rate”.
TCRU argued that this meant they were entitled to 15% of the deposit premium payable under the contracts of reinsurance placed and the total adjusted premium (without deduction of the deposit premium). The claimant reinsured, however, argued the brokerage was to be only 15% of the minimum premium payable: in issue between the parties was $2.8m. On this, Aikens J. agreed with the reinsured, stating that it was clear that the parties intended that the entitlement to brokerage should follow the entitlement to premium.
The second issue, much smaller in monetary terms ($40,000), concerned whether TCRU's right to brokerage in respect of certain further contracts was to be capped, on the basis that the premium sums payable to reinsurers under those contracts were themselves capped. On this issue the judge found for the brokers: the relevant brokerage clauses under consideration in respect of this issue imposed no cap. The judge did not consider this a commercially absurd result.