Broker Balances – Guidance from Commercial Court



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 were:

1) The duties owed relating to remittance of receipts.

2) Calculation and proof of lost investment income.

3) Limitation.

The Decision

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 evidence.


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 funds claimed.

To read the full judgment please click here