LW 620 MARINE INSURANCE: WORKSHOP EIGHT
CONSTRACTIVE TOTAL LOSS: 11.00 – 13.00
MIA 1906 s 60
Constructive total loss defined.
(1) Subject to any express provision in the policy, there is a constructive total loss where the
subject-matter insured is reasonably abandoned on account of its actual total loss appearing to
be unavoidable, or because it could not be preserved from actual total loss without an
expenditure which would exceed its value when the expenditure had been incurred.
(2) In particular, there is a constructive total loss—
(i) Where the assured is deprived of the possession of his ship or goods by a peril insured
against, and (a) it is unlikely that he can recover the ship or goods, as the case may be, or (b)
the cost of recovering the ship or goods, as the case may be, would exceed their value when
recovered; or
(ii) In the case of damage to a ship, where she is so damaged by a peril insured against that
the cost of repairing the damage would exceed the value of the ship when repaired.
In estimating the cost of repairs, no deduction is to be made in respect of general average
contributions to those repairs payable by other interests, but account is to be taken of the
expense of future salvage operations and of any future general average contributions to which
the ship would be liable if repaired; or
(iii) In the case of damage to goods, where the cost of repairing the damage and forwarding
the goods to their destination would exceed their value on arrival.
The lengthy provisions concerning constructive total loss are found in s 60 and s 60 (1)
states the general rule in respect of constructive total loss 'Subject to any express
provision in the policy, there is a constructive total loss where the subject matter
insured is reasonably abandoned on account of its actual total loss appearing to
be unavoidable, or because it could not be preserved from actual total loss without an
expenditure which would exceed its value when the expenditure had been incurred.'
In essence a constructive total loss occurs when the goods are a commercial writeoff. The
cost of recovering or repairing the insured goods makes it
uneconomical to carry out such an exercise and the goods are abandoned to the
insurer
In particular, with regard to damaged goods, there is a constructive total loss when
the cost of repairing the damage and forwarding the goods to their destination would
exceed the value of the goods on their arrival (s 60 (2) (iii)). Furthermore there will be
a constructive total loss where the assured is deprived of possession of his goods and
it is unlikely that he will recover the goods (s 60 (2) (i) (a)) or where the cost of
recovering the goods would exceed their value on arrival. This should be
contrasted w i t h the requirement that the goods be irretrievably lost to the assured when
one is considering whether there has been an actual total loss. These provisions are
mirrored in clause 13 of the Institute cargo clauses, the 'Constructive Total Loss
Clause', which provides as follows:
1
'No claim for Constructive Total Loss shall be recoverable hereunder unless the
subject matter insured is reasonably abandoned either on account of its total loss
becoming unavoidable or because the cost of recovering, reconditioning and forwarding
the subject matter to the destination to which it is insured would exceed its value on
arrival.'
In deciding whether there has been a constructive t o t a l loss the value declared in a
valued policy is not conclusive (s 27 (4)).
In sum, s 60 provides a complete definition of the terms “constructive total loss”, but the two
limbs of the section, appear on their face, to be contradictory. The House of Lords has,
however, authoritatively stated that the two are in harmony and that they offer two different
definitions, which might be employed in two different factual circumstances: Robertson v
Petros M Nomikos Ltd [1939] AC 371; Rickard v Forestal Land, Timber and Railway Co Ltd
[1941] 3 All ER 62; Irvine v Hine [1949] 1 KB 555
When there has been a constructive total loss the assured has a choice. He may elect to
abandon the goods to the insurer a n d treat t he loss as a constructive total loss or he
may decide to merely t o treat the loss as a partial loss and retain what is left of the
goods and claim under the policy (s 61).
If the assured decides to declare a constructive t o t a l loss he must give notice of
abandonment to h i s i n s u r e r . This notice of abandonment need not be in any
particular form but must be clear and should indicate to the insurer that the assured
unconditionally abandons the insured goods to the insurer and claims a total loss
under the policy (s 62 (2)). The notice of abandonment should b e given within a
reasonable time after the assured has received reliable information of the loss. If the
information is, however, of a doubtful character the assured is then entitled to a
reasonable time to make the necessary inquiries to either verify or discount the
information he has received (s 62 (3)). If the assured fails t o g i v e a n o t i c e o f
abandonment the loss can only be treated as a partial loss (s 62 (1)).
Notice of abandonment may be waived by the insurer (s 62 (8)) and in certain
circumstances it may be unnecessary (s 62 (7)). Where, however, the insurer accepts the
notice of abandonment this acceptance is irrevocable (s 62 (6)) and the insurer must
pay the insured value of the goods.
Once the insured goods have been validly abandoned the insurer is entitled to take
over the interest of the assured in whatever may remain of the goods and may exercise
all proprietary rights thereto (s 63 (1)). That i s to say the insurer is entitled to whatever
is left of the goods. This r i g h t of the insurer s h o u l d be distinguished from the
insurer’s right of subrogation which is examined below.
Categories of Constructive Total Loss
A close reading of s 60 suggests that there are six types of loss, viz:
1. Where the subject-matter insured is reasonably abandoned
2. Where the insured subject matter issued cannot be preserved from actual total loss
without an expenditure which would exceed its value when the expenditure had been
incurred.
3. Where the assured is deprived of the possession of his ship or goods by a peril insured
against, and (a) it is unlikely that he can recover the ship or goods, as the case may be,
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4. (b) Where the cost of recovering the ship or goods, as the case may be, would exceed
their value when recovered;
5. Where the ship is so damaged by a peril insured against and the cost of repairing the
damage would exceed the value of the ship when repaired.
6. Where the cost of repairing the damaged goods and forwarding them to their
destination would exceed their value on arrival.
Reference will now be made to a number of cases in order to gain some appreciation of the workings of
section 60 and how it has been interpreted and applied by courts to the manifold factual situations
presented to them over the years:
Court Line Ltd v R “Lavington Court” [1945] 78 Ll Rep 390; Read v Bonham (1821) 3 Brod & B 147;
Farnworth v Hyde (1866) LR 204; Vacuum Oil Co v Union Insurance Society of Canada [1926] 25 LlL
Rep 546; Moore v Evans [1918] AC 185;Polurrian Steamship Co Ltd v Young [1915] 1 KB 922; The
Bamburi [1982] 1 Lloyd’s Rep 312; Marstrand Fishing Co Ltd v Beer [1937] 1 KB 158; Rickards v
Forestal [1941] 3 All ER 62; Kuwait Airways Corp v Kuwait Insurance Co SAK [1986] 1 Lloyd’s Rep
664Irwin v Hine [1950] 1 KB 555; Stringer v English and Scottish Marine Insurance Co (1869) LR 4 QB
699; Moss v Smith (1950) 9 CB 94; Irving v Manning (1847) 1 HL Cas 287; Sailing Ship Holt Hill v
United Kingdom Marine Association [1919] 2 KB 789; MacBeth & Co v Marine Insurance Co Ltd [ 1908]
AC 144; Kemp v Halliday (1866) 6 B & S 623; Hall v Hayman [1912] 2 KB 5; Read v Darby [1808] 10
East 143; North Atlantic Steamship Co Ltd v Burr (1940) 9 Com Cas 164; Western Assurance Co of
Toronto v Poole [1903] 1 KB 376; Rankin v Potter (1873) LR 6 HL 83; Kaltenback v MacKenzie (1878) 3
CPD 467; Black King Shipping v Massie, “LITSION Pride” [1983] 1 Lloyd’s Rep 437; Pameter v
Todhunter (1808) 1 Camp 540; Ruys v Royal Exchange Assurance Co [1897] 2 QB 135
Case Study Six
Fraser Shipping Ltd v Colton [1997] 1
Lloyd's Rep. 586
The Issues
Marine insurance; underwriters refusing to salvage vessel; whether vessel actual total loss
The Facts
Under a valued marine policy, the underwriters represented by C insured F only against
actual total loss of a vessel. F's brokers did not inform the underwriters of a change of
destination. The vessel was damaged and was towed. It became separated from its tow and
the costs of its salvage were considered prohibitive. The issue arose whether the vessel was
an actual total loss.
Held, that the issue was whether F were irretrievably deprived of the vessel. While the costs
of recovery would outweigh the insured value of the vessel this went only to demonstrate
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constructive total loss. The vessel was not an actual total loss within the period of the policy.
The underwriters had not waived their rights in respect of late notification of change of
destination in that they had no knowledge of the change. The underwriters demonstrated that,
on these facts, they had been induced to enter into the contract on the basis of material nondisclosures.
Case Study Seven
Asfar & Co. v Blundell [1896] 1 Q.B. 123
The Facts
A vessel, on board which dates had been shipped under bills of lading making the freight
payable on right delivery, was sunk during the course of the voyage, and subsequently raised.
On arrival at the port of discharge it was found that although the dates still retained the
appearance of dates, and although they were of considerable value for the purpose of
distillation into spirit, they were so impregnated with sewage and in such a condition of
fermentation as to be no longer merchantable as dates. The plaintiff paid the chartered freight
and then claimed from the insurer for the loss of profits resulting from the non-delivery of the
dates
Held, that there had been a total loss of the subject-matter of the insurance within the
meaning of the warranty; that the plaintiff was entitled to recover the difference between the
chartered freight and the total amount of the bill of lading freight that would have been
received if the entire cargo had been duly delivered.
LORD ESHER M.R.
There is a perfectly well known test which has for many years been applied to such cases as
the present—that test is whether, as a matter of business, the nature of the thing has been
altered. The nature of a thing is not necessarily altered because the thing itself has been
damaged; wheat or rice may be damaged, but may still remain the things dealt with as wheat
or rice in business. But if the nature of the thing is altered, and it becomes for business
purposes something else, so that it is not dealt with by business people as the thing which it
originally was, the question for determination is whether the thing insured, the original article
of commerce, has become a total loss. If it is so changed in its nature by the perils of the sea
as to become an unmerchantable thing, which no buyer would buy and no honest seller would
sell, then there is a total loss. That test was applied in the present case by the learned judge in
the Court below, who decided as a fact that the dates had been so deteriorated that they had
become something which was not merchantable as dates. If that was so, there was a total loss
of the dates. What was the effect of this upon the insurance? If they were totally lost as dates,
no freight in respect of them became due from the consignee to the person to whom the bill of
lading freight was payable—that is, to the charterers—and there was a total loss of the bill of
lading freight on these dates.
Appeal dismissed
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Likewise in Roux v Salvador (1836) above, where a cargo of hides was badly damaged and
had to be sold at a loss, Lord Abinger had this to say
But if the goods once damaged by the perils of the sea, and necessarily landed before the
termination of the voyage, are, by reason of that damage, in such a state, though the species
be not utterly destroyed, that they cannot with safety be re-shipped into the same or any other
vessel; if it be certain that, before the termination of the original voyage, the species itself
would disappear, and the goods assume a new form, losing all their original character; if,
though imperishable, they are in the hands of strangers not under the control of the assured; if
by any circumstance over which he has no control they can never, or within no assignable
period, be brought to their original destination; in any of these cases, the circumstance of
their existing in specie at that forced termination of the risk, is of no importance. The loss is,
in its nature, total to him who has no means of recovering his goods, whether his inability
arises from their annihilation or from any other insuperable obstacle.
Stringer v English
IC5EBCA41E4281 Court of Exchequ
Cases
I0D8B0BE012211
¶
17 June 1870
%281869-70%29
Case Study Ten
Robertson v Petros M. Nomikos Ltd [1939]
A.C. 371
The Facts
The respondents were insured in respect of the hull and machinery of their tanker valued at
£28,000 for twelve months from July 30, 1936, and by a Lloyd's policy they were insured in
respect of the tanker in the sum of £4110 on freight chartered or otherwise for twelve months
from July 20, 1936, this policy being subject to the Institute Time Clauses - Freight, the
material clauses of which were as follows:
"5. In the event of the total loss, whether absolute or constructive, of the steamer, the amount
underwritten by this policy shall be paid in full, whether the steamer be fully or only partly
loaded or in ballast, chartered or unchartered."
"6. In ascertaining whether the vessel is a constructive total loss the insured value in the
policies on ship shall be taken as the repaired value, and nothing in respect of the damaged or
break-up value of the vessel or wreck shall be taken into account."
"8. Warranted free from any claim consequent on loss of time whether arising from a peril of
the sea or otherwise."
The respondents chartered the tanker to carry a cargo of crude oil from Venezuela to the
United Kingdom at a certain freight. The steamer went to a port for repairs, and while there
was, on October 31, 1936, damaged by an explosion followed by fire. The repairs were
estimated to cost £37,000, but as when repaired she would be worth £45,000l, the
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respondents did not abandon her to the hull underwriters but had her repaired at the estimated
cost, and claimed as for a partial loss from the hull underwriters and were paid by them
£27,000. The charterparty was not performed, and the respondents consequently did not
receive the freight payable thereunder. They then claimed £4110 from the underwriters of the
freight policy, but as the latter refused to pay, the respondents brought an action to recover
the amount:Held, that the respondents were entitled to recover the amount insured by the freight policy as
there had been a constructive total loss of the tanker, and that it was not necessary that the
respondents should have actually given notice of abandonment to the hull underwriters.
Opinion reserved by Lord Atkin and Lord Thankerton whether the claim was in any view
consequent on loss of time.
Per Lord Wright: The loss under clause 5 occurred Eo instanti [immediately], and did so none
the less because the respondents retained and repaired the vessel. The sole condition under
that clause was that the vessel should be an actual or constructive total loss. Clauses 5 and 8
had to be read together, but clause 8 could not control clause 5.
The underwriter appealed to this House.
LORD WRIGHT.
In my opinion, the appellant fails on both points. What is meant by a constructive total loss is
now determined by ss. 60 and 61 of the Marine Insurance Act, 1906, which will apply to any
particular contract of marine insurance unless some different meaning is imported either
expressly or by implication. The question here is whether there was a constructive total loss
of the vessel by insurance law. If clauses 5 and 6 are read together they cannot apply unless
there are policies on ship, so as to determine what the insured value is. The appellant
contends that the clauses only apply if the shipowner has elected to treat the loss under his
hull policies as a constructive total loss by giving notice of abandonment of the ship. But the
hull policies and the freight policy are distinct contracts and are only to be read together in so
far as one incorporates the other. In the policy on freight it is only clause 6 which
incorporates the hull policy so far as is relevant to this case, and then only for the purpose of
introducing the insured value which is to be found in the hull policies. Clause 5 cannot be
construed by considering what action the shipowner took on his hull policies. The words
"constructive total loss" must have (apart from clause 6, which merely invokes the hull policy
in order to get a figure of value) the same meaning as if there were no hull policy in existence
at all. The test is not the shipowner's intention, or what he did under the hull insurances.
In my opinion, notice of abandonment is not an essential ingredient of a constructive total
loss. The appellant's argument confuses two different concepts, because it confuses
constructive total loss with the right to claim for a constructive total loss. The right to claim
except in certain cases depends on due notice of abandonment under s. 62 of the Act. The
distinction is *382 explicitly stated in s. 61 of the Marine Insurance Act, which is as follows:
"Where there is a constructive total loss, the assured may either treat the loss as a partial loss,
or abandon the subject-matter insured to the insurer, and treat the loss as if it were an actual
total loss."
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The section makes it clear that the right to abandon only arises when there is a constructive
total loss in fact. That is the necessary precondition to a right to abandon. The frame of the
section makes it impossible to treat the right to abandon as identical with the constructive
total loss. It is a superimposed right of election where there is a constructive total loss. Nor is
it even a necessary ingredient of a constructive total loss, because though there is a
constructive total loss, the assured may still treat it as a partial loss.
The objective definition of a constructive total loss is found in the preceding section of the
Act. Some difficulty has been found in interpreting that section because it consists of two
parts. Sub-s. 2 is purely objective; it gives the two cases of constructive total loss of ship, the
first being deprivation of possession, the second the cost of repairs. This is completely
consistent with s. 61. But s. 60, sub-s. 1, is said to be inconsistent, because it makes the
constructive total loss depend on the condition that the subject-matter is reasonably
abandoned for either of the reasons stated. This, I think, does not qualify the definition in
sub-s. 2. The two sub-sections contain two separate definitions, applicable to different
conditions of circumstances. But I do not find any inconsistency between s. 60, sub-s. 1, and
s. 61. Sect. 60, sub-s. 1, deals with actual abandonment, which is also an objective fact, not
notice of abandonment, which may be necessary for a claim for a constructive total loss even
after actual abandonment of the subject-matter insured. But if there is any inconsistency
between s. 61 and s. 60, sub-s. 1, there is, in my opinion, no inconsistency at all between s. 61
and s. 60, sub-s. 2, which latter is the definition material in the present case.
I think, therefore, that there was here a constructive total loss of the ship within clauses 5 and
6. This conclusion agrees in principle with the decision of Roche J. (as he then *383 was) in
Roura & Forgas v. Townend 15, which was a case of capture of a ship and recapture after a
long lapse of time. There was no notice of abandonment of the vessel, because she was not
insured at all by her owners. The plaintiffs were not owners but charterers insuring their
anticipated profits on the charter against total or constructive total loss of the steamer. Roche
J. held that there was a constructive total loss within s. 60, sub-s. 2, because it had been
unlikely that the owners would recover her in a reasonable time. The test was external and
objective and did not depend on the shipowner's election. There was no clause corresponding
to clause 6 of the Freight Clauses here. Indeed there could not be, as there was no hull
insurance at all. I agree with that conclusion, which I think applies the correct principle for
construing ss. 60 and 61. If, however, the question had been whether the appellant could
claim, not on his freight policy but on his hull policy, without having given notice of
abandonment of the vessel, the position would have been different. He would have been met
by s. 62, which states the rules as to giving notice of abandonment. These only apply when
the shipowner elects to abandon to the insurers under the policy the subject-matter insured by
that policy, and seeks to claim as for a constructive total loss under that policy.
One of the conditions, then, of clause 5 of the Freight Clauses, namely, that there should be a
constructive total loss under the hull policy, has, in my opinion, been fulfilled. No one has
suggested that notice of abandonment in respect of the freight was necessary. There is no
question that clause 6 has been correctly applied in regard to the cost of repairs as compared
with the insured value. It now becomes necessary to ascertain what is the precise effect of
clause 5. What I think the clause clearly does is to fix a conventional measure of indemnity
under the freight policy where the ship has become an actual or constructive total loss. The
measure of indemnity stipulated in that event is that the amount underwritten shall be paid "in
full." The final words of the clause "whether the *384 steamer be fully or only partly loaded
or in ballast, chartered or unchartered," are not, in my opinion, words of limitation, but are
7
words inserted to provide as far as possible for every circumstance in reference to insurable
interest in freight which is likely to arise. The loss of the ship to the owners must involve in
fact the loss of the vessel's freight-earning capacity. The first part of the final words of the
clause, "whether the steamer be fully or partly loaded," may have been introduced, as
Hamilton J. (as he then was) said in Coker v. Bolton [1912] 3 KB 315, 320, "for the purpose
of meeting the hardship that has long been felt to exist that a shipowner, who has given notice
of abandonment and has consequently lost his right to the freight subsequently earned, is
precluded from suing on the policy on freight." This rule, which was founded on decisions of
this House, is now embodied in s. 63, sub-s. 2, of the Marine Insurance Act. Like most other
rules in the Act, it can be excluded by agreement. This hardship may also be excluded in
practice, as it was done in the present case and in Coker v. Bolton, by a clause in the hull
policy such as clause 18 of the Hull Clauses here. But these words of clause 5 may have a
wider application, if required by the facts of any particular case. They do not apply to this
case, in which the ship was neither fully nor partly loaded. The remaining words of the
clause, "or in ballast, chartered or unchartered," seem to be intended to exclude in the most
unqualified manner any other question of an assured's insurable interest in the freight. The
policy is a time policy, and the intention may be to secure that even if the vessel at the time of
the casualty has no cargo on board (that is, is in ballast) and has no charter, there shall be no
question of insurable interest, though it is not likely that any underwriter would think of
raising such a question in a case of this type. The intention may be to provide that the owner's
interest in the profit-earning capacity of his ship, which is certainly a good interest in a
business sense, should be deemed a sufficient insurable interest for purposes of this policy. I
should see no legal obstacle why this agreement should not receive effect. Clause 5 deals
with actual as well as constructive total loss. But it is *385 not necessary to discuss this
matter here, because the Petrakis Nomikos was actually chartered. Hence in my opinion the
case comes under clauses 5 and 6 of the Freight Clauses, so that the respondents are entitled
to succeed in their claim.
In my opinion the judgment of the Court of Appeal was right and should be affirmed and the
appeal should be dismissed with costs.
LORD PORTER.
In these circumstances the respondents claimed that they were entitled to recover the sum of
£4110 under clause 5 of the Institute Time Clauses in the freight policy, and from the
appellant his proportion of that sum.
Having regard to the facts and figures agreed upon by the parties, the repairs required would
have cost more than the agreed value of the ship inserted in the hull policies. Is this enough?
The appellant says, "No." In his contention there can be no constructive total loss unless the
ship be abandoned to her underwriters.
Constructive total loss, he says, is defined in s. 60 of the Marine Insurance Act, 1906, and by
sub-s. 1 of that section there is a constructive total loss "where the subject-matter insured is
reasonably abandoned on account of its actual total loss appearing to be unavoidable, or
because it could not be preserved from actual total loss without an expenditure which would
exceed its value when the expenditure had been incurred." Sub-s. 2, he maintains, only gives
particular instances of the general definition in sub-s. 1, and therefore when it says that in
particular there is a constructive total loss, "in the case of damage to a ship, where she is so
damaged by a peril insured against, that the cost of repairing the damage would exceed the
8
value of the ship when repaired," it means there is a constructive total loss where the ship is
reasonably abandoned because the cost of repair would exceed her value when repaired.
That s. 60 is intended to be a complete and not a partial definition appears to follow from the
wording of s. 56 when it says: "Any loss other than a total loss, as hereinafter defined, is a
partial loss." But it does not follow that the first sub-section lays down the general rule,
whereas the second gives certain particular instances already covered by the general rule.
Indeed, whatever may be the case with regard to sub-s. 2 (i.), sub-sub-ss. (ii.) and (iii.) do not
appear to be covered in terms by the definition in sub-s. 1.
But in any case, unless there is some reason to the contrary, a definition must be held to
include the whole of its wording, and if particular instances are given which include matters
which are outside the more general definition, that is no reason for supposing that their
application is limited by the more general words. They do not merely illustrate - they add to
the terms of the definition. Sect. 60 does not confine constructive total loss to cases where the
subject-matter of insurance has been abandoned, though in some instances there may be no
constructive total loss unless abandonment has taken place.
But even if abandonment be not a condition of a constructive total loss, it is said that in this
case there has neither been abandonment or notice of abandonment and the ship has in fact
been repaired. In that case, it is argued, under ss. 61 and 62 the loss can only be treated as a
partial loss, and consequently there can be no constructive total loss within the meaning of
clause 5 of the freight policy.
Sect. 61 no doubt gives the assured an election whether to treat the loss as total or partial, and
s. 62 makes it a condition precedent to a claim for a total loss, that notice of abandonment
should be given. But in terms, s. 61 contemplates the existence of a constructive total loss
even where the loss is treated as partial. It was not contended before us that there could not be
a constructive total loss where no notice of *393 abandonment was given; it was admitted
that notice of abandonment was merely a condition precedent to recovery in a case where a
constructive total loss had already occurred.
Having regard to the wording of s. 61, abandonment may be a condition or consequence of
recovery and not a condition precedent to the existence of a total loss whether actual or
constructive. A constructive total loss may exist, but if the assured wishes to take advantage
of it he must give notice of abandonment, at any rate in a case where there would be any
possibility of benefit to the insurer. If he does give notice and the underwriters accept the
abandonment, or if the assured recover as for a total loss, the property insured thereby
becomes the property of the underwriters.
If this view be sound, there was a constructive total loss albeit a conventional constructive
total loss of the ship by a peril insured against, and undoubtedly the freight to be earned under
the charterparty of September 23, 1936, was lost.
Appeal dismissed.
Case Study Eleven
9
Rickards v Forestal Land, Timber and
Railways Co Ltd [1942] A.C. 50
The Facts
By Lloyd's policies of insurance against marine and war risks, cargoes belonging to the
assured, who were British subjects, and shipped in three German vessels, the M., the W., and
the H., for various destinations in August, 1939, were insured by underwriters against
"enemies .... surprisals, takings at sea, arrests, restraints and detainments of all kings, princes
and people," and, by incorporation of the Institute War Clauses, against the risks, excluded
from the standard form of English marine policy by an f.c. and s. clause, and "the
consequences of hostilities or warlike operations. ..."
Each policy provided:
"Warranted free of any claim based upon loss of, or frustration of, the insured voyage or
adventure caused by arrests restraints or detainments of kings princes peoples. ..."
Each policy, by incorporation of clauses and bill of lading liberties, gave the ship certain
rights as to deviation or changing her voyage.
The voyages were begun before the outbreak of war between Great Britain and France and
Germany on September 3, 1939, but on August 24, the
Minden, on September 1, the
Wangoni, and on September 6, the and Halle, put in at neutral ports in obedience to
orders by the German government that the masters should so take refuge and, if possible,
return to Germany with their cargoes, or, as a last resort, scuttle their vessels. The M. and the
H. left their ports of refuge some weeks after the outbreak of war in an attempt to reach
Germany, but were eventually scuttled in the presence of Allied warships. The W. succeeded
in reaching Germany in March, 1940.
No notices of abandonment were given by the assured to the underwriters, but in actions
brought by the assured for the loss of the cargoes the underwriters agreed to waive the
absence of notice and the cases were argued on the assumption that due notice had been given
at the proper time:Held:
(1.) that when the masters of the ships determined to obey the instructions of the German
government and to return to Germany and acted on that determination, thus holding the
insured goods as the servants and agents of the German government instead of as the bailees
of the assured (which was, at latest, when each ship left her port of refuge), the assured were
deprived of the possession of their goods by an executive act of the German government
within r. 10 of Sch I. to the Marine Insurance Act, 1906, performed through the masters, and
that this act was a restraint of princes;
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(2.) that it was then unlikely that the assured could recover their goods, and that, therefore,
there was a constructive total loss of the goods within s. 60, sub-s. 2 (i.) (a), of the Act, which
was converted into an actual total loss when the M. and the H. were scuttled and the W.
reached Germany;
(3.) that the policies were not avoided by the deviations from the contractual voyages to the
neutral ports, because those deviations were excused as having been "caused by
circumstances beyond the control of the master and his employer" within s. 49, sub-s. 1 (b),
of the Act, or reasonably necessary for the safety of the ship or subject-matter insured" within
s. 49, sub-s. 1 (d), nor were the policies avoided by the changes of the contractual voyages
because those changes were not voluntary, and, consequently, were not within s. 45 of the
Act;
(4.) that the frustration clause in the policies did not bar the claim of the assured because the
subject-matter of a marine insurance on goods is two-fold, the goods and the adventure,
whereas the clause was expressly limited to loss of, or frustration of the insured voyage or
adventure and therefore could not be read to exclude a claim for loss of the goods. That
clause only applies where no claim could be put forward for the loss of insured goods apart
from the loss of the adventure, whereas the claims of the assured were for the loss of the
goods and not for that of the adventures. The assured, therefore, were entitled to recover.
British and Foreign Marine Insurance Co., Ld. v. Samuel Sanday & Co. [1916] 1 A. C. 650,
distinguished on the last point.
Per Lord Wright. There may in law be a restraint of "kings, princes and people" within the
meaning of a marine policy although the physical force of the State concerned is not
immediately present. It is enough if there is an order of that State addressed to its subject,
acting with compelling force on him, exacting his obedience, and requiring the doing of an
act which effectively restrains the goods covered by the policy.
Per Lord Wright. The common law rule that the date which is to be taken in ascertaining
whether or not there has been a constructive total loss of the subject-matter of a marine
insurance and whether or not a notice of abandonment given by the assured was justified, is
that of the issue of the writ in an action by the assured against the insurers on the policy has
not been altered by the Marine Insurance Act, 1906.
Per Lord Porter. Underwriters do not succeed in proving a loss within the exception in the
frustration clause merely by showing that the adventure has been lost. A total loss of goods
must always have that result. They must go further and show that the claim of the assured
follows and is based on the loss of the adventure, not merely that the loss of the adventure is a
consequence of the loss of the goods, even though that loss be due to combatant seizure. In
the present case it is true that the adventure was put an end to by the loss of the goods, but the
goods were not lost by reason of the loss of the adventure.
LORD WRIGHT.
It was in both courts, in my opinion, rightly held that the act of the master in sailing from Rio
constituted a restraint of princes within the words incorporated in the policy: "capture seizure
arrest restraint or detainment .... also the consequences of hostilities or warlike operations."
These words were intended to repeat the words printed in the body of the policy, "enemies,
.... takings at sea, arrests, restraints and detainments of all kings, princes and people." It is
11
also clear that it is this peril or class of perils which is dealt with in the frustration clause.
Diversity of expression in respect of the same matter is common in marine insurance policies.
It is notorious that a policy of marine insurance is in many ways an obscure, loosely drawn,
and inaccurate instrument, if I may quote from the language of such judges as Lord
Mansfield, Chief Justice Marshall in the United States, Buller J., and others. The form of the
modern policy has grown up on the basis of the traditional policy, the origin of which dates
back to the middle ages. The particular policy in question here, which is in fact simply a
policy on goods, states that it is also upon "the body, tackle, apparel, ordnance, munition,
artillery, boat and other furniture, of and in the good ship or vessel called the Minden, " but
no one attends to these words because everybody knows that it is the goods which are
insured. The policy is further complicated by the practice of adding clauses and also of
superimposing attached slips, all of which may have to be taken into account. At the same
time it must be remembered that the uncertainties and obscurities in the policy may be largely
attributed to the subject-matter. As Phillips remarks in his Insurance, vol. i., *79 p. 5 (Boston,
1867): "A contract embracing so many interests and parties and liable to be affected by so
many events cannot but be subject to some difficulties of construction, however carefully it
may be drawn." In England the codifying Act, the Marine Insurance Act, 1906, has done
much to simplify the law, but it would be an insufficient guide were it not supplemented by
the decided cases. Indeed, s. 91, sub-s. 2, in terms provides that "the rules of the common
law, including the law merchant, save in so far as they are inconsistent with the express
provisions of this Act, shall continue to apply to contracts of marine insurance." The Act is
merely dealing with a particular branch of the law of contract, namely, contracts of marine
insurance. Subject to various imperative provisions or prohibitions and general rules of the
common law, the parties are free to make their own contracts and to exclude or vary the
statutory terms. The object both of the legislature and of the courts has been to give effect to
the idea of indemnity, which is the basic principle of insurance, and to apply it in the diverse
complications of fact and law in respect of which it has to operate. In this way the law
merchant has solved or sought to solve the manifold problems which have been presented by
insurances of maritime adventures.
The definition of restraints of princes in r. 10 of the first schedule to the Act is not very
helpful in this case, but it does define the peril as including executive acts. Was what the
master did an executive act of the German government? I think it was. Arrests of kings,
princes and peoples are generally carried out by commissioned officers in the naval or other
employment of the particular state and generally involve some exercise of force, or, at least,
the threat of a force locally present, though in the background. What happened here was that
the master, being in possession of the goods as a carrier for the assured, seized them in the
sense that he ceased to hold them as carrier and changed the character of his possession by
taking and controlling them as agent for the German government with the intention and effect
of holding them adversely to the assured and applying them to the hostile *80 purposes of his
government. In doing so he deprived the assured of them. The courts below have rightly fixed
the overt act of hostile seizure as being committed when the master sailed from Rio. His act
could not be regarded as piracy because he did it on express orders from his national
government. Nor could it be called barratry, because it must be assumed that his owners were
equally with himself sympathetic with or subject to the orders of the German government.
That an enemy subject may commit an act of hostilities for his government in a foreign
country, even without express orders, was illustrated by Atlantic Mutual Insurance Co. v.
King [1919] 1 KB 307, where during the last war a German was found to have placed an
infernal machine in the hold of an English ship in New York harbour, with the purpose and
12
effect of damaging her cargo when it exploded. He was held to be an agent of the enemy,
because, as Bailhache J. said:
"Knowing that the settled and concerted policy of that government is to avail itself of the
efforts of its subjects, whether naval, military or civilian, to destroy enemy life and property,
as occasion offers, he uses such opportunity as presents itself in furtherance of that policy."
This is an even stronger case because when the master took control of and seized the goods
he did so on express orders. It is also clear that a restraint may operate without any display of
force. The master was actually in possession of the goods throughout. He simply took them
from the assured by dealing with them adversely to their interests and throwing off the role of
a private carrier in which capacity he had held them up to then as bailee for the assured. The
restraint which was operating on the master was the compelling force of the German State to
which he was subject. In one sense it was a moral compulsion, but in another sense it was
more because it may be assumed that he was aware that, if he had disobeyed the order, his
government had means of vindicating its authority if not at the moment, at least subsequently.
In Miller v. Law Accident Insurance Co. [1903] 1 KB 712, the master, in obedience to a
sanitary order of the *81 Argentine government, after arrival at Buenos Aires, the port of
destination, took the cattle out of the port and abandoned the adventure. Though no actual
force was used or displayed, the order of the Argentine government had behind it the power
of the state. Lord Sumner in Becker, Gray & Co. v. London Assurance Corporation [1918]
AC 101, 115, thus sums up the situation: "Stirling L.J. expressly says that the captain did not
act voluntarily. The frustration of the adventure was caused by the direct operation of an
order which was an act of state and was backed by the existence of available force though its
employment proved to be unnecessary." There, it is true, the vessel had actually come within
the area of compulsion, whereas in this case Rio was a neutral port, outside the territorial
sovereignty of the German government. I do not regard that as a material distinction in a case
like this.
There is perhaps no exact counterpart in the books, but a close analogy is presented by British
and Foreign Marine Insurance Co., Ld. v. Samuel Sanday & Co. [1916] 1 AC 650. There
masters of British vessels carrying British goods to Hamburg, in the first days of August,
1914, when in, or approaching, the English Channel, were informed of the outbreak of war,
whereupon they abandoned the voyage to Germany and were diverted to British ports. It was
held that there was a loss of the goods by restraint of princes. Lord Loreburn's concise
summary of the decision of this House in that case is very apposite to the present question.
He said that on the outbreak of war trading to German ports became unlawful and an instant
duty arose for those two ships to discontinue their voyage to Hamburg. The adventure of
carrying this merchandise to its destination became in law a serious offence and in fact
impracticable. This does not, indeed, afford a strict parallel. The restraint there invoked was
that of English law in its operation on British subjects. But it shows that there may be a
restraint, though the physical force of the state concerned is not immediately present. It is
enough, I think, that there is an order of the state, addressed to a subject of that state, acting
with compelling force on him, decisively exacting his obedience and requiring him to do the
act which effectively restrains the goods. Thus the seizure or restraint effected in obedience
to that order becomes, in a case like the present, the belligerent act of the German
government though it is committed by the master of a German merchantman, on the high seas
or in neutral territory.
13
I may here deal with the question of the deviation of the vessel when she left the contract
voyage to go first to Santos and then to Rio, and waited at Rio until September 6, 1939. It is
clear that the master made the deviation as a precautionary measure, in obedience to the
orders to take refuge in a neutral port, when the imminence of war became apparent. This was
clearly in furtherance of German war policy and under German government control. Thus, it
was not the voluntary act of the master, any more than it was in Sanday's case or Miller's
case It was the direct effect of the restraint. As to the change of voyage, the acts of the
masters were equally not voluntary. The deviation thus comes within the protection of s. 49,
sub-s. 1 (b), of the Act, which enacts that deviation is excused (inter alia) where it is caused
by circumstances beyond the control of the master and his employer. Here the deviation was
caused by circumstances beyond the control of the master, who was, as already stated, bound
to obey the orders of his government equally with his employer, the German shipowner. The
deviation was certainly beyond the control of the assured, if that is material. It may be
doubted if at any time before the actual outbreak of war, there was a change of voyage, but
there was a change of voyage when the vessel sailed from Rio on the voyage or adventure to
run the blockade on the orders of the German government. That change of voyage was
certainly not voluntary. On that ground, therefore, it could not be said that the insurer was
discharged from liability under s. 45, sub-s. 2, of the Act, because the change of voyage
which discharges the underwriter is defined in s. 45, sub-s. 1, and the definition includes the
element that the voyage is voluntarily changed. I, accordingly, see no reason why recourse
should be made to the "Held Covered" clause in the policy, or to the bill of lading liberties,
though these are sufficiently wide and are in this case incorporated in the policy. The change
of voyage was act and part of the hostile seizure.
I now turn to consider whether this operation of the insured perils caused a constructive total
loss of the goods, as Hilbery J. and the Court of Appeal have held. Prima facie, when once it
is accepted that there has been a seizure or capture of the goods, there is "the right of
abandoning immediately; and this right subsists so long as the property is detained by the
captors or by their government, whether in port or at sea" (Phillips, op. cit. vol. ii., p. 319).
Here there was a capture or seizure of the goods by the German government acting through
the master and the seizure or capture continued until the ship was scuttled. But a more careful
examination of the doctrine of constructive total loss, as set out in the Marine Insurance Act,
1906, is here necessary in order to deal with the decision of the learned judge on the
frustration clause and the exhaustive arguments addressed to your Lordships by Mr. Miller.
The concept of constructive total loss is peculiar to marine insurance. Its main characteristics
are now defined in s. 60 of the Act. Sub-sect. 1 provides that "Subject to any express
provision in the policy there is a constructive total loss where the subject-matter insured is
reasonably abandoned, on account of its actual total loss appearing to be unavoidable, or
because it could not be preserved from actual total loss without an expenditure which would
exceed its value when the expenditure had been incurred." Sub-sect. 2 says: "In particular
there is a constructive total loss - (1.) Where the assured is deprived of the possession of his
ship or goods by a peril insured against, and (a) it is unlikely that he can recover the ship or
goods, as the case may be, or (b) the cost of recovering the ship or goods would exceed their
value when recovered." I need not here quote the rest of the sub-section. It has been observed
that this section raises great difficulties of construction. That is perhaps inevitable, and it is
certainly excusable when it is sought in a brief section, supplemented though it is by ss. 61 to
63, to embody the complicated problems of law and fact which experience has shown to arise
in the case of a constructive total loss. Some aspects of the section have been recently
discussed in this House in Robertson v. Petros M. Nomikos 31. In particular, the difficulty of
14
fitting together the two sub-sections of s. 60, and reading them together with s. 61 was there
considered. I think the view which this House arrived at was that the two sub-sections contain
two separate definitions which may be applied to different conditions of fact. Thus an assured
can base his claim on the terms of sub-s. 2, which give an objective criterion in each case,
ship, goods or freight, not only more precise but substantially different from that in sub-s. 1.
Sub-sect. 2, as compared with sub-s. 1 is thus cumulative, not merely illustrative.
In the present case the assured rely on sub-s. 2 (i.) (a) and say that they were deprived of the
possession of the goods by a peril insured against, and that it was unlikely that they could
recover them. But this raises a number of questions. First, what is the point of time to be
taken in ascertaining whether there was a constructive total loss? A constructive total loss is a
device intended to subserve the purpose of indemnity by enabling the assured, when, by
insured perils, the postulated danger of loss or deprivation is caused, to disentangle himself,
subject to definite limits and conditions, from the danger and throw the burden on the
underwriters. If the assured elects to avail himself of this option, he must do so by giving
notice of abandonment within a reasonable time after the receipt of sufficient information. He
is not allowed to await events to see how things turn out, or to decide what may best suit his
interests. If he duly elects to abandon on good grounds, the risk is ended, because the assured
can recover as for a total loss and the salvage vests in the underwriter. By the English
common law the date of giving notice of abandonment was not treated as the decisive date,
which was taken to be at the date of issuing the writ in the action. This was fully established
by a number of authorities dating back at least to Lord Mansfield's time.
These authorities were collected by Collins J. in Ruys v. Royal Exchange Assurance
Corporation [1897] 2 QB 135
Case Study Twelve
Irvin v Hine [1950] 1 K.B. 555
The Facts
A ship stranded in January, 1942. The assured claimed under a policy of marine insurance
that she was a constructive total loss because it was unlikely that he would be able to repair
her within a reasonable time owing to war-time conditions and to the licensing system then in
force.
Held, that, whether or not the loss would have been a constructive total loss on that ground at
common law, it was not such a constructive total loss within s. 60; that that section was a
definition section and circumscribed completely the conception of constructive total loss; and
that that claim therefore failed.
Dictum of Lord Porter in Robertson v. Petros M. Nomikos Ld. [1939] A. C. 371, 392,
applied.
The plaintiff claimed alternatively for a partial loss. The ship had not been repaired, and he
was entitled under s. 69, sub-s. 3, of the Act "to be indemnified for the reasonable
depreciation arising from the unrepaired damage, but not exceeding the reasonable cost of
15
repairing such damage." That cost would have been £4,620 The value of the ship was agreed
by the policy at 9,000l. Her actual value was £3,000 before the stranding and £685 after the
stranding. Section 27, sub-s. 3, of the Act provides that "subject to the provisions of the Act,"
the value fixed by the policy is conclusive, whether the loss be total or partial.
Held, that, by reason of s. 27, sub-s. 3, in computing her depreciation it was not correct to
subtract her true value after the stranding from her true value before the stranding (£3,000 £685); that either (i) the true damaged value must be subtracted from the conventional value
(£9,000 - £685) or (ii) the proportion of her actual depreciation must be applied to her
conventional value (1 X 9,000l.); but that, as, in either case, the result exceeded £4,620, the
cost of repairs, the assured was only entitled to recover that sum.
Quaere , whether method (i) or method (ii) of computing depreciation under a valued policy
under s. 69, sub-s. 3, is the correct one.
Sir William McNair K.C. and Mocatta for the assured.
The ship was a constructive total loss when notice of abandonment was given on February 9,
1942. She was reasonably abandoned on that date on the ground that her actual total loss
appeared to be unavoidable: Marine Insurance Act, 1906 2, s. 60, sub-s. 1.
She was then so much damage by perils insured against that she could not, by reason of the
licensing system then in force, be repaired at any cost within any foreseeable future time, or
within any reasonable time.
There was a balance of probability that she could not be recovered, as a usable ship, within a
reasonable time: Marine Insurance Act, 1906, s. 60, sub-s. 2 (i) (a); Pollurian Steamship Co.
Ld. v. Young 3, applied in Roura and Forgas v. Townend 4. There is a constructive total loss
if the assured can say, in the circumstances, (i) that the ship is so damaged as to be unusable
as a ship, and (ii) that the balance of probability is that she cannot be repaired, and made
serviceable, in the foreseeable future.
In the present case the control of repairs was vested in a government department, and it was
illegal to repair the ship. The ship was therefore a constructive total loss within the meaning
of the authorities before the Act of 1906 because there were no facilities for repairing her.
Somes v. Sugrue (1830) shows that the circumstances of place were material as well as the
physical condition of the ship. A ship was a constructive total loss at common law if she
foundered in foreign parts and the master was unable to raise money for repairs: see per
Tindal C.J. in Somes v. Sugrue; Read v. Bonham (1821). A fortiori she must be a
constructive total loss if the owner is unable to obtain a licence for repairs.
Alternatively, the ship was a constructive total loss because she was so much damaged that
the cost of repairing the damage would exceed her value when repaired: s. 60, sub-s. 2 (ii), of
the Act of 1906.
The plaintiff claims, alternatively, for a partial loss.
DEVLIN J.
16
As the plaintiff managed the ship on behalf of the assured, his wife, it is convenient, if not
strictly accurate, to refer to him as the assured. He made up his mind, without himself seeing
the vessel, that she could not he taken off Horseback Rock whole, that is to say, as a ship, and
gave notice of abandonment to the underwriters on February 9, 1942. In reaching that
conclusion he took, I think, too gloomy a view; he was perhaps influenced by the fact that he
had previously lost a trawler on that rock in 1928. [His Lordship stated the facts as above set
out, and continued:] The main ground on which the claim for constructive total loss was
presented was that it was at all material times unlikely that the assured would be able to
obtain a licence to repair her or place her in dry dock within a reasonable time. In considering
this plea I have first to determine whether it is made out on the facts; and, if it is, whether it is
sound in law. Counsel for the assured conceded that it could not be brought under any of the
heads in s. 60 of the Marine Insurance Act, 1906, in which a constructive total loss is
apparently defined, and that it would require the addition to sub-s. 2 of an additional
particular case. He contended, however, that it could be justified at common law, and that the
common-law principle was not inconsistent with any of the provisions of s. 60; accordingly,
by virtue of s. 91, sub-s. 2, which provides that the rules of the common law, save in so far as
they are inconsistent with the express provisions of the Act, shall continue to apply, he
claimed that he was entitled to succeed.
[His Lordship then considered the evidence on this issue and continued:] There was a great
scarcity of dry docks at the time of the casualty, a scarcity which was bound to continue for
the rest of the war. I think that the proper inference from the evidence is that there would in
all probability be an indefinite delay in the granting of a licence. It was uncertain when a
licence would be granted and unlikely that it would be granted within a reasonable time.
Counsel for the underwriters submitted that the reasonable time must be judged in the light of
what would be in the mind of the parties at the time when the policy was taken out, and that
the assured must have contemplated a long wait for a licence if his ship were damaged. I do
not think that that is the right test. It is certainly not the test applied in the case of deprivation
of possession, for example, by capture. I think that the reasonable time is to be judged
prospectively from the time of the casualty; and that the prospect of indefinite delay negatives
the likelihood of return within a reasonable time. On this issue of fact I am in the assured's
favour.
I have heard an interesting argument on the common-law principle governing constructive
total loss, but it would be idle for me to express any opinion on it unless I first determine that
I can look outside the Act. What I have to consider is whether the Act, on its true
construction, expressly provides that s. 60 is a complete definition. If it does, then any
addition to the definition or alteration of it would be inconsistent with its completeness, and
so would not be admissible under s. 91, sub-s. 2. Section 56, sub-s. 1, provides: "Any loss
other than a total loss, as hereinafter defined, is a partial loss." That seems, as Lord Porter
pointed out in Robertson v. Petros M. Nomikos Ld. 37, to mean that the definition of
constructive total loss in s. 60 must be complete. If any loss outside s. 57 (which defines
actual total loss) and s. 60 were to be held to be a total loss, it could not he a partial loss,
which would be inconsistent with the express provision of s. 56 . I see no answer to this
argument except possibly that it puts too literal a construction on the words of s. 56. That
makes it material to consider whether such a construction is out of harmony with the object of
s. 60, as shown in its marginal note, and with the general purpose of the Act. The marginal
note is, "Constructive total loss defined." This is in keeping with the words of s. 56 "total loss
as hereinafter defined" and shows that s. 60 is intended to contain a definition. I have used the
words "complete definition" as Lord Porter did, as a convenient and expressive term. I dare
17
say it is not meticulously accurate; for, strictly speaking, a definition must be complete, else it
is not a definition at all. The question really is whether s. 60 is a definition section, defining
constructive total loss as a whole, and not merely categories of it; or whether, as counsel for
the assured in terms argued, all that it does is to lay down the main characteristics of a
constructive total loss. This argument gives no weight to the word "defined" both in s. 56 and
in the marginal note to s. 60. I think that that word shows conclusively that s. 60 is intended
to define a constructive total loss, which is the same as saying that s. 60 circumscribes
completely the conception of constructive total loss.
As to the general purpose of the Act, it is described in its title as a codifying Act, and it
would, I think, be surprising if its framers had not included in it a comprehensive definition
of constructive total loss; or that, if they had intended only to define categories, they would
not have made their intention clear.
I have arrived at my conclusion without relying on the authority of the dictum by Lord Porter
to that effect in Robertson v. Petros M. Nomikos Ld. 38. I have approached the matter in this
way because counsel for the plaintiff may be right in saying that it was obiter dictum. But the
conclusion which I have reached is greatly strengthened by the high persuasive authority of
such a dictum. This appears to be the only place in the authorities in which the point has been
considered. Counsel for the assured claimed that Pickford J. in Pollurian Steamship Co. Ld.
v. Young 39 had in effect treated s. 60 as incomplete by adding the qualification "within a
reasonable time" to the provision about recovery of the ship or goods in sub-s. 2 (i). It seems
to be clear from the passage referred to that Pickford J. was doing no more than to give the
provision what he thought was its right construction. The sub-section is silent as to whether
the deprivation of possession has to be perpetual or not, and so is open to either construction.
Even if the light construction of the language, taken by itself, is that the deprivation of
possession is to be perpetual, it is clear that the Act does not textually cover the point, and
accordingly there would be a lacuna which the common law could fill without inconsistency
with any express provision. I hold, therefore, that the plea that the trawler was a constructive
total loss because it was unlikely that the assured would be able to obtain a licence to repair
her is bad in law.
Accordingly the assured is entitled to recover £4,920 under the policy, and I shall give
judgment for the plaintiff for the appropriate proportion of the amount subscribed by the
defendant underwriter of the £9,000 insured.
Judgment accordingly.
CASE Study Fourteen
[Actual total loss which would be unavoidable]
Read v Bonham (1821) 3 Brod & B 147
The Vittoria sailed from Calcutta in a seaworthy condition, but due to bad weather, it
had to return to Calcutta, where she was sold by the master, for £1200; in the interests of the
owners, because of excessive repair costs - £5000 - that would have had to be incurred. The
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Vittoria was insured for £8000, while the freight was insured for £4000, at and from
London to the East Indies and back. Subsequently, the ship's broker abandoned to the
underwriters.
In an action on the policy on ship, the jury having found a verdict for the Plaintiff as for a
total loss, and that the captain had sold the ship for a justifiable cause, the Court (dissentiente
Richardson J.) refused to grant a new trial, which was moved for, on the ground that the ship
ought not to have been sold, and that notice of abandonment had not been given in due time.
Dallas C. J.
The jury have found, in this case, that the captain had a justifiable cause for selling the ship,
and they found this on all the facts in evidence in the cause: to those it becomes, therefore,
necessary, in the outset, to refer; and the more so, because an endeavour has been made,
though I do not say improperly, to impeach the conduct of the master, as if he had acted for
his own benefit, or for the benefit of his owners, instead of acting for the benefit of all
concerned. The ship having been seriously damaged in a storm, what was the conduct of the
captain on his return to Calcutta? It is admitted that the underwriters have agents at Calcutta;
not indeed for the purpose of accepting abandonments, but for the purpose of transmitting
information: however, they have agents there, and what could the captain do more, as a man
of justice, honour, and integrity, than give notice of abandoment to those agents? He could
not abandon to the underwriters, for they were not on the spot. If their agents were not
authorized to accept abandonments, they might at least have transmitted intelligence of them;
and there was no other person to whom abandonment could be made. What is the next step?
The captain submits the ship to a regular survey by competent persons, and, not content with
his former notice to the agents, gives notice also of the survey, and invites the agents to send
someone to attend. They return for answer that they will, if required, send their surveyor to
attend in his official capacity. Accordingly, one of the surveyors who signed the report,
which was in evidence in the cause, and proved the shattered state of the ship, was the
surveyor appointed by Lloyd's agents. At one time the captain was inclined to repair the ship,
if it had been possible; and that is clear from the attempt which he made to borrow money for
the purpose; an attempt which failed. The captain swears that he had not money to go on with
the repairs, and that, in the state in which the ship was, it would have been madness to
attempt to repair her. Under these circumstances, the captain sells the ship, after a public
advertisement; the agents of Lloyd's being on the spot, no protest being made against the
validity of the sale, nor anything communicated by them, to impeach its validity: and the jury
come to the conclusion that the captain was perfectly warranted in all he did.
The direction of Lord Mansfield to the jury, at the trial of the cause of Milles v. Fletcher
(Dougl. 219), was, “that if they were satisfied the captain had done what was best for the
benefit of all concerned, they must find as for a total loss.” Afterwards, upon the motion for a
new trial, Lord Mansfield said, “The captain—had no express order; but he had an implied
authority, from both sides, to do what was fit and right to be done;—and whatever it was
right for him to have done, if it had been his own ship and cargo, the underwriter must answer
for the consequences of, because this is within his contract of indemnity.” Finally he says, “I
left it to the jury to determine, whether what the captain had done was for the benefit of the
concerned. If they had found “that it was,” where would have been the question of law?” So
was it left to the jury in this case; and they have found that what was done, was done in the
exercise of an honest discretion, and for the benefit of all concerned; and I see no reason, (the
19
jury having been special, and peculiarly competent to judge of such subjects,) to overturn the
conclusion to which they have come.
The only remaining question is, whether notice of abandonment was given in due time; and it
is to be considered, whether, under these circumstances, the rule as to notice is to be rigidly
pressed. Notice must be given in reasonable time; the Court being the judge of what is
reasonable; and cases have been urged, in which they have decided what is and what is not
reasonable. But what is the reasonable time within which notice should be given, must, in
every case, depend on the circumstances of that individual case. Here there is no evidence of
any communication to the owner, of the circumstances of the loss, previously to the arrival of
the captain; and the notice having been given on the day but one after the owner was
furnished with the full means of knowing all the facts of the case, must be deemed sufficient.
Park J.
The verdict was clearly right on the first point; for a case of stronger necessity to justify the
sale of a ship has seldom been made out. The captain could not procure money for repairs,
and it was not to be expected that he should let the ship rot. Did he then act as a fair man
ought? He went to the very person whom he thought authorized to act in the business, (that
person, indeed, denied any authority to accept an abandonment ;) but he was called in to the
survey, and the ship was sold, as the most advisable way of disposing of her when the result
of that survey was known.
Then comes the question, whether the notice of abandonment was given in time; the cases say
it should be given speedily, or as soon as may be, that is, within a reasonable time; and the
party is not allowed to wait and see which course may turn out most to his benefit. The jury,
under the direction of his Lordship, have in effect found, that more than a reasonable time
was not taken in the present instance, and I think they have found correctly. We are not to
assume, without proof, that the captain, on his arrival in London, ran with all speed to his
owner, and this being a case in which no wrong has been done, ought not to be defeated on
light and ill sustained objections. I am therefore of opinion that the verdict ought not to be
disturbed.
Rule discharged.
Read v Bonham -
IF783EFE0C5BE1
Court of Common
Cases
IB11D8760BDA91 129+E.R.+1238.p
¶
27 November 182
Case Study Fifteen
[An expenditure which would exceed its value]
Farnworth v Hyde (1866-67) L.R. 2 C.P.
204
20
Where goods are in consequence of the perils insured against lying at a place different from
the place of their destination, damaged, but in such a state that they can at some cost be put
into a condition to be carried to their destination, the jury, in order to ascertain whether there
is a constructive total loss of the goods, must determine whether or not it is practically
possible to carry them on,—that is, whether to do so will cost more than they are worth: and,
in determining this, the jury are to take into account all the extra expenses consequent on the
perils of the sea, such as drying, landing, warehousing, and reshipping the goods; but they are
not to take into account the fact that, if they are carried on in the original bottom, or by the
original ship-owner in a substituted bottom, they will have to pay the freight contracted to be
paid; that being a charge to which the goods are liable when delivered, whether the perils of
the sea affect them or not.
Where the original bottom is disabled by the perils of the sea, so that the ship-owner is not
bound to carry the goods on, and he does not choose to do so, the jury are not to take into
account the whole of the cost of transit from the place of distress to the place of destination
which must be incurred by the goods owner if he carries them on, but only the excess of that
cost above that which would have been incurred if no peril had intervened.
The Facts
Rosetto v. Gurney, 11 C. B. 176, approved.
THIS was an appeal from a decision of the Court of Common Pleas, discharging a rule to
enter a verdict for the defendant, reported in 18 C. B. (N.S.) 835; 34 L J. (C.P.) 207. The
following case was stated for the opinion of this Court:—
1. The action was upon a policy of insurance effected by Messrs. Burgess & Stock, as agents
for the plaintiffs, for £1500, and underwritten by the defendant for £150, on the cargo of the
ship Avon for a voyage from Quebec to Liverpool.
2. The policy expresses the insurance to be on a cargo of wood goods, to be declared and
valued thereafter.
3. The defendant pleaded payment into court of £34 10s, being at the rate of 23 per cent on
the amount underwritten by him.
4. The cargo was ultimately valued at £2500
17. The vessel sailed from Quebec on the 22nd of November, 1861, with the cargo insured on
board of her.
18. On the 2nd of December, 1861, the vessel, having encountered very violent weather, was
driven on shore at a place called the Brandy Pots, nearly opposite St. André, and about 102
miles below Quebec, on the river St. Lawrence. A heavy sea was running, and the ship
continued striking for about half an hour, during which time the rudder was unshipped.
21
Masses of ice were being formed, and drifted to and fro in the St. Lawrence with the wind
and tide, and the navigation of the river was rapidly closing for the winter. The St. Lawrence
at the Brandy Pots is nearly twenty miles wide; it is an exposed situation, and the currents are
strong and rapid.
19. In consequence of the severity of the weather and the obstruction caused by the ice, it was
found impossible to proceed with the voyage, and, as the only thing to be done, the vessel
was put on shore.
20. On the 10th of December, the ship and cargo were surveyed by two surveyors, Messrs.
Cotnam and Nesbitt, instructed by C. W. Wilson, the agent for M. J. Wilson.
21. They found the vessel lying broadside to the tide, in a very exposed and perilous position,
subject at any time, in their opinion, to be carried off or cut up by the ice with the ebb and
flow of the tide. They recommended a sale of the ship and cargo, on account of their perilous
position, and from their (the surveyors) having had experience of another vessel similarly
circumstanced at Riviére du Loup, but in a much safer position (being high and dry at low
water), having been cut through in a great number of places by the ice during the ebb and
flood tide.
22. On the 27th of December, M. J. Wilson addressed to the plaintiffs (from London) a letter,
in which he wrote, “The Avon is likely not to come. The ice in the spring of the year will
likely take her away.”
23. On the 16th of January, 1862, the ship and cargo were surveyed a second time by Messrs.
Cotnam and Nesbitt. They found that the vessel was in a worse position than before, having
moved about a mile further down the river, where she was lying on a rocky bottom, or on
boulders, surrounded by thick ice, badly hogged and strained, with the water flowing in and
out of her. The report of the surveyors, after minutely describing the position of the vessel
and the damage she had sustained, concluded as follows:—
“These appearers are of opinion that, in consequence of the damages the vessel has sustained,
her getting worse every day by the weight of her timber cargo in shallow water, lying on
boulders, and straining with the ice, the expense of raising and repairing her would exceed
her value when so repaired, especially as she is an old ship, even should she remain where
she is until the spring, which, owing to her exposed situation, is not at all probable. They,
therefore, recommend that the vessel, as she now lies, and her materials, be sold by public
auction at Quebec, for the benefit of all concerned.”
24. Upon this survey being made, Mr. Henry Fry, Lloyd's agent at Quebec, to whom it was at
once communicated (but who had not seen the Avon , or the place in which she lay), wrote to
Mr. M. J. Wilson the following letter:—
“Lloyd's Agency, Quebec, Jan. 22, 1862.
“Sir,—I have carefully read over the report of survey held on the Avon by Messrs. Cotnam
and Nesbitt, and regret that, upon the facts therein stated, I have come to a very different
conclusion to those gentlemen.
22
“It appears that the ship is lying some eighty-five miles only from Quebec, on the south
shore, and easily accessible by railway; that her cargo is wood; that all her masts, yards, and
materials are intact; that the ice is firm all round her; and that there is no danger of her
moving till the month of March. It also appears that the ship is so covered with ice that a very
imperfect survey at best could be made. In addition to the ascertained damage, the surveyors
lay great stress upon the ship's age, and the probability of her being carried away by the ice in
the spring.
“I do not think the ascertained damage, as described in the survey, sufficient of itself to
warrant a condemnation. Any further damage is, of course, mere conjecture.
“As to the risk of her being carried away by the ice, I place very little importance on that; for,
of all the numerous ships wrecked between Quebec and Bic in the winter of 1853–4, I am not
aware that one suffered materially or moved far on the breaking up of the ice. But this is a
risk of the underwriters; and a ship cannot be legally condemned upon mere probabilities.
Moreover, if, as the surveyors state, she has been driven up so far that she will have to be
lightened before she will float, there cannot be much risk of the ice carrying her away.
“The course I recommend on behalf of the underwriters is that a proper watch be kept on the
ship during the winter, and that, before the ice breaks up, a sufficient number of men be
placed on board to prevent any claims for salvage; and that, as soon as the navigation is open,
she be towed up to Quebec, and the cargo discharged. A proper survey can then be held: and
if, as is very probable, the damage be found too serious to warrant repair, she can be legally
condemned and sold, and the cargo can be forwarded to its destination at a very trifling cost.
The ship and materials will fetch a far higher price then than now, as any purchaser would
form an exaggerated notion of the risk from ice, and give a price accordingly. I believe that,
with the high spring-tides in May, the ship will float, or nearly so, with her whole cargo; and
the expense of bringing her up will not be heavy, whilst the cargo will bear its proportion.
“On the other hand, if the ship is forced to an immediate sale, she will fetch but little. Claims
may be made for salvage of cargo, or it may be landed where the ship lies, and thus
sacrificed. Besides, there is ample time to lay the survey before the underwriters, and get their
reply before March. Under these circumstances, I protest against any sale of the ship or cargo
until the views of the underwriters are known. A copy of this letter will be forwarded to
Lloyd's.
“Henry Fry, Agent to Lloyd's.”
25. The defendant, agreeing in the view taken by Mr. Fry, Messrs. Burgess & Stock, on the
10th of February, 1862, addressed the following letter to the plaintiffs:—
“Dear Sirs,—There has been a letter received at Lloyd's from the agent at Quebec, stating that
a sale of the Avon and her cargo had been contemplated, and he had stopped it. The
underwriters on the cargo, which we have insured for you, called our attention to this, and
suggested that we had better write and inform you of it, so that you may protect your interest;
as they say, from the tenor of the Lloyd's agent's letter, they would not recognise the sale, if it
took place.”
23
26, 27. On the 15th of February, 1862, the plaintiffs sent to M. J. Wilson's Quebec house a
copy of the letter of Messrs. Burgess & Stock of the 10th of February; and on the same day
they sent a letter to Mr. M. J. Wilson, intimating to him that they had done so.
28. On the 14th of March, 1862, M. J. Wilson's Quebec house sent to the plaintiffs the
following letter:—
“Gentlemen,—Your favour of the 15th ult., inclosing copy of letter from your insurancebroker, is to hand. The remarks contained therein have my attention. Doubtless Mr. C. W.
Wilson has already informed you fully respecting the state of the Avon and the cargo. To him
I beg to refer you, as I keep him advised each mail of any change that takes place.”
29. At the approach of the spring, viz. in April, 1862, Pierre Valin, a ship-builder of fifteen
years' experience, and Charles R. Coker, Lloyd's surveyor at Quebec, were required by the
captain of the Avon to make a further survey of the ship and cargo as they then lay. Their
survey, which was dated the 2nd of May, 1862, stated in substance as follows:—
“Found the wales, on the larboard side for eleven strakes, and the starboard side for eight
strakes, badly cut and chafed, bolts broken and treenails all started fore and aft. On the
larboard side, in wake of fore-chains, there are five strakes, and at main-chains two strakes,
cut through, and timbers broken; sheathing under counter and on places at both sides of
bottom all fore and aft chafed, and partly gone; rudder gone; braces strained and started;
water ebbing and flowing in and out of her every tide; scarphs and butts of rails, waterways,
deck-plank, sheers, sheer-strakes, topsides, wales, and plank of bottom, are open from three
quarters of an inch to one inch all round; treenails on both sides in wake of main hatch are
broken. Besides the above-enumerated damages, the general appearance of the vessel is such
as to give us reason to suppose that all her securities have more or less given way. We are of
opinion that the great expense which would be incurred, taking into consideration her age and
appearance, to put the ship in a seaworthy state, does not warrant us in recommending her to
be brought up. We therefore recommend, for the interest of all parties concerned, that the
vessel be sold where she now lies.
“C. R. Coker, Surveyor to Lloyd's.
“N.B. Before the vessel can be taken off, it will be necessary to discharge cargo. From the
exposed position and the strong current always running, we think there would be very great
risk and cost. We are therefore of opinion that it would be the most prudent course to sell the
timber at the same time the vessel is sold.”
30. The vessel and cargo were thereupon sold by auction on the 7th of May, 1862, the ship
for £450, and cargo for £750. They were both bought by Mr. Julien, a Quebec ship-builder,
who stated, that, after thorough examination (so far as he could without being able to get
round her outside), in which he was assisted by his brother, also a ship-builder, he came to
the opinion that her bottom had come out, and that it would therefore be impossible to get the
ship off. He also stated that he found after he saw her that the danger to which she was
exposed was that of being drifted off, there being no anchor to hold her. He accordingly
proceeded to dismantle the ship, and save what he could of the gear and standing rigging.
This was done for two days, any copper to be found being stripped off. In fine, he did damage
to the ship to the amount of £100 before he thought of trying to float her. Subsequently, the
vessel having been left high and dry by a very low tide, they were able to get round her and
24
make a more thorough examination than before; and after this inspection they determined to
try and float the vessel, and with that view to stop up the openings in her bottom, which they
did, and found that they could keep her sufficiently clear of water to enable her to float.
The following was the description given by Mr. Julien of the subsequent operations:—
“When we worked the pumps during the first tide, we found that the stern was raised, but not
sufficiently to allow the vessel to float. She assumed a horizontal position at low water. We
then opened the scuttle and let the water out, and waited the next tide, and, having the pumps
again repaired, the men went to work to the pumps, and we were hauling upon a kedgeanchor, and she moved about four feet, and stuck there again. The tide then rose a little
higher, and, the breeze blowing off the shore, we got her off, and grounded again at a
distance of about two cables' length. The tide was then falling, and the ship was full of water.
There were ten feet of water in her. There the ship remained for that tide. I went ashore and
telegraphed for a steamer; and, the same evening, the Napoleon III. , one of the government
steamers, came down and anchored all night at the Brandy Pots, and in the morning she
came, and at the top of high water we got her off, and she towed her up. When she first
floated the tide was unusually high; and the people down there said that it was such a tide as
was very rarely seen. We reached Quebec in about twenty-four hours. We had nineteen hands
at the pumps, and pumped all the way up.”
This witness and his brother were examined on the part of the defendant; but their evidence
was read for the plaintiffs. The other circumstances given more in detail in which the ship
and cargo were on the 7th of December, 1861, and in which they remained up to the time of
their being sold, together with the expenses incurred meanwhile in reference to them, were
set out in the evidence taken under the commission.
31. The ship, having been thus floated off, was taken to Quebec, where she arrived, with all
her cargo on board, on the 17th of May, 1862.
32. The ship was repaired by the purchasers, and the cargo sold by them for more than double
the price given for it at the auction.
33. The repaired ship was likewise sold, but at a price less than the sums expended for repairs
and for the purchase of the ship. The purchaser, however, stated that, but for the
extraordinarily high tide above referred to, it would have been necessary to have discharged a
large portion of the cargo to get the ship off; that it would have cost a great deal of money;
and that he would have been exposed to a great deal of risk of losing the cargo or a portion of
it: and he further said that in his opinion he should have lost money by the operation.
34. No notice of abandonment was ever given. The plaintiffs first received intelligence of the
survey of the 2nd of May, 1862, and of the intention to sell, and of the actual sale itself, by
the same post.
35. The plaintiffs at the trial gave in evidence that the value of the cargo, if it had been sent
on and had arrived in Liverpool, would have been £4300; or, deducting the original freight
(£1556), £2744.
36. The plaintiffs also proved that the only mode of attempting to send on the cargo in
another ship from the wreck would be first to land the timber and pile it on shore, then raft it
25
down the river to a vessel brought down from Quebec for the purpose, and there re-load it as
weather permitted. The expense of so discharging the cargo from the vessel, and forwarding
it to its destination by another vessel, would have been as follows:—
£ s. d. The cost of landing it would have been. 350 0 0 To raft it to another vessel, and re-load
it. 700 0 0 Increased freight, in addition to the original freight of 1556l. (freights having risen
between the date of the original shipment and of the opening of the navigation of the river,
when another vessel could have been chartered) …296 0 0 Additional freight that would have
been charged for lying off to take the cargo from where it was stored, instead of loading at
Quebec … 700 0 0 £2046 0 0
37. Two witnesses were in addition also called by the plaintiffs to prove the amount of
damage which the cargo would have sustained by having lain in the hold of the ship during
the winter. One of them estimated the amount of such depreciation at 5 per cent on the
Liverpool value, or £215; the other at 12 per cent., or £515.
38. Further, one of the witnesses called by the plaintiffs, who had been a merchant of twenty
years' standing in Quebec, who had great experience of the river St. Lawrence and of
wrecked ships and cargoes therein (but who had not seen the Avon or her cargo), stated that
the bringing of the cargo on rafts from the shore to the ship would be subject to great risks,
and that this operation could not possibly be effected in the month of May, which he stated is
in the St. Lawrence a very boisterous month, and one during which no vessel could safely lie
in the river to receive the cargo. Other witnesses also spoke of the difficulty of procuring a
ship at all for the required purpose, and also to the risk and probability of loss of cargo in the
course of the rafting from the ship to the shore, and then re-rafting from the shore to the
second ship. They further stated that there is at this part of the river a very considerable sea
generally running, and that that would not only expose the cargo to risk of loss, but also
render it more difficult to load the ship, as only in calm water would it be safe to open the
ship's ports to receive cargo.
39. One of the surveyors who was examined for the plaintiffs in the cause, and who saw the
cargo on the occasion of the survey in April or May, 1862, stated that the cargo itself had not
been damaged during the winter, as far as he could see, and he did not suppose that it was.
40. On the trial the plaintiffs contended that the evidence showed that they were entitled to
recover for a total loss, without notice of abandonment.
41. The defendant, on the other hand, contended that there was no evidence of a total loss,
either with or without notice of abandonment; and that the sum paid into Court was more than
sufficient to cover the average loss shown to have been sustained.
42. The learned judge stated that he should leave certain questions to the jury, and directed
them to consider,—first, whether the sale of the ship was justifiable, and that, whether the
sale of the ship was justifiable or not, would depend on the consideration whether a prudent
owner uninsured would have sold the ship or not, and that his judgment should be governed
by the consideration whether if he should repair the ship she would be worth more to the
owners than the repairs would cost,—secondly, whether it was right to sell the cargo, and
that, whether it was right to sell the cargo or not, would depend on whether the cargo could
have been practically carried to its destination, and that his Lordship meant the word
“practically” to be understood in its mercantile sense, and that, whether the cargo could be
26
practically carried to its destination would depend, under all the circumstances, on whether
the cost of bringing the cargo, added to the amount of depreciation, would have left any
appreciable margin of profit.
43. The jury found that it was right to sell the ship, and that it was right to sell the cargo; and
thereupon the learned judge ordered a verdict to be entered for the plaintiffs for £80 18s 3d.
beyond the sum paid into court, and gave leave to the defendant to move to set aside that
verdict, and enter a verdict for the defendant, or a nonsuit, on the ground that there was no
evidence of a total loss, and no evidence of a partial loss exceeding the sum paid into Court,
or to reduce the damages to the sum actually due as for a partial loss: and it was at the same
time agreed that, if the Court should be of opinion that the loss was not total, the amount of
the partial or average loss should if necessary be corrected by the Court or by an arbitrator to
be agreed upon.
44. A rule nisi was accordingly obtained in Michaelmas Term, 1864. This rule was argued at
the sittings in banc after Hilary Term, 1865, and was afterwards discharged: see 18 C. B.
(N.S.) 835; 34 L. J. (C.P.) 207.
T. Jones (E. James, Q.C., with him), for the appellant, the defendant below.
The only question for consideration is, whether the circumstances which preceded the sale of
the ship and cargo shewed a constructive total loss: the sale itself is a neutral and indifferent
act. The Court below held that the circumstances justified the jury in finding a total loss; and
that notice of abandonment was not necessary, inasmuch as the information of the loss and of
the sale reached the assured at the same time. The ground of that judgment was that the sale
was justified by the circumstances in which the subject of insurance was placed, and the fact
that the cost of carrying the cargo to its destination would have exceeded its value when it
arrived, or at all events would have left an inappreciable margin of profit. In the case of a
ship, the question always is, whether the damage arising from the perils insured against has
placed her in such a situation as that a prudent owner uninsured would sell: Arnould on
Insurance, 3rd ed. p. 955. The general rule is well stated by Bayley, B., in Gardner v.
Salvador 1, where he says: “I know of no such head of insurance law as loss by sale.
If the situation of the ship be such that by no means within the master's reach it can be
treated so as to retain the character of a ship, then it is a total loss. If the master, by means
within his reach, can make an experiment to save it, with a fair hope of restoring it to the
character of a ship [i.e. a sea-going vessel], he cannot by selling turn it into a total loss. Bona
fides in the master will not decide the question; for, if he sells erroneously what is entitled to
the character of a ship, though he thinks it a wreck, it will not do.” Knight v. Faith 2, where
all the prior authorities are discussed, adopts the same view. The like rule prevails in the case
of goods: see the judgment of Lord Abinger, C.B., in Roux v. Salvador. 3 No decision is to be
found contravening the rule laid down in Knight v. Faith. 4 The matter was discussed, but not
determined, in King v. Walker. 5
That notice of abandonment is necessary in such a case as this, seems to be conceded by all
the text-writers on the law of insurance: see Marshall on Insurance, 4th ed. pp. 449, 450, 451;
Arnould on Insurance, 3rd ed. p. 918; Phillips on Insurance, 3rd ed. pp. 233, 234; and see the
judgment of Lord Campbell in Fleming v. Smith. 6 The dictum of the Court of Common Pleas
in the judgment delivered by Tindal, C.J., in Roux v. Salvador 7, has never been questioned.
“As notice of abandonment,” they say, “under the circumstances of this case, is an act of no
27
difficulty to the assured; of great service to the underwriter; as it is well calculated to prevent
fraud; as it is consistent with the general understanding which has prevailed in practice, and is
sanctioned by the authority of decided cases,—we think it was a necessary preliminary to the
plaintiff's right to sue for a total loss in the present case.” The Exchequer Chamber treated the
loss in that case as an absolute total loss, because the goods never could have arrived at their
*216 destination in specie. But, so long as a total loss is not inevitable, so long as it is
possible that the cargo may reach its destination in specie, the loss is only an average loss,
and not total. Here, the cargo unquestionably might have been carried to Liverpool, with a
deterioration at the most of 12 per cent. The majority of the Court below assume that the
expense of forwarding the cargo to Liverpool would have exceeded its value when it arrived
there. The figures given in paragraphs 35, 36, and 37 of the case shew a balance left of 183l.;
and there is no evidence to go to the jury that that 183l. is a sum which would represent the
value of timber which would be lost in the removal. Upon this point the judgment of Byles,
J., in the court below is well entitled to consideration, viz. that, on the assumption that such a
diminution of quantity was proved, the expenses of bringing home the cargo should be
calculated on the diminished quantity. To constitute a constructive total loss, it must be
shewn that the repairs in the case of ship, or the cost of transport in the case of goods, will
equal or exceed their value on arrival: Grainger v. Martin. 8 The rule is broadly laid down in
the judgment of Jervis, C.J., in Rosetto v. Gurney 9, where it is said: “The question to be
submitted to the jury will be,—was it practicable to send the whole or any part of the cargo to
its place of destination, Liverpool, in a marketable state? To determine this question, the jury
must ascertain the cost of unshipping the cargo, the cost of drying and warehousing it, the
cost of transhipping it into a new bottom, and the cost of the difference of transit, if it can
only be effected at a higher than the original rate of freight. Add to these items the salvage
allowed in proportion to the value of the cargo saved; and the loss will be total, if the
aggregate exceed the value of the cargo when delivered at Liverpool, the port of discharge.
But, if the aggregate do not so exceed the value of the cargo, or of that part of it saved, the
loss will be partial only.” That was a question of constructive total loss. Notice of
abandonment had been given. Similar doctrine is laid down by the Court of Exchequer in
Reimer v. Ringrose. 10
Mellish, Q.C. ( Brett, Q.C. , and C. Russell. , with him), contrà, was desired by the Court to
direct his attention to the arguments by which the sale could be justified.
The jury found that the sale of the ship and cargo was under the circumstances justifiable;
and there is no objection to the way in which the question was left to them; nor is the rule
moved on the ground that the verdict was against the weight of evidence. The only question
therefore is, whether or not there was fit evidence to be left to the jury in justification of the
sale. The doctrine of Reimer v. Ringrose 11 and Rosetto v. Gurney 12 and the cases of that
class has no application here, because the cargo at the time of the sale was in the hands of the
agent of the assured in safety, and the only matter for consideration was, whether or not it
was practicable to forward it to its port of destination so as to be available. It was not enough
to shew that expenses would be incurred in forwarding it, without shewing that these would
exceed its value on arrival. There was abundant evidence here to go to the jury that it was not
possible in a practical sense to send the cargo to England. The dangerous position of the ship,
and her crippled condition, combined with the unfavourable period of the year, made it not
only justifiable but an absolute duty to sell.
CHANNELL, B.
28
This was an action upon a marine policy of insurance on goods from Quebec to Liverpool.
The declaration claimed a total loss. The defendant paid into court as for a partial loss of 23
per cent., and the plaintiffs claimed damages ultra.
From the statement in the case it appears that the vessel with the insured cargo of deal on
board was wrecked in the autumn in the river St. Lawrence, that she lay there all the winter,
and in the spring was sold by auction, when the hull was bought for 450l., and the cargo for
750l., by the same purchaser.
The purchaser succeeded, without much difficulty or expense, in getting them off together
and bringing them safely together to Quebec, where the cargo was sold by him for more than
double the price given for it. The purchase of the hull, however, taken by itself, was a losing
speculation. There was evidence that the cargo could not have been saved in this manner
unless the hull had been purchased also; and that there were some unexpected accidents of
weather and tide which facilitated the getting off of the ship and saving of the cargo by the
purchaser: and it was contended on behalf of the plaintiffs that the owners of the goods were
not bound to purchase the hull, and that the jury should look at the state of the matters as the
hull and cargo lay when they were sold; and that the sale was justifiable, if, as matters then
stood, it would not have been practicable to save the cargo, and send it on to its destination,
without purchasing the hull.
In order to support this view of the case, they gave evidence that the value of the cargo, if it
had been sent on and had arrived in Liverpool, would have been 4300l., which, deducting the
bill of lading freight of 1556l., would leave a net value of 2744l. They also gave in evidence a
calculation that, in order to send it on from the place where it lay in peril in the wrecked
vessel, it would be necessary to land it, then raft it to a vessel brought down for the purpose,
and re-load it as weather permitted; and they made out an estimate of these expenses, as
follows:—
£ s. d. The cost of landing it … 350 0 0 To raft it to another vessel and re-load it . 700 0 0
Increased freight in addition to the original freight of 1556l., freights having risen between
the date of the original shipment and of the opening of the navigation of the river, when
another vessel could have been chartered … 296 0 0 Additional freight that would have been
charged for lying off to take the cargo from where it was stored instead of loading it at
Quebec … 700 0 0 £2046 0 0
And evidence was given, that, besides all these, there would probably have been a loss by
depreciation, which was variously estimated by the witnesses,—the highest estimate being 12
per cent on the Liverpool value, or £515, which if added to the £2046 would bring up the
expenditure to £2561.
The plaintiffs also gave evidence that, in the ordinary state of the weather, there would be risk
of loss of some portion of the cargo during the operations of landing, rafting, and re-shipping
it, and that, if the weather was unfavourable, that risk would be greater.
No notice of abandonment was given.
On this state of the evidence, the judge asked the jury two questions,—first, whether the sale
of the ship was justifiable, which the jury answered in the affirmative, and on which finding
no question is now raised,—secondly (see paragraph 42 of the case), whether it was right to
29
sell the cargo; directing them, “that whether it was right to sell the cargo or not, would
depend on whether the cargo could have been practically carried to its destination, and that he
meant the word ‘practically’ to be understood in its mercantile sense; and that, whether the
cargo could be practically carried to its destination would depend, under all the
circumstances, on whether the cost of bringing the cargo, added to the amount of
depreciation, would have left any appreciable margin of profit.” The jury answered this
question in the affirmative, and the verdict was entered for a total loss, giving leave to the
defendant, as is stated in paragraph 43, “to move to enter a verdict for the defendant, or a
nonsuit, on the ground that there was no evidence of a total loss, and no evidence of a partial
loss exceeding the sum paid into court; or to reduce the damages to the sum actually due as
and for a partial loss: and it was at the same time agreed, that, if the Court should be of
opinion that the loss was not total, the amount of the partial or average loss should, if
necessary, be corrected by the Court, or by an arbitrator to be agreed upon.”
A rule was obtained accordingly, which was after argument discharged by the majority of the
Court of Common Pleas, my Brother Byles dissenting; from which decision this is an appeal.
The first question, therefore, to be determined, is, whether there was evidence on which the
jury might reasonably find that the cargo could not be practically carried on to its destination.
It is to be observed, that, assuming the jury to have believed that the expenses would have
been the maximum amount of which there was any evidence, viz. £2561, yet, on the
plaintiffs' own figures, there would have been a very considerable margin of profit. The
plaintiffs' counsel assumed that this margin of profit was the difference between the
Liverpool value of the cargo, after deducting the original freight, and the expenses of
forwarding it, added to the estimated depreciation,—that is, on their own figures, 183l.; and
they argued that the jury might reasonably estimate the probable loss of cargo during the
operations of landing, rafting, and re-shipping, at an amount which would more than absorb
this margin.
By some oversight not explained to us, the defendant's counsel never called the attention of
the Court of Common Pleas, nor of the Court of Exchequer Chamber, to the cardinal
postulate of the plaintiffs' counsel, that the original bill of lading freight, £1556, was to be
deducted. The case was argued in the court below on the assumption that the only question
was, whether there was evidence to justify the jury in finding that the probable loss might
have been so high as to absorb the £183; and the judges, not having their attention called to
the matters which the counsel took for granted, considered it in that way only. The majority
of the Court (taking it for granted that this was the proper question) thought that there was
evidence on which the jury might find for the plaintiffs to that extent. My Brother Byles
thought there was not. In this Court, the argument had proceeded a great way, in the sittings
after Easter Term, before it occurred to a member of the court of error as then constituted 29,
that we were not considering the right question; for, that, unless the Court of Common Pleas
in Rosetto v. Gurney 30 had laid down a wrong rule, the question was, whether there was
evidence that would justify the jury in finding a loss which would account for the difference
between the estimated depreciation and the cost of forwarding, and the Liverpool value,
without deducting the original bill of lading freight of 1556l.; and, consequently that the
plaintiffs had to shew that there was evidence to justify their finding a probable loss of cargo
to the extent of more than 1739l.
30
Mr. Mellish had the opportunity of preparing himself to meet this view of the case; and in the
sittings after Trinity Term he was heard at length upon this point before the Lord Chief
Baron, my Brothers Blackburn, Mellor, Pigott, Shee, and myself. And we are all of opinion
that, where goods are in consequence of the perils insured against lying at a place different
from the place of their destination, damaged, but in such a state that they can at some cost be
put into a condition to be carried to their destination, the jury are to determine whether it is
practically possible to carry them on, that is, according to the well-known exposition in Moss
v. Smith, whether to do so will cost more than they are worth; and that, in determining this,
the jury should take into account all the extra expenses consequent on the perils of the sea,
such as, drying, landing, warehousing, and reshipping the goods, but that they ought not to
take into account the fact that if they are carried on in the original bottom, or by the original
ship-owner in a substituted bottom, they will have to pay the freight originally contracted to
be paid; that being a charge to which the goods are liable when delivered, whether the perils
of the sea affect them or not. And we also agree that Rosetto v. Gurney correctly decides that,
where the original bottom is disabled by the perils of the seas, so that the ship-owner is not
bound to carry the goods on, and he does not choose to do so, the jury are not to take into
account the whole of the cost of transit from the place of distress to the place of destination,
which must be incurred by the goods owner if he carries them on, but only the excess of that
cost above that which would have been incurred if no peril had intervened.
To hold otherwise would be to enable the assured owner of goods to bring into account the
whole of the freight whenever the cost of obtaining a substituted bottom exceeded the
original freight, however small the excess may be: for, in such a case, the ship-owner would
never carry on the goods for the purpose of earning his original freight, though he might,
perhaps, do so as agent of the goods owner; whilst no part of the freight could ever be
charged when the cost fell short of the original freight, in which case the ship-owner would
forward them. This would be a very unsatisfactory state of the law; and we are of opinion that
the case of Rosetto v. Gurney which prevents that result, was correctly decided. Then,
applying this to the facts in the present case, it becomes obvious that, whilst it is doubtful
whether there was evidence justifying the verdict, if the jury had to deal with a margin of a
little more than 5 per cent of the value of the goods, there is clearly none justifying it when
they had to deal with a margin of about 40 per cent.
Mr. Mellish, indeed, said that there are cases in which a thing in extreme and imminent
danger of immediate destruction may be justifiably sold, although in the event it turns out that
it survives the peril, to the great benefit of the purchaser. But there is not in this case any
evidence of such a state of imminent and immediate peril as could justify the verdict for a
total loss upon this ground.
We think, therefore, that the rule to set aside the verdict for a total loss must be made
absolute.
This renders it unnecessary to consider the question principally argued in the court below, as
to the necessity of a notice of abandonment. On that point we leave the authority of the
decision of the Court below untouched, neither confirmed nor weakened by anything that has
taken place in this Court.
On the remaining question, whether the partial loss does or does not exceed the amount paid
into Court, we are absolutely without materials for forming a judgment. The only course
which seems practicable is that on which the parties seem to have agreed at nisi prius, viz.
31
that an arbitrator should find the figures, and raise and state for the Court of Common Pleas
any question of principle involved, arising on his findings.
Rule accordingly.
Case Study Sixteen
[Deprived of possession of ship or goods]
Section 60 (2) (i) states … there is a constructive total loss:
(i)Where the assured is deprived of the possession of his ship or goods by a peril insured
against; and
(a) It is unlikely that he can recover the ship or goods, as the case may be;
(b) The cost of recovering the ship or goods … would exceed their value when
recovered
Moore v Evans [1918] AC 185
The Issues
Insurance—Policy on Jewellery—"Loss of damage or misfortune to" the Goods—Jewellery
consigned Abroad on Sale or Return—Outbreak of War with Country of Consignee—
Inability of Consignee to deal with Goods—Loss under Policy.
The Facts
The plaintiffs, who carried on business in London as dealers in jewellery, insured their stock
of jewellery by a non-marine policy for a year between January 8, 1914, and January 7, 1915,
against "loss of damage or misfortune to the before-mentioned property or any part thereof
arising from any cause whatsoever" whilst the goods were in the United Kingdom or any
country in Europe (with certain exceptions) and in transit from any port in the United
Kingdom or Europe to any other port in the United Kingdom or Europe.
Between June 16 and July 22, 1914, the plaintiffs consigned certain pearls so insured to trade
customers in Frankfort-on-Main and Brussels on sale or return on the terms that the pearls
remained the property of the plaintiffs until invoiced by them. In the ordinary course of
business jewellery so sent on approval remains with the consignee for a limited period to give
him an opportunity of selling it.
By reason of the outbreak of war between Great Britain and Germany on August 4 and the
occupation of Brussels by the Germans on August 20, 1914, it became impossible for the
plaintiffs to recover possession of the pearls. There was no evidence that the pearls had been
seized or specifically interfered with by the German authorities. As to the pearls sent to
Frankfort there was no evidence that they had not remained in the possession of the
consignees; and as to the pearls sent to Brussels the consignees had, with the subsequent
32
assent of the plaintiffs, placed them in a bank there for safe custody, and there was no
evidence that they had not remained in the bank.
On February 16, 1915, the plaintiffs brought this action on the policy, claiming as for a total
loss.
Rowlatt J. held that there had been a total loss of the goods and gave judgment for the
plaintiffs. The defendant appealed.
Held, on appeal that the policy was on goods and not on an adventure, and that the evidence
did not establish a loss under the policy.
Held, that, the policy being on goods and not on an adventure, the evidence did not establish
a loss under the policy.
LORD ATKINSON.
The perils to the property insured against are “the loss of and/or damage or misfortune to the
before mentioned property or any part thereof arising from any cause whatsoever,” whether
arising on land or water, save and except loss by theft or dishonesty committed under
circumstances named by certain agents of the assured, and also except loss by theft or
dishonesty committed by any broker or customer in respect of goods entrusted to them by the
assured or their servants or agents, unless such loss arises when goods are deposited for safe
custody by the assured, their servants or agents, with such broker or customer.
Theft or dishonesty on the part of any of the appellants' customers cannot, of course, be
presumed, but if it did take place the appellants would not in the cases specified have any
right to recover. In the enumeration of the perils insured against the words “damage to the
property” must mean, I think, “physical injury” to the property, but it is difficult to attach any
rational meaning to the words “misfortune to the property” other than “loss or physical
injury.” The detention of the appellants' goods abroad may be a misfortune to the appellants
themselves; but it is difficult to see how it can be a misfortune to their goods; and, indeed, the
main contention of the appellants has been that this detention, considering the commercial
purposes for which the appellants had acquired and held these goods, amounted to a total loss
of them within the meaning of the policy. They did not rely much upon the words
“misfortune, &c.” It is not pretended in this case that the policy is a marine policy on goods;
it was not argued, it could not be argued rationally, that, this being a non-marine policy, the
appellants could recover for the loss or defeat of the adventure on which the goods were
embarked. But the whole argument addressed to your Lordships on behalf of the appellants
resolved itself into a sustained and elaborate endeavour to apply to the non-return of these
goods the principles of the law of maritime insurance applicable to ships. The method
pursued was this. Some passage from a judgment of a distinguished judge dealing with the
loss of a ship, or of the goods carried by her and covered by a marine policy, was severed
from the subjecta materia and applied to the present case.
A good illustration of this is afforded by the use made of a passage culled from the judgment
of Lord Abinger in the case of Roux v. Salvador. That very learned lawyer was dealing with a
case where the goods were, by one of the perils of the sea insured against, reduced to such a
putrescent condition that they could not be carried to their journey's end. He said:
33
“But if the goods once damaged by perils of the sea, and necessarily landed before the
termination of the voyage, are, by reason of that damage, in such a state, though the species
be not utterly destroyed, that they cannot with safety be reshipped into the same or any other
vessel; if it be certain that, before the termination of the original voyage, the species itself
would disappear, and the goods assume a new form, losing all their original character; if,
though imperishable, they are in the hands of strangers not under the control of the assured; if
by any circumstance over which he has no control they can never, or within no assignable
period, be brought to their original destination; in any of these cases, the circumstance of
their existing in specie at that forced termination of the risk, is of no importance. The loss is,
in its nature, total to him who has no means of recovering his goods, whether his inability
arises from their annihilation or from any other insuperable obstacle.”
And then this last paragraph is applied to the present case, and it is argued that here from the
first no person could assign a period to the duration of the war; that, during the twelve months
covered by the policy, within which the loss must occur to give a cause of action on the
policy, the goods were in the hands of strangers over whom the assured had no control; that
the appellants, owing to an insuperable obstacle, the state of war, cannot recover their goods;
therefore they are totally lost. To which is added the argument that the appellants are traders;
the jewels were part of their stock-in-trade acquired by them for the purpose of sale or barter;
that they have been for all this time disabled from disposing of them; that the goods are
therefore lost to them, since they cannot dispose of them in their trade, though they might not
be so to an owner who merely acquired them for ornament. This, I think, is rather to
confound loss of the goods with the loss of the market for them. If the goods were returned to
the appellants to-morrow they would have lost the use of them in their trade since January,
1914. Then cases such as Shepherd v. Henderson were cited, which was a case of
constructive total loss, notice of abandonment having been duly served. In the present case no
notice of abandonment has ever been served, so constructive total loss is out of the question.
It must be actual total loss or nothing.
It does not appear to me that there is any true analogy whatever between this case and the
case of the loss of a ship or the goods it carries under a marine policy. I do not think the
principles of the law of marine insurance apply, or that the numerous authorities which have
been cited, other than two with which I shall presently deal, afford any help to the
construction of this non-marine policy, or to the ascertainment of the true meaning of the
word “loss” used in it - for this reason.
Marine insurance grew out of the necessities of maritime trade and commerce. It dealt with
the hazardous enterprise of the navigation of the sea by ships carrying cargo for reward. The
law dealing with it is a branch of the law maritime as well as of the law merchant. It is
founded upon the practices of merchants who were themselves for long the expounders of its
principles, which principles general convenience had established in order to regulate the
dealings of merchants with each other in all countries. Its utility, according to Marshall on
Marine Insurance, 3rd ed., vol. i., pp. 3 et seq., cannot be better expressed than in the words
of the preamble of a very early statute, 43 Eliz. c. 12, which recites that by means of policies
of insurance “it cometh to pass upon the loss or perishing of any ship, there followeth not the
undoing of any man, but the loss lighteth rather easily upon many than heavily upon few, and
rather upon them that adventure not than those that do adventure, whereby all merchants,
especially of the younger sort, are allured to venture more willingly and more freely.”
34
One can readily understand that those willing to adventure, who had possessed themselves of
expensive but money-making chattels like ships for the purpose of their adventures, should, if
they insured, be protected as far as possible from having their capital locked up unprofitably
in ships whose fate they were unable actually to ascertain and prove. Hence it was that ships
which had sailed and had not been heard of for a length of time were presumed not merely to
have been lost, but to have foundered at sea, so that the owner would be at once entitled to
recover the full amount under his policy.
So, also, as soon as these marine policies came to be regarded as indemnities and not
wagering policies, the law of constructive total loss based upon notice of abandonment was
shaped and moulded by decisions of Lord Mansfield about the middle of the eighteenth
century. The doctrine had its origin in cases of the capture. Goss v. Withers 2 Burr 683 and
Hamilton v. Mendes 1 W Bl 276, were both cases of capture and recapture, and were
apparently based upon the principle that the assured should not be obliged to wait till he had
definitely ascertained whether his ship had been recaptured or not, but might upon capture
proceed at once and, after notice of abandonment, recover his capital, the value of his ship,
from the underwriters, provided he was not aware of her recapture when he commenced his
action.
The laws of the two countries forbid the discharge of this obligation save with the consent of
both Sovereigns; but that disability to discharge this obligation does not relieve them of the
other obligation to keep the goods safely for the plaintiffs till the termination of the war, or
till by the consent of both Sovereigns they are permitted to return them earlier. On the
evidence as it stands I think the appellants have failed on every point. The decision of the
Court of Appeal was in my opinion absolutely right, and the appeal should be dismissed with
costs…
Order of the Court of Appeal affirmed and appeal dismissed with costs.
This case may be contrasted with the more recent case of
Lloyd’s Rep 312,
The Bamburi [1982]
below, where the term “deprivation of possession was given an
extended meaning.
Case Study Seventeen
The Facts
The vessel "B" was a specialised cement carrier, which in September 1980 carried a cargo to
Iraq. The vessel was insured under Lloyd's War Risk Policy with Institute War & Strikes
Clauses attached. By reason of War Risk Trading Warranties, the Persian Gulf North of 24
degree North was an excluded area subject to payment of an additional premium to reinstate
cover. Because of fighting in the vicinity of the port where the vessel had berthed, the
authorities forbad all movements of merchant shipping. A skeleton crew was kept thereon
until the date of award. The question whether the vessel was a constructive total loss by
reason of an insured peril when C gave notice of abandonment to R on September 30 and
October 14, 1981 was arbitrated, as a test case on various hypotheses.
35
Held, that (1) the order of the Iraqi government was a restraint of princes; (2) as to whether
that order continued to be the proximate cause until notice of abandonment was given, on the
facts there was no present release of ships, so the detention continued as the proximate cause;
(3) there was no loss, however, by hostilities or warlike operations;
(4) C had been deprived of possession, by losing free use and disposal;
(5) on September 30 and October 14, 1981 it was unlikely that C would recover possession
within a reasonable period, namely 12 months;
(6) if the loss had been proximately caused by hostilities or warlike operations, the "long J"
exclusion clause would have excluded such liability; (7) if there had been no restraint of
princes, there would have been no closure as a deliberate act for the purposes of "R.J.M.
Exclusion J" wording; (8) the Institute Detainment clause would have made no difference to
the result; (9) as to the vessels at Basrah, without evidence of the number and situation of
unexploded explosives, it was impossible to say that their detention was due to hostilities or
warlike operations, but there was clearly a restraint of people; (10) as to the American
Institute Hull War Risks and Strikes Clauses, the exclusion in line 42 was to be construed
against the insurers as ambiguous; lines 43 and 44, referring only to physical damage, did not
apply; by reason of lines 72-73, the loss had to be proximately caused by restraint or
hostilities, and therefore the insurers were liable unless they had incorporated the long J
exclusion.
Staughton, J.
The concept of possession in English law was never simple, whether under the Larceny Act
1916, or elsewhere. It is admitted that if possession has its narrowest legal significance in the
present case, the claimants have not been deprived of it. There are still four crew members on
board the ship, who are there by virtue of the claimants’ title; there is no Iraqi presence on
board; and neither the Iraqi nor the Iranian government asserts any right to, interest in or
claim over the vessel.
On the other hand, it is alleged, and I find, that the owners have been wholly deprived of the
free use and disposal of their vessel. All movements of the ship is prohibited. There is not
even an opportunity similar to that afforded to the owners of ships trapped in the Suez Canal
some years ago, of organising races in the Great Bitter Lake on Sunday afternoons. She must
remain idle as painted ship
[Therefore, the claimants were deprived of possession, by virtue of losing the free use and
disposal of their vessel]
Case Study Eighteen
The concept of “unlikely” to recover the ship or goods in se 60 (2) (i) (a). The genesis of this
term has yet to be located; it first appears in the Act, in lieu of “uncertainty of recovery”,
which was widely used prior to the enactment of the Marine Insurance Act 1906. This change
was, according to some, for example Warrington J in the following case, bought at the
expense of the assured; it requires a higher standard of proof, the Polurrian, below, being a
case in point.
36
Polurrian Steamship Co Ltd v Young [1915]
1 K.B. 922
Insurance (Marine)—Warranty of Freedom from Capture—Capture of Neutral Ship by
Belligerents—Constructive Total Loss—“Unlikely that he can recover the ship”—Marine
Insurance Act, 1906 (6 Edw. 7, c. 41), s. 60, sub-ss. 1, 2 (i).
A neutral ship carrying a cargo of Welsh coal, bound for Constantinople, and insured for
£23,000 against the consequences of warlike operations was captured by a belligerent,
deprived of her cargo, and detained for about six weeks, when she was released. In the
meantime, the owners gave notice of abandonment in writing to the insurers. The defendants
admitted that the ship was detained but denied that she was captured, and contended that at
no material time was it unlikely that the plaintiffs would recover her.
In an action claiming to recover on the policy:
Held, on the facts, affirming the decision of Pickford J., that if the present action had come on
for decision before the Marine Insurance Act, 1906 , the owners would have been entitled to
recover upon the policy of insurance as for a constructive total loss; that before 1906, if the
taking of the vessel out of the possession of the owners continued in operation at the
commencement of the action and the owners' loss, once total, was one which might be
permanent and was at any rate of uncertain continuance, they were entitled to recover for a
constructive total loss; but that by the Act of 1906 the test of “unlikelihood of recovery” had
been substituted for “uncertainty of recovery”; and that the owners had not shown that there
was more likelihood that they would not, than that they would, recover the ship, and their
claim failed.
WARRINGTON J.
The question for our determination upon the appeal in this case is whether or not, on October
26, 1912, when the plaintiffs, the owners of the steamship Polurrian, gave notice of
abandonment of that vessel to the defendant, the insurer, and are, by agreement, to be taken
as having issued the writ in this action, the state of things was such as to entitle the plaintiffs
to recover upon the policy of insurance as for a constructive total loss.
Pickford J. has dismissed the plaintiffs' claim; and the plaintiffs have appealed to this Court
against his decision.
The plaintiffs allege, and the defendant denies, that on October 26, 1912, there was a
constructive total loss of the Polurrian by one of the perils thus insured against. Now it is
indisputable that, according to the law of England, in deciding upon the validity of claims of
this nature between the assured and the insurer, the matters must be considered as they stood
on the date of the commencement of the action. That is the governing date. If there then
existed a right to maintain a claim for a constructive total loss by capture, that right would not
be affected by a subsequent recovery or restoration of the insured vessel. (See the judgment
of Collins J. in Ruys v. Royal Exchange Assurance Corporation [1897] 2 KB 135, which
reviews the history of the law upon this point.)
37
The fair result of the evidence, in regard to the position of the Polurrian on October 26,
whether viewed apart from subsequent events, as I think it should be, or by the light of those
events, was, in my judgment, one in which her ultimate release from capture was a matter of
uncertainty. There was, of course, a possibility that she would be released after the cargo had
been discharged out of her without her being subjected to adjudication in the Greek Prize
Court; there was a good ground for belief that the Greek Government would release the
vessel, being a neutral vessel, as in fact they did, without waiting for the decision of a Prize
Court, if that Government could be persuaded that the master of the Polurrian was pursuing
his voyage in ignorance of the war, and that at all events the Prize Court would be satisfied of
this when the evidence of the master was before it. On the other hand, the Greek admiral
believed that he had an admission from the master that he did know of the war, and both he
and the Greek Government did take the view which finds expression in the judgment given
by the Greek Prize Court, as appears by their judgment, published October 29, 1913, that if
this knowledge existed “it could well be considered that both the vessel and the cargo were
subject to seizure,” or, as Henderson's telegram from Athens of October 28 puts it, and Harris
& Dixon's letter to the plaintiffs of the same date puts it, that the Polurrian might be
considered lawful prize.
Even if the Polurrian should be released, either by the Greek Government or by the decision
of a Prize Court, the date of such release was obviously uncertain; it might be weeks or
months, or longer, before the matter would be settled. Assuming that this was, as it appears to
me to have been, the true position of affairs, I am of opinion that if the present action had
come to be decided before the Marine Insurance Act, 1906, had come into force, the plaintiffs
would have been held to have been entitled to recover upon the policy of insurance as for a
constructive total loss. According to the law as it stood before the passing of that Act, the
seizure or arrest or detention of a vessel for that which is either avowedly or obviously a
temporary purpose, which will end within a period not, from the commercial standpoint,
unreasonably long, as in the case cited by Arnould on Marine Insurance, 9th ed., vol. ii., s.
1108, from Emerigon, gives no ground of abandonment. But if the taking of the vessel,
lawful or unlawful, out of the possession of the owner was, at the date of the commencement
of the owner's action to enforce his notice of abandonment, a taking which still continued in
operation, and the owner's loss of the use and disposal of the ship, once total, was at that date
one which might be permanent, and was, at any rate, of uncertain continuance, the owner
who had duly given notice of abandonment was held by English law entitled to recover upon
his insurance for a constructive total loss.
In giving judgment in Goss v. Withers 2 Buur 683 Lord Mansfield, in a passage which is
quoted by Lord Halsbury in Andersen v. Marten [1908] AC at 340, observed: “The ship is
lost by the capture though she be never condemned at all, nor carried into any port or fleet of
the enemy; and the insurer must pay the value.”
In De Mattos v. Saunders [LR 7 CP 570, 579] Willes J., in a passage which is quoted in the
judgment of the Privy Council in Cossman v. West 13 App Cas 160 said:
“The cases cited of hostile seizure and condemnation by a Prize Court have no application. In
such a case the original seizure is prima facie a total loss.” … “A vessel by being captured is
certainly lost to its owner; but, as in one case where the question arose, a vessel may be taken
and retaken before anyone knows of the loss, and as the contract of insurance is mainly a
contract of indemnity, one can see how the Courts would struggle against a large profit being
made out of such a contract.” (Per Lord Halsbury L.C., Sailing Ship “Blairmore” Co. v.
38
Macredie [1898] AC 593). Marshall, in his standard work on the Law of Marine Insurance, p.
403 (4th ed., 1861), after adverting to the law of France, which then fixed a period of six
months before an arrest of a ship in Europe could be treated by the owner as a total loss,
proceeds:
“In England, the rule is more just, for there, from the moment of a capture or arrest, the
owners are considered as having lost their power over the ship and cargo and are deprived of
the free disposal of them; because, in the opinion of the merchant, his right of disposal being
suspended or rendered uncertain, it is equivalent to a total deprivation; it is therefore
unreasonable to oblige the insured to wait the event of a capture, detention or embargo.”
But whilst, if the law to be applied was the law as it stood before the Marine Insurance Act,
1906, came into force, I should, as I have said, have held upon the facts as I understand them
that the plaintiffs were entitled to succeed in this action, we have now to consider the case as
the law has been established by the relevant provisions of that Act. It is an Act, as appears by
its title, to codify the law relating to marine insurance; but if the Court finds that in plain and
unambiguous language it has altered pre-existing law, its duty is to decide in accordance with
the change.
The section which governs the present case is s. 60, sub-ss. 1 and 2. So far as it relates to a
constructive loss by capture that section runs thus:
“(1.) Subject to any express provision in the policy, there is a constructive total loss where the
subject-matter insured is reasonably abandoned on account of its actual total loss appearing to
be unavoidable … (2.) In particular there is a constructive total loss— (i.) where the assured
is deprived of the possession of his ship … by a peril insured against and (a) it is unlikely that
he can recover the ship.”
One may, I think, without disrespect, express some regret that the two expressions
“reasonably abandoned on account of its actual total loss appearing to be unavoidable” and
“unlikely that he can recover the ship” should be used apparently to describe the same
position of things; for in my view, at any rate, it is one thing to predicate that a total loss of a
thing reasonably appears to be unavoidable and another to predicate that its recovery is
unlikely. Taking, however, the latter and, as it seems to me, the less severe test of the right to
treat a capture as constituting a constructive total loss, I think that the statute has modified the
pre-existing law to the disadvantage of the assured. One is always properly afraid of
incompleteness in attempting a definition; but I venture to say that the test of “unlikelihood of
recovery” has now been substituted for “uncertainty of recovery.” The assured must now
show two things: the first, that he has been deprived of the possession of his ship; the second,
that it is unlikely that he can recover it. Whence the statute derived the phrase “unlikely that
he can recover” as expressing a necessary condition of the assured's right to recover for a
constructive total loss by capture I do not know. I have referred to many of the reported
capture cases, and I have been unable to find it used judicially in any of them; but there it
stands in the section of the Act of Parliament; its meaning is quite clear, and therefore in the
present case, to enable the plaintiffs to succeed, they must establish fully (1.) that at the date
of the commencement of this action they were deprived of the possession of the Polurrian ;
and (2.) that it was not merely quite uncertain whether they would recover her within a
reasonable time, but that the balance of probability was that they could not do so.
39
They have, as my brother Pickford has held, and I quite agree with him, made the first point
good—the Greek captors did deprive the plaintiffs of the possession of their ship. Have they
also shown that there was more likelihood that the plaintiffs would not, than that they would,
recover her? The test is, in my humble judgment, one the application of which in this case is,
and generally, in similar cases of capture, would be, very difficult to apply with any sense of
satisfaction, because it necessarily involves conjecture and speculation as to what is likely to
be the outcome of a number of possible contingencies. Addressing myself, however, to the
best of my ability to the question which this s. 60 directs me to consider, my conclusion is
that whilst I hold that on October 26—the crucial date, because the date of the
commencement of the plaintiffs' action—the recovery of the Polurrian by her owners was
quite uncertain, I do not feel myself justified in holding that the balance of probabilities has
been proved to me so clearly against her recovery that I can say that such recovery was
“unlikely.” This being so, the plaintiffs must be held to have failed to make out their case,
and this appeal must be dismissed.
Appeal dismissed.
Similarly, the word “unlikely” was examined in Court Line Ltd v King “Lavington Court”
[1945] 78 LlL Rep 390. In this case a vessel was chartered by the Ministry of War and
Transport was torpedoed in the Atlantic while travelling in a convoy. The master and crew
abandoned her immediately, but it did not sink until two weeks later. The question was when
did abandonment take place: when she was abandoned by the crew or when she actually sank.
Stable J had occasion to consider the question of unlikelihood of recovery and had this to
say:
“In order to substantiate a constructive total loss under this sub-section, the crown must
establish that the ship-owner was deprived of the possession of the ship and that it was at the
time of such deprivation unlikely that he could recover her… The word used is “unlikely”,
and seems to connote a degree of probability, somewhere between mere uncertainty on the
one hand and inevitability on the other…”
Furthermore, the question of whether the assured is likely or unlikely to recover his vessel
was considered by Porter J in Marstrand Fishing Co Ltd v Beer [1937] 1 KB 158, the relevant
extract of which reads as follows:
Porter J.
“I cannot say that, in my view, on the balance of probabilities, she was more likely to be lost
than recovered. To my mind, it is a case exactly on all fours with that of Polurrian, her
recovery being uncertain, but not unlikely. If I had been asked to say: “Is she more likely to
be lost than to be recovered?” I should have felt obliged to reply: “I do not know”… For my
part, I am left in complete darkness as to whether Girl Pat was likely or unlikely to be
recovered, and I must hold that she was never a constructive total loss and that her owners
cannot recover”.
Wright LJ adopted the same approach in Rickards v Forestal [1941] 3 All ER 62, the details
of which were recounted.
LORD WRIGHT.
40
It was in both courts, in my opinion, rightly held that the act of the master in sailing from Rio
constituted a restraint of princes within the words incorporated in the policy: "capture seizure
arrest restraint or detainment .... also the consequences of hostilities or warlike operations."
These words were intended to repeat the words printed in the body of the policy, "enemies,
takings at sea, arrests, restraints and detainments of all kings, princes and people." It is also
clear that it is this peril or class of perils which is dealt with in the frustration clause.
Diversity of expression in respect of the same matter is common in marine insurance policies.
It is notorious that a policy of marine insurance is in many ways an obscure, loosely drawn,
and inaccurate instrument, if I may quote from the language of such judges as Lord
Mansfield, Chief Justice Marshall in the United States, Buller J., and others. The form of the
modern policy has grown up on the basis of the traditional policy, the origin of which dates
back to the middle ages. The particular policy in question here, which is in fact simply a
policy on goods, states that it is also upon "the body, tackle, apparel, ordnance, munition,
artillery, boat and other furniture, of and in the good ship or vessel called the Minden," but no
one attends to these words because everybody knows that it is the goods which are insured.
The policy is further complicated by the practice of adding clauses and also of superimposing
attached slips, all of which may have to be taken into account. At the same time it must be
remembered that the uncertainties and obscurities in the policy may be largely attributed to
the subject-matter. As Phillips remarks in his Insurance, vol. i., p. 5 (Boston, 1867): "A
contract embracing so many interests and parties and liable to be affected by so many events
cannot but be subject to some difficulties of construction, however carefully it may be
drawn." In England the codifying Act, the Marine Insurance Act, 1906, has done much to
simplify the law, but it would be an insufficient guide were it not supplemented by the
decided cases. Indeed, s. 91, sub-s. 2, in terms provides that "the rules of the common law,
including the law merchant, save in so far as they are inconsistent with the express provisions
of this Act, shall continue to apply to contracts of marine insurance." The Act is merely
dealing with a particular branch of the law of contract, namely, contracts of marine insurance.
Subject to various imperative provisions or prohibitions and general rules of the common
law, the parties are free to make their own contracts and to exclude or vary the statutory
terms. The object both of the legislature and of the courts has been to give effect to the idea
of indemnity, which is the basic principle of insurance, and to apply it in the diverse
complications of fact and law in respect of which it has to operate. In this way the law
merchant has solved or sought to solve the manifold problems which have been presented by
insurances of maritime adventures.
The word "unlikely" did, however, involve a change in the old law. This matter was
discussed and decided, rightly as I think, by the Court of Appeal in the Polurrian case. The
insured steamer had been captured by the Greek government for carrying contraband of war
during the war between Greece and Turkey in 1912. The captor took out of her the
contraband cargo and put the vessel into the Prize Court, but the innocent carriage of
contraband is not generally regarded, according to international law, as involving the
condemnation of the vessel. The master denied that he knew that war was on foot when he
was carrying the goods, but at the date of the issue of the writ his innocence was contested by
the captors. It was, therefore, at that date "uncertain if she would be released. At the date of
the trial she had been released. It was held that while it was "uncertain" whether the assured
would recover the vessel within a reasonable time, it was not in all the facts "unlikely" that
they would do so. Kennedy L.J., in his judgment, quoted the authorities and stated the law
before the Act to have been that, if the taking of the vessel out of the owner's possession was
at the date of the commencement of the action to enforce his claim, a taking which still
41
continued in operation, and the owner's loss of the use and disposal of the vessel, once total,
was at that date one which might be permanent and was at any rate of uncertain continuance,
the owner who had duly given notice of abandonment was by English law entitled to recover
on his insurance for a constructive total loss, even though he had at the date of the trial
recovered the subject of the insurance. The underwriter had to pay as for a total loss, but took
the recovered subject as salvage. The learned Lord Justice found it difficult to reconcile the
words "reasonably abandoned on account of its actual total loss appearing to be unavoidable,"
in sub-s. 1 of s. 60, with the words "unlikely that he can recover the ship," but, taking the
latter as the true test in the particular case, held that the statute had modified the pre-existing
law to the disadvantage of the assured. I agree with that conclusion. There is a real difference
in logic between saying that a future happening is uncertain and saying that it is unlikely. In
the former the balance is even. No one can say one way or the other. In the latter there is
some balance against the event. It is true that there is nothing in the Act to show what degree
of unlikelihood is required. If on the test of uncertainty the scales are level, any degree of
unlikelihood would seem to shift the balance, however slightly. It is not required that the
scale should spring up and kick the beam.
In the present case, in my opinion, it was unlikely that the goods would be recovered. The
odds were all against it. When the Minden sailed from Rio under the orders of the German
government it was, I think, not merely uncertain that she would evade the British blockade. It
was, in my opinion, unlikely. If she had been captured it was, no doubt, likely that the assured
would have regained possession of their goods, but the orders of the German government had
provided against that contingency by requiring the master to scuttle the ship, as he in fact did.
[The Cost of Repairing the Damage]
Section 60 (2) …
(ii) In the case of damage to a ship, where she is so damaged by a peril insured against that
the cost of repairing the damage would exceed the value of the ship when repaired.
In estimating the cost of repairs, no deduction is to be made in respect of general average
contributions to those repairs payable by other interests, but account is to be taken of the
expense of future salvage operations and of any future general average contributions to which
the ship would be liable if repaired; or
(iii) In the case of damage to goods, where the cost of repairing the damage and forwarding
the goods to their destination would exceed their value on arrival.
So, in order to come within the four corners of the section 60 (2) (ii), (iii), the assured must
prove that the cost of repairing the vessel or the goods and forwarding them to their final
destination would not exceed the value of the wreck or the cost of the goods on their arrival
goods.
It is proposed, before considering the preceding provisions, to examine the law before the
latter came into force, with a view to highlighting the problems posed by changes brought by
the Act. The following three cases germane to the point.
42
Angel v Merchants' Marine Insurance Co
[1903] 1 K.B. 811
The Facts
By a policy of marine insurance a ship thereby insured was valued at £23,000, and that sum
was to be taken to be the “repaired value,” in ascertaining whether the vessel was a
constructive total loss. The ship ran upon rocks off the coast of Sicily, and the owner
thereupon gave notice of abandonment, which was not accepted by the underwriters. A
salvage association, acting by the consent, and for the benefit, of all parties concerned, got
the ship off, and she was temporarily repaired, so as to enable her to be brought to an English
port. The shipowner brought an action on the policy, claiming as for a constructive total loss.
Bingham J, at first instance, found that, if the ship were permanently repaired, the total cost
of repairs would amount to £22,559, and he refused to take into consideration the value of the
wreck. He therefore held that there was not a constructive total loss of the ship. On Appeal
Held, (by Vaughan Williams L.J., Stirling L.J., and Mathew L.J., the first mentioned
doubting), that the shipowner was not entitled to add the value of the wreck to the cost of
repair, in determining whether there was a constructive total loss of the ship.
VAUGHAN WILLIAMS L.J.
This is an appeal from the judgment of Bigham J. in favour of the defendants in an action
claiming as for a constructive total loss on a policy on ship. The ship was wrecked on the
coast of Sicily, being driven on the rocks. There was from the first the hope that the ship
might be got off, but the plaintiff (the shipowner) gave a notice of abandonment to the
underwriters, which they did not accept. The ship was floated and brought to Malta by the
operations of the salvage association acting for the benefit of all concerned, on the terms that
they were to receive nothing unless the ship was salved. The cost of these operations was
afterwards assessed at £3500. The ship was to a certain extent repaired at Malta with a view
to her proceeding under steam to Cardiff for permanent repairs. The underwriters agreed with
the master for the navigation by the ship's crew of the ship when repaired from Malta to
Cardiff for a sum of £1400. The repairs somehow or other, although certified by surveyors to
be sufficient, broke down almost immediately after leaving Malta; the fact being that it was
only possible to get repairs of a very temporary nature done at Malta. The ship was nearly
lost, but succeeded in getting into Tunis. She was again temporarily repaired there, but was
not allowed to proceed to England under her own steam, and was towed to Cardiff. Estimates
were obtained at Barry for the repair of the ship, but she was not actually repaired before the
trial before Bigham J. He arrived at the conclusion that £22,559, less some £200 which the
shipowner admitted he could not support, was the proper amount to fix as the cost of repairs.
The repaired value of the ship the learned judge took as £23,000, which by the terms of the
policy was to be taken as the “repaired value” in ascertaining whether the vessel was a
constructive total loss. Bigham J., in estimating the cost of repairs, did not add anything for
the expenses incurred by reason of the accident which compelled the ship to put into Tunis.
43
The shipowner gives his notice of abandonment immediately after the marine accident.
Precise estimates are, of course, impossible, and it seems to me that, unless the insured
shipowner is to take upon himself risks which ought not to be borne by him (such as the risk
whether the ship will be got afloat at all, or, having been got afloat, will arrive at a port for
temporary repairs, and ultimately at home for permanent repairs), a large margin ought to be
added to the figures of cost of repair to cover risks of this sort—risks which a “prudent
uninsured owner” would certainly take into consideration in determining whether he should
repair or sell.
There is, however, another consideration which it is suggested the “prudent uninsured owner”
would certainly in fact have regarded in determining whether he should repair. I mean the
“damaged value” of the ship—that is, the price which could be got for her as she lay
unrepaired, which was, it was said, about £7000. But, unfortunately, this part of the case was
not very thoroughly gone into. The plaintiff in the earlier part of the trial seems to have been
content to rely upon the estimates of cost of repair exceeding the £23,000. Then, when it
seemed likely that the deductions made by the judge would reduce the repairs below the
23,000l., the claim to add the value of the damaged vessel was put forward and discussed, the
judge, however, saying that there was no real evidence of the value. It seems unsatisfactory to
have to discuss an important question of marine insurance law in a case in which the facts,
perhaps, do not raise the question at all.
I do not think that it could be, or was, denied that the value of the damaged ship must be
included in the calculation, if the ship had, in fact, been sold where she was and as she was,
and the question, after sale, had been whether the circumstances justified abandonment. But it
is said that this item of calculation must be disregarded if there is no such sale.
Now in my judgment the “prudent uninsured owner” test was clearly accepted as the proper
test at least down to 1873. The recognition of the test in Irving v. Manning and in Rankin v.
Potter puts the matter, to my mind, beyond argument. Nor do I think that it is possible to say
that Moss v. Smith which was cited in Rankin v. Potter had then been recognised as
substituting for the “prudent uninsured owner” test an arithmetical test turning on the
difference between estimated totals. The prudent uninsured owner test was, I think, adopted
for the very purpose of covering considerations which cannot be embodied in the figures of
an arithmetical calculation.
It seems to me that, perhaps, the authorities could be reconciled if one took the rule to be that
the shipowner could only take into consideration the value of the damaged ship if the cost of
repairs approximated to the “repaired value.” If the damage to the ship by the perils of the sea
is so extensive that it is clear that the cost of repairs will approximate to the “repaired value,”
it would not be reasonably practicable to repair her if a substantial sum could be obtained for
her as she is and where she is, seeing that the expense of repairs would be such that, under the
circumstances, no man of common sense would incur the outlay. Such a ship, as a matter of
business, is totally lost.
It is said that, at the time of the adoption of the “prudent owner” test, the master, through
difficulty of communication and inability to secure with any certainty means of repair, was in
practice apt to consider seriously the question whether he should sell the materials of the ship,
or the ship as she lay, rather than make the attempt to repair. But it is said that nowadays such
a case rarely arises, and that when it does the old test can be applied; but that now the
conveniences of modern times, telegraphic communication, the salvage associations, and
44
Lloyd's agents everywhere, throw on the master but rarely the old alternative, “repair or sell”;
and that in modern times the shipowner ought to guide his conduct as an insured owner
desirous to have regard to the interests of all concerned, and that the damaged ship ought,
whenever it is possible, to be taken to the port where permanent repairs can be effected, and
the arithmetical test applied with something like precision. Such a rule seems to me too
favourable to the underwriter. I think that this contention is open to the criticism that the
shipowner at the moment of election, when he has to exercise the option of giving notice of
abandonment, has really no precise data upon which to act, and that there must always be a
quantity of items, especially the cost of the temporary repairs and the getting of the ship to
the ports of temporary and permanent repair, as there were in the present case, which do not
admit of precision. I doubt whether under the absolute arithmetical test the underwriter really
takes upon him the whole of the risks of the perils of the sea. I think it was a doubt of this sort
which made lawyers of the United States of America adopt the 50 per cent rule.
The final result in this appeal, I think, must be that the judgment of Bigham J. must be
affirmed: first, because I doubt whether in any case we ought to reverse his decision on this
question of marine insurance law, having regard to the state of the evidence as to the value of
the damaged ship, the manner in which the point was taken at the end of the trial, and the
mode in which it was disposed of, and I am not prepared to do so. Moreover, even though my
opinion were stronger than it is, I should not like to differ from my brethren on a point which
does not properly arise on the evidence. I, therefore, do not differ from the judgment of my
brethren that the judgment of Bigham J. must be affirmed.
MATHEW L.J.
he subject is discussed unfavourably to the plaintiff's contention in 2 Phillips on Insurance, s.
1534; Carver's Carriage by Sea, 3rd ed. s. 303, and 2 Arnould on Marine Insurance, 7th ed. s.
1124. I am of opinion that the plaintiff's contention fails, and that, in determining whether the
ship can be repaired, the assured is not entitled to add the damaged value of the ship to the
cost of repairs. I think for these reasons that the judgment should be affirmed.
Appeal dismissed.
Macbeth & Co., Ltd v Maritime Insurance
Co Ltd [1908] A.C. 144
In determining the question whether a ship seriously damaged by perils insured against can
be treated as a constructive total loss, the test is whether a prudent uninsured owner would
repair her having regard to all the circumstances. In this calculation the assured is entitled to
add the break-up value of the ship to the estimated cost of repairs.
Angel v. Merchants' Marine Insurance Co., [1903] 1 K. B. 811, overruled.
The Issues
45
Insurance (Marine)—Constructive Total Loss—Test—Policy on Ship—Cost of Repair—
Value of Wreck.
The Facts
THE ship Araucania, belonging to the appellants was insured in a time policy by the
respondents, valued at £12,000, the insured value to be taken as the repaired value in
ascertaining whether the vessel was a constructive total loss. The ship was driven in October,
1905, by weather on to rocks near Ardrossan. Notice of abandonment was given. In an action
by the appellants against the respondents upon the policy evidence was given, which was not
disputed, that the ship could be sold unrepaired for upwards of £3000.
Walton J. found that the cost of the repairs necessary to make her as good as she was before
the casualty would not have amounted to more than £11,000, and that, if the value of the
wreck was to be taken into consideration, there was undoubtedly a constructive total loss; but,
holding himself bound by Angel v. Merchants' Insurance Co. he decided that the value of the
wreck was not to be taken into account, and gave judgment for the respondents. This decision
was affirmed by the Court of Appeal (Lord Alverstone C.J., Buckley and Kennedy L.JJ.) on
the same ground. Hence this appeal.
Scrutton, K.C., and Bailhache (D. Stephens with them), for the appellants.
This is virtually an appeal from Angel v. Merchants' Marine Insurance Co. 2, which was the
first decision that the value of the wreck, in estimating whether there has been a constructive
total loss, is not to be taken into account. This is a matter of business, and must be judged on
business principles, and one of the elements must be the wreck itself. Is it worthwhile to
repair the ship? If the value of the wreck and the cost of repairs taken together exceed the
value of the ship so repaired, it would be more profitable to treat the vessel as a total loss than
to repair her. The test laid down in the earlier authorities is what would be done by a prudent
uninsured owner. This was the test applied in Young v. Turing (1841) by Lord Abinger C.B.,
in what is called a “dictum,” in Angel v. Merchants' Marine Insurance Co. (1903) It has been
restated or implied in many subsequent cases. It was approved in this House in Irving v.
Manning (1847), and applied, totidem verbis, in Fleming v. Smith (1848); again in Benson v.
Chapman (1849); and by Lord Cranworth in Scottish Marine Insurance Co. of Glasgow v.
Turner (1853). It is alleged that the doctrine of the prudent uninsured owner was abandoned
in Moss v. Smith (1850) It was not there applied because it did not really arise, as the
question was one of freight, and not of abandonment. The decision of this House in Rankin v.
Potter (1873), in which the judges summoned to advise the House differed, was in effect an
approval of the doctrine, which is also supported by Kaltenbach v. Mackenzie(1878)
Aitchison v. Lohre (1879) and The Blairmore.(1898). The doctrine is implied or suggested in
Kemp v. Halliday(1866), where it was held that in determining whether or not the ship was a
constructive total loss the amount of general average which would be contributed by the
cargo must be taken into account, and the cost of raising the ship calculated as reduced by
that amount. Grainger v. Martin (1862) which is more lucidly reported in the Law Journal
than elsewhere, is exceptional, as the market value of the ship was far less than its value to
the owner. The value of the wreck was taken into account in three recent decisions—by
Barnes J. in Marten v. Sydney Lloyds (1896), by Phillimore J. in Beaver Line v. London and
Provincial Marine Insurance Co. (899), and by Walton J. in Wild Rose Steamship Co. v.
Jupe (1903)
46
J. A. Hamilton, K.C. , and F. D. Mackinnon , for the respondents.
The question whether or not a vessel is a constructive total loss turns upon her being or not
being repairable in a business sense—that is, at a cost not exceeding her repaired value. It is
not a matter of comparative speculation whether a shipowner can or cannot achieve for
himself a better pecuniary result by selling the ship unrepaired than by repairing her. Angel v.
Merchants' Marine Insurance Co.(1903) was followed in The Alangueta (1904), and those
decisions are correct. The principle involved in these cases is virtually enacted in the Marine
Insurance Act, 1906, s. 60, sub-s. 1, where a “constructive total loss” is said to happen when
the subject-matter “could not be preserved from actual total loss without an expenditure
which would exceed its value when the expenditure had been incurred.” The same principle
is stated with respect to goods in s. 60, sub-s. 2 (iii.) . In the recent cases referred to on behalf
of the appellants evidence was admitted, but the opinions of the judges not expressed. The
doctrine of the prudent uninsured owner—the of Aristotle—seems to have been first stated in
Cambridge v. Anderton (1824), but it is not clear that it was really acted upon, as, apart from
the value of the wreck, the cost of repairs would have exceeded the value of the repaired ship.
The question in Young v. Turing involved a comparison of values under the Dutch and the
English registers, and Lord Abinger's words were not necessary to the decision. The dictum
itself is not exhaustive or conclusive, and its application must vary with circumstances. The
contract of insurance is one of indemnity only, not of profit, though incidentally in a valued
policy the owner may make a profit. In Irving v. Manning the real, and not the insured, value
was regarded; and the value of the ship as a wreck was not the guiding fact in Fleming v.
Smith, Grainger v. Martin, or in Rankin v. Potter. Nothing is said of it in Fleming v. Smith;
nor is The Blairmore 28more favourable to the appellants, the decision being only that the
underwriter, by his intervention, could not convert, in the circumstances of the case, a
constructive total loss into a partial loss.
LORD LOREBURN L.C.
My Lords, in this case the ss. Araucania was insured by the respondents in a valued policy
for £12,000, free of particular average, and with a condition that in reckoning whether or not
there should be a constructive total loss the repaired value should be taken at the valuation of
£12,000.
She went ashore. The learned judge has found, and it is not disputed, that the cost of repairing
was £11,000. So if that alone is to be considered she was not a constructive total loss. But she
would be so if to the cost of repairing the selling value of the wreck were to be added.
Whether or not it ought to be added is the question before the House.
The learned judges, both in the Court of first instance and in the Court of Appeal, answered
that question in the negative, not upon any view of their own, but in deference to the decision
of Angel v. Merchants' Marine Insurance Co. , pronounced by the Court of Appeal in 1903.
In Angel's Case one of the Lords Justices expressed himself on this point in terms of dissent
from his colleagues.
This question admits of ready answer as soon as it is ascertained what is the true test by
which a Court is to be guided. Really the choice lies between two. One is that a ship has
become a constructive total loss if the cost of repairing her would exceed her value when
repaired. The other is that she has become so when a prudent uninsured owner would not
repair her having regard to all the circumstances. If the former test be adopted, then this
47
appeal must be dismissed, because the cost of repairs here is £11,000 and the repaired value
is £12,000. If the latter test be adopted, then the appeal must be allowed; for no sensible man
would have repaired this ship if he could have made a better thing of it by selling her as a
wreck, and it is found that he could have done so.
If this were an open question, there seems to me ground for arguing that the former is the
sound view.
But I think this is not really an open question, notwithstanding the recent decision in Angel's
Case. I will not enter upon a criticism of the authorities. I have had the advantage of seeing in
print the opinion of Lord Collins, who fully discusses them, and I agree in his conclusion.
When once the test of what a prudent uninsured owner would do, whether he would sell the
ship where she lies or repair her, is admitted, it follows that the value of the ship where she
lies must enter into the calculation. And this test has been laid down repeatedly by many high
authorities over a long period of time. I think it was too late to disturb it in 1903.
I will merely add that in my opinion the rule can only apply where there has been a wreck or
something equivalent to a wreck. If an owner tried to treat as a constructive total loss such a
case as was put in argument, of a vessel worth £5000 as she lay damaged in harbour after a
storm, but which would cost £6000 to make her fit to take the sea, and would then be worth
only £10,000 as repaired, he would fail. Among other reasons, the loss would not be by perils
of the sea.
Accordingly I am of opinion that the appeal should be allowed.
LORD ROBERTSON.
My Lords, I find it impossible to refuse the demand of the appellants.
When a ship has been damaged during a voyage the practical question is, Shall she be
repaired or abandoned? The pros and cons on this question are, as it seems to me, of a
commercial and pecuniary nature, and necessarily so from the standpoint of the person whose
pocket is affected. It follows that a balance-sheet has to be drawn up, showing what is gained
and what is lost by repairing on the one hand and by abandoning on the other. Now I am
unable to see how such a balance-sheet can be accurate unless it includes the corpus of the
damaged ship. The curious part of the respondents' case is that they do include it, but only on
one side of the account, for it is part of the value of the ship if repaired. I can see no reason
why it should not enter the account on the opposite hypothesis that the ship is not repaired,
and it would unquestionably do so, as matter of business, in determining the decision of any
rational man who had to consider the question.
It was urged, however, that in a contract of insurance what is insured is the ship as a thing,
and not in its relation to the commercial enterprises of its owner. While, as presented, this
sounds plausible, it is fallacious. What is insured is the life of the ship as a living instrument
of commerce, and the owner is not credited with any romantic attachment to the ship, so that
he will keep life in her at all costs and to the sacrifice of the commerce of which she is an
instrument.
48
Again, there is nothing in the argument that the wrecked ship, if abandoned, may after all be
bought and resuscitated and resume activity in other hands. This merely means that a wrong
judgment was come to on the question of fact, and that the cost of repair was well-spent
money, instead of, as was thought, ill-spent money. But whichever view be taken of the
present controversy, some conclusion must be come to in each case on the question whether it
is worthwhile to repair; and the argument necessarily assumes in any case in hand that the
conclusion come to is right.
In what I have said I have proceeded on the assumption that, in ascertaining whether there is
a constructive total loss, one has to hold an inquest, as it were, and consider whether the ship
shall be repaired or shall be abandoned. I do so, first of all, because I do not see how there
can be such a thing as a constructive total loss without this being done; and, secondly,
because it has for long been laid down by very high authorities that the criterion is the
presumable judgment of the owner, on the footing of his being uninsured and acting in his
own interests.
I desire to say that my judgment is given on principle, and not merely on authority.
LORD COLLINS.
My Lords, this is virtually an appeal from the judgment of the Court of Appeal in Angel v.
Merchants' Marine Insurance Co. and raises the question whether, in determining whether a
ship seriously damaged by perils insured against can be treated as a constructive total loss,
the owner is entitled to add the break-up value of the wreck to the estimated cost of repairs.
The circumstances which will justify an owner in abandoning his vessel when he elects not to
repair her are thus stated in Arnould on Marine Insurance, 5th ed. p. 1003:
“On that question,” he says, “the rule of law is clearly established but variously expressed. By
Mr. Justice Blackburn it is said, ‘the question between the assured and the underwriters on
ship is whether the damage sustained may be so far repaired as to keep it a ship though not
perhaps so good a ship as it was before without expending upon it more than it would be
worth.’ By Chief Justice Tindal it is said to be that where the damage to the ship is so great as
that the owner cannot put her in a state of repair necessary for pursuing the voyage insured,
except at an expense greater than the value of the ship, he is not bound to incur that expense,
but is at liberty to abandon and treat the loss as a total loss. The same thing, as more briefly
expressed by Mr. Justice Patteson, is thus: ‘Would a prudent owner uninsured repair?’ or
rather, said Baron Wilde, ‘Would he sell unrepaired?’”
On the same subject Blackburn J. thus expresses himself in Kemp v. Halliday:
“The question whether it is practicable to save the subject-matter within the meaning of the
phrase as explained by Mr. Justice Maule in Moss v. Smith has been differently left to the
jury. In Gardner v. Salvador Mr. Justice Bayley left it to the jury to say whether by means
within the reach of the captain, which he could reasonably use, the ship could be saved. The
mode of putting the question, which has been generally adopted, has been to ask whether a
prudent uninsured owner would have done it. In Rosetto v. Gurney (1851) the Court,
approving of what has been said by Mr. Justice Maule in Moss v. Smith, state the rule thus:
‘If the damage is repairable the loss is total or partial according to circumstances. If the
damage cannot be repaired without laying out more money than the thing is worth, the
49
reparation is impracticable, and therefore as between the underwriters and the assured
impossible.’
The three modes of expression all seem to me to convey the same idea. No means which
would cost more than the object is worth can be considered reasonable, and a prudent
uninsured owner would not adopt them, but if the means within his reach would cost less than
the object is worth, a prudent uninsured owner would adopt them rather than suffer the thing
to perish, though a prudent insured owner, especially if insured in a valued policy, would
probably act otherwise if the law permitted him by so doing to recover from the underwriters
for a total loss.” A few lines further on he continues: “In considering whether it was
reasonable to raise the ship and cargo in the present case, I think that every circumstance
tending to increase or diminish the necessary outlay, and every circumstance tending to
increase or diminish the benefit to be derived from that outlay, ought to be taken into account,
and amongst those the fact that cargo would be saved by that operation, and would contribute
to the expense seems to me a very important element.” As appears, then, from the passages
cited, the test usually applied at that time (1865) was what would a prudent uninsured owner
do in the circumstances, and the same test has continued to be applied ever since, and was
approved in the House of Lords as late as 1898 in Sailing Ship Blairmore Co. v. Macredie. 38
First, then, dealing with the specific issue arising on this appeal, apart from authority, what
part, if any, ought the break-up value of the hull to have as a factor in the calculation of the
cost of bringing into existence a navigable ship as compared with the value of the ship when
so produced?
Suppose the owner, finding himself in the possession of a ship, which, as the result of a sea
peril, can be sold only at a break-up price, sells it, and suppose the purchaser elects to try the
experiment of repairing her, and then reckons up the cost at which he has completed the
whole operation, obviously he would have to count the cost at which he had bought the
wreck. Why is not the owner in the like position if, instead of selling the wreck, he has
applied the materials to be used in bringing into existence a navigable ship?
He owned materials which had a certain saleable value, and which he was free to dispose of
as he chose; instead of realizing their value he has utilized them in the process of turning the
wreck into a navigable ship. Why is their saleable value not equally a factor in the calculation
of the cost at which he brought into being a navigable ship?
It seems to me that no prudent uninsured owner could be expected to leave out of his
calculation the realizable value of the wreck. The above reasoning assumes throughout that
the break-up value only of the wreck can be introduced into the calculation. Lord Campbell
so treats it in Fleming v. Smith, when he says, “if a prudent uninsured owner would not have
repaired the vessel, but would have sold it to be broken up, that amounts to a total loss.” To
assume that the wreck has a saleable value as a ship would be to accept an hypothesis
inconsistent with the assumption on which a constructive total loss is based, for the existence
of such a market value is inconsistent with the hypothesis that no prudent uninsured owner
would repair, since we cannot assume that the purchasers are less prudent than the
hypothetical uninsured owner; and, since they are prepared to give more than a break-up
price for the wreck, it may be presumed that it is because they see their way to making it
navigable at a cost which it will be worthwhile to incur.
50
These being the general considerations underlying the case, it remains to consider the state of
the authorities when Angel v. Merchants' Marine Insurance Co. was decided. There are very
few instances in which the precise point raised here was discussed. The most important is the
case of Young v. Turing, which contains a clear expression of opinion directly in point.
There, on a claim as upon a total loss, Tindal C.J., who had tried the case, in summing up had
told the jury that in considering whether the loss was partial or total they ought to look at “all
the circumstances attending the ship,” and to judge whether under all those circumstances a
prudent owner, if uninsured, would have declined to repair the ship. It was proved that the
ship as she lay “to sell for the purpose of being broken up” was worth about £700. On a bill
of exceptions to this direction Lord Abinger, in delivering the unanimous judgment of the
Court of Cam. Scac., thus expressed himself: “The Lord Chief Justice has laid down the usual
and recognized rule, ‘Whether under all the circumstances attending the ship a prudent
owner, if uninsured, would have repaired the vessel.’ Now to the value of the repairs must be
added her value as she lay in the dock; that is to £4615 (the estimated cost of repairs) must be
added £700, making £5315 as the cost,” that is, of the repairs. He therefore clearly treats the
break-up price of the wreck as one of the factors to be reckoned in the estimated cost of
reparation by the uninsured owner.
This weighty utterance was put aside in Angel's Case as a mere dictum of Lord Abinger, and
the same view was pressed upon us here. But whether it be a dictum or a decision, it has the
authority, not of Lord Abinger alone, but of the Cam. Scac., which must have consisted of at
least five, and probably of seven, judges (their names do not appear in the report) drawn from
the Courts of the Queen's Bench and Exchequer, not to mention Tindal C.J., whose direction
was upheld. But is it fair to say that this pronouncement in its context was merely an obiter
dictum? I think not. The learned judge had begun by overruling the first exception, which
complained of the direction that the value in the policy was immaterial and might be
disregarded. He then addresses himself to what later on he describes as “the substantial fact,”
i.e., that “her value when repaired is less than the cost.” It is in the process of ascertaining this
fact that he addresses himself at the outset to sift the evidence as to the cost of repairs in view
of the Lord Chief Justice's direction, which was excepted to, that the jury should take into
their consideration “all the circumstances that affected the ship,” and that evidence of the
break-up value of the ship was before them, as to which apparently there was no conflict. It
must be remembered that the cost of repairs was not an agreed figure, but had been put
variously by the English witnesses as £3530 and £4615. On the other hand, the value of the
ship, when repaired, was not an agreed figure, though the Dutch witnesses had put it at
£2915. The English evidence did not quantify it, but put it that if the ship could have got a
British register it would have been worth more than the repairs. The jury had given a general
verdict, not ascertaining the figures, and the contention of the defendants that the loss was
partial only rendered an examination of the figures on either side of the account desirable. It
seems to me impossible in these circumstances to say that the break-up value of the wreck
was immaterial in the calculation. Clearly the learned judges who agreed in the judgment
must have regarded it as material to the decision, and so likewise must the counsel in the case
who caused the figure to be set out in the bill of exceptions.
The decision as to the effect of the value being named in the policy was affirmed in the
House of Lords in Irving v. Manning (1848), and the test there applied of the prudent
uninsured owner in questions of constructive total loss approved. No adverse comment seems
to have come from any source upon the passage here in question. If any such criticism had
been made or thought applicable, it is very strange that in the unanimous opinion of the
advising judges, said to have been prepared by Parke B., where the test question is restated,
51
having the expressions used in the judgment in Young v. Turing necessarily and specially
before them, they should not have drawn attention to the flaw, if such they deemed it, in the
statement of what factors should be taken into consideration on the question “what a prudent
uninsured owner would have done in the state in which the vessel was placed by the perils
insured against.”
There are two other important expressions of judicial opinion directly in point, namely, that
of Martin B. in advising the House of Lords in Rankin v. Potter, and that of Bramwell B. on
the same occasion. Both these statements are important, not merely as expressions of opinion
by specially competent authorities, but as evidence of what was regarded as settled law at that
time. They state the proposition, which is that involved in this case, as though it stood outside
controversy, needing no argument or exposition; and they might well do so, for the law laid
down on this subject in Young v. Turing had, so far as appears, never been judicially
questioned up to that time. Nor is it fair in this case either to dismiss these statements as mere
obiter dicta. It is true the learned judges were only advising the House and not deciding the
question before it, but it was essential to their argument to establish a total loss of the ship as
bringing about a total loss of the freight, as to which the question of abandonment arose for
decision in the House of Lords, and on the figures quoted the proposition affirmed was vital
to their conclusion. I do not think it necessary to refer to the observations of Lord Blackburn
in Aitchison v. Lohre, which both sides equally relied on, but which do not appear to me to
form a safe ground for an inference either way.
Since then, and before the decision of Angel's Case in 1903, Barnes, Phillimore, and Walton
JJ. had expressed opinions in favour of the appellants' contention in this case: see Arnould,
7th ed. p. 1268.
An attempt was made in the argument to suggest that the judgment of Maule J. in Moss v.
Smith had somehow altered the law as received up to that time, and that the test of what the
prudent uninsured owner would do was no longer applicable since that decision; but this
contention is quite inconsistent with the opinion of Blackburn J. set out in the earlier part of
this opinion, as well as with a series of later authorities wherein the old test has been treated
as still applicable. Neither does there seem to be any force in the observation of Mathew L.J.,
that the increased facilities of communication in more modern times have made the test no
longer applicable. No doubt the prudent uninsured owner has probably now more complete
information at his disposal than he might have had formerly, but it is difficult to see what
possible bearing this fact can have upon the principle involved. The more complete the
information at his disposal the more accurate is his decision likely to be.
It remains to consider the passage inserted by the present editors in the 7th edition of
Arnould. This is really an expansion of Mr. McArthur's view, but they are undoubtedly the
originators of the notion that the passage cited from Young v. Turing was “a dictum of Lord
Abinger”: see s. 1124. But underlying their whole position is the fallacy that where in the
statement of the uninsured owner test the break-up value of the ship is not expressly
mentioned it must be deemed to be excluded. In this way they claim as authorities in their
favour every case where the proposition is stated in general terms, as, for instance, where
Lord Watson, whom they quote, says, Blairmore Sailing Ship Co. v. Macredie (1898):
“In order to instruct a total constructive loss it must be shown that a shipowner of ordinary
prudence and uninsured would not have gone to the expense of raising and repairing the
52
vessel, but would have left her at the bottom of the sea, because her market value when raised
and repaired would probably be less than the cost of restoration and repair.”
They treat this as an authority inconsistent with the so-called dictum in Young v. Turing . But
what is there in the language here used to exclude the break-up value of the hull as a factor in
the “cost of restoration and repair,” to the carrying out of which it is by hypothesis applied?
They likewise treat as an authority in their favour the direction of Tindal C.J., “that where the
damage to the ship is so great from the perils insured against as that the owner cannot put her
in a state of repair necessary for the pursuing of the voyage insured except at an expense
greater than the value of the ship, he is not bound to incur that expense, but is at liberty to
abandon, and treat the loss as a total loss”: Benson v. Chapman. We are dealing, be it
observed, with an owner deemed to be uninsured, whose vessel, which has never ceased to be
his property, is lying at the bottom of the sea. She is a necessary factor in the formation of the
repaired ship which it is proposed to bring into being; at whose cost, it may be asked, except
that of her owner, is she contributed to the new entity which is to be formed by the process of
reparation? It seems to me that the direction of the Chief Justice, so far from asserting that the
value of a necessary factor in the reparation is to be excluded from the computation of the
cost of that operation, throws the onus upon those who contend for such an inference, to
make it good. It is perhaps worth noting that, though the last edition of Arnould, for which he
was himself responsible, was published as late as 1857—i.e., more than fifteen years after
Young v. Turing was decided—it remained unquestioned in that work through all editions up
to the seventh, the first by the present editors, i.e., fifty years after the case was decided.
May it not be possible that “the misconception which has,” according to these learned editors,
“been allowed to find its way into the minds of some learned judges,” and “partly due to the
obiter dictum of Lord Abinger,” may in truth have found its way elsewhere?
With regard to the decision in Angel's Case, I should perhaps add one word. Though
Vaughan Williams L.J. did not formally differ, it was because he thought that the facts were
not sufficiently ascertained to warrant him in differing from the learned judge below. But the
whole train of reasoning in his judgment is directed to combating the proposition for which
the respondents here contend. Stirling L.J. seems also to have felt some misgiving as to
whether the question really arose upon the facts, but no doubt, on the assumption that it did,
he, as well as Mathew L.J., answered it in favour of the now respondents. With the greatest
possible respect to those learned judges, and for the reasons I have given, I feel compelled to
differ from them. In my opinion the judgment should be for the appellants.
Order of the Court of Appeal and judgment of the King's Bench Division reversed, with costs
here and below
Hall v Hayman [1912] 2 K.B. 5
The Facts
The plaintiff claimed on behalf of himself and all others the assured for a total loss upon a
policy of re-insurance, dated July 31, 1908, and underwritten by the defendant and others,
upon the steamship King Edward.
53
By a policy of marine insurance dated June 30, 1908, James Holliday, the owner of the King
Edward , insured her for twelve months from May 23, 1908, against all the usual perils;
warranted laid up from November 30 to opening of St. Lawrence navigation. The policy was
for £5100 upon the steamship valued at $34,000, and was underwritten by the plaintiffs for
£1313.
The plaintiffs insured the
King Edward for £5100, and took a re-insurance policy for
£1044 for twelve months. During the currency of the policy, the King Edward was
driven ashore in a gale at English Bay, Anticosti, about 500 miles from Quebec, and
sustained serious damage to her hull, engines, and boilers. The navigation season was just
about to close owing to the ice, and an attempt to get her off failed, and she remained there
embedded in the ice during the winter. The owners served a notice of abandonment to the
plaintiffs, who paid upon the original policy as upon a constructive total loss, and the
plaintiffs brought the present action against the defendants, claiming as for a constructive
total loss under the re-insurance policy.
When the ice opened in the spring of 1909 an unsuccessful attempt was made to float the
ship, but upon a second attempt she was floated by salvors employed on behalf of the
plaintiffs and was towed to Quebec in July of that year, where she was sold before being
repaired for $14,000.
The plaintiffs in their points of claim alleged that the King Edward was a constructive total
loss “by reason of the fact that the cost of repairing her plus the cost of the said salvage and
other expenses plus the value of the unrepaired wreck would exceed the repaired value or
alternatively the insured value of $34,000.”
The defendants in their points of defence, so far as material, denied that the King Edward was
a constructive total loss, and said that they would contend that her unrepaired value should
not be added to the cost of repairs.
The only point upon which the case is reported and to which the arguments were
confined is that raised as above stated in the points of claim and defence, namely,
whether the value of the wreck should be added to the cost of repairs in determining
whether the ship could be treated as a constructive total loss within s. 60 of the Marine
Insurance Act, 1906.
The learned judge found that the cost of repairs would have amounted to $30,500, which was
less than the insured value $34,000 that is the repaired value.
Bailhache, K.C., and F. D. Mackinnon, for the plaintiffs.
In determining whether there has been a constructive total loss of a ship within the meaning
of s. 60, sub-s. 2 (ii.), of the Marine Insurance Act, 1906, the value of the wreck must be
added to the cost of repairs. In 1903 the Court of Appeal decided in Angel v. Merchants'
Marine Insurance Co. that the value of the wreck ought not to be added to the cost of repairs.
Before that decision the weight of judicial authority had been in favour of the view that the
value of the wreck ought to be added.
54
In Macbeth & Co. v. Maritime Insurance Co. a case which arose before the passing of the
Marine Insurance Act, 1906, but which was finally decided afterwards—the House of Lords
overruled Angel v. Merchants' Marine Insurance Co., holding that the Court of Appeal ought
not to have departed from the authority of Young v. Turing.
Therefore it must be taken that at common law the value of the wreck ought to be added to
the cost of repairs in determining whether a ship is a constructive total loss. The law upon this
question has now been codified in s. 60 of the Marine Insurance Act, 1906. That section does
not say that the value of the wreck is not to be taken into account; it is silent upon the point.
Sub-s. 2 (ii.) provides that there is a constructive total loss where the ship is so damaged by a
peril insured against that the cost of repairing the damage would exceed the value of the ship
when repaired; and the sub-section specifies two matters which are to be taken into account,
namely, the expense of future salvage operations and any future general average
contributions to which the ship would be liable if repaired. Those, however, are not
exhaustive, and by s. 91, sub-s. 2, “the rules of the common law, including the law merchant,
save in so far as they are inconsistent with the express provisions of this Act, shall continue to
apply to contracts of marine insurance.” There is nothing in s. 60 inconsistent with the
application to contracts of marine insurance of the rule of the common law as laid down in
Macbeth & Co. v. Maritime Insurance Co. In truth, as Lord Collins pointed out in that case,
the wreck “is a necessary factor in the formation of the repaired ship which it is proposed to
bring into being”; the wreck is “contributed” at the cost of the owner “to the new entity which
is to be formed by the process of reparation.” The wreck, therefore, is the foundation upon
which the new ship is built, and the cost of the materials is part of the cost of the completed
structure, and may be regarded as part of the “expenditure” within s. 60, sub-s. 1, or as part of
“the cost of repairing the damage” within s. 60, sub-s. 2 (ii.). But whether that is so or not, the
prudent uninsured owner would take the value of the wreck into account, and that rule of the
common law is imported into contracts of marine insurance by s. 91, sub-s. 2, of the Act.
Maurice Hill, K.C., and D. C. Leck, for the defendants.
The value of the wreck ought not to be taken into account in determining whether the ship
was a constructive total loss. Before the passing of the Marine Insurance Act, 1906, there
were two possible tests as to whether a ship was a constructive total loss. The one was
whether the cost of repairs would exceed her value when repaired; the other was whether a
prudent uninsured owner would repair her having regard to all the circumstances. Those two
tests were clearly stated as being distinct tests by Lord Loreburn L.C. in Macbeth & Co. v.
Maritime Insurance Co. who said that if the matter were an open one he would have preferred
the former. When the Act of 1906 was passed there was the decision of the Court of Appeal
in Angel v. Merchants' Marine Insurance Co. that the proper test was whether the cost of
repairs would exceed the ship's value when repaired, and that upon that view the value of the
wreck ought not to be brought into the calculation. That was supposed to be the common law
when the Legislature had to deal with the matter, and they treated it as concluded by the
decision in Angel v. Merchants' Marine Insurance Co. The Legislature in s. 60, sub-s. 2 (ii.),
of the Marine Insurance Act, 1906, selected the test as to whether the cost of repairs exceeded
the value of the ship when repaired and rejected the test of the prudent uninsured owner, and
it necessarily follows that the value of the wreck is not to be taken into account. Sect. 60, subs. 1, lays down the general rule, and in that sub-section the word “expenditure” clearly points
to an expenditure of money. Expenditure is a well-known insurance term, and is
distinguished from a sacrifice, as in s. 66. The word “expenditure” in that sub-section
indicates how the words “the cost of repairing the damage” in the next sub-section ought to
55
be interpreted. Sub-s. 2 (i.), (ii.), deals particularly with a constructive total loss of a ship, of
which clause (ii.) is the material one here. There is a constructive total loss of a ship where
the cost of repairing the damage would exceed her value when repaired. The clause then
states what may be included in the cost of repairing the damage.
The value of the wreck is not there specified and so cannot be taken into account. If the
Legislature had intended that the value of the wreck should be brought into the account it
would have expressly mentioned it. The words “the cost of repairing the damage” do not, in
their natural sense, include it. As to the observations of Lord Collins in Macbeth & Co. v.
Maritime Insurance Co, upon which the plaintiffs rely, those observations were made in a
judgment a great part of the reasoning in which was intended to show that the test of the
prudent uninsured owner and the test of the cost of repairs were in reality the same. Lord
Loreburn L.C. certainly did not agree with that, though he agreed with the conclusion at
which Lord Collins arrived upon the authorities. Sect. 60 of the Act is clear and
unambiguous, and therefore there is no room for the application of the common law rule as
laid down in Macbeth & Co. v. Maritime Insurance Co. As Lord Herschell said in Bank of
England v. Vagliano 17, in dealing with the Bills of Exchange Act, 1882, which codified the
law, and which contains in s. 97, sub-s. 2, a provision in similar terms to that contained in s.
91, sub-s. 2, of the Marine Insurance Act, 1906, the proper mode of construing a code is “in
the first instance to examine the language of the statute and to ask what is its natural meaning,
uninfluenced by any considerations derived from the previous state of the law, and not to start
with inquiring how the law previously stood, and then, assuming that it was probably
intended to leave it unaltered, to see if the words of the enactment will bear an interpretation
in conformity with this view.” And later on he said that he was far from saying that resort
might never be had to the previous state of the law for the purpose of aiding in the
construction of the code; if, for example, a provision were of doubtful import, such resort
would be perfectly legitimate. There is no ambiguity about the language of s. 60 of the
Marine Insurance Act, 1906, and therefore s. 91, sub-s. 2, cannot be called in aid to import
into s. 60 the rule of the common law as laid down in Macbeth & Co. v. Maritime Insurance
Co. The value of the wreck ought therefore not to be taken into account.
BRAY J.
The plaintiffs' claim is under a policy of re-insurance on the steamship King Edward for
twelve months. This policy was against total or constructive total loss only, and it contained a
clause that the insured value, namely $34,000, should be taken as the repaired value in
ascertaining whether the vessel was a constructive total loss, whereas the original policy
contained no such clause. The plaintiffs paid upon the original policy as upon a constructive
total loss, and they now seek to recover against the defendants upon the re-insurance policy.
The plaintiffs have to prove, first, that they were liable to pay upon the original policy; and
secondly, that there was a constructive total loss under the re-insurance policy.
[His Lordship said that undoubtedly there was a constructive total loss of the vessel within
the original policy, and he came to the conclusion that notice of abandonment had been duly
given to the plaintiffs as required by s. 62 of the Marine Insurance Act, 1906. With regard to
the question whether there was a constructive total loss of the vessel within the re-insurance
policy, he came to the conclusion upon the facts that there was not a constructive total loss
within s. 60, sub-s. 2 (i.), of the Marine Insurance Act, 1906, inasmuch as, though the
shipowner was deprived of the possession of his ship, the plaintiffs had not proved that he
56
was unlikely to recover his ship, nor would the cost of recovering the ship exceed her value
when recovered.]
There remains the question whether there was a constructive total loss under s. 60, sub-s. 2
(ii.) , which provides that there is a constructive total loss “in the case of damage to a ship,
where she is so damaged by a peril insured against that the cost of repairing the damage
would exceed the value of the ship when repaired.”
[His Lordship went through the various items of the cost of repairs and came to the
conclusion that $30,565 was the proper sum to allow.]
That falls short of $34,000, the insured value of the ship. It is said, however, that I ought to
add to that amount the value of the wreck on the day when the notice of abandonment was
given. That depends upon the true construction of s. 60 of the Marine Insurance Act, 1906,
and the application to it of s. 91, sub-s. 2. The latter section provides that “the rules of the
common law including the law merchant save in so far as they are inconsistent with the
express provisions of this Act, shall continue to apply to contracts of marine insurance.” In
Bank of England v. Vagliano Lord Herschell, in dealing with a code containing a similar
provision,—the Bills of Exchange Act, 1882—said that “the proper course is in the first
instance to examine the language of the statute and to ask what is its natural meaning,
uninfluenced by any considerations derived from the previous state of the law, and not to start
with inquiring how the law previously stood, and then, assuming that it was probably
intended to leave it unaltered, to see if the words of the enactment will bear an interpretation
in conformity with this view”; and that an appeal to earlier decisions could only be justified
on some special ground, as, for instance, if the provision were of doubtful import. I must
therefore first examine the language of the enactment.
Sect. 60, sub-s. 1, contains the general provision that “subject to any express provision in the
policy, there is a constructive total loss where the subject-matter insured is reasonably
abandoned on account of its actual total loss appearing to be unavoidable, or because it could
not be preserved from actual total loss without an expenditure which would exceed its value
when the expenditure had been incurred.”
It seems to me that the word “expenditure” as there used is a word having a plain meaning,
denoting an expenditure of money, and I cannot construe it as including the value of the
wreck. The supposed expenditure is by the owner of the ship, and the value of the wreck is
not expenditure by the owner. Then sub-s. 2 (ii.), dealing more particularly with damage to a
ship, provides that in particular there is a constructive total loss “in the case of damage to a
ship, where she is so damaged by a peril insured against that the cost of repairing the damage
would exceed the value of the ship when repaired.” I do not see any ambiguity in the
language there used, “the cost of repairing the damage.” The clause proceeds to specify what
may and what may not be brought into the calculation: “In estimating the cost of repairs no
deduction is to be made in respect of general average contributions to those repairs payable
by other interests, but account is to be taken of the expense of future salvage operations, and
of any future general average contributions to which the ship would be liable if repaired.”
It seems to me that sub-s. 2 (ii.) is clear, and is inconsistent with what is now admitted to
have been the common law or the law merchant, before the Act, as laid down by the House of
Lords in Macbeth & Co. v. Maritime Insurance Co. It is said, however, that in construing the
words “expenditure” and “the cost of repairing the damage” I ought to have regard to what
57
Lord Collins said in that case, that “she”—the wreck—“is a necessary factor in the formation
of the repaired ship which it is proposed to bring into being; at whose cost, it may be asked,
except that of her owner, is she contributed to the new entity which is to be formed by the
process of reparation?” Lord Collins, however, was not construing the Marine Insurance Act,
1906; he was endeavouring to reconcile certain decisions and certain language used by judges
in former cases, and to shew that those decisions and that language were consistent with the
decision he was giving. One does not look at the language of a judge in quite the same way as
one looks at the words of an Act of Parliament. None of the other Law Lords seem to have
taken the same view as Lord Collins; indeed the Lord Chancellor took the view that there
were two lines of decisions, and he adopted one rather than the other.
The rule therefore of the common law, that the value of the wreck ought to be added to the
estimated cost of repairs in determining whether the ship can be treated as a constructive total
loss, is, in my opinion, inconsistent with the express provisions of s. 60 and can no longer be
treated as the law. It is a consequence which sometimes happens as the result of codifying the
law—a somewhat difficult process. It seems to me to be unfortunate because I do not suppose
that the Legislature intended to alter the common law. At the time of the passing of the Act
the common law as laid down in Angel v. Merchants' Marine Insurance Co. 22 was that the
value of the wreck ought not to be added to the estimated cost of repairs, and the Legislature
probably thinking that that was the common law simply adopted it. The observations of Lord
Loreburn L.C. in Macbeth & Co. v. Maritime Insurance Co. 23considerably assist my reading
of the Act. “The question”—whether or not the selling value of the wreck ought to be added
to the cost of repairs—“admits of ready answer as soon as it is ascertained what is the true
test by which a Court is to be guided. Really the choice lies between two. One is that a ship
has become a constructive total loss if the cost of repairing her would exceed her value when
repaired. The other is that she has become so when a prudent uninsured owner would not
repair her having regard to all the circumstances. If the former test be adopted, then this
appeal must be dismissed, because the cost of repairs here is £11,000 and the repaired value
is £12,000. If the latter test be adopted, then the appeal must be allowed; for no sensible man
would have repaired this ship if he could have made a better thing of it by selling her as a
wreck, and it is found that he could have done so.”
The first is, in my opinion, the test stated in the Act, and therefore those observations of the
Lord Chancellor support my view that the value of the wreck ought not to be added to the
cost of repairs. If shipowners desire to include the value of the wreck in the account they
must in future insert a stipulation to that effect in the policy, which can properly be done
because s. 60 is made “subject to any express provision in the policy,” just as underwriters
frequently very properly insist upon the provision that the insured value shall be taken as the
repaired value in ascertaining whether the vessel is a constructive total loss.
Therefore I must decide that the value of the wreck cannot be added to the cost of repairs. 24
The result is that I find that there was no constructive total loss within the re-insurance
policy, and judgment must be entered for the defendants.
Judgment for defendants.
Additional Reading
Maseefield AG v AMLIN [2010] Lloyd’s Rep.509
58