Doheny and Others v New India Assurance Company Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Sir Christopher Staughton,Lord Justice Potter |
| Judgment Date | 15 December 2004 |
| Neutral Citation | [2004] EWCA Civ 1705 |
| Docket Number | Case No: 2004 1215 A3 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 December 2004 |
[2004] EWCA Civ 1705
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(MANCHESTER DISTRICT REGISTRY MERCANTILE LIST
(His Honour Judge Kershaw QC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Potter
Lord Justice Longmore and
Sir Christopher Staughton
Case No: 2004 1215 A3
Lower Court Case No: MA 311842
DIGBY JESS Esq (instructed by Harrisons, M3 3JB) for the Claimants/Appellants
DAVID TURNER Esq (instructed by Davies Lavery, CM2 0XO for the First Defendant/Respondent and Nexus, M2 5PE) for the Second Defendant/Respondent
On 8th December 1999 Mrs Breda Doheny signed two proposal forms for submission to agents of insurers who in due course agreed to insure the company of which she and her husband Mr Michael Doheny were directors, as well as Mr and Mrs Doheny personally, against the risk of material damage to property by, inter alia, fire. The proposal forms left the name of the insured blank but the first gave a trading name of "Nupac Ltd and Freshford Meats Ltd" and described its business as that of meat wholesalers and retailers in Preston and Oldham. The second proposal form named Mr and Mrs Doheny and described them as property owners. At the end of the proposal forms there was a box headed "DECLARATION" which consisted first of 5 specific declarations made "to the best of my/our knowledge and belief". For the purposes of this appeal it is the fifth declaration which is relevant:-
"5. No director/partner in the business, or any Company in which any director/partner have had an interest, has been declared bankrupt, been the subject of bankruptcy proceedings or made any arrangement with creditors."
The Declaration continued:-
"I/we agree the information provided in connection with this Proposal . . . is true and I/we have not withheld any material facts. I/we understand that non-disclosure or misrepresentation of a material fact will entitle Insurers to void any insurance granted . . . . .
I/we understand that the signing of this Proposal does not bind me/us to complete the insurance but agree that should a contract of insurance be concluded this Proposal and statements herein shall form that basis of such contract."
A fire occurred during the currency of the insurance. A claim was made but insurers denied liability alleging:-
(1) that Mr Doheny had been a shareholder in, and director and company secretary of, a company called Baise Roile (UK) Ltd which went into liquidation in or about May 1993 with a total estimated deficiency of £132,141 and was dissolved on 4th October 1994;
(2) that Mr Doheny and Mrs Doheny were both directors of and shareholders in a second company called Lydo Leisure (UKL) Ltd; Mrs Doheny was also company secretary. On 24th June 1991 the Inland Revenue presented a petition to wind up the company; a winding-up order was made on 2nd October 1991 and the company was dissolved on 14th July 1993;
(3) that Mr Doheny and Mrs Doheny were both directors of and shareholders in a third company HBC (Cooked Meats) Ltd; Mrs Doheny was again company secretary. The company had ceased trading because the local health authority required repairs which the company could not afford to pay. In order to stay alive the company depended on the continuing support of its major creditors.
These facts were admitted by the claimants who, maintained, however, that the 5th declaration only applied to individuals (who could, of course, be declared bankrupt or be the subject of bankruptcy proceedings) not to companies (which could be the subject of liquidation proceedings but could not, in legal terminology, be declared bankrupt or be the subject of bankruptcy proceedings) . If, moreover, it were to be said that there was a material non-disclosure of the companies' insolvencies, the claimants submitted that insurers by asking specific questions about the solvency of the individual claimants had waived disclosure of any information about the solvency of companies with which they had been connected.
His Honour Judge Kershaw QC recorded the parties' contentions about the full meaning of the 5th declaration; the claimants said the full meaning was:-
"No director in the proposing business has been declared bankrupt (etc.) and no director of any other business, in which any director of the proposing business has had an interest, has been declared bankrupt (etc.)"
while the defendants submitted that the meaning was:-
"No director in the proposing business has been declared bankrupt (etc.) and no Company in which a director in the proposing business has had an interest has been wound up [or otherwise become] insolvent."
The judge then decided that the claimants' construction of the 5th declaration was correct but that nonetheless the insolvencies of companies with which Mr and Mrs Doheny had been connected were material matters which should have been disclosed and that the insurers had not waived the need to make further disclosure by asking questions about bankruptcy in the proposal form. There is now an appeal to this court.
Since the appellants persuaded the judge that their construction of the 5th declaration was correct but failed to persuade him that insurers had waived disclosure of material circumstances about companies with which they had been associated, Mr Jess opened the appeal on behalf of the appellants by attacking that second aspect of the judgment. Insurers had, however, served a Respondent's notice challenging the judge's construction of the 5th Declaration and it is logical to consider that matter first in the same way as the judge did.
Construction of Declaration 5
It is evident that both proposed constructions of this Declaration have their difficulties. In English law a company cannot be "declared bankrupt" or be "the subject of bankruptcy proceedings" (although a company can no doubt make an arrangement with its creditors) ; in common parlance, however, people do talk of companies being or becoming bankrupt, meaning that such companies are or have become insolvent. On occasion even the Parliamentary draftsman uses the word "bankruptcy" to mean, in relation to a corporation, "the winding-up thereof", see section 205(1) of the Law of Property Act 1925. But the insured can say with a certain amount of force that the concept of bankruptcy, in law, applies only to individuals.
Conversely the meaning assigned to the declaration by the insured does not follow the grammar of the clause; the alternative to the director/partner in the business being declared bankrupt should, on the insured's construction, be a fellow director or partner with a interest in a company, of which the insured were also directors or partners, being declared bankrupt. But the clause refers not to such fellow director/partner being declared bankrupt but the company (in which a director or partner has an interest) becoming bankrupt. The insured thus seek to give the second limb of the declaration an ungrammatical meaning because, otherwise, it would be difficult to give it any meaning at all.
Something has gone wrong. The only thing one can say with confidence is that declaration 5 does not, strictly speaking, have an ordinary English meaning; in these circumstances, as Sir Christopher Staughton said (with the agreement of Lord Justice Latham) in Gan v Tai Ping (Nos. 2 and 3) [2001] Lloyds I&R 667, 700:-
"we are entitled and bound to see if we can divine what the parties intended to say."
My own view is that it is clear that what the parties intended was that any insolvency on the part of Mr and Mrs Doheny or any company in which they had previously had an interest should be declared. It is not insignificant that, while there was only one insurance policy there were in fact two proposal forms, because both the company, on the one hand, and Mr and Mrs Doheny, on the other, wanted insurance. In these circumstances it is all the more obvious that the insurers would wish to know the financial history not only of Mr and Mrs Doheny but also the financial history of any company in which they had an interest.
Conversely it is not easy to see why insurers should be legitimately interested in the personal financial history of directors or partners of Mr and Mrs Doheny who were co-directors or fellow-partners in businesses in which they had historically engaged. Mr Jess for the insured submitted that associates of Mr and Mrs Doheny were all part of the moral hazard in relation to the risk about which insurers would wish to know; personal bankruptcies of partners in or fellow-directors of other business ventures would reflect badly, it was suggested, on the insured appellants. This seems to me far-fetched when compared to an insurers' self-evident wish to know about not only any personal insolvency of the Dohenys but also any insolvency of corporate vehicles with which they themselves were associated.
Mr Jess submitted that the words "any Company in which any director/partner have had an interest" were impossibly vague. While that may be so, I do not see how that advances the argument; whatever construction one adopts, those words have to be interpreted. Indeed the more directors and partners that are in contemplation the more elusive the phrase becomes. They are more readily understood by reference to partners in, or directors of, the business which is insured because, in relation to them, it is easy to establish the basic facts. It is not contended in the present case that Mr or Mrs Doheny did not have an interest in the three companies...
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