Eide U.K. Ltd v Lowndes Lambert Group Ltd (Sun Tender)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE PHILLIPS,LORD JUSTICE WALLER,LORD JUSTICE CHADWICK |
| Judgment Date | 16 December 1997 |
| Judgment citation (vLex) | [1997] EWCA Civ J1216-17 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | No QBCMI 97/1231/B |
| Date | 16 December 1997 |
[1997] EWCA Civ J1216-17
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF MR JUSTICE TOULSON
Royal Courts of Justice
Strand
London WC2
Lord Justice Phillips
Lord Justice Waller
Lord Justice Chadwick
No QBCMI 97/1231/B
MR J GAISMAN QC and MISS S HEALY (Instructed by Hill Taylor Dickinson of London) appeared on behalf of the Appellant
MR J GILMAN QC and MISS P HOPKINS (Instructed by Watson Farley & Williams of London) appeared on behalf of the Respondent
This appeal raises important questions as to the nature and extent of the lien granted to an insurance broker by Section 53(2) of the Marine Insurance Act 1906. The questions were posed to Toulson J. under O.14A RSC on the basis of agreed facts. Those facts can be summarised as follows.
The Facts
The First Plaintiffs ("the Owners") own a vessel called "SUN TENDER", which was mortgaged to the Second Plaintiffs ("the Bank").
The Defendants are Lloyd's Brokers who in March 1993 took over the business of Jeffreys Coates and Associates Ltd, who were also Lloyd's Brokers. There is no need to differentiate between them, and I shall refer to "the Brokers" to describe whichever set of Brokers happened to be acting in that role at the time.
Colne Standby Limited ("Colne Standby") were the operators of a fleet of vessels. In July 1992, on instructions from Colne Standby, the Brokers procured two hull and machinery policies, one with Lloyd's and one with members of the Institute of London Underwriters ("the Policies"), for a period of 12 months. The Policies described the insured as:
Colne Standby Ltd and/or Subsidiary and/or Associated companies and/or where required by contract all other companies and/or persons concerned in contracts attaching to this insurance, shall be deemed to be jointly and/or additionally insured for their respective rights and interests.
By a charterparty dated the 2nd November 1992 the Owners demise chartered the "SUN TENDER" to Colne Standby. The charterparty made the following provision in relation to insurance:
During the Charter period the Vessel shall be kept insured by the Charters at their expense against marine, war and Protection and Indemnity risks… Such marine, war and P. and I. insurances shall be arranged by the charterers to protect the interests of both the Owners and the Charterers and mortgagees (if any)…. All insurances shall be in the joint names of the Owners and the Charterers as their interests may appear…. The Charterers shall, subject to the approval of the Owners and the Underwriters, effect all insured repairs as well as insured charges, expenses and liabilities (reimbursement to be secured by the Charterers from the Underwriters) to the extent of coverage under the insurances herein provided for.
On the 25th November 1992, on instructions from Colne Standby, the Brokers arranged for the "SUN TENDER" to be added to the Policies.
On the 9th December 1992 the Owners assigned their interests in the Policies to the Bank's predecessor and on the 11th February 1993 the Policies were endorsed:
"Hereby advised the following loss payees and mortgagees….
"SUN TENDER" Eide U.K. Limited—Owners and Norsk Skibs Hypothekbank A/S of Oslo—Lenders…"
On the 16th June 1993 the Brokers issued a cover note which described the assured in the same terms as the Policies and which noted expressly the interests of the Owners and the Bank.
It is common ground that Colne Standby, the Owners and the Bank were co-assureds under the Policies, each with an insurable interest.
On the 4th June the "SUN TENDER" sustained damage to her starboard main engine and was redelivered by Colne Standby to the Owners in her damaged condition on or about 12th June 1993. Before redelivery of the "SUN TENDER" and termination of the charterparty, Colne Standby incurred disbursements of £19,871.07 in respect of "part permanent repairs". Following the Vessel's redelivery, the Owners arranged for the further repairs to be carried out. Such repairs were paid for by the Owners from the proceeds of a loan from the Bank. The total cost of these repairs was £303,560.07.
Claims under the Policies were made by Colne Standby and by the Bank, as assignee of the Owners and as an assured under the Policies, for their respective losses in September and October 1994. The Brokers collected from the underwriters the sum of £300,931 by way of claims proceeds, acting pursuant to letters of authorisation signed on behalf of Colne Standby and the Bank. The sum paid by the underwriters represented the Owners' repair costs of £303,560 and Colne Standby's repair costs of £19,871, totalling £323,431, less a deductible of £22,000. The Brokers were entitled to deduct a 1% collecting commission, leaving a balance of £297,921. The Bank's share of this sum was £279,629.42.
The Brokers paid the entirety of the claims proceeds into a mixed bank account.
At the time that these proceeds were received there was owing from Colne Standby to the Brokers a balance of £728,109.82 on an insurance account. This sum was wholly made up of debts in relation to insurances other than the Policies and all of these debts accrued after the issue of the cover note on the 16th June.
The Issue
Section 53 of the Marine Insurance Act 1906 provides:
(1) Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium, and the insurer is directly responsible to the assured for the amount which may be payable in respect of losses, or in respect of returnable premium.
(2) Unless otherwise agreed, the broker has, as against the assured, a lien upon the policy for the amount of the premium and his charges in respect of effecting the policy; and, where he has dealt with the person who employs him as a principal, he has also a lien on the policy in respect of any balance on any insurance account which may be due to him from such person, unless when the debt was incurred he had reason to believe that such person was only an agent.
The Brokers contend that these provisions have the following effect:
1) The Brokers enjoyed a general lien over the Policies in respect of the balance owed to them by Colne Standby on the insurance account.
2) That lien carried with it the right to apply the entirety of the claims proceeds received by the Brokers in reduction of that account.
The Bank joins issue with both contentions.
The issue is thus whether Section 53(2) gave the Brokers a right to retain the claims proceeds in part satisfaction of Colne Standby's liabilities under their insurance account.
The Judgment
The Judge held that the lien granted by Section 53(2) was a lien on the policy itself and no more. Any right enjoyed by a Broker to use claims proceeds collected under the policy to discharge the liability of an assured, or an agent acting for an assured, arose by virtue of general principles of set-off and not under the Statute. Finally the Judge held that Section 53(2) did not, in any event, permit a Broker to assert a lien against one co-assured in respect of the liability of another co-assured.
The parties had agreed that the result of the action should turn on the determination of the issue in the O.14A proceedings. Accordingly the Judge gave judgment in favour of the Bank for £269,702.58 plus interest. It is against that Order that the Brokers appeal.
The approach to the interpretation of Section 53(2)
The Judge held that the appropriate approach was to give effect to what he considered to be the clear meaning of the sub-section without consideration of case law on the subject before 1906, referring to the well known statement of Lord Herschell in Bank of England v.Vagliano Brothers [1891] AC 107, as cited by Roskill L.J. in the context of the 1906 Act in "The Eurysthenes" [1977] QB 49 at p.75. While I agree that the starting point must be to consider the natural meaning of the language used in the sub-section I believe that one must consider the existing case law when considering its effect, for the following reasons. As Mr Gilman, Q.C., for the Bank pointed out, the 1906 Act does not purport to be a comprehensive code, but expressly preserves, by Section 91(2) the rules of common law, including the law merchant, insofar as consistent with the Act. Furthermore, Section 87(1) recognises that usage may vary what would otherwise be an implication of law and, as Arnould 16th Ed. points out at paragraph 162, the rules contained in Section 53 are derived from mercantile usage.
The "lien on the policy"
As I shall demonstrate shortly, a number of authorities indicate that a Broker who has a lien over the policy has a commensurate right to retain claims proceeds collected under the policy insofar as necessary to satisfy the debt secured by the lien. In these circumstances it may be that it is a pointless exercise in semantics to argue about whether any right in relation to the proceeds is implicitly conferred by Section 53(2), or whether it arises as a result of some independent rule of law based on mercantile usage when a lien exists under Section 53(2). Having said that, I do not find it acceptable to suppose that the draftsman of the 1906 Act intended, by the simple phrase "lien on the policy" to do more than describe an equally simple and well established type of security, namely the right to retain possession of physical property until a debt has been discharged. True it is that the word "lien", which is used to describe this right which exists in...
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