Firma C-Trade S.A. (Respondents (Plaintiffs) v Newcastle Protection and Indemnity Association "The Fanti") (Appellants
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BINGHAM,LORD JUSTICE STUART-SMITH,LORD JUSTICE O'CONNOR |
| Judgment Date | 30 November 1988 |
| Judgment citation (vLex) | [1988] EWCA Civ J1130-8 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 November 1988 |
| Docket Number | 88/1028 1986 S No. 125/86 |
[1988] EWCA Civ J1130-8
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT (STAUGHTON J. and SAVILLE J.)
Royal Courts of Justice
Lord Justice O'Connor
Lord Justice Bingham
and
Lord Justice Stuart-Smith
88/1028
AC167/86
1986 S No. 125/86
MR. R. AIKENS Q.C. and MR. J. HIRST (instructed by Messrs Ince 8 Co.) appeared on behalf of the Appellants (Defendants). Newcastle Protection & Indemnity Association.
MR. A. CLARKE Q.C. and MR. NICHOLAS HAMBLEN (instructed by Messrs Clyde & Co.) appeared on behalf of the Respondents (Plaintiffs) Firma C-Trade S.A.
MR. B. RIX Q.C. and MR. A. POPPLEWELL (instructed by Messrs Allen & Overy) appeared on behalf of the Appellants (Plaintiffs) Socony Mobil Oil Company Inc & Ors.
MR. S. BOYD Q.C. and MR.G. DUNNING (instructed by Messrs Holman Fenwick & Wiilan) appeared on behalf of the Respondents (Defendants) The West of England Ship Owners Mutual Insurance Association (London) Ltd.
For very many years shipping lawyers have debated the effect of the Third Parties (Rights against Insurers) Act 1930 ("the 1930 Act") on the "pay to be paid" clauses traditionally included in the Rules of shipowners' mutual protection and indemnity clubs. Differing views have been expressed. But until the two arbitration awards now under appeal the point had never been decided. Given the history it is not surprising that very experienced arbitrators should have differed and that two very experienced commercial judges should also have reached different conclusions on appeal: Staughton J. (as he then was) in The Fanti [1987] 2 LI. Rep. 299; Saville J. in The Padre Island [1987] 2 LI. Rep. 529. In The Padre Island additional questions also arise for decision.
The motor vessel Fanti was entered in the Newcastle Protection and Indemnity Association whose Rules provided (in Rule 4) that
"the Member shall be protected and indemnified against all or any of the following claims and expenses which he shall become liable to pay and shall in fact have paid in respect of a ship, entered in this class of the Association…" (emphasis added).
The steam tanker Padre Island was entered in the West of England Ship Owners Mutual Insurance Association Limited, by Rule 2 of whose Rules the club undertook to
"Protect and indemnify Members in respect of losses or claims which they as owners of the entered vessel shall have become liable to pay and shall in fact have paid as follows…" (emphasis again added).
In both cases the claims and losses listed in the Rules included (as one of a number of heads) claims for cargo damage.
The facts giving rise to the appeals before them were summarised by the judges in their respective judgments and may be seen in the reports. For present purposes it is enough to say at this stage that each vessel performed a voyage or voyages during which damage was caused to cargo (in the Padre Island case as long ago as 1965); in each case cargo owners sued the shipowner to judgment; in each case an order was later made in this country that the shipowning company would be wound up; in each case cargo owners then began arbitration proceedings against the club seeking direct recovery under the 1930 Act. In the Fanti arbitration Mr. George Hardee as umpire found for the club on the disagreement of arbitrators. Staughton J. disagreed with him and the Newcastle Club appeals. In the Padri Island arbitration Mr. Nicholas Phillips Q.C. as sole arbitrator also found for the club. Saville J. upheld his decision. So cargo owners (Mobil) appeal.
It is convenient to consider the effect of Rules 4 and 2 of the Rules of the respective clubs (which are accepted as having the same effect) before going on to consider the 1930 Act.
It is common ground that the contract made between shipowner and club on the entering of a vessel in the club is a contract of insurance. A contract of insurance is commonly said to be a contract of indemnity. But as Lord Blackburn observed in Aitchison v. Lohre (1879) 4 A.C. 755 at 761, slightly misquoting the opinion of the judges in Irving v. Manning (1847) 1 H.L.C. 287 and 307,
"a policy of assurance is not a perfect contract of indemnity; it must be taken with some qualifications."
To discover what, if any, qualifications apply to the insured's contractual right to indemnity it is necessary to construe the contract the parties have made since (statute apart) it is open to them to agree to indemnify and be indemnified on any terms they choose.
Here, as it seems to me, the member's contractual right to indemnity is subject to two conditions. The first is that the member should become (or have become) liable to pay a loss, a claim or expense under one of the listed heads. I shall have to consider the meaning of this condition in relation to a subsidiary argument on time bar advanced by the West of England Club on the Padre Island cross-appeal. No point arises on this condition at this stage. The second condition is that the member should in fact have paid the claim in question.
I doubt if it is profitable to ponder why the clubs chose to include this second condition in their Rules. It was suggested in argument that the clubs were concerned to ensure that third parties who had established claims against their members should be duly paid, but I am not sure that this suggestion lies comfortably with the provisions (in the Rules of both clubs) that cover shall cease, retrospectively as well as prospectively, on the winding up of a member. Had the clubs wished to ensure that members met liabilities duly established against them they could have so provided in their Rules. They have not done so. Whatever the thinking behind the condition, its effect be seems to be plain. A member is to have no claim on the mutual funds provided by other members and himself unless he has become liable and has discharged the liability by payment. A member is to have no recourse to club funds unless and until he is actually out of pocket.
In Chandris v. Argo Insurance Company Limited. [1963] 2 LI.Rep 65 Megaw considered a clause in an insurance policy which provided:
"And it is further agreed that if the ship hereby insured shall come into collision with any other Ship or vessel and the Assured shall in consequence thereof become liable to pay and shall pay by way of damages to any other person or persons any sums in respect of such collision the Underwriters will pay the Assured…"
He observed (at page 81):
"The parties have thus expressly agreed, at least as regards liability to the third parties for the collision damage, that payment by the assured shipowner is a condition, precedent of the insurer's liability".
That seems to me, with respect, to be plainly right and it seems to me equally plain that the effect of Rules 4 and 2 (read in isolation) is to make prior payment by the members a condition precedent of the members' right to be indemnified and of the club's duty to indemnify.
It was argued for the cargo owners that on a fair construction of the Rules as a whole this condition should be held not to apply where the member lacked the means to make payment before being reimbursed or where the effect of making payment before reimbursement would be to force him into insolvency. This limitation on the effect of the condition would, it was said, reflect the presumed intention of the parties and give effect to the familiar canon of construction that wide words will be given a restricted meaning where to do otherwise would fail to give effect to the parties' contractual intentions. The contractual intentions of the parties are, however, to be derived from the language of their written contract, construed of course in the context of their business relationship and the relevant surrounding circumstances. In the Rules of both these clubs the crucial clause containing the right to indemnity and the clubs' duty to indemnify is unambiguously and unconditionally subjected to the condition of prior payment. The Rules contain no hint that a right of indemnity can ever arise without prior payment. The Newcastle Rules reinforce the condition by the terms of Rule 29:
"29.—Cesser of the obligations of the Association in accordance with the provisions of Rules 27 or 28 shall not affect any accrued rights of the Members, that is to say, his right of recovery from the Association in accordance with the provisions of these Rules in respect of any claim arising out of an event or events occurring during the subsistence of the period of cover. For the purpose of this Rule (but for no other purpose) the Member shall be deemed to have such accrued right notwithstanding that he has not yet discharged his liability by payment, but nothing in this Rule shall operate to entitle the Member to recover from the Association unless and until the Member shall first have so discharged his liability in accordance with Rule 4."
The West of England Rules contain no counterpart to Rule 29, but they are not, I think, unclear or uncertain in their effect. I can see no warrant for reading into these Rules a limitation, however sensible, which is not suggested by the language used, which is (as I think) inconsistent with the express terms of the contract, which is not...
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