John G Russell (Transport) Ltd v (First) Heath Collins Halden (Scotland) Ltd [CSOH]

JurisdictionScotland
JudgeLord Penrose
Judgment Date10 November 1995
CourtCourt of Session (Outer House)
Date10 November 1995

Court of Session (Outer House).

Lord Penrose

John G Russell (Transport) Ltd
and
(First) Heath Collins Halden (Scotland) Ltd & Ors

S N Brailsford QC (instructed by Bennett & Robertsont) for the pursuer.

P H Brodie QC and S P L Wolffe (instructed by Simpson & Marwick, WS) for the first and second defenders.

D I K Mackay QC and S Di Rollo (instructed by Cochran Sayers & Cook) for the third defender.

The following cases were referred to in the opinion:

Bell v Lothiansure Ltd 1993 SLT 421.

Halliday v Lyle & Scott Ltd 1995 SLT 192.

Hutton v WatlingELR [1948] Ch 398.

Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society LtdELR [1918] AC 350.

London and Lancashire Fire Insurance Co Ltd v Bolands LtdELR [1924] AC 836.

Prenn v SimmondsWLR [1971] 1 WLR 1381.

Reardon Smith Line Ltd v Hansen-TangenWLR [1976] 1 WLR 989.

Rowter Steamship Co v Love & Stewart 1916 SC (HL) 199.

Taylor v John Lewis LtdENR 1927 SC 891.

Wilson (M W) (Lace) Ltd v Eagle Star Insurance Co Ltd 1993 SLT 938.

Insurance — Exclusion clause — Lloyd's Institute Container Clauses Time C L.338 1.1.87 — Insurance contract intended to cover cost of recovering containers from abroad in event of hirer becoming bankrupt and constructive total loss — Exclusion of cover for loss arising from insolvency — Claim by owner of containers lost or recovered damaged when hirer became bankrupt — Meaning of “arising from” in exclusion clause — Whether losses claimed were excluded under contract.

This was an action for an indemnity under a policy of insurance for losses incurred on the bankruptcy of a lessee of containers. The issue was whether the losses were excluded under the contract by the incorporation of the Lloyd's Institute container clauses.

The pursuers owned containers, which they leased to a company (“HCL”) until it was declared bankrupt by a Dutch court on 25 June 1991. Between April 1985 and 25 June 1991 156 containers were leased to HCL by the pursuers. After the bankruptcy only 37 were recovered. The pursuers sold two. The remaining 35 were shipped to the pursuers” depot. They averred that 119 were lost. The pursuers made an insurance claim in respect of the lost containers under a contract of insurance with Lloyd's underwriters. Liability to indemnify the pursuers was denied on the ground that by 1987 the contracts had incorporated the Lloyd's Institute Container Clauses Time C.L. 338 1.1.87. The contracts thereby incorporated an exclusion clause from the all risks cover which provided in cl. 5: “In no case shall this insurance cover…[5.6] loss, damage or expense arising from insolvency or financial default.”

The pursuers, implicitly acknowledging that the underwriter was entitled to deny liability, brought an action against the local insurance brokers who had arranged the cover. The pursuers alleged that the defenders had failed to procure cover in accordance with their contract. The defenders had agreed to negotiate cover to protect the pursuers against the costs of recovering containers from abroad should a hirer become bankrupt and against constructive total loss where containers on lease to a bankrupt company could not be traced. The contract, intimated by the defenders to be in the terms sought, was renewed annually on that basis. The defenders issued third party proceedings against the Lloyd's brokers employed by the defenders to negotiate the cover required by the pursuers. The defenders lodged a minute of amendment on 30 January 1995 contending that, the losses claimed by the pursuers were covered by the contract of insurance. The pursuers adopted the defenders' arguments. The underwriters were joined as a party accordingly. The case was sent to debate between the pursuers and the defenders on the issue whether there was a relevant answer to the case founded on breach of contract if the policy did not cover the risks relied on. As between the underwriters on the one hand, and the pursuers and defenders on the other, the issues related to the interpretation of the contract and the extent of the cover it afforded.

The defenders accepted that they would be liable to the pursuers in breach of contract if they were found not to have effected for the pursuers for 1991-92 a contract of insurance covering the risk of loss of the pursuers' containers and the cost of their recovery from wherever they were retrieved.

The underwriters contended that the losses claimed arose from the insolvency of HCL and were excluded by the express exception from liability set out in the institute container clauses. For the pursuers it was argued that the language of the contract, properly construed, did not lead to that result, and in any event proof was required of the facts and circumstances surrounding the making of the contract before a concluded view of the construction of the material terms could be reached.

Held, allowing a proof before answer leaving standing the pleas to the relevancy of parties:

1. It was necessary to prove the nature of the loss claimed before it could be determined whether all or any of the heads of loss were within the risks insured.

2. The words “arising from” in cl. 5.6 of the institute container clauses were to be construed as meaning “proximately caused by”. In relation to risks within cl. 1, liability was therefore excluded where “loss of or damage to the subject matter insured” was proximately caused by insolvency or financial default. That was the test to be applied to determine the relevancy of the pursuers” case.

3. The averments did not make clear how the containers were lost when HCL was declared bankrupt, and in particular did not justify the view that the loss was caused by the insolvency of the company. It followed that the pursuers' case did not fail on the basis that the proximate cause of the loss was the insolvency of HCL. Accordingly the claim under cl. 1 of the institute container clauses in respect of 119 containers required to go to proof. Although the claim for the cost of repair of containers had a more direct relationship to the insolvency of the hirer than any other cause, it would not be excluded from enquiry on any part of the cl. 1 claim.

4. The remaining claims were under the additional risks set out in the slip policy, which applied only to leased containers and was qualified expressly by the exclusion of losses recoverable from lessees or hirers. The scope of the cover provided by additional risks if losses proximately caused by the insolvency of the hirer were excluded, depended on the construction of the word “recoverable” and the application of cl. 5.6. “Recoverable” related to the entitlement to recover. Clause 5.6 applied to the added risk. Proof was required to determine whether the expenses incurred fell within the terms of the policy or were excluded because of the insolvency.

5. There was no ambiguity in relation to the meaning of insolvency in the contract. An investigation as to the facts was required to determine whether the losses which occurred fell within the contract.

OPINION

Lord Penrose:

The pursuers, John G Russell (Transport) Ltd, own containers which they lease out to others in the ordinary course of their business. Holland Canada Line BV were a client of Russell until that company was declared bankrupt by the District Court of Rotterdam on 25 June 1991. Between about April 1985 and 25 June 1991, 156 containers were leased to Holland Canada by Russell, and at the date of Holland Canada's bankruptcy these were in use throughout the world. Following the bankruptcy of Holland Canada, Russell recovered 37 only of the containers. Of these, two were sold in Bangkok. Russell arranged for the remainder to be shipped to their depot. They aver that 119 were lost.

At 25 June 1991 there was a contract of insurance in force between Russell and Lloyd's underwriters now represented in this action by Mr Christopher Rome. The insurance was the latest in a sequence of annual contracts which began in 1978. At the material time the term of the current contract was 1 April 1991-31 March 1992.

Russell employed local insurance brokers to arrange cover on their behalf. At all material times the local brokers were members of related but developing groups of companies which changed their composition and management structures from time to time. The pleadings of parties reflected a degree of uncertainty as to the identities of the brokers responsible for handling Russell's business at certain significant dates. However, at a preliminary hearing on 25 April 1995 counsel for the first and second defenders, Heath Collins Halden (Scotland) Ltd and Collins Halden (Scotland) Ltd, intimated that it was accepted that they were the parties answerable to Russell for any liability there might be for breach of the contractual duties owed by local brokers to Russell in negotiating insurance cover on the containers in question. I shall refer to the local brokers collectively as “Heath Collins” for the sake of brevity in this opinion.

The summons in the action was signeted on 14 December 1993. By that date there had been a lengthy correspondence involving all or most of the parties now involved in the litigation. In the course of the correspondence the underwriters denied liability to indemnify Russell. Intimation of their decision was communicated to Russell by Heath Collins. The action was raised against Heath Collins on the basis that they had failed to procure cover in terms of their contract with Russell. Russell had particularly sought protection against the cost involved in the recovery of containers from abroad should a hirer become bankrupt and against constructive total loss where containers on lease to a bankrupt company could not be traced. Heath Collins had agreed to negotiate such cover, and had intimated to Russell that they had succeeded in doing so. After the initial contract annual renewals had been effected on that basis, at least as between Russell and Heath Collins.

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2 cases
  • British Waterways v Royal & Sun Alliance Insurance Plc
    • United Kingdom
    • Queen's Bench Division (Commercial Court)
    • 7 Marzo 2012
    ...the insolvency was a proximate cause of the claim". vii) In a further Scottish case, in the Outer House, John Drew Russell (Transport) Ltd v (First) Heath Collins Halden (Scotland) Ltd [1996] CLC 423, Lord Penrose noted that the approach in Bell by the Lord Ordinary had been referred to wit......
  • Axn and Others v John Worboys and Another
    • United Kingdom
    • Queen's Bench Division
    • 25 Junio 2012
    ...as an exclusion from the right to indemnity if the insolvency was a proximate cause of the claim"; (c) John Drew Russell (Transport) Ltd v (First) Heath Collins Halden (Scotland) Ltd [1996] CLC 423, in which Lord Penrose sitting in the Outer House noted that the approach in Bell by the Lor......

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