Ramco (UK) Ltd v Weller Russell & Laws Insurance Brokers Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 13 June 2008 |
| Neutral Citation | [2008] EWHC 2202 (QB) |
| Court | Queen's Bench Division |
| Date | 13 June 2008 |
| Docket Number | 2007 Folio No. 1039 |
[2008] EWHC 2202 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LONDON MERCANTILE COURT
David Donaldson Q.C. sitting as a Deputy High Court Judge
2007 Folio No. 1039
Nature of proceedings
1. The Claimants (“Ramco” and “RIL”) are companies in the same ownership which trade in surplus stock, principally of army origin. Ramco was formed (in 1997) to deal specifically in stock which the Ministry of Defence (“MoD”) wished to sell via its Disposal Sales Agency and has dealt exclusively with such stock, entrusted to it under large bulk contracts. By contrast, RIL (formed earlier in 1991) has acquired its stock from a variety of sources. At all times relevant to these proceedings, both companies were under the day-to-day control and management of Mr Neil Sanderson, their managing director and a shareholder in both companies. The stock was held in storage at agricultural premises at Croft, near Skegness in Lincolnshire, owned by related parties.
2. The action concerns an insurance policy on the stock of both companies obtained through the Defendant, an insurance broker run by Mr Charles Russell. The stock was destroyed by fire on 16 May 2001: neither Claimant was at fault. Faced by claims from the two companies, underwriters refused payment in large part, contending that most of the stock was not covered by the policy, and the Claimants commenced proceedings against them in the Commercial Court. Following the determination of a preliminary issue by Andrew Smith J underwriters accepted liability in respect of the entirety of Ramco's claim, but continued its rejection of RIL's claim, save for a small part irrelevant to the present action. That remained the position after an appeal by RIL to the Court of Appeal, following which RIL discontinued its claim. The Claimants's case in the present action is, in brief, that the policy obtained by the Defendant was inappropriate for their purposes and the Defendant was in breach of its obligation of skill and care in this regard.
The Claimants' business and stock
The Ramco stock
3. The latest contract setting out the basis on which Ramco dealt with the MOD surplus stock was dated 9 December 1999. It provided, in essence, that (a) the stock was to remain the property of the MoD until Ramco had agreed to sell it on behalf of the MoD, until such time holding it “on a fiduciary basis as bailee for MoD” with title passing to Ramco when it agreed onward sale of any item of stock; (b) the proceeds of sale were to be divided between Ramco and MoD according to a specified formula; (c) any stock losses for which Ramco was deemed liable would be at “the assessed market value of the items”, its liability for other losses being “2% of the MoD Basic Material Price of stock”.
The RIL stock
4. RIL's stock, which came from various sources, fell into two categories. The first, of small amount, was its own property and is irrelevant to the present action. The second, which is at the centre of RIL's claim, was a large quantity of South African army surplus hand tools held under a written agreement dated 21st May 1999 between RIL and Mr Neville Murray, a South African businessman (“the Murray Agreement”). A first consignment of 20 containers held under this agreement arrived from South Africa in May 1999, followed by a further consignment of 4 containers in December 1999. Significant terms of the Murray Agreement were:
a. RIL was to market and sell the tools for the mutual benefit of RIL and Mr Murray (Clause 4.1).
b. Such sales were to be at the “RIL sell price” with a permissible discount of 30% (Clause 4.2).
c. RIL was to account to Mr Murray for 50% of the sale proceeds of each tool (taking credit for minimum payments of £5,000 per month for the first year of the agreement) (Clause 4.5).
d. Title in each tool was to remain with Mr Murray until RIL had sold it and Mr Murray had received his share of the sales proceeds, until which time RIL was to hold the tool as “the Vendor's fiduciary agent and bailee” (Clause 5).
e. RIL was required to insure the tools for a sum equal to 50% of their total “RIL Stock Value” (Clause 7), that value being initially around £2 million.
Insurance cover
5. Until mid-1999 the Claimants' insurance had been placed with Cornhill Insurance plc using Oughtred & Harrison (Insurance) Ltd as brokers. The insured under the Cornhill policy were not only the two Claimants but also associated entities of the Sanderson family including the Sanderson pension fund, and the policy covered in addition to the stock the premises owned by these other entities (including the warehouses where the stock was stored) and their employers', public and products liability. In early 1999, Mr Russell contacted Mr Sanderson in the hope of obtaining the business for the Defendant, which in fact occurred. The result was that the Defendant procured a new policy for the Claimants with Norwich Union with effect from 28 July 1999 covering the remainder of that calendar year and renewed on 1 January 2000. As the renewal for 2001 approached, however, Mr Russell was quoted a significantly higher premium by Norwich Union and (having obtained a short extension of the existing cover) sought a quotation through Lloyds brokers, Heath Lambert, who obtained one from Admiral Underwriting Agencies. On receipt of this, the Defendant asked Heath Lambert to hold covered as from 1st February 2001, and the policy was eventually issued in April 2001.
6. The policy was a Combined “All Risks” Policy incorporating standard Admiral wording. The material damage section undertook to pay the insured “the value of the property at the time of its loss or destruction” and, so far as applicable to stock, covered
“Stock … the property of the Insured or held by the Insured in trust for which the Insured is responsible.”
The sum insured in respect of stock was £2 million.
The claim against underwriters
7. On 16 May 2001 the premises were severely damaged and the stock destroyed by fire. It has never been suggested that this was anything other than an accident, probably due to an electrical fault.
8. Claims were submitted to underwriters by Ramco and RIL for the entirety of the stock. Underwriters accepted those claims unconditionally (save as to quantum) only as regards that small portion of the stock which was the property of the Claimants, held by RIL. Otherwise, underwriters adopted the position that the cover was limited to an indemnity against any liability of the Claimants to the actual owners of the goods, namely the MoD and Mr Murray. In the case of Ramco this meant that underwriters were willing to pay the 2% of value specified in the MoD contract; in the case of RIL, whose contract with Mr Murray did not render it liable at all in respect of accidental loss, there would be no recovery at all. This was said to be the result of the words “Stock … held by the Insured in trust for which the Insured is responsible.” In face of underwriters' stance the Claimant issued proceedings against them in 2003.
9. The proper construction of the policy was argued as a preliminary issue before Andrew Smith J. On 15 October 2003 he ruled that stock not owned by the insured was covered only if it was liable to the owner of the stock, but if that was established the insured could recover the full value of the goods. On that basis, since the MoD contract imposed liability, albeit severely limited, on Ramco, underwriters agreed that it could recover the full value of the stock held by it, and after negotiations on value paid an agreed sum in settlement of its claim. Since, however, the Murray Agreement imposed no liability at all on RIL, underwriters continued their refusal to pay. RIL appealed the decision of Andrew Smith J, contending that the words “for which the Insured is responsible” did not require legal liability for loss. The Court of Appeal held that, though first impression might support RIL's argument, the words had been glossed to the contrary by a series of decisions going back to the middle of the nineteenth century, from which —though probably not binding on the Court of Appeal —it would be inappropriate to depart. A petition to the House of Lords for leave to appeal was rejected.
10. In these circumstances the two Claimants claim in the present action against the Defendant the following losses:
a. Ramco seeks its legal costs of the action against underwriters, in so far as not recovered as taxed costs.
b. RIL seeks damages under two heads:
(1) the value of the South African tools, put at £1,147,104, which should have been recoverable against underwriters if an effective insurance cover had been obtained; and
(2) the legal costs incurred in the action against underwriters and the costs payable to underwriters by RIL under orders made in that action.
Insurance by a bailee
11. It is clear law that a bailee may insure the goods of the bailor and recover the full value of the goods and is not restricted to the part attributable to his own interest, though he is accountable to the bailor for the excess: see Tomlinson v Hepburn, [1966] AC 451. This rule, recognised as early as the mid-nineteenth century in Waters v Monarch Fire and Life Assurance Company, (1856) 5 E&B 970, applies regardless of whether the bailee is liable or potentially liable to the bailor in respect of the goods.
12. Within a short time of the Waters decision it was also recognised that the position could be altered by the wording of the policy. In North British and Mercantile Insurance...
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