Youell v Bland Welch & Company Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE STAUGHTON,LORD JUSTICE BELDAM,LORD JUSTICE FOX |
| Judgment Date | 21 February 1992 |
| Judgment citation (vLex) | [1992] EWCA Civ J0221-6 |
| Docket Number | 92/0225 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 February 1992 |
[1992] EWCA Civ J0221-6
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)
(MR. JUSTICE PHILLIPS)
Royal Courts of Justice.
Lord Justice Fox
Lord Justice Staughton
Lord Justice Beldam
92/0225
MR. JONATHAN SUMPTION Q.C., MR. COLIN EDELMAN and MR. GRIFFITHS JONES (instructed by Messrs. Barlow Lyde & Gilbert) appeared on behalf of the (Plaintiffs) Appellants.
MR. ANTHONY GRABINER Q.C. and MR. SIMON GEE (instructed by Messrs. Herbert Smith) appeared on behalf of the (First and Second Defendants) Respondents.
MR. JONATHAN MANCE Q.C. and MR. JULIAN FLAUX (instructed by Messrs. Elborne Mitchell) appeared on behalf of the (Seventh, Eighth and Ninth Defendants) Respondents.
In 1973 Avondale Shipyard Incorporated of New Orleans contemplated building some large and expensive vessels for the carriage of liquefied natural gas. They obtained insurance from the plaintiffs in this action, who are six representative underwriters at Lloyd's and two insurance companies. I shall call them "the insurers". There were other subscribers to that insurance, who do not take part in this dispute, for the most part because they did not require reinsurance. The insurance was in the form of an open cover against which vessels would be declared in due course, and incorporated the American Institute Builders Risk Clauses. These covered damage to the hull and machinery by a wide variety of perils. There were also two ancillary insurances, against loss and expense described in one case as charges and in the other as escalation.
It is unnecessary to go into the detail of the original insurances, save to note two points. First, as it would take a considerable time to build the vessels, conduct trials and deliver them to the purchasers, claims might arise many months after declarations were made against the open cover. To allow for this a primary period of insurance was to be declared, with Avondale having the option to extend it at an additional premium. Secondly, the premium was to be comprised of two elements: there was to be a fixed percentage of the vessel's value, and another (smaller) percentage for every month of the building period. In each case the percentage was to be of the contract value of the vessel or the completed value, whichever was the greater.
The insurers did not wish to retain for themselves the whole of these substantial risks. They accordingly set about obtaining reinsurance, on top of any which they may have had in the ordinary conduct of their affairs. For this purpose they engaged Sedgwick Forbes Marine Ltd., who had been the brokers for the original insurance, to place reinsurance on their behalf. Sedgwick Forbes Marine Ltd. in turn engaged specialist brokers, Bland Welch & Company Ltd. At the time those two companies were independent of each other, but subsequently they became associated companies. They are the first and second defendants in this action, and I shall refer to them as "the brokers". The third to sixth defendants no longer feature in the proceedings.
The reinsurance that was obtained was not specifically directed at or restricted to the Avondale vessels or the original insurance. Under the contract the insurers were entitled and obliged to cede any original insurance on large and expensive vessels as described. It was underwritten by a great number of Lloyd's underwriters and insurance companies. They undertook to bear 50 per cent of the excess over 25 per cent of the insured value, for each vessel and each loss. The seventh to ninth defendants were amongst those who underwrote the reinsurance. I shall refer to them as "the reinsurers".
Declarations were made under the original insurance of three Avondale vessels, to attach as follows:
Hull 2266—15th February 1974
Hull 2267—15th August 1974
Hull 2268—15th February 1975
In each case a primary period of insurance was declared, of 32 months. But none of the vessels was completed within the relevant period. Indeed none was ever completed.
In the case of Hull 2267 the insulation of the tanks failed during sea trials, owing to defective work by sub-contractors. The same problem affected or would in due course have affected the other two vessels. It was so serious that the vessels were uneconomic to repair. They were treated as constructive total losses, and construction of all three vessels was abandoned. That happened on 23rd June 1980, which is agreed to have been the date of the loss in each case. Claims were made upon the original insurance, which had been extended so as to cover Avondale, their sub-contractors and the owners of the vessels. It was not disputed that the insurance was in force, although the primary periods declared had long been exceeded. The claims were paid by the insurers and others on the risk in the sum of $300 million.
The insurers then sought to recover an appropriate proportion of their loss from the reinsurers. At this point a difficulty arose, because the reinsurance contract contained a term which was said to limit the reinsurance cover to a period not exceeding 48 months in the case of each vessel. As appears from the dates that I have set out, that period too had long been exceeded in each case on 23rd June 1980. The insurers contend for a different meaning of the reinsurance contract. They say that it was to provide cover if the primary period declared under the original insurance did not exceed 48 months, even if the building took much longer, provided that the insurers remained on risk under the extension provisions of the original insurance.
That is the first dispute. If the insurers fail on that issue, their alternative claim arises. This is against the brokers for breach of their contractual duty in placing the reinsurance.
When the case came to trial Mr. Justice Phillips agreed to hear and determine first the claim by the insurers against the reinsurers, although that course was opposed on behalf of the reinsurers. In my opinion the judge's decision was eminently sensible—not because if he decided in favour of the insurers the dispute between them and the brokers would not matter (for there would always be the possibility if not a distinct probability of an appeal)—but for a different reason. The first dispute raised a point of interpretation of the reinsurance contract. It was a short point, but by no means simple. Evidence of what the insurers, or the reinsurers, or the brokers thought the contract meant would not be relevant or admissible. But when it came to the second dispute, to the question whether the brokers were in breach of their contractual duty, and to the effect of any breach upon the insurers, such evidence was at least arguably relevant. It was given by a substantial number of witnesses. The judge was, I think, wise to consider and decide the short point on the meaning of the reinsurance contract before he became encumbered with that evidence. But the course taken has led to one difficulty, which I shall mention when it arises.
In his first judgment delivered on 22nd January 1990 Mr. Justice Phillips decided the point of construction in favour of the reinsurers, and dismissed the claim against them. Against that decision the insurers now appeal. We heard their appeal first. If we had decided to allow it and given judgment for the insurers against the reinsurers, we would have faced a nice problem as to whether it was our duty to squander several weeks of scarce court time on the second issue, which would be of no practical consequence unless there should happen to be an appeal to the House of Lords on the first issue, and unless that appeal succeeded. But in the event I consider that, for reasons which will shortly be given, the appeal on the first issue must be dismissed.
In his second judgment, delivered on 27th March 1990, Mr. Justice Phillips held that the brokers were in breach of their contractual duty. However, he also held that the insurers were guilty of contributory negligence, and that this was pro tanto an answer to a claim in contract. So he awarded the insurers 80 per cent of the loss which they had suffered by reason of the brokers' breach of contract, and allowed the insurers to suffer a deduction of 20 per cent for their own negligence. Against that decision the brokers appealed; and the insurers cross-appealed, contending that they should have recovered 100 per cent of their loss. But those parties have now resolved the dispute between them, after we had heard a substantial part of the argument. So it remains for us to consider the insurers' appeal against the dismissal of their claim against the reinsurers.
The Reinsurance Contract
This was initialled by the leading reinsurer on 10th September 1974. But it was expressed to take effect from 1st January in that year, and the principal terms were to be found in a slip which had been completed, either wholly or for the most part, in November 1973.
The material provisions of the contract for present purposes were these:
" INTEREST AND SUBJECT MATTER
The Reinsured shall cede to the Reinsurers and the Reinsurers shall accept by way of Reinsurance of the Reinsured their proportion of the Reinsured's liability in respect of risks attaching for periods as original (up to but not exceeding 48 months) covering the interests of Hull, Machinery (including Protection and Indemnity and or Running Down clause and other risks normally covered under Institute Builders Risk Clauses or Similar Clauses) Materials,...
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