In Re Nautilus Steam Shipping Co Ex parte Gibbs & Co [1936] Ch. 17

In Re Nautilus Steam Shipping Co Ex parte Gibbs & Co [1936] Ch. 17

Insurance—Third Party Risks—Insured Company—Liquidation—Third Parties (Rights against Insurers) Act, 1930, s. 1—Liability incurred before passing of Act—Liquidation after Act.

The Third Parties (Rights against Insurers) Act, 1930, s. 1, sub-s. 1, provides:

"Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur, then - (a) in the event of the insured becoming bankrupt or making a composition or arrangement with his creditors; or (b) in the case of the insured being a company, in the event of a winding-up order being made, or a resolution for a voluntary winding-up being passed, with respect to the company .... if, either before or after that event, any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred".

On September 21, 1925, a policy of insurance was taken out by a company insuring it against third-party risks. On October 6, 1925, an accident to a third party occurred and the insurers thereupon became liable to the company in respect of the accident. On July 10, 1930, the Third Parties (Rights against Insurers) Act, 1930, came into operation. On October 13, 1931, an order was made for the compulsory winding up of the company.

On a summons taken out by the third party in the winding up of the company asking to be subrogated to the rights of the company against the insurers, Bennett J., holding himself bound by Ward v. British Oak Insurance Co. [1932] 1 K. B. 392, refused the application:-

Held (reversing the decision of Bennett J.), that the winding up of the company having supervened after the Act of 1930 came into operation, s. 1 of that Act became operative and enured to transfer the benefit of the policy of insurance from the company to the third party.

APPEAL from a decision of Bennett J. on a summons taken out in the liquidation of the Nautilus Steam Shipping *18 Co., Ld., by Gibbs & Co. (a firm) asking (inter alia) for a declaration that the applicants were entitled as against the liquidator on payment to the owner of the sailing ship Dharma of such sums as had been or should be found to be payable to the said owner for damages and costs awarded or to be awarded in certain litigation in the republic of Chile in respect of a collision between the steamship Pear Branch, of which the company were the owners, and the sailing ship Dharma, to be subrogated to the rights of the owner of the sailing ship Dharma against the underwriters and/or insurers under the provisions of the Third Parties (Rights against Insurers) Act, 1930.

The following statement of facts is taken from the judgment of Lord Hanworth M.R. On September 21, 1925, a policy of insurance was entered into insuring the insured company against claims by third parties, and it was a policy which covered the period in which a liability arose. On October 6, 1925, a collision took place between a vessel, the Pear Branch belonging to the Nautilus Steam Shipping Company and a vessel called the Dharma. The Pear Branch went into Valparaiso after the collision and proceedings in rem were threatened by the owner of the Dharma under the Admiralty jurisdiction there prevailing. In order to prevent the Pear Branch from being detained there was a bond entered into on behalf of the company by Messrs. Gibbs & Co., the well-known firm in Chile and Argentina. The liability which arose in the matter of damage to the Dharma was ultimately determined at £6200. That was determined in 1928 and Messrs. Gibbs & Co. in accordance with their bond paid that sum and they were reimbursed by the insurance company. But that did not exhaust the possible liability of the colliding vessel to the owner of the Dharma, and a claim was made for loss of profits which might have been earned by the Dharma owing to her being disabled by the collision from being placed under charter. That claim has not yet been finally determined. The matter has been litigated and in the Chilean Courts apparently has gone from one Court to the Court of Appeal and is still under consideration. On 19 October 13, 1931, a compulsory order to wind up the Nautilus Steam Shipping Company was made and the proceedings which are before us in respect of which Bennett J. gave judgment were for the purpose of obtaining a declaration as to what were the rights of Messrs. Gibbs & Co. in respect of any sum which might be payable under the policy of insurance as moneys due to third parties under the contract of insurance entered into between the Nautilus Shipping Co., the owners of the Pear Branch and their insurers. Two dates must be remembered; one is the date of the collision, which was some time ago, October 6, 1925, and the other the date on which there was a compulsory order made to wind up the company, on October 13, 1931

Bennett J., holding himself bound by Ward v. British Oak Insurance Co.[1932] 1 KB 392, refused to make the declaration asked for on the ground that the liability of the insurers to the Nautilus Steam Shipping Co. arose before the Act of 1930 came into operation.

Gibbs & Co. appealed.

LORD HANWORTH M.R.

This appeal must be allowed. It raises a very interesting point and a point undoubtedly of some importance. The facts are these. [His Lordship stated the facts as above set out and continued:] This question of the rights of third parties to receive the insurance moneys which accrued under a policy of insurance to the insured persons who were liable to the third parties has raised questions from time to time. In In re Harrington Motor Co.[1928] Ch 105 the applicant recovered judgment for damages and costs in an action against a limited company for personal injuries caused to him by the negligence of one of its servants. Before execution could be levied the company went into liquidation, and the insurance company with which the company in liquidation was insured against third-party risks paid the amount of the damages and costs to the liquidator. Now, the reason why that sum was payable at all to the liquidator as representing the insured company was because there had been a liability declared in favour of the third party for personal injuries which he, the third party, had suffered. Not unnaturally he thought that inasmuch as that sum had been paid by the insurers to their insured, the company which was liable to him for personal injuries, it would be fit and proper that the money so received by the insured company should be paid over to him. But it had to be held in that case that the money which was paid by the insurance company was paid by them under the contract of insurance which obtained between the insurance company and the company which had caused the injuries to the third party. Inasmuch as the liquidation had supervened the money which was paid over to the liquidator was general assets in the hands of the liquidator and could not be earmarked or paid over to the third party who had been insured, but remained assets in the hands of the liquidator for general distribution amongst the creditors of the company. The judgments in that case pointed out that that position was an unsatisfactory one and that in certain legislation - such as the Workmen's Compensation Act 1925 steps had been taken to give the injured party a definite and direct right to receive moneys which were receivable by the person who was insured and who had received in respect of the injuries moneys with which to defray his own liability.

Upon that the Third Parties (Rights against Insurers) Act, 1930, was passed, and it received the Royal assent on July 10, 1930. Sect. 1, sub-s. 1, provides:

"Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur" then certain results are to follow. Those opening words to my mind connote a declaration of a nexus between the person who is insured and his insurers. The section refers to what may be called a state of insurance between the insured and the insurers. So long as no loss is incurred the relationship between the insured and the insurers is one which continues the nexus between the parties, but which is merely indicated by the steady and regular payment of premiums. It does not follow that there is any money which shall be received under the policy; it merely declares that there is a state of insurance existing between the insured and the insurers.

Now when that state of insurance so exists, the Act provides for two events:

"If .... any such liability as aforesaid [that is a liability to third parties] is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred."

The events which are contemplated are the event of the insured person becoming bankrupt, or in the case of a company of the company going into liquidation. I put the words in the shortest possible form and leave out words like "composition" or "making arrangements" and the other words in relation to a company. So that we have a direct liability, or, rather, the rights of the insured person against his insurer are transferred to and vest in the third party to whom the liability was so incurred. Here, of course, there was a liability incurred though not yet quantified by the collision in 1925. The liquidation of the Nautilus Steam Shipping Company and the appointment of the liquidator, who is respondent to this appeal, took place after the Act was in operation.

The question of the interpretation to be put upon this Act came before the other Division of the Court of Appeal in Ward v. British Oak Insurance Co. and it was held that the section was not retrospective so as to affect cases in which the liability had been incurred before July 10, 1930, when the Act came into operation. The basis of that decision, which is stated somewhat broadly, was this. The writ in the action had been issued on February 22, 1928, before the Act was in operation, and the liquidation became effective in 1927.

Bearing in mind In re Harrington Motor Co., what was the position upon those facts? It was this, that although there was a contract of insurance, inasmuch as there had been a voluntary winding-up of the company liable to the third party and a liquidator had been appointed, the position was one which was comparable to the issue which had been determined in In re Harrington Motor Co. There was a right which had accrued to the liquidator to receive the moneys which were payable in respect of the damages payable to the third party and, as Greer L.J. puts it,

"One of the assets of the company was the liability of the respondents to pay the amount of the insurance. That was an asset divisible among the creditors, notwithstanding that the amount which it might provide for any particular creditor might be small."

That being the existing position, the Third Parties (Rights against Insurers) Act, 1930, was then passed, and Greer L.J. points out that:

"It is clear from the dates that if that Act transferred to the appellant the right to recover from the respondents it could only do so by depriving the creditors of James & Clark, Ld., of a right which had already accrued to them. There are numerous cases which clearly show that the Courts lean against so interpreting an Act as to deprive a party of an accrued right."

But in the present case although there was a possible liability in damages there was not any order for liquidation until October 13, 1931, some months after the Third Parties (Rights against Insurers) Act was in operation. When one turns to s. 1 the words which I have already read seem to me to deal with a situation which is different from that which had to be dealt with in Ward's case, but cover a case where there is a liquidation after the Act had come into operation. Let me read two sentences again of s. 1: "Where under any contract of insurance a person .... is insured against liabilities to third parties which he may incur," then, in the event of bankruptcy or liquidation, "if, either before or after that event, any such liability as aforesaid is incurred by the insured" that must mean "has been or is or shall be incurred," because in dealing with a case before the event of bankruptcy the word "is" is necessarily inappropriate if it is to connote the existing moment of time. Something that had taken place before the event of bankruptcy and before the event of liquidation can be only introduced by giving a wide interpretation and meaning to that word "is."

It appears to me, therefore, that this Act was intended as and when after its passing there was a bankruptcy or a liquidation and a question arose whether or not the sum payable by the insurers was to be handed over to the trustee in bankruptcy or the liquidator in the liquidation for the general benefit of the creditors to give to the third party in respect of his rights against the insured - in respect of the liability that the insured has incurred to him, the third party - a right to have the insured's rights against the insurers transferred to and vested in him. It appears to me, therefore, that upon the facts of the present case, the liquidation supervening after the Act was in operation, there is a clear distinction from the Ward case , and that when one considers carefully s. 1 and interprets its somewhat imperfect language, the section must be held to be operative and to enure to transfer the benefit of the policy from the insured to the third party.

It has been said and was said in Ward's case that one must look very carefully to see that one is not taking away by an Act of Parliament rights which have already accrued unless it can be found in very clear terms that that was the intention. Slesser L.J. refers to that and says:

"In my opinion the wording is not clear enough to escape from the rule that vested interests are not intended to be interfered with by legislation, except when that intention is expressed in clear words."

What did he mean by "vested interests"? There is a well-known decision of Sir George Jessel M.R. [In re Joseph Suche & Co., Ld. (1875) 1 Ch. D. 48], who had to deal with a point which is not dissimilar under s. 10 of the Judicature Act of 1875, which directs that in the winding up of a company whose assets may prove insufficient for payment of debts the same rules shall be observed as may be enforced under the law of bankruptcy. The question was whether under those terms the Act was retrospective or not. Sir George Jessel held that in a case where a supervision order had been made before the commencement of the Act to secure creditors, although their claims had not been ascertained they were entitled to prove for the full amount of their debts without deducting the value of their securities, and he decided it upon the general rule that where the Legislature alters the rights of parties by taking away or conferring any right of action its enactments, unless in express terms they apply to pending actions, do not affect them. Then he refers as an exception to the case of procedure.

This, of course, as in that case, was not a question of procedure. But in the present case the creditors with their rights did not exist until the order was made for the winding up of the company. It was then and then only that they became entitled to have their aliquot part of the assets of the company distributed to them on a basis of equality. That right accrued to them on October 13, 1931, and not before. They might have had what has been expressed in the course of the argument to be some hopes, although they cannot actually have had any hopes, being creditors of the company, that the company should be put into liquidation. But as creditors their rights have to be determined not earlier than October 13, 1931, and at that date this statute had become operative to say what is to happen in respect of the sum payable by the insurers to the insured arising out of a liability of the insured to the third party.

To my mind the case is different from that of Ward v. British Oak Insurance Co. by which the learned judge below felt himself to be bound, and for these reasons the appeal ought to be allowed.