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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Kazakstan Wool Processors (Europe) Ltd. v Nederlandsche Credietverzekering Maatschappij N.V. [2000] EWCA Civ 41 (11 February 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/41.html
Cite as: [2000] EWCA Civ 41
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Case No: QBCMI/1999/0889/A3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
COMMERCIAL COURT
Mr. Justice Toulson
Royal Courts of Justice
Strand, London, WC2A 2LL
Friday, 11 February 2000
LORD JUSTICE PETER GIBSON
LORD JUSTICE WALLER
and
LORD JUSTICE BUXTON
KAZAKSTAN WOOL PROCESSORS (EUROPE) LTD. |
Appellant | |
- and - |
||
NEDERLANDSCHE CREDIETVERZEKERING MAATSCHAPPIJ N.V. |
Respondent |
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
Mr. David Mildon (instructed by Messrs. Stephenson Harwood of London, EC4M 8SM for the Appellant)
Mr. Richard Spearman Q.C. and Mr. John Russell (instructed by Messrs. Clyde & Co. of Cardiff, CF1 6T2 for the Respondent)
As Approved by the Court
Crown Copyright ©
LORD JUSTICE WALLER:
1. This is an appeal by the claimant (KWP) and a cross-appeal by the defendant (NCM), each brought with the permission of the judge, against the order of Toulson J made on 28 July 1999. I have been very much assisted by the skeleton arguments from which it is possible to take the uncontested facts. KWP were the exporters of washed wool, and NCM were the underwriters who insured against credit and other risks associated with the exportation. The policy was for a period of 14 months expiring in August 1998. It included cover against the risk of default in payment by KWP's overseas buyers. In that and certain other events NCM agreed to pay the guaranteed percentage being 85% of KWP's loss.
2. The policy required KWP to declare the amounts due in respect of all goods despatched under sale contracts to which it applied. Where appropriate a nil declaration had to be submitted. The declarations were to be returned by the times specified by NCM. In the event NCM specified monthly declarations to be returned by the 10th day of the month following the month of despatch of the goods to which the declaration related.
3. Premium was at a fixed rate of 0.63% of the sums declared as due in respect of such goods. Premium was to be paid at the time specified by NCM. In practice NCM raised monthly invoices for premium sometimes after receipt of KWP's monthly declaration. A due date for payment was shown on the invoice. The policy provided for a minimum premium of US$ 47,800 with any shortfall being collected at the end of the policy period.
4. The policy only applied to goods sold to a buyer for whom a credit limit had been established by NCM. A credit limit had to be applied for in writing. NCM were entitled to make a charge (known as a credit limit charge) for each response to a request for a credit limit whether or not a credit limit was granted.
5. In 1998 KWP faced major defaults on a succession of sales to Italian buyers. KWP ceased to trade during May 1998. They lodged notices of probable loss and claim forms with NCM. All of the claims related to goods despatched prior to May 1998.
6. Article 1 of the policy provided that NCM agreed to pay KWP the guaranteed percentage of any loss which the insured might sustain because of the occurrence of any of a number of causes of loss. These included the insolvency of any buyer, the failure of a buyer to pay the amount owing under a contract within 6 months of the original due date of payment, and various acts of governments or other kinds of external events preventing the performance of contracts.
7. KWP made no sales during June 1998 but they failed to lodge a nil declaration for the month of June by 10th July 1998 as required by Article 5(a) of the policy. KWP also neglected to pay, within the time specified by NCM, an invoice for US$ 114.88 (being premium due on goods despatched during May 1998) and US$ 42.60 (being credit limit charges in respect of goods despatched during May 1998).
8. By letters dated 11th and 24th September 1998 and without prior warning NCM purported to terminate the policy because the June declaration and invoice were outstanding and "to disclaim all liability for any claims, including those relating to business for which you have otherwise complied with the conditions of your policy".
9. In relation to notices of probable loss and claim forms previously lodged by KWP, the position as at the date of purported termination was as follows. One claim had been paid but the others, amounting to some US$600,000 had not because 6 months had not yet expired from the original due date of payment under the relevant contracts.
10. NCM in giving notice in September 1998 were relying on Article 13 of the policy which, so far as material, is in the following terms:-
"Due payment of all premiums (and other charges) specified in Schedule 1, and the due performance and observance of every stipulation in the policy or the proposal, shall be a condition precedent to any liability on our part. In the event of any breach of any condition precedent we also have the right to retain any premium paid and give written notice terminating the policy and all liability under it. .... "
11. The judge numbered the two sentences separately for convenience 1 and 2, and it is convenient to refer to them in the way that the judge did as 13(1) and 13(2), but it must be remembered that they are not so divided in the policy.
12. The question in broad terms is whether NCM are entitled retroactively to cancel cover in respect of goods despatched prior to May 1998 for which they had received and accepted both the applicable declaration and the premium. NCM's case on construction of Article 13 is that (1) the failure to make a nil declaration and/or the failure to pay premium are conditions precedent to any liability on their part, and that includes liability on contracts other than those in relation to which the failure was relevant; and (2) that such a breach of a condition precedent also gave them the right to retain any premium paid and to give notice terminating the policy and all liability under it. On NCM's construction, not only are they entitled to defeat the claims of which notice of loss has been given but not paid, in addition they can obtain repayment of a claim already paid.
13. KWP argue that Article 13 must be more narrowly construed. They suggest Article 13(1) suspends NCM's liability where there has been a failure to pay premium or render due performance and observe a stipulation in the policy or the proposal in so far as the failure relates to the particular contract in relation to which KWP were making a claim. Before the judge KWP contended that Article 13(2) was expressly limited to Article 13(1) by the word "also". Their submission thus was that the proper construction of the two sentences read together was that Article 13(1) having automatically suspended liability in respect of the goods to which the assured's default related, Article 13(2) gave underwriters in addition the option to terminate only the same liability which had been suspended under the first sentence - namely a liability in respect of the goods to which the assured's default related.
The judge accepted KWP's construction of Article 13(1) but he did not accept their submission as to the proper construction of Article 13(2).
14. Before us Mr Mildon, on behalf of KWP, put the matter, so far as Article 13(2) was concerned, a little differently. He submitted that the proper construction of Article 13(2) is that it gives to NCM the right to terminate the policy as from the date of notice. However, whereas the judge held that the words "all liability under it" must include liabilities that were still to crystallise, (by for example the expiry of the 6 month period after the notice), Mr Mildon submitted that such liabilities would not be included. He submitted that the proper construction of Article 13(2) involved cancellation of the policy for the future and did not affect established liabilities.
15. The facts of this case would demonstrate that NCM's construction of Article 13 is not an attractive one. It follows from their construction that if NCM foresaw six or seven claims in the pipeline likely to lead to serious losses as the 6 month period ran out, they can serve a notice of termination by reference to a minor breach of a stipulation in relation to some totally unconnected contract. Mr Spearman QC recognised the onerous nature of the clause on the facts of this case but submitted that the words of Article 13 were clear and it is for that reason he submitted that the judge was wrong in his construction of Article 13 and should have gone further than he did and allowed NCM to have repayment of a claim that they had already made.
16. I should mention at this juncture that in the alternative to the construction point, Mr Mildon raised in his skeleton argument two other points. First, he wished to argue that NCM had not fairly and reasonably drawn KWP's attention to the term and that thus the court should hold that NCM and KWP were not bound by that term. Mr Mildon relied on the case of Interfoto Picture Library v Stiletto Visual Programmes Ltd [1989] 1 QB 433. In addition, as a further alternative, if Article 13 were to be interpreted as the judge interpreted it, he submitted that Article 13 was a penalty and unenforceable and sought to rely on The Fanti [1989] 1 LL Rep. 239. It seems that the Interfoto point was part of Mr Mildon's submissions in the court below but because of time constraints the judge dealt only with the construction point. The penalty point was a new point before this court. Mr Mildon sought assistance as to whether he should argue those two points, in addition to the construction point, before us. Mr Spearman made clear that he would take no point against KWP if they did not argue those points at this stage and suggested that it was more convenient for this court to deal simply with the point with which the judge had dealt. Mr Mildon was content with that position and accordingly only the construction point was argued before us.
Authorities on Construction
17. Unsurprisingly, Mr Spearman in his skeleton argument drew attention to statements in the authorities where emphasis is placed on construction by reference to the plain ordinary and popular sense of words (see for example Robertson & Thompson v French [1803] 4 East 130 Lord Ellenborough C.J. at 135 and Cooke and Arkwright v N.C. Haydon [1987] 2 LL Rep. 579 Hobhouse J at 582). Equally unsurprisingly Mr Mildon drew our attention to those authorities where emphasis is placed on dicta such as that of Lord Diplock in Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] 1 AC 191 at 201 where he said:-
". . . I take this opportunity of re-stating that if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."
18. Ultimately I did not understand Mr Spearman to dissociate himself from the dictum of Sir Thomas Bingham M.R. in Arbuthnott v Fagan [1996] LL. R.L. Rep. 135 at 139, in a passage which Mr Mildon suggested fairly reflected the position, when the M.R. said:-
"Courts will never construe words in a vacuum. To a greater or lesser extent, depending on the subject matter, they will wish to be informed of what may variously be described as the context, the background, the factual matrix of the mischief. To seek to construe any instrument in ignorance or disregard of the circumstances which gave rise to it or the situation in which it is expected to take effect is in my view pedantic, sterile and productive of error. But that is not to say that an initial judgment of what an instrument was or should reasonably have been intended to achieve should be permitted to override the clear language of the instrument, since what an author says is usually the surest guide to what he means. To my mind construction is a composite exercise, neither uncompromisingly literal nor unswervingly purposive: the instrument must speak for itself, but it must do so in situ and not be transported to the laboratory for microscopic analysis."
Article 13(1)
19. It seems to me clear that the construction placed on the first sentence of Article 13 by NCM must be rejected. The reasons given by the judge are, as it seems to me, compelling.
20. First, as the judge said, if NCM are correct in their construction, they are under no liability to pay any claim until after the expiry of the policy period and after full compliance with the insured of all that may be required of it. Mr Spearman sought to argue that it was not intended that NCM would not pay before the end of the contract period; their submission was that payment would be made during the currencyof the contract but a breach of a "condition precedent" after payment would entitle NCM to return of their money. That, as it seems to me, would not give the normal meaning to condition precedent and does not seem to me to be an answer to what prima facie would result from a natural meaning being given to those words.
21. Second, the judge refers to the draconian effect of a failure to comply with Article 4(d). That Article provides that NCM "shall not be liable where (KWP) have not complied with the terms and conditions of the credit limit, or where (KWP) has not established a credit limit before the date of ascertainment of loss". The judge pointed out that on NCM's interpretation of Article 13, in addition to not being liable in relation to the particular contract, NCM would have the right to terminate under Article 13. Mr Spearman's answer as per paragraph 16.2 of his skeleton is that it might be possible to read Article 4 (where the effect of a failure is expressly spelled out) as a situation to which Article 13(1) did not apply. Whether that is so or not, as Mr Mildon pointed out, there are numerous other conditions breach of which would have the same draconian effect. For example if there has been a failure under Article 7(A), to give notice of an overdue payment from a buyer, that too could be relied on by NCM on their argument not only as an answer in relation to the particular contract under consideration but also as suspensive of the liability to meet any other claim.
22. Third, the judge considered the interaction of Article 19, the set-off clause, and Article 13. The judge said that Article 19 specifically provided to the insurers the right to apply any amount payable under the policy in or towards payment of any amount owed by the insured to the insurers under the policy or otherwise. That presupposes that there may be situations in which (a) the insured owes money to the insurers under the policy and (b) the insurers are liable to the insured in respect of claims under the policy. But according to the insurers' argument that supposition is misconceived. For, if the insured owes money under the policy, they say that Article 13 prevents them from being under any liability in respect of claims.
23. In his skeleton Mr Spearman seeks to deal with the judge's point by reference to a fairly unlikely circumstance in which moneys may be owed by KWP without KWP being in breach. He further points to the fact that Article 19 applies not only to sums owing by KWP under the policy but applies to sums otherwise payable. He finally points out that NCM may elect not to rely on Article 13 and is entitled in the circumstances to have Article 19 as an important alternative right.
24. There is something in Mr Spearman's response but, on any view, the set-off clause does not lie easily with the suggested construction of Article 13(1).
25. In any event there is no doubt that it is the unreasonable results which the construction proposed by NCM would produce that persuaded the judge that if there was a different tenable construction that should be preferred. In my view the construction adopted by the judge, and as submitted by KWP, is the correct construction of the first sentence.
Article 13(2)
26. Before the judge as already indicated Mr Mildon was arguing for what became his secondary position before us. He was suggesting that the first sentence of Article 13 was suspensive and that thus the link between that sentence and the second sentence should drive the court to construe "terminating the policy and all liability under it" as "terminating the particular liability in relation to which there had been a breach of condition precedent". The suggested benefit to NCM on that construction of the second sentence was to allow them to terminate liability where there had been a breach without leaving KWP an opportunity of remedying the breach. I, like the judge, cannot accept that construction. The benefit to NCM is somewhat nebulous, since in most instances the breach of the condition precedent would have involved a failure to do something within a timescale, which would of its nature not be remediable. In addition, the words "termination of the policy" are difficult to read simply "as termination of the particular liability in relation to which a condition precedent had been breached".
27. Mr Mildon's primary argument before us, he frankly accepted, was not put to the judge. It seems that the judge raised the question whether there was not some position between the views being contended for by the two sides. Clearly some argument was addressed to the judge's suggestion but perhaps not formulated with any precision. The judge ultimately preferred a construction which was less extreme than that which was being contended for by NCM, but felt driven to a result which he clearly did not feel was satisfactory, but was not that being put forward by KWP. He put the matter this way:-
"I do not accept that a notice under article 13(2) is intended to operate as the equivalent of an avoidance ab initio, so as to relieve the insurers retrospectively of actual liabilities which they have already incurred and entitle them to a refund of monies paid in respect of such liabilities. If the draftsman had intended a notice of termination to have retrospective effect of that kind, he ought to have said so in plain English (compare article 18).
As to contingent liabilities, I see fully the force of Mr Mildon's argument that it would be very unattractive that an insurer, given early notification (to which he would be entitled under article 7A) of an event likely to cause a very large loss, could avoid liability for it by serving a notice of termination based on some minor and unrelated failure to comply with the far reaching stipulations of the policy. Nevertheless, I am driven to the conclusion as inescapable that where the insurers serve a notice "terminating the policy and all liability under it" before the occurrence of the event which would otherwise give rise to a right of indemnity under article 1 (in this case, buyer's default after 6 months), the subsequent occurrence of such event cannot give rise to liability on the part of the insurers under the policy. Although there is a difference between termination and retrospective avoidance, the effect of termination of the policy thereafter on the accrual of any liability is total. In summary, the effect of a notice of termination under article 13(2) in my judgment is not to extinguish liabilities which have already been incurred by either party, but is to prevent any further liability arising under the policy."
28. In his primary argument before us Mr Mildon drew attention to certain features, as he would suggest, of the second sentence of Article 13 which were as follows:-
"a. It applies to liabilities of the assured as well as underwriters: ie., termination is mutual
b. It permits underwriters to retain any premium already paid
c. It refers to the "termination" of the "policy"
d. It is linked back into Article 13(1) by the word "also" and by the repetition of "condition precedent"."
29. He submitted that if the policy was terminated with a cancellation of all liability on both sides, the result would be that even obligations on KWP to assist in obtaining recoveries under Article 7B-G would cease. Mr Spearman's response was to suggest that the word "liability" means liability on NCM's part as per the first sentence; alternatively he suggested that even if it had the wider meaning of liability on both NCM and KWP, it is not surprising that obligations to recover on the part of KWP are expunged because NCM's construction (rejected by the judge) involved NCM being entitled to recover claims paid.
30. Mr Mildon submitted further that it would be surprising if NCM were entitled to retain premium without providing cover. He pointed to the fact that the only situation in which insurers are normally entitled to keep the premium and avoid the policy is when there is fraud in obtaining the cover in the first place. He suggested thus that the retention of premium provided for by the second sentence assisted him.
31. He finally submitted that it is important that termination of the policy is what is provided for, and not termination of cover already provided. It is thus to the future that the provision is pointing, and it seems to contemplate notice being given during the policy period and a bringing to an end of any obligation to provide cover.
Mr Mildon thus submitted that it must be contemplated that albeit the policy is to be terminated, some liabilities among what might at first sight appear amongst "all liability" will not be "terminated". He submitted thus that former liabilities which have crystallised into payments are not "terminated" so as to bring into being an obligation to return claims paid. He would thus submit that the extreme position contended for by NCM should be rejected, as it was by the judge. He would thus further submit that if liabilities of both NCM and KWP are to be "terminated" it cannot have been intended to terminate KWP's obligations to assist in recovery, and make repayment under Articles 7B-G. He would submit that present liabilities that have already accrued in the sense that they have arisen out of the performance by one side or the other of its obligations are not liabilities as that word is used in the second sentence. Liability he would suggest is not intended to encompass any more than what the parties would expect from a termination of the "policy", as opposed to a termination of the cover already provided.
32. Mr Spearman submitted that what the second sentence entitles NCM to do on its plain words is to serve a notice terminating the policy when there has been a breach of any condition precedent to any liability. The sentence further provides that "all liability" will be terminated. He thus further submitted that if the claims of which notice has been given are only payable once the six month period has expired, and if the period has not expired as at the date of the notice, the notice must terminate NCM's liability to pay.
He accepted that as the facts of this particular case show even on the judge's construction, the provision can be viewed as extremely beneficial to the insurer, enabling the insurer to pick a minor breach of condition on some contract quite unrelated to the claims that have been notified and are about to crystallise, and bring to an end all obligations to pay the substantial claims. But he says the insured should have appreciated that fact. He suggests that it is extremely uneconomic for insurers to have to chase up insurers for minor sums and that a provision as draconian as this one is necessary to keep insureds in line.
Conclusion
33. It seems to me that NCM's construction of the second sentence produces such an unreasonable result that if a more palatable construction is tenable that has to be preferred. It is unlikely in the extreme that the parties, if they applied their mind to Article 13, would have contemplated that a minor breach of a stipulation in the eleventh month of the policy would entitle NCM to bring the contract to an end, retain all the premium, not pay the claims in relation to which it was simply the six month period which had yet to expire, and (on NCM's most extreme case) be repaid the claims already paid. Furthermore, it cannot seriously be suggested that it is necessary to have such a draconian provision in the policy in order to keep insureds in line.
34. If the meaning of the second sentence were as suggested by NCM, there would seem to be no need for the first sentence. That sentence, and many of the other provisions, would have to be construed as simply providing for a fall back position in case the extreme position was waived by NCM.
35. It is clear to me, and I agree with the judge, that the most extreme position contended for by NCM can be rejected. On any view the second sentence was not intended to relieve NCM from a liability already incurred, so as to entitle NCM to repayment of claims paid. Claims already paid are no longer a liability, and there is no reason to strain the policy wording so as to produce, as NCM would suggest, the equivalent of avoidance ab initio in reliance on some minor breach of a stipulation late on in the policy.
36. The question remains as to what is encompassed by liability.
37. I do not get quite the same assistance from the reference to the entitlement to retain premium as Mr Mildon. It seems to me that the second sentence must be read in the light of the first, and the reference to retention of premium is a reference to premium received for the contract or claim in relation to which a breach of condition precedent has been established under the first sentence. It is in relation to that claim that NCM are entitled to resist paying and keep the premium. If the reference were to other premium, it would, if anything, point to an entitlement to keep premium in circumstances where NCM still had a right not to pay, but in my view when read in the context of the first sentence it has a more limited meaning. What that means, however, and here I do accept in part Mr Mildon's reasoning, is that premium will have been paid in relation to other contracts where claims have been made, and prima facie, unless there are breaches of a condition precedent in relation to those claims, one would not expect insurers to be entitled to keep the premium and refuse to pay the claims.
38. The words that are more difficult to construe are those at the end of the second sentence "and give written notice terminating the policy and all liability under it". They must be intended to provide some other benefit to NCM. It is for that reason that in my view the judge was right to reject Mr Mildon's submission that the whole second sentence was limited to the claim in relation to which a condition precedent had been established.
39. Equally however if those last words entitle the insurer to terminate the policy and all liability in the broad sense contended for by NCM, there is little purpose in a breach of stipulation ever having been made a condition precedent to liability to pay a particular claim. If breach of any stipulation entitles NCM to terminate the policy and be released from every liability past, present and future, the condition precedent seems to have a limited role to play unless again it is simply an alternative fall back position.
40. That it should be simply a fall back position seems to me unlikely in its context, and one is therefore entitled to explore what additional right NCM was likely to be seeking.
41. The answer seems to me to be a right to terminate the policy for the future. It seems to me that it makes good sense that NCM should, if a condition precedent has been breached in relation to a particular claim which provides an answer to that claim, still wish to have the right to cancel the policy for the future. To have that right furthermore enables them to bring the policy to an end even for minor breaches of a stipulation which is itself fairly draconian but in accordance with what they say is necessary to keep insureds in line. That is accordingly how I would construe the words at the end of the second sentence. But the question that then arises is what is meant by the words "all liability". Was it intended to include liabilities already established by virtue of obligations already fulfilled, and in relation to which there was no breach of a condition precedent to liability, albeit final obligation to pay remained dependant on a future event?. The alternative is that "all liability" was intended to encompass only unestablished "liability" which would flow directly from the policy continuing.
42. It seems to me that "all liability" cannot on any view mean what at first sight the words suggest. It does not include for example the liability which has already resulted in payment. I am furthermore persuaded that Mr Mildon is right that a termination of a policy must be mutual and that thus all liabilities must be tested by reference to the position of KWP as well as of NCM. It cannot have been intended that liabilities established by NCM's payment of claims to KWP under Article 7 should be terminated by use of the words "all liability". There is thus some limitation to be placed on those words. In my view the intention of the parties must have been to allow NCM to terminate the policy for the future, and for the words "all liability under it" to reflect that concept. The words will do just that if they relate to liabilities which would have flowed directly from a continuation of the policy, rather than indirectly through the completed performance of obligations prior to the termination of the policy ie established liabilities. I think that the fact that what is terminated is "the policy", and "all liability under it" allows for the distinction I am seeking to make. Furthermore I do not think that it is a very natural use of the word "terminate", when what is intended is in fact the release of NCM from an obligation already accrued by virtue of compliance by KWP with terms of the policy in existence up to the moment of "termination". In my view thus the words "liability under it" is intended to be limited to that which arises strictly and directly under the policy if it continued, rather than that which has already established itself by virtue of obligations already fulfilled under the policy.
43. In my view thus the primary argument on construction put forward by Mr Mildon in this court, but not addressed to the judge, succeeds, and I would be in favour of allowing the appeal to the extent indicated.
LORD JUSTICE BUXTON:
44. I agree with Waller LJ as to the correct approach to what has been called article 13.1 of this singularly ill-drafted clause. I regret that I an unable to agree with him as to article 13.2.
45. The point is a short one, and does not admit of much elaboration. The words "and all liability under it" must be given some force. Mr Mildon was reduced to saying that they were a belt and braces provision: that is to say, mere surplusage. The same, unacceptable, outcome flows from the construction of that phrase as limited to liabilities flowing from the continuation of the policy: because the previous phrase in the clause terminates the policy and therefore excludes any need to provide, indeed any possibility of providing, for liabilities arising on its continuation. What by its plain wording the clause provides is that the written notice terminates the insurer's liability under the policy: and that must mean not only purely future but also contingent liabilities, since the insurer is protected from entirely new liabilities by the termination of the policy.
46. That no doubt produces unattractive, or potentially unattractive, results under article 1.B of the policy, which happens to be this case, if it is clear that the period of grace will not result in payment being forthcoming. That problem does not arise under any of the other sub-heads of article 1, such as insolvency of the buyer or political moratorium on debts, which do not involve a period of suspense. And however unattractive the result in a particular case, that result cannot be allowed to force on the contract a meaning that its words will not bear.
47. I therefore consider that the judge was right in his construction of the clause. I would dismiss the appeal.
LORD JUSTICE PETER GIBSON:
48. This appeal raises a short but difficult question of construction of two sentences in an insurance policy. The rival arguments have been advanced by Mr. Mildon for the Appellant insured and Mr. Spearman Q.C. for the Respondent insurer with admirable skill and economy as well as an attractive frankness. Thus Mr. Mildon did not seek to disguise the fact that on his construction the last five words of Article 13(2) were strictly superfluous. Nor did Mr. Spearman deny the harsh consequences which may flow from his construction and which are exemplified by the facts of the present case. The circumstances allowing the insurer to terminate the policy under Article 13(2) were the failures to pay promptly two premiums of fairly trivial amounts and to make a nil declaration for one month, this at a time when the insured had duly made declarations in other months of goods despatched, the sums being substantial, and paid significant amounts of premiums in respect of those declarations.
49. In the circumstances it is not surprising to find Mr. Spearman insisting that the clear words of Article 13 should be given their natural and ordinary meaning while Mr. Mildon submits that an overliteral approach is inappropriate where the consequences can be seen to be so extravagant. The court is entitled to look at those consequences because the more extreme they are, the less likely it is that commercial men will have intended an agreement with that result. But the court is not entitled to rewrite the bargain which they have made merely to accord with what the court thinks to be a more reasonable result, and the best guide to the parties' intentions remains the words which they have chosen to use in the contract.
50. Mr. Spearman's primary submission was that because the due payment of all premiums and the due performance and observance of every stipulation are a condition precedent to any liability on the insurer's part, the failures by the insured entitled the insurer not merely to terminate the policy and all liability under it for the future but also to recover moneys paid out before that termination. Like my Lords I cannot accept that submission, essentially for the reasons given by the judge. In particular I am unable to agree that the parties thereby intended that throughout the term of the policy claims met by payment by the insurer could be reopened in the event of any subsequent breach. The language of Article 18 which, where it applies, expressly provides for the refund of any payment made under the policy, may be contrasted with the language of Article 13. I entirely agree with what Waller L.J. has said on the construction of Article 13(1).
51. The more difficult question is the meaning to be given to Article 13(2). Mr. Mildon draws attention to what he said were four features of the language used: (1) it applies to liabilities of the insured as well as the insurer; (2) it permits the insurer to retain any premiums already paid; (3) it refers to the termination of the policy; and (4) it is linked to Article 13(1) by the word "also" and by the repetition of "condition precedent". The first feature was not accepted by Mr. Spearman and is open to question. He submitted that the liability referred to in Article 13(1), viz. the liability on the part of the insurer, was the same as the liability which could be terminated under Article 13(2). In the context of a sentence giving the insurer additional rights that seems to me more likely. The second, third and fourth features are undoubtedly correct. But it is noticeable that Mr. Mildon did not refer to a fifth feature, that is to say that it refers to the termination of all liability under the policy. In those words lies his difficulty.
52. I can accept that "all liability under the policy" does not include liabilities which have crystallised and been paid. It is inappropriate to refer to terminating such a liability. Indeed it may be questioned whether it is a liability at all once it has been discharged. I can also accept that if a liability has accrued unconditionally, for example if the insurer has delayed payment after it became due, it will not be caught by the termination. It cannot have been contemplated that the insurer could benefit from its own breach. But it is hard to see how all future or contingent liabilities under the policy are not terminated on the plain wording of the clause. As Buxton L.J. has said, the concluding words of Article 13(2) cannot refer to liabilities flowing from the continuation of the policy or be limited to entirely new liabilities as protection from them is achieved by the termination of the policy.
53. Further, if "all liability under the policy" is to be construed as not including a contingent liability in respect of which obligations under the policy have been fulfilled, which obligations have that character? Is it sufficient that the insurer has made a declaration or must he also have paid the premium? I find it difficult to see how on the language used it is possible to distinguish between contingencies affecting the insured's liability. The more natural way of construing Article 13(2) is to treat all contingent liabilities as falling within "all liability under the policy" and so as terminated.
54. I dislike the notion that an insurer will by contract be entitled both to retain a premium and to be released from the cover which that premium was intended to purchase. But I cannot say that a contractual provision to that effect triggered by the default of the insured is so outrageous that effect cannot be given to the ordinary meaning of the language of the policy in order to achieve a less harsh result.
55. With regret therefore I would dismiss this appeal.
Order: Appeal dismissed. Costs of the appeal up to the letter dated 8th October to be costs in cause; unsuccessful claimants to pay respondent's costs thereafter with detailed assessment. Leave to appeal to the House of Lords refused. Order does not form part of approved judgment.