England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
(His Honour Judge Hegarty QC)

		Royal Courts of Justice Strand London WC2 Monday, 3rd December 2001

1. LORD JUSTICE POTTER: This is an appeal from the judgment of His Honour Judge Hegarty QC given on 19th February 2001 when he was sitting as a judge of the High Court in relation to proceedings commenced in the Manchester Mercantile Court. Judgment followed the trial of a preliminary issue as to the construction of a policy of insurance which the claimant was seeking to enforce against the defendants under the Third Parties (Rights Against Insurers) Act 1930.
2. The defendants had insured a company called Fast Track Projects Limited ("Fast Track"), trading as Bowmech Engineering, under a policy of insurance No 22670628, pursuant to which it agreed to indemnify Fast Track against all sums which it would become legally liable to pay under any contract of hire for compensation in respect of loss or damage to plant hired by Fast Track and continuing hire charges.
3. The claimants had hired the plant to Fast Track in July 1997. On 27th September 1997 the jib and boom of a crane, part of that plant, was damaged whilst in Fast Track's possession, whereby Fast Track incurred liability to the claimant for £17,248 in respect of repairs to the crane and extended hire charges. The claimant made a written claim to Fast Track dated 30th September 1997, but Fast Track failed to report the claim to the defendants who first learned of the claim some four months later, on receipt of a letter from the claimant direct, dated 23rd January 1998. The defendants apparently reacted by writing to Fast Track's brokers declining liability. On 26th March 1998 Fast Track went into voluntary liquidation. It appears that a claim form completed by Fast Track was first submitted to the defendants on 28th March 1998 but the defendants maintained their attitude. On 29th June 1998 the claimant commenced proceedings against Fast Track in voluntary liquidation, obtaining judgment in default on 15th July 1998 for £21,408.08, inclusive of fixed costs and interest. It is not in dispute that under section 1 of the 1930 Act all of Fast Track's rights under the defendants' policy transferred to the claimant.
4. In the preliminary issue heard before the judge the defendants relied on general condition 2(c) of the policy which required delivery of a claim in writing to the insurers within 30 days or such further time as insurers granted in writing. It provided expressly in its last sentence:

"No claim under this policy shall be payable unless the terms of this condition have been complied with."

5. It is not in dispute that condition 2(c) was not complied with. The issue before the judge was whether compliance with clause 2(c) was a condition precedent to liability under the policy or a mere term of the policy, breach of which would give the defendants the right to counterclaim for damages in respect of any increased expense or other loss incurred by reason of the lateness of the claim. No such counterclaim was advanced.
6. Following a full and careful judgment on the arguments raised before him, which are those which have been recanvassed before us on this appeal, the judge concluded:

"The plain wording of this provision. . . imposes a requirement which must be strictly complied with if any claim is to be paid and. . . since no claim has been submitted within 30 days or within any additional time allowed by the company there has not been compliance and therefore the defendants are entitled to rely upon the policy condition."

7. Having so determined, he gave judgment in favour of the defendants.
8. Turning to the detailed terms of the policy, the relevant provisions were those contained in clauses 1 and 2 of the general conditions. Clause 1, headed"Interpretation", reads as follows:

"This Policy and the Schedule shall be read together as one contract. Unless otherwise stated any word or expression to which a specific meaning has been attached shall bear the same meaning wherever it may appear."

9. Clause 2, headed "Claims Procedure and Requirements", reads as follows:

"Action by the Insured

(a) on the happening of any loss or destruction or damage or any accident or injury which may give rise to a claim the Insured shall give immediate notice thereof in writing to the Company.

(b) in respect of loss or destruction or damage caused by malicious persons or by theft it is a condition precedent to any claim that immediate notice of the loss or destruction or damage shall have been given by the Insured to the police authority.

(c) the Insured shall within 30 days after such loss, destruction or damage, accident or injury (7 days in the case of loss, destruction or damage caused by riot, civil commotion, strikers, locked out workers or persons taking part in labour disturbances or malicious persons) or such further time as the Company may in writing allow at the expense of the Insured, deliver to the Company a claim in writing containing as particular an account as may be reasonably practicable of the accident injury or any portions of the Plant lost, destroyed or damaged and of the amount of damage thereto together with details of any other insurances on any Plant or property hereby insured. The Insured shall also give to the company all such proofs and information in respect of the claim as may reasonably be required together with (if demanded) a statutory declaration of the truth of the claim and of any matters connected therewith. No claim under this policy shall be payable unless the terms of this condition have been complied with.

(d) the Insured shall send to the Company immediately on receipt any letter, writ, summons or other legal process issued or commenced.

(e) the Insured shall not negotiate pay, settle, admit or repudiate any claim without the written consent of the Company."

10. Before turning to consider in detail the arguments of the parties, I am bound to say that, taken on its own, clause 2(c) appears to state the intention of the parties in the clearest possible terms in its final sentence. The words themselves leave no room for doubt or ambiguity but the intention is that, unless the claim is made and the prescribed information provided within the period specified, then the defendants shall not be liable to pay the claim. However, one must approach the question of construction in the light of paragraph 19-35 of MacGillivray on Insurance Law, 9th Ed, as approved by Phillips J (as he then was) in Cox v Bankside [1995] 2 Lloyd's Rep 437,453:

"It is not always easy to decide whether clauses requiring notice of a claim are conditions precedent to the liability of the insurer under the policy, or merely terms of the policy for breach of which the insurer's only remedy is to claim damages for the extra expense flowing from the insured's failure to give notice within the proper time. Little more can be said than that it is a matter of construing the policy as a whole."

11. In this connection it is frequently pointed out that in relation to clauses of this kind, if the contract states that the condition is a 'condition precedent' or a 'condition of liability', that is influential but not decisive as to its status, especially when the label condition precedent is attached on an indiscriminate basis for a number of terms of different nature and varying importance in the policy. One may at once observe that that is not the case here. It is also the position that where, in a policy, individual terms are described as conditions precedent, while others are not, the label is more likely to be respected in relation to a clause expressly so identified; for instance, Stoneham v The Ocean Railway and General Accident Insurance Co (1887) 19 QB 237 per Kay J at 241. However, where one clause is labelled 'condition precedent', and a question arises as to the status of a clause not so labelled, the latter is not, ipso facto, precluded from being regarded as such. If, as in this case, the wording of the clause is apt to make its intention unambiguously clear, then in my view the absence of the rubric need not be fatal. As with any other contract, the task of construction requires one to construe the policy as a whole. However, in this respect, as it seems to me, if there is a clear expression of intention on the wording of the clause that it shall be treated as a condition precedent, that label or apparent intention cannot simply be ignored. It should at least be regarded as a starting point. I would adopt the further formulation in MacGillivray, 9th Ed, 19-35:

"Such clauses should not be treated as a mere formality which is to be evaded at the cost of a false and unnatural construction of the words used in the policy, but should be construed fairly to give effect to the object for which they were inserted, but at the same time so as to protect the assured from being trapped by obscure or ambiguous phraseology."

12. It seems to me that the wording of the final sentence of clause 2(c) is sufficient to avoid any suggestion that the clause is a trap for the unwary assured.
13. The points made for the claimant before the judge, and repeated before us in favour of the claimant, can be summarised as follows. First, it is said that clause 1 itself is an aid to construction, in that it demonstrates the mutual intention of the parties that there should be consistency in the use of terminology throughout the policy, whether or not the words were specifically defined. In this respect the defendants do not dispute the clear intention of the parties to that end, but submit, as it seems to me correctly, that there is little of assistance to be derived from clause 1 in relation to the task before the court, because the wording of the last sentence in clause 2(c) does not use words which are identical to, and do not appear to derive any colour from, other terms of the policy.
14. Second, it is said that the express provision in clause 2(b) that, in the case of damage caused by malicious damage or theft, it shall be a condition precedent to any claim that notification has been made to the police, which contrasts with the wording of condition 2(c) where there is no use of the expression "condition precedent", is an indication that the latter shall not be a condition precedent while the former shall. That seems to me to be the strongest point in favour of the assured. However, it seems to me that there are two answers to that submission. First, as already indicated, it seems to me that the language of the last sentence in 2(c) is unambiguously designed to render compliance with the clause a condition precedent to the liability of the defendants. It merely spells out to the assured in plain terms the position imported by the use of the shorthand rubric "condition precedent". Second, it seems to me that, if one looks to the purpose underlying the particular provisions of each part of condition 2, there are more rather than less compelling reasons for regarding clause 2(c) as a condition precedent, than for so regarding 2(b). The purpose behind clauses of the 2(c) type is that the insurer should be properly placed in possession of a notification, with accompanying information, in sufficient time for him to make a reasoned decision, (a) in relation to the existence of cover under the terms of the policy; (b) as to the prima facie amount of the loss; (c), and most important, as to the investigations necessary or advisable to be made while the incident is fresh and evidence still available, whether in the form of an investigation at the accident scene or the availability and memory of potential witnesses. While reports of damage to the police in cases of damage by malicious persons or theft may well assist to that end, in many cases it will do little to assist the insurer in respect of the matters which concern him under 2(c).
15. Third, it is argued that there is no commercial reason to consider that the parties intended that a breach of clause 2(c) should have any more significant consequence for the insurers than a breach of 2(a), (d) or (e), all of which lack any indication that they are other than ordinary terms rather than conditions precedent. I do not find that argument persuasive. Compliance with general condition 2(c) is plainly of greater importance than compliance with (a), (d) or (e). As for (a), the requirement for immediate notice of a happening which may give rise to a claim is frequently encountered in insurance policies and most unlikely to be regarded as a condition precedent. Its function is to put the insurer on notice that a claim may be coming rather than a necessary indication to him that it is time to investigate, which he will be able to do once he knows that a claim will be made. So far as (d) is concerned, unlike (c) it has nothing to do with notification, assessment or investigation of a claim, delay in which may well prejudice the insurer. It goes to the interests of the insurer in overseeing and/or taking over proceedings at a much later stage. The same is true of (e).
16. The fourth ground of appeal is that the judge below placed undue reliance upon the decision in Welch v Royal Exchange Assurance [1939] 1 KB 294, in which the Court of Appeal was concerned with a clause in a fire policy which, by one of its conditions, provided that, on making a claim, the insured should, inter alia, "give to the corporation all such proofs and information in respect of the claim as may reasonably be required", and in condition IV included a term identical to the last sentence in clause 2(c) in this case, namely that "no claim under this policy shall be payable unless the terms of this condition shall have been complied with." By an earlier term of the policy, it was provided that the conditions of the policy were "so far as the nature of them respectively will permit" to be deemed to be conditions precedent to the right of the insured to recover. It was held that condition IV was a condition precedent to the liability of the insurers and that the failure of the assured to provide information reasonably required in respect of the claim until the hearing of arbitration proceedings relating to it constituted a bar to his claim.
17. In the case at first instance [1938] 1 KB 757, Branson J, having held that there was an obligation that the information be provided in a reasonable time, stated at page 768:

"If that be the proper construction - and I see no reason why the ordinary implication of a reasonable time should not have effect with regard to this clause in the contract - what had to be done was that the claimant should give the information which was demanded of him within a reasonable time. What was to be the result if that condition were not fulfilled?The policy says the result will be that 'no claim under this policy shall be payable', not 'unless and until' but 'unless the terms of this condition have been complied with.' That means that, if the condition has not been complied with, no claim under the policy shall be paid. If that is the true construction, the result is that this claimant, having failed within a reasonable time - for it must be a failure not to have done it before the arbitration commenced - to comply with the condition, has lost his right to make his claim under this policy."

18. On appeal the decision was upheld, MacKinnon and Finlay LJJ holding that, on the true construction of the policy, the requirement rendered the relevant condition a condition precedent with which the insured had not complied. Slesser LJ preferred to leave that question open and decided the issue on the ground that there had in any event been a total non-compliance with the duty to provide proofs and information. It is contended for the claimant that the decision in Welch is distinguishable, principally upon the ground that there is no equivalent in the policy before this court to the overriding provision in Welch, that the conditions of the policy should "so far as the nature of them respectively will permit be deemed to be conditions precedent to the right of the insured to recover hereunder." In my view, that particular wording added little to the consideration whether the particular clause to which the court's attention was directed was or was not to be construed as a condition precedent. For my part, I would also accept, as indeed has been accepted for the defendants on this appeal, that the court should be wary of placing undue reliance on authorities in which similar but not identical provisions have been construed. However, the defendants can derive assistance from Welch, insofar as the court of appeal (a) plainly regarded the requirement to provide information, albeit within a reasonable time, as one the nature of which would permit it to be deemed a condition precedent, and (b) expressly declined to equate the word "unless" with the word "until" in the provision equivalent to the last sentence in clause 2(c) in this case.
19. It is also pertinent to note that comparison of the clause in this case with the clause in Welch makes clear the genesis of the wording of clause 2(c) in this policy. Apart from the fact that the final sentence of the clause is identical, it appears that clause 2 in this case is drafted in similarly incremental form to that adopted in the Welch case, save that clause 2(b) in the instant case, which relates to reporting to the police, has been inserted into the text of what was a single condition in the case of Welch. It thus appears that the draftsman of the defendant's policy thought it sensible to leave well alone in relation to clause 2(c), having incorporated into it the key words which led the majority of the court in Welch to decide that the condition in that case was indeed a condition precedent.
20. The fifth ground relied on is that the provision in condition 2(c) for the enlargement of the period within which the necessary claim must be made or information provided in some way weakens the interpretation of the final sentence as demonstrating an intention to render 2(c) a condition precedent. I do not accept that submission. As it seems to me, the recognition that the insurer may extend the period is really no more than recognition of his right to waive strict compliance with the period imposed in any situation where it seems to him reasonable to do so.
21. Grounds 7 and 8 assert that condition 2(c) is not a condition precedent to liability but an innominate term which is apt only to create a defence to a claim under the policy if the consequences of breach are so serious as to give the insurers a right to reject the claim (see Alfred McAlpine plc v BAI (Run-Off) Ltd [2001] 1 Lloyd's Rep 437. It is said that the condition is perfectly workable as an innominate condition. It does not seem to me that this submission carries the matter very much further. The defendants accept that, if the clause is not to be regarded as a condition precedent, it would indeed be an innominate term. However, the Alfred McAlpine case concerned the construction of a condition which did not on its face indicate the consequence of a failure to comply and was not directly concerned with the question whether a clause, plainly drafted so as to have the effect of a condition precedent, should be otherwise construed (see in particular paragraphs 27 and 33-34 of the judgment of Waller LJ at pages 433 and 444).
22. Finally, it is argued that the provision in condition 2(c) to the effect that any extension of time would be at the expense of the insured, is indicative that the term should indeed be construed as an innominate term, recognising, as it does, that any risk of increased difficulties in investigation for the defendant insurers can be adequately compensated for by a payment in respect of any increase in the insurer's costs of investigation. The defendants, on the other hand, argue the opposite, i.e. that the claim is recognizing the principle of prejudice to the insurer in his investigation and conferring upon the insurer the right himself to permit to the insured an extension of time in a situation where the only prejudice to be anticipated is an increase of expense to the insurer. In my view, the defendants are correct. The clause is aimed at imposing compliance with time limit provided as a condition precedent unless, at the insurer's option, it is extended for such further time as the company may in writing allow, the provision as to payment of any extra expense being tacked on as an additional protection for the insurer.
23. For all the reasons which I have given above, I would confirm the decision of the judge and dismiss the appeal.
24. MR JUSTICE MORLAND: I entirely agree.
Order: Appeal dismissed with costs; summary assessment of appellant's costs; pre-VAT bill reduced by £780; resultant figure to be supplied to the court. (Orders not part of the judgment of the court)