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
(MANCHESTER DISTRICT REGISTRY MERCANTILE LIST
(His Honour Judge Kershaw QC)
Lower Court Case No: MA 311842

		Royal Courts of Justice Strand, London, WC2A 2LL
		15th December 2004

Lord Justice Longmore:

1. On 8th December 1999 Mrs Breda Doheny signed two proposal forms for submission to agents of insurers who in due course agreed to insure the company of which she and her husband Mr Michael Doheny were directors, as well as Mr and Mrs Doheny personally, against the risk of material damage to property by, inter alia, fire. The proposal forms left the name of the insured blank but the first gave a trading name of "Nupac Ltd and Freshford Meats Ltd" and described its business as that of meat wholesalers and retailers in Preston and Oldham. The second proposal form named Mr and Mrs Doheny and described them as property owners. At the end of the proposal forms there was a box headed "DECLARATION" which consisted first of 5 specific declarations made "to the best of my/our knowledge and belief". For the purposes of this appeal it is the fifth declaration which is relevant:-

"5. No director/partner in the business, or any Company in which any director/partner have had an interest, has been declared bankrupt, been the subject of bankruptcy proceedings or made any arrangement with creditors."

The Declaration continued:-

"I/we agree the information provided in connection with this Proposal . . . is true and I/we have not withheld any material facts. I/we understand that non-disclosure or misrepresentation of a material fact will entitle Insurers to void any insurance granted . . . . .

I/we understand that the signing of this Proposal does not bind me/us to complete the insurance but agree that should a contract of insurance be concluded this Proposal and statements herein shall form that basis of such contract."

2. A fire occurred during the currency of the insurance. A claim was made but insurers denied liability alleging:-

(1) that Mr Doheny had been a shareholder in, and director and company secretary of, a company called Baise Roile (UK) Ltd which went into liquidation in or about May 1993 with a total estimated deficiency of £132,141 and was dissolved on 4th October 1994;

(2) that Mr Doheny and Mrs Doheny were both directors of and shareholders in a second company called Lydo Leisure (UKL) Ltd; Mrs Doheny was also company secretary. On 24th June 1991 the Inland Revenue presented a petition to wind up the company; a winding-up order was made on 2nd October 1991 and the company was dissolved on 14th July 1993;

(3) that Mr Doheny and Mrs Doheny were both directors of and shareholders in a third company HBC (Cooked Meats) Ltd; Mrs Doheny was again company secretary. The company had ceased trading because the local health authority required repairs which the company could not afford to pay. In order to stay alive the company depended on the continuing support of its major creditors.

These facts were admitted by the claimants who, maintained, however, that the 5th declaration only applied to individuals (who could, of course, be declared bankrupt or be the subject of bankruptcy proceedings) not to companies (which could be the subject of liquidation proceedings but could not, in legal terminology, be declared bankrupt or be the subject of bankruptcy proceedings). If, moreover, it were to be said that there was a material non-disclosure of the companies' insolvencies, the claimants submitted that insurers by asking specific questions about the solvency of the individual claimants had waived disclosure of any information about the solvency of companies with which they had been connected.

3. His Honour Judge Kershaw QC recorded the parties' contentions about the full meaning of the 5th declaration; the claimants said the full meaning was:-

"No director in the proposing business has been declared bankrupt (etc.) and no director of any other business, in which any director of the proposing business has had an interest, has been declared bankrupt (etc.)"

while the defendants submitted that the meaning was:-

"No director in the proposing business has been declared bankrupt (etc.) and no Company in which a director in the proposing business has had an interest has been wound up [or otherwise become] insolvent."

The judge then decided that the claimants' construction of the 5th declaration was correct but that nonetheless the insolvencies of companies with which Mr and Mrs Doheny had been connected were material matters which should have been disclosed and that the insurers had not waived the need to make further disclosure by asking questions about bankruptcy in the proposal form. There is now an appeal to this court.

4. Since the appellants persuaded the judge that their construction of the 5th declaration was correct but failed to persuade him that insurers had waived disclosure of material circumstances about companies with which they had been associated, Mr Jess opened the appeal on behalf of the appellants by attacking that second aspect of the judgment. Insurers had, however, served a Respondent's notice challenging the judge's construction of the 5th Declaration and it is logical to consider that matter first in the same way as the judge did.
5. Construction of Declaration 5

It is evident that both proposed constructions of this Declaration have their difficulties. In English law a company cannot be "declared bankrupt" or be "the subject of bankruptcy proceedings" (although a company can no doubt make an arrangement with its creditors); in common parlance, however, people do talk of companies being or becoming bankrupt, meaning that such companies are or have become insolvent. On occasion even the Parliamentary draftsman uses the word "bankruptcy" to mean, in relation to a corporation, "the winding-up thereof", see section 205(1) of the Law of Property Act 1925. But the insured can say with a certain amount of force that the concept of bankruptcy, in law, applies only to individuals.

6. Conversely the meaning assigned to the declaration by the insured does not follow the grammar of the clause; the alternative to the director/partner in the business being declared bankrupt should, on the insured's construction, be a fellow director or partner with a interest in a company, of which the insured were also directors or partners, being declared bankrupt. But the clause refers not to such fellow director/partner being declared bankrupt but the company (in which a director or partner has an interest) becoming bankrupt. The insured thus seek to give the second limb of the declaration an ungrammatical meaning because, otherwise, it would be difficult to give it any meaning at all.
7. Something has gone wrong. The only thing one can say with confidence is that declaration 5 does not, strictly speaking, have an ordinary English meaning; in these circumstances, as Sir Christopher Staughton said (with the agreement of Lord Justice Latham) in Gan v Tai Ping (Nos. 2 and 3) [2001] Lloyds I&R 667, 700:-

"we are entitled and bound to see if we can divine what the parties intended to say."

8. My own view is that it is clear that what the parties intended was that any insolvency on the part of Mr and Mrs Doheny or any company in which they had previously had an interest should be declared. It is not insignificant that, while there was only one insurance policy there were in fact two proposal forms, because both the company, on the one hand, and Mr and Mrs Doheny, on the other, wanted insurance. In these circumstances it is all the more obvious that the insurers would wish to know the financial history not only of Mr and Mrs Doheny but also the financial history of any company in which they had an interest.
9. Conversely it is not easy to see why insurers should be legitimately interested in the personal financial history of directors or partners of Mr and Mrs Doheny who were co-directors or fellow-partners in businesses in which they had historically engaged. Mr Jess for the insured submitted that associates of Mr and Mrs Doheny were all part of the moral hazard in relation to the risk about which insurers would wish to know; personal bankruptcies of partners in or fellow-directors of other business ventures would reflect badly, it was suggested, on the insured appellants. This seems to me far-fetched when compared to an insurers' self-evident wish to know about not only any personal insolvency of the Dohenys but also any insolvency of corporate vehicles with which they themselves were associated.
10. Mr Jess submitted that the words "any Company in which any director/partner have had an interest" were impossibly vague. While that may be so, I do not see how that advances the argument; whatever construction one adopts, those words have to be interpreted. Indeed the more directors and partners that are in contemplation the more elusive the phrase becomes. They are more readily understood by reference to partners in, or directors of, the business which is insured because, in relation to them, it is easy to establish the basic facts. It is not contended in the present case that Mr or Mrs Doheny did not have an interest in the three companies referred to by the insurers. It might be much more difficult to establish the degrees of interest in partners or fellow-directors of other companies of which Mr or Mrs Doheny were also partners or directors.
11. It seems to me that the phrase "made any arrangement with creditors" is of some significance. That is a phrase which can apply both to individuals and to companies (see, for companies, Part XIII of the Companies Act 1985). If that part of declaration 5 is applicable to companies, the other parts of the declarations must, in my view, have been intended to be applicable also.
12. Lastly on this part of the case, Mr Jess submitted that the proposal form was the insurers' document (this was agreed). He said that it followed that it was for them to show that the events on which they relied were a breach of the terms of the declaration and that any question of doubt should be resolved against them. There is much to be said for the view that insurance is a formal relationship and insurers should, therefore, take care to express the requirements of any proposal form they use with clarity and legal accuracy. But the function of the court is not so much to punish insurers guilty of unclear and inaccurate wording as to find out (or "divine" as Sir Christopher might say) what the parties intended to say. If I thought that a reasonable insured would really think that the judge's construction of the declaration was correct, or even that the only aspect of the financial history of a company (in which such insured had had a relevant interest) about which insurers were concerned to ask questions was whether the company had made an arrangement with its creditors and not whether the company had otherwise become insolvent, I might begin to doubt whether the construction which I favour is correct. But I cannot seriously believe a reasonable insured would go through any such thought process when he or she filled up the proposal form. He or she would, if he or she thought about it, conclude that insurers were interested in the solvency not only of themselves but also of any corporate vehicle used by them.
13. I would, therefore, conclude that there was a breach of declaration 5 which, by the later terms of the declaration, is agreed to be the basis of the contract. Insurers are entitled to decline liability for that reason and the judge was correct to enter judgment for the defendants, although not for the reasons he gave. That means that the appeal will be dismissed.
14. Waiver

Anything I say on this topic will be obiter only, but since it was attractively and forcefully argued by Mr David Turner on behalf of insurers that the decision of Woolf J in Hair v Prudential Assurance [1983] 2 Lloyds Rep 667 should be confined to consumer as opposed to business insurance and that the passage of MacGillivray's Insurance Law (7th ed. Para 626, now 10th ed. Para 17-19) on which Woolf J relied is expressed too broadly, his argument should at least be noticed.

15. The argument is as follows:-

(1) The concept of waiver of disclosure of information derives from section 18(3)(c) of the Marine Insurance Act 1906 which provides:-

"In the absence of inquiry the following circumstances need not be disclosed, namely

. . . .

(c) any circumstance as to which information is waived by the insurer";

(2) in this context it has been held that the assured can only rely on waiver in a clear case CTI v Oceanus [1984] 1 Lloyds Rep 476, 511-2 per Parker LJ. In particular, an insurer who fails to ask a question will not have waived his right to have a fair presentation made to him unless there was a suspicion that circumstances existed which might vitiate the presentation, see WISE (Underwriting Agency) Ltd v Grupo Nacional Provincial [2004] EWCA Civ 962, 20th July 2004;

(3) Since CTI v Oceanus and WISE v GNP, there is no place for a separate doctrine of waiver as set out in the current para. 17-19 of MacGillivray based on any implication that, because an insurer asked certain questions he was not concerned to have answers to questions on related subject matter;

(4) Hair v Prudential Assurance should now, therefore, be overruled or, at least, confined to cases which can correctly be called consumer insurance.

16. In my view this argument breaks down at its first stage. The relevant sub-section of the 1906 Act is premised on the fact that no inquiry is made – the statutory prefatory words are "In the absence of inquiry". The proposal form in the present case is, however, an inquiry. It is, moreover, a focussed and detailed inquiry running to six pages.
17. There can be no doubt that, when a proposal form is submitted to the insured who answers the relevant questions, authority has laid down that an insurer as a result of asking certain questions may show that he is not interested in certain other matters and can, therefore, be said to have waived disclosure of them. The matter is variously put in the authorities but they are, in my view, accurately summarised in the passage of MacGillivray part of which was relied on in 1983 by Woolf J in Hair's case and still reads as follows:-

"17-17 Effect of questions in proposal form. The questions put by insurers in their proposal forms may either enlarge or limit the applicant's duty of disclosure. As a general rule the fact that particular questions relating to the risk are put to the proposer does not per se relieve him of his independent obligation to disclose all material facts. Thus, if a burglary insurance proposal form asks questions chiefly concerned with the nature of the proposer's premises and the business carried on there, this will not of itself relieve him of his duty to disclose material facts relating to his personal experience, such as the possession of a criminal record.

17-18 It is possible that the form of the questions asked may make the applicant's duty more strict. The applicant may well be reminded by a particular question that the general duty of disclosure enjoins him to state material facts in his possession relating to the subject-matter of the question but outside its ambit.

17-19 It is more likely, however, that the questions asked will limit the duty of disclosure, in that, if questions are asked on particular subjects and the answers to them are warranted, it may be inferred that the insurer has waived his right to information, either on the same matters but outside the scope of the questions, or on matters kindred to the subject matter of the questions. Thus, if an insurer asks, "How many accidents have you had in the last three years?" it may well be implied that he does not want to know of accidents before that time, though these would still be material. If it were asked whether any of the proposer's parents, brothers or sisters had died of consumption or been afflicted with insanity, it might well be inferred that the insurer had waived similar information concerning more remote relatives, so that he could not avoid the policy for non-disclosure of an aunt's death of consumption or an uncle's insanity. Whether or not such waiver is present depends on a true construction of the proposal form, the test being, would a reasonable man reading the proposal form be justified in thinking that the insurer had restricted his right to receive all material information, and consented to the omission of the particular information in issue?"

18. Mr Turner drew our particular attention to the judgment of Asquith LJ in Schoolman v Hall [1951] 1 Lloyds Rep 139 where it was held that detailed questions about the trading nature of the insured's business did not waive the obligation on the part of the insured to disclose that he had had criminal convictions. Asquith LJ formulated the principle in the following words:-

"It is unquestionably plain that questions in a proposal form may be so framed as necessarily to imply that the underwriter only wants information on certain subject-matters, or that within a particular subject-matter their desire for information is restricted within the narrow limits indicated by the terms of the question, and, in such a case, they may pro tanto dispense the proposer from what otherwise at common law would have been a duty to disclose everything material."

The dispensing of the duty to disclose is here put in terms of "necessary implication" from the questions asked. Cohen LJ preferred the formulation of Mathew J in Laing v Union Marine Insurance Company (1895) 1 Com Cas 11 at page 15 that the insured is not bound to give information

"which the underwriter waives as to which the assured may reasonably infer that the underwriter is indifferent."

Birkett LJ contented himself with relying on the 3rd edition of MacGillivray where it was said merely that "the form and nature of the questions, or the declaration by the assured, or the conditions in the policy may substantially modify the duty of disclosure".

19. These extracts only show that different judges sometimes formulate the same concept in somewhat different terms. In that particular case none of the lords justices had any difficulties in deciding that, whatever the words of the declaration, they did not excuse the failure to disclose a criminal conviction. Taking into account the different formulations in that case and the other cases cited by MacGillivray, I see no reason to qualify the test set out in the last sentence of paragraph 17-19 which has existed in its present form since, at least, the 6th edition of that work.
20. Nor do I see any reason to confine the reasoning of that paragraph to what may be called insurance contracts with consumers as opposed to business insurance contracts. It is not desirable in principle that the law about inferences from proposal forms or declarations should differ in the one sort of contract from the other.
21. So I turn to the particular facts of our case. My somewhat tentative view is that, if (contrary to the view expressed above) the true construction of the declaration is that it only applies to insolvency of individuals despite the presence of the concept of a corporate entity in the very clause itself, the insurer has made it plain that he is not interested in insolvencies of the corporate vehicle through which the insured is trading. I cannot be sure that I am not being over-influenced by (as I see it) the oddity of the construction of the declaration which is the necessary starting-point for the waiver inquiry. That is why my obiter conclusion has to be expressed in tentative terms.
22. Conclusion

The overall conclusion is, as I have said above, that I would dismiss this appeal.

Sir Christopher Staughton:

23. The Appellants, as I shall call them, signed two versions of a printed form of declaration required by the insurers. It includes this paragraph:

"5 No director/partner in the business, or any company in which any director/partner have had an interest, has been declared bankrupt, been the subject of bankruptcy proceedings or made any arrangement with creditors."

By itself, I am firmly of the view that bankruptcy means, and means only, insolvency of an individual rather than a body corporate. If necessary I am prepared to look at the surrounding circumstances of this case, in case there is anything to refute that conclusion. It is a contract between business people on the one hand and insurers on the other. The appellants may or may not have a great deal of business experience, but I am ready to infer that they have had some experience of insurance in the past.

24. It is also said that there were brokers employed to place this insurance. Not all brokers are very sophisticated. But I would expect them to be able to advise their clients that bankruptcy, in the ordinary way, means the process by which individuals are released from their debts in exchange for surrendering most of their assets to the bankruptcy court. After all, brokers are often expected to advise their clients, and sometimes taken to court if they do so negligently.
25. I do not know of any further surrounding circumstances, and I cannot think of any that would help. But there is a significant point elsewhere in paragraph 5 of the declaration itself. It specifically contemplates that any Company "in which any director/partner have an interest" – presumably that means has an interest, or may have an interest – has encountered one or more of three misfortunes. Those are (i) being declared bankrupt, (ii) bankruptcy proceedings, and (iii) making an arrangement with creditors. A possible interpretation is that individuals may suffer any of those three misfortunes, but a company can only be afflicted by the third, i.e. the need to make an arrangement with creditors. That, as I say, is a possible explanation, but I do not find it very convincing.
26. Another point to note is that paragraph 4 of the declaration has merely the words –

"No director/partner in the business…"

The inclusion of "any company" in paragraph 5 provides a contrast which was clearly intended. Can that have been meant only to include an arrangement with creditors in the case of a company? Again that seems improbable. It is true that in one of the two declarations paragraph 4 has been crossed out. That was done, we are told, because one of the declarations was for individuals to sign, and the other for a company. Where paragraph 4 was deleted, the form was evidently used for the company, because although the signature (but not the date) was the same in both cases, that form was completed so as to cover employers' liability and products liability.

27. Paragraph 4 in that declaration is nevertheless visible. There is good authority that a deletion, if legible although deleted, can be used to cast light on another part of the same document. So in this case I find that there is help to be found in the interpretation of both forms. In each case there is a clear distinction between paragraph 4 and paragraph 5.
28. At one time I was impressed by the fact that the forms to be signed were no doubt drafted by the insurers and required to be signed by the insurers: if the meaning is not clear, they are to be interpreted in favour of the appellants. That is a powerful argument. But on balance there is enough to show that the events of being declared bankrupt, bankruptcy proceedings, and making any arrangement with creditors can all be suffered by companies as well as individuals, in the particular meaning of this contract.
29. The judge also had to consider whether the insurers had waived their right to rely on the general words of the Declaration because there were other, specific, provisions in clause 5 of the Declaration which (i) did not require the disclosure in question, and (ii) dealt expressly with other matters which were closely allied to that disclosure. That was, as far as I can detect, the way that the point was argued. The judge rejected it. Like my colleagues, I consider that there was some force in the point, and I am inclined to think that I would have disagreed on that point with the judge, if it had arisen. But in the event it does not arise. We have held that the specific wording of clause 5 does cover this case; point (i) above is fulfilled. There is no need for us to consider what would have happened if it has not been fulfilled. I would dismiss this appeal.

Lord Justice Potter:

30. I agree that the appeal should be dismissed. That is not because I have formed a clear view upon the point taken on appeal, namely that if declaration 5 related only to the personal bankruptcy of Mr and Mrs Doheny, they were nonetheless obliged to declare the position in relation to companies in which they had had an interest under the general duty of disclosure in relation to material facts. It is because I consider that the meaning of declaration 5 is clear, namely that, in this context, the words 'bankrupt' and 'bankruptcy' were intended to apply equally to the Dohenys or any company in which they had had an interest and thus the question of 'waiver' does not arise.
31. I agree with Longmore LJ that, in the common parlance of commercial men, they speak of persons or companies being or becoming bankrupt without regard to the particular appellation given to the process by which insolvency is formally established or declared in the case of either.
32. In the 19th century, that was the language of the law also. The terms 'bankrupt' and 'bankruptcy' were applied to Joint Stock Companies unable to meet their pecuniary engagements: see 1844 7 & 8 Vict c.111. That statute listed the various Acts of Bankruptcy which could be committed by such a company and for Adjudication in Bankruptcy to follow under procedural arrangements provided for. The original form and venue of insolvency proceedings brought by the creditors of an insolvent company lay under the law of bankruptcy and in the Bankruptcy Court. Following introduction of a parallel procedure by means of a petition presented to the Chancery Court (11 & 12 Vict c.45) the conflicts of jurisdiction and procedure which resulted were resolved through the consolidation of all procedures concerned with corporate insolvency into the exclusive jurisdiction of the Chancery Court (Companies Act 1856, 19 & 20 Vict c.47 ss.59-105). Thereafter the law governing company insolvency and winding up developed on its own lines, separately from the framework (and in various respects the substance) of the law of bankruptcy in relation to individuals.
33. However, the underlying concepts, as opposed to the procedures for formally establishing insolvency and thereafter administering the debtors' assets, have remained the same. Indeed, the state of affairs whereby insolvent companies are not amenable to the law of Bankruptcy but are the subject of a separate process known as Liquidation or Winding Up is one largely unknown to other systems of law save those (such as Australia, New Zealand and Ireland) which have closely followed the example of this country in developing their company law: see generally Fletcher, Law of Insolvency (3rd ed) paras 1-019 to 1-022.
34. These, however, are matters which in my view are unlikely to be uppermost in the minds of ordinary commercial men (including insurers) seeking to employ a single adjective readily applicable both to an individual and a company which has been adjudicated insolvent. Certainly the Concise Oxford Dictionary (9th ed) gives as its primary definition of the adjective 'bankrupt'

"Insolvent; declared in law unable to pay debts"

without in any way suggesting that use of the word is properly restricted to individuals.

35. I do not consider that in everyday lay use, as opposed to use by lawyers, the word 'bankrupt' or the concept of 'bankruptcy' has a specialist or restricted connotation limited to individuals. By way of example, an advertisement for sale of 'bankrupt stock' summonses to mind simply a forced sale in circumstances of insolvency, whether on the part of an individual or a corporation.
36. Since it is apparent to me from the wording of declaration 5 that the parties anticipated that an individual director, or a company in which he or she had had an interest, were equally amenable to having been declared bankrupt or made subject to bankruptcy proceedings, to construe the words 'bankrupt' and 'bankruptcy' as necessarily applying, or notionally intended to apply, only to the individual director and to exclude the company, is in my view to interpret the clause contrary to, rather than in accordance with, the plain and apparent intention of the parties.
37. So far as the question of 'waiver' is concerned, had declaration 5 omitted altogether the words "or any Company in which any director/partner have had an interest" then, applying the test set out in MacGillivray at 17-19 (which I also endorse), like Longmore LJ I would incline to the view that a reasonable man reading the proposal form would be justified in thinking that the insurer had consented to the omission of reference to the insolvency of a company in which the Dohenys had had an interest. However, in the light of the wording which followed and which underlined the necessity to disclose material facts, I would add this.
38. That wording focused the mind of the proposer upon the obligation of disclosure in a manner which precludes any suggestion of a general waiver of all matters not covered by the particular questions asked c.f. the example of non-disclosure of a criminal conviction going to the honesty of the proposer. Thus, for purposes of illustration, if in addition to simply having been a director of an insolvent company, the proposer had been the subject of specific criticism by a court of his or her behaviour as a director in the course of winding up proceedings, or had been the subject of misfeasance or disqualification proceedings following such corporate insolvency, then I do not think the insurer could properly be regarded as having waived his right to such information. However, there is no such suggestion in this case and, as Longmore LJ has pointed out, it is not necessary to reach any conclusion upon the issue of waiver; I therefore say no more about it.
39. I would dismiss the appeal.