Scottish Court of Session Decisions

On the 23d June 1870 the pursuers Birkett. Sperling, & Co., merchants in London, and the defenders Engholm & Co., merchants in Leith, entered into a contract, embodied in bought and sold notes, as follows:—

“ Leith, 23d June 1870.

Bought through Birkett. Sperling, & Co., of London, selling by order and for account of their principals—A cargo of about 1100 quarters, or whatever the ship may carry, of Archangel oats, of fair average quality of the season, to be shipped by the ‘Ems,’ 8/3 1.1. 110 tons register, on her arrival at Archangel, at the price of 23s. (say twenty-three shillings) cost, freight, and insurance to London, or the east coast of Great Britain, according to charter-party, for every 304 lb. weighed out, sound or damaged, at the port of discharge.

Payment to be made by cash in London on handing invoice, and in exchange for shipping documents, less interest at 5 per cent, per annum

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for unexpired portion of three months from date of bills of lading; and any surplus above, or deficiency below, the quantity provisionally invoiced, to be settled after arrival of the oats at port of discharge. Engholm & Co.”

On the 15th July 1870 war was declared between France and Germany, and the “Ems,” as a German vessel, became liable to capture.

Some correspondence appears to have taken place between the parties as to an abandonment of the contract. Engholm & Co. offered to cancel the bargain for £100. This proposal was not accepted, but an expression in a letter of Birkett, Sperling, & Co., dated 21st July 1870, showed that they understood, or professed to understand, that the war risk was with the purchaser. Upon receipt of this letter, Engholm & Co. write as follows:—”

22d June 1870.”

Your friends (i.e., Messrs Brandt, for whom Birkett, Sperling, & Co. were acting) will have to insure war risk on the oats per ‘Ems,’ the cargo being sold c. i. f. (i.e., cost, insurance, freight), and being shipped by a belligerent vessel, is not c. i. f. unless war risk be covered.”

To this Birkett, Sperling, & Co. reply—

“London, 23d July 1870.

“Dear Sirs,—Your favour of the 22d inst. duly to hand. As regards the ‘Ems,’ Messrs Brandt are not at all bound to insure against war risk. They only sell as usual, including sea insurance, and not including risk of capture and seizure, &c.”

A good deal of correspondence followed, in which the defenders maintained that they were entitled under the contract to a policy covering war risks among others, and the pursuers the reverse.

On 1st September notice had arrived that the cargo had been shipped on board the “Ems” at Archangel. The pursuers enclose the invoice to the defenders in the following letter:—

“London, 1st Sept. 1870.

Dear Sirs,—We beg enclosed to hand you invoice of oats shipped per ‘Ems,’ sold to you as per contract dated 23d June 1870, amounting to £1162, 11s. 21., due in cash here on Saturday the 3d inst., and will think you to inform us where we shall apply for this amount here against documents.”

The invoice is in ordinary form, specifying, as a deduction from the gross price, insurance amounting to £53, 9s. 9d.

The following correspondence followed:—

Letter, Engholm & Co. to Birkett, Sperling, & Co.

London 2d Sept. 1870.

We are in receipt of your letter of yesterday, enclosing invoice of cargo oats per ‘Ems,’ regarding which our friends write thus:—We have yours of date, handing invoice of the cargo oats p. ‘Ems,’ but as the sellers don't say they have covered war risk, we cannot pay till such is done. A sale c. i. f. covers all risk, and several policies we had current when the cargo per ‘Ems’ was purchased had the war clause in, and completely covered capture, &c. When this is done we are prepared to pay; if not, we must only wait until the vessel arrives at port of destination. We notice bill of lading is dated 19th August, and in this case we do not consider documents have been forwarded in course of post, and we do not consider ourselves bound to accept the—cargo now. We have sold the cargo oats upon exactly the same terms that we bought it from you. Please answer us about the insurance.”

Letter, Birkett, Sperling, & Co. to Engholm & Co.

London, 3 d Sept. 1870.

Dear Sirs,—Yours of the second inst. duly to hand, and, noting contents, we send copy of your letter of that date respecting the ‘Ems’ to the original sellers, Messrs Brandt & Co., whom we have seen here to-day. As regards insuring the war risk, they maintain that they are not bound to do this; but they are willing to leave this question to be settled by arbitration

In the meantime, we beg to give you notice that the cargo is entirely at your risk.

Messrs Brandt say that, with the present irregularity, letters from Archangel are generally twelve and thirteen days on the way, and the in-voice was handed in the usual course.

In reply to what you state, that you have had policies including war risk before the war broke out, this may be, but we do not think this is anything for you to go upon, as we know for a fact that a good many of the London insurance companies invariably stipulate in their policies ‘freo of war risk,’ even in times of peace.

As before mentioned, the documents must be taken up and invoice paid for without delay; and as we think Messrs Brandt's proposition is a very fair one, we await your telegram on Monday morning without fail.”

Letter, Engholm & Co. to Birkett, Sperling, & Co.

5th Sept. 1870.

Your letter of 3d inst. to hand, and this morning telegraphed you as follows:—‘Are prepared to take up “Ems” documents when sellers insure ‘war risk, being sold c. i. f., or on arrival at destination.’ We bought the cargo c. i. f., so it must be insured against all risks, as at that time Lloyd's policies had war risk clause inserted. We agree to take up documents on war risk being covered by sellers.”

On the 5th September the pursuers renew their proposal to refer the matter to arbitration; and again intimate that they would hold the defenders responsible should the “Ems” be captured.

Letter, Engholm & Co. to Birkett, Sperling, & Co.

Leith, 6 th Sept. 1870.

We have yours of yesterday, and note contents. Had there been any difference, we would most willingly have referred it; but we only ask what we stipulated for—viz., insurance; and if war risk is not covered, we hold the cargo is not insured; all we ask is a Lloyd's policy—same as those we held when the contract was entered into; and unless you give this by return of post we must decline to take the cargo. We regret that you should for a moment withhold war risk, and we decline any responsibility whatever about the cargo till the documents are handed over to us complete.”

Ultimately, on the 8th September the pursuers effected an insurance of the cargo against war risk, for a premium of £60, 10s. 6d. Before they did so they made a proposal, “without prejudice,” to divide the expense with the defenders, but, as the pursuers themselves stated in the present record, the defenders did not agree to it.

On the 23d September the “Ems” arrived safe at Fraserburgh. The defenders were requested to take delivery, but they declined to do so, on the ground that the contract had been already rescinded. It was then agreed between the parties, under reservation of their legal rights, that the ship should proceed to London, and that the cargo

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should be disposed of there to the best advantage. The sum realized was £294, 11s. 6d. less than the invoice price of the oats. On the 2d February 1871 the pursuers raised the present action for payment of £355, 1s.11d., being the difference between the invoice price of the oats and the price actually obtained, together with the amount of the premium of insurance against war risk effected by the pursuers. The claim for reimbursement of the premium was afterwards restricted by a minute to onehalf thereof, viz., £30, 5s. 3d., making the total sum claimed £324, 16s. 8d.

The pursuers pleaded'—“(1) The defenders having wrongfully refused to take delivery of said cargo, and pay the price thereof, are liable in the loss thereby occasioned.”

The defenders averred—“Ans.3. It is explained and averred that, under the contract libelled, the sellers were bound at their own expense to insure the cargo against all ordinary sea risks, including ‘takings at sea,’ or losses by hostile capture and belligerent seizure, and to deliver the policy along with their shipping documents against payment of price.”

A letter was recovered by the defenders, written by the pursuers to Messrs Brandt, to whom they stood in precisely the same relation as the defenders did to them. It was written on 5th September, on receipt of the defenders' telegram of that date—

London, 5th September 1870.

Gentlemen—We beg to acknowledge receipt of your letter of 3d inst., and, noting contents, we are prepared to take up documents per ‘Ems’ upon your presenting same, with policies covering war risk; and meanwhile we decline to acknowledge any responsibility on our part in case the vessel is captured. We have just received the following telegram from our buyers:—‘Are prepared to take up “Ems” documents when sellers insure war risk, being sold c. i. f., or on arrival at destination,’—which please note; and, from inquiries which we have made to-day, we believe our buyers are quite justified in the course which they adopt.—We are, &c. Birkett, Sperling, & Co.”

The defenders pleaded—“(3) The pursuers being themselves in breach of the contract libelled, are not entitled to maintain the present action. (4) The defenders were entitled to hold the said contract as at an end in respect of the failure and refusal of the pursuers to implement the same, in manner alleged by the defenders, to their loss, injury, and damage.”

The Lord Ordinary ( Jerviswoode) pronounced the following interlocutor:—“Finds (1st) that the defenders have failed to establish that the pursuers were bound to effect an insurance of the nature and description specified in the answer for the defenders to the third head of the condescendence for the pursuers, of the cargo of oats shipped on board the ‘Ems’ at Archangel, as set forth on the record; or that the pursuers, by their failure to effect such insurance when the same was first demanded by the defenders, committed any breach of the contract of sale of said cargo between the said parties, as the same is contained in the bought and sold notes referred to in the second head of the said condescendence, and in the answers thereto: Finds (2d) that the defenders were, notwithstanding such failure to insure on the part of the pursuers, bound to take delivery of the said cargo, in terms of the said contract; and that the defenders, having refused so to take delivery, are liable for the loss arising to the pursuers upon the sale of the said cargo, which was eventually carried through by them in terms of arrangement between the parties; therefore, and with reference to the foregoing findings, and to the terms of the said joint minute, finds (3d) that the defenders are resting-owing to the pursuers in the sums of £294, 11s. 5d. and £30, 5s. 3d., which are set forth in the fourth article of the said minute, amounting together, the said sums, to the sum of £324, 16s. 8d. sterling, together with interest thereon at 5 per centum per annum from the 19th of November last 1870, and decerns against the defenders for the said sum and interest accordingly; finds the defenders liable to the pursuers in expenses.”

The defenders reclaimed.

Watson and Taylor Innes, for them, argued—An indemnity against war risks is one of the naturalia of a policy of insurance—Bell's Principles, 464, 472; Commentaries, i, 645, 671; Marshall on Marine Insurance, Shee's Edition, p. 394, and 310 (dictum, of Lord Manefield); Parsons on Marine Insurance, 575; Levy, 4 Greenleaf's Rep. 180; and anyone who contracts, in general terms, to furnish a policy of insurance must be held to mean a policy including war risks.

Shand and Teryner, for the pursuers, argued that the refusal of the defenders to take delivery of the oats was wrongful on three grounds—(1) They were wrong in the position which they took up from the beginning, that the pursuers were bound to insure against war risk; the parties entered into the contract on the understanding that there was no war risk; the event turning out otherwise, it is not reasonable that the whole loss should fall upon the sellers. (2) The parties came to an agreement, in accordance with which the pursuers insured the cargo against war risk, on the understanding that the defenders were to bear one-half of the expense. (3) The ship did in fact arrive safe, and the pursuers fulfilled their obligation by offering the cargo, which the defenders were not entitled to refuse.

At advising—

Lord President—This, though in form a claim for an ascertained amount, is practically a claim for damages for breach of contract. The contract was one of sale of a cargo of oats to be shipped at Archangel and delivered in Great Britain; and the breach alleged is failure on the part of the defenders to take delivery of the oats on arrival. That this is the ground of action is clear from the first, and what may be called the only plea for the pursuers—“(1) The defenders having wrongfully refused to take delivery of said cargo, and pay the price thereof, are liable in the loss thereby occasioned.” The loss has been ascertained by the sale of the cargo, and the damage asked is the difference between the contract price and the sum actually realised. The contract is dated 23d June 1870 (reads). The first thing to be observed is that this is not an ordinary contract of sale and delivery. It is the sale of a prospective cargo to be carried by a ship not yet at the port of loading. In such circumstances there is no doubt that it is the duty of the seller, on the cargo being shipped, to send forthwith the bills of lading to the purclinser. The proper implement of the contract is not delivery of the cargo, but delivery of the shipping documents, which entitle the purchaser to get the cargo from the ship-master. This is abundantly clear in the present contract from the mode and time in which payment is to be made, viz., by cash

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in London, in exchange for the shipping documents. The cargo was sold at 23s. per quarter, including cost, insurance, and freight. Therefore one of the shipping documents which it was the duty of the sellers to furnish to the purchasers was the policy of insurance. I have made these remarks to dispose of an untenable argument by the pursuers that whatever was done in the interval as to furnishing shipping documents the purchasers were nevertheless bound to take delivery of the cargo on its arrival.

When the contract was made there was no war in Europe. About three weeks after France declared war against Germany. The sellers seemed to have conceived an idea that in consequence of the change of circumstances they were not bound to give the purchasers a policy of insurance in the ordinary form, including, among other risks, the risk of capture. This appeared early in the correspondence. On the 21st July the pursuers disclosed their view about their obligation to insure. On receipt of the letter the defenders immediately wrote— [reads letter of 22 d July 1870]. Here arose a dispute, which is carried on through a considerable correspondence. It admits of little doubt that when a party contracts to sell a cargo under burden of insurance he means nothing less than a guarantee of indemnity against all the risks ordinarily covered by insurance to which the ship may be exposed in its voyage from the port of loading to the port of delivery. That every policy of insurance conceived in the usual terms contains a specification of war risks, in the case of a vessel liable to them, is perfectly well known. No doubt policies are sometimes effected with variations in the clause enumerating the risks covered. But no one who undertakes in general terms to insure can be heard to say that he is entitled to except any of the ordinary risks, unless he expressly stipulates to that effect. In a question with the underwriters every insurance which is expressed in the usual terms covers the risk of future wars just as much as the risk of capture in an existing war. In like manner an obligation to provide such a policy must be similarly construed. There was thus a dispute before the cargo was put on board, in which the sellers were entirely wrong, and the purchasers entirely right. What follows? The proposition of the pursuers is again repeated. They were not at all confident of the soundness of their own position. We have a letter by them, dated 5th September, to their own constituents— [reads]. But although they have made inquiries, and believe “that the buyers are quite justified in the course which they adopt,” they nevertheless persist in their objection, and decline to fulfil what was their duty, and what apparently they knew to be their duty.

The subsequent correspondence is to a great extent immaterial to the decision of the present question, but I shall refer shortly to some parts of it. The cargo had been shipped, and notice had come by 1st September Upon that date the pursuers sent the invoice of the cargo to the defenders in a letter, in which they say— [reads letter of 1st September]. The invoioe includes the usual items, with a deduction for insurance. It is perfectly correct if the insurance is such as the defenders were bound to accept. The defenders write on 2d September—[reads]. They ask whether the insurance covers war risk. That is in consequence of the dispute already arisen. There is a passage in this letter strongly founded on by the pursuers—“if not, we must only wait until the vessel arrives at port of destination.” ‘The first purpose for which the pursuers refer to this passage is to show that their reading of the contract is the same which the defenders put upon it—that the defenders considered that the proper implement of the contract was delivery of the cargo. But it is impossible to reconcile this construction with the rest of the letter. The defenders construe the contract in the strictest manner against the pursuers, too strictly indeed, but quite inconsistent with the pursuers' view. They aid—“We do not consider documents have been forwarded in course of post, and we do not consider ourselves bound to accept the cargo now.” They hold that the contract has been already broken by the pursuers failing to send the shipping documents. The other purpose to which the pursuers refer to the passage mentioned is to show that the defenders thereby agreed, if the matter could not be otherwise settled, to accept delivery of the oats as fulfilment of the contract by the seller. But what the defenders really say comes to this, “You have broken the contract; it is optional to us to rescind the contract or to insist upon its performance”—a position which they were perfectly entitled to take up. They had not yet declared their option. The same may be said of their telegram of 5th September, in which they again speak of the alternatives open to them.

The 3d September is an important date. It is the day on which the pursuers effected the insurance on the cargo, and it is the day which, according to their letter of 1st September, was the proper day for exchanging the shipping documents for cash. What they did was in fact to tender as one of the documents a policy of insurance excluding war risks. This is declined by the defenders. They stand upon their right to have a policy including war risks. The pursuers write— [reads letter of 3 d September]—“In the meantime, we beg to give you notice that the cargo is entirely at your risk.” Nothing could better show the unreasonableness of the pursuers' position. They have contracted to give insurance, and now they say that the cargo is entirely at the risk of the other party. The defenders take their ground on 6th September— [reads letter of 6th September], Up to this time they had left open to themselves the alternatives of either rescinding the contract or of enforcing it. The only point of dispute up to this time was whether the pursuers were bound to effect a poliey in the terms required by the defender. As I have said, on this the pursuers were entirely wrong, and the defenders entirely right. There being then a clear breach of contract on the part of the pursuers, the defenders were entitled to rescind the contract as they did. After this nothing material occurred. Some parts of the correspondence have been founded on to the effect that the cost of the additional policy to cover the war risk was agreed to be divided between the parties. There were negotiations to this effect, but they never came to anything. The pursuers state on record that the defenders refused to agree to the proposal. The war risk was ultimalely covered by an insurance effected by the pursuers. It would have been very foolish for their own interests if they had not effected the insurance. As it happened, the ship arrived safe; but long before this the contract had been rescinded by the defenders. If they were entitled to do this, as I hold they were, this action cannot be maintained, and the defenders must be assoilzied.

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