Scottish Court of Session Decisions

In this action the Inverkeithing Marine and Freight Assurance Association sued John M'Kenzie, as a member of that association, for the sum of £88, 9s. in name of premiums for two vessels which it is alleged were insured from 1st March 1878 to 28th February 1879, and from the 1st March 1879 to the 29th February 1880.

The defender admitted his liability to the pursuers in a sum of £3, 14s. The liabilities of the members, and the constitution and object of the association, are stated in its rules and regulations.

Rule VI. provides, in regard to liability for losses, that “members are bound jointly and severally in the amount due.” In terms of rule IX “The owners of vessels lost shall pay full year's premiums, besides any extra premiums that may be necessary to meet the losses of the year, and shall be entitled to a share of the surplus funds (if any) for that year. No withdrawal from the club allowed but at the close of the club year, and then only by giving notice at the special meeting in February, except in case of sale, and all policies will be renewed unless ten days' notice to the contrary be given by the owners before expiry, or a like notice given by the club that they decline to do so.” And Rule XV. declares that the club year is to run from the last day of February in one year to the last day of February in the next year.

The defender had been a member of the association during the years 1875, 1876, and 1877.

On the 18th February 1878 the defender wrote to James Ross, the pursuers' manager, asking for a renewal of the policies, in the following terms:—“ Liverpool, 18 th Feb. 1878.

“Dear Sir,—I arrived at this river last night and got docked this morning.

Please enter the ‘Triumph’ for £250, and £100 on freight; enter the ‘Estramadura’ for £200, and £50 on freight, or £100 if the rules carry it. I understood you got all the papers connected with ‘Estramadura’ average. Let me know which do you want. I am writing the master by this post, also Mr Hammond; Mr Boyd is the Arbroath insurance agent.

Please let me know if they are accepted at the above.—Yours truly,

John M'Kenzie, ‘Triumph’”.

On the 21st February 1878 Mr Ross sent the following letter to the defender:—

Inverkeithing, 21st Feb. 1878.

Dear Sir,—I have your note of the 18th in reference to club. The number of vessels has been reduced by withdrawals and sales, and few new ones entering that the meeting yesterday reduced the risks to be taken on one bottom; therefore instead of last year's, say £250 on ship and

Page: 781↓

freight per ‘Triumph,’ for 1878, and £200 on ship and freight per ‘Estramadura,’ for 1878, same values as before. Policies to be delivered when premium bills are accepted. Ships continue until intimated off. The papers required for ‘Estramadura’ average is copy of protest or extracts from log-book, and vouchers for all the money laid out by the master on account of cargo, and general average. I have only got note of assistance slip to harbour, so if you have disbursed more you cannot recover after statement is made up. You will require to state the weight of cargo per bills of lading, and advance got on freight, the cargo having been taken into harbour and allowed to lie on board for some days that allowed it to get more damage than it would have got if it had been discharged at once; whatever the sum the merchant must pay the freight.—Yours truly, James Ross.

P.S.—1877 is expected to turn out better than 1876. This tests the reduction on risks.” In this letter the words “policies to be delivered when premium bills are accepted,” refer to a new rule adopted at a general meeting held on 27th February 1878, a few days after the above letter was written. By this rule “policies are to be delivered on acceptance of premium bills at six months.”

The bills never were accepted. The remainder of the facts are narrated in the opinions of the Lord Ordinary and of the Lord Justice-Clerk.

The Lord Ordinary found that a contract of insurance for the year 1878–1879 had been entered into between the pursuers and defender; but that “the policies of insurance and the obligations to pay the premiums thereunder are null and void, in respect that the insurer's names are not therein set forth in terms of the Act 30 Vict. cap. 23, sec. 7 and assoilzied the defender. His Lordship subjoined the following note:—“The Inverkeithing Marine and Freight Assurance Association is an unincorporated and voluntary association, its object being, as stated in its rules and regulations, ‘to raise and maintain a fund by the mutual contributions of its members for the purpose of securing themselves against losses arising to their vessels from the dangers of the sea,’ &c. In regard to liability for losses, the 6th rule provides that ‘members are bound jointly and severally in the amount due.’ The surplus funds are (according to rule 9) to be divided amongst the members each year. With regard to withdrawal from and ceasing to be a member of the association, the same rule declares that ‘no withdrawal from the club allowed but at the close of the club year, and then only by giving notice at the special meeting in February, except in case of sale, and all policies will be renewed unless ten days' notice to the contrary be given by the owners before expiry, or a like notice given by the club that they decline to do so.’ The club year is declared by rule 15 to run from the last day of February in one year to the last day of February in the next year. The special meeting referred to in rule 9 appears from rule 12 to be in February, eight days before the third Wednesday of that month in each year.

The defender is here sued for premiums on two vessels belonging to him which it is alleged were insured from the 1st March 1878 to 28th February 1879, and from the 1st March 1879 to the 29th February 1880. The grounds upon which it is said the insurance was effected for each of these years, with consequent liability for premiums, are different. It is said that the defender expressly ordered the insurance upon his two ships for the year from 1st March 1878 to the end of February 1879, but with regard to the year from 1st March 1879 to the end of February 1880 he is said to have continued the insurance in virtue of the rules of the association without any express agreement. This is rested upon the ground that he did not give notice, as required by rule 9, at the special meeting held in February 1879, that he withdrew from the club, and that he did not wish his policies renewed.

The facts, as the Lord Ordinary holds them to be proved, are as follows:—The defender is the owner of the two ships ‘Triumph’ and ‘Estramadura,’ and being a member of this Inverkeithing Association he had these ships duly insured for at least the years 1875, 1876, and 1877. When 1878 arrived he took the subject of the renewal of the policies into consideration. On the 18th of February of that year he wrote the letter to James Ross, the manager of the association, in which he gave this order—‘Please enter the “Triumph” for £250 and £100 in freight, enter the “Estramadura” for £200 and £50 on freight, or £100 if the rules carry it…. Please let me know if they are accepted at the above.’ Ross answered this letter on the 21st, and told the defender that owing to the number of vessels being ‘reduced by withdrawals and sales, and few new ones entering, that the meeting yesterday reduced the risks to be taken on one bottom; therefore £250 on ship and freight per “Triumph” 1878, £200 on ship and freight per “Estramudra” 1878.’ On the 1st of March Ross again wrote to the defender, sending a statement of accounts of the association, repeating the information that the risks were to be reduced in consequence of the losses which the association had sustained, and intimating that ‘your vessels are placed agreeable to this.’ He further stated that he had forwarded the bills for the premiums for the defender's acceptance.

The defender did not repudiate the renewal of the assurance, although several letters followed from him, which, however, had reference entirely to a dispute which had arisen in regard to a claim of average by the defender against the association in consequence of the ‘Estramadura’ having stranded in entering the harbour of Kirkcaldy. In the absence of further evidence by writing, reference must be made to the parole testimony. The defender, examined as a witness, had this question put to him, ‘You had been insured in the ordinary way in the end of February 1878?—(A) Yes.’ The defender, however, says that he subsequently withdrew from the club in consequence of not having got a settlement of his claims for average on the ‘Estramadura’ This, however, he could not do upon such a ground, and Ross, the manager, expressly denies that the defender ever made such withdrawal. There is certainly no writing to that effect under the defender's hands until the 16th of September 1881, when he wrote to Boss in answer to a demand to pay up—' You are well aware that I was clear of the Inverkeithing Club years ago. You are also aware I went to Edinburgh about Inverkeithing business before now. I am as ready to go again, so you are at liberty to proceed at once. I never

Page: 782↓

will pay any more cash.' The going to Edinburgh here indicates the defender's willingness to meet his opponents in the Court of Session.

As regards verbal intimation of withdrawal, Ross speaks to a conversation he had in February 1879, at which the latter intimated that he would not pay the premiums until the claim for average was settled. ‘This conversation,’ says Ross, ‘took place in February 1879. Between February 1878 and that time nothing whatever had occurred to make me think that the defender was not a member of the club…. Defender did not withdraw from the club in the beginning of 1878 or of 1879. He never wrote me any letter to put me on my guard against continuing him a member.'

Accordingly the defender's ships are entered in the books of the association as insured during these two years, and accounts were sent to him containing entries of the premiums claimed by the pursuers. A bill for the premiums of the two years was sent to Mr Gauld, banker at Balmacara, along with the policies of insurance, the former for the acceptance of the defender, and the latter to be delivered to him upon such acceptance being made. It was through this banker that the defender had conducted his transactions with the society in former years. Mr Gauld, after keeping the bill for six months, returned it along with the policies on 20th June 1879 by a letter, in the following terms:—‘I return herewith bill on Capt. J. Mackenzie, Kyle, Loch Alsh, p. £83, 3s., for insurance on his vessels. Mr Mackenzie for various reasons declines to sign it. The four policies sent us are also enclosed.’

The Lord Ordinary is of opinion upon the evidence—1st, That the defender gave express instructions to insure his two ships for the year from 1st March 1878 to 28th February 1879; 2dly, that he did not give express instructions for the insurance of his ships from 1st March 1879 to 29th February 1880, but that he gave no notice of withdrawal from the club at the special meeting in February 1879, nor of any resolution not to renew his policies for the year from 1st March 1879 to 29th February 1880; and therefore it must be held that for this latter year the case is the same as if he had given express instructions to insure.

If therefore the case were to be determined upon the above facts, there can be no doubt that there was a valid and sufficient contract entered into between the pursuers and the defender, which a court of law would be bound to enforce by compelling the defender to accept the policies or (the period of insurance being now expired) to pay the premiums, were it not that there are statutory provisions which render such contract nugatory.

First, It is said that the pursuers are not entitled to sue upon the policies for the premiums, because the policies were not accepted, and no bills were granted for the premiums, and that the only contract upon which the pursuers can sue is that contained in the letters passing between Ross and the defender, which not being stamped cannot be sued on. A stamp is required by 30 Vict. cap. 23, sec. 9, the provision there being that ‘no policy shall be pleaded or given in evidence in any court, or admitted in any court to be good or available in law or in equity, unless duly stamped.’ Whatever might have been the effect of this statutory provision had the fact been that the pursuers must rely only upon the letters, yet, as the case is not so, the Lord Ordinary holds that the objection is not well founded. There was here a valid agreement between the parties, on the one hand to give and on the other to take out a policy. The policy was duly tendered, and acceptance thereof was wrongously refused by the defender, and the case therefore must be dealt with as if he had performed what was his legal obligation, viz., to take delivery of the policy; and that document being duly stamped, the objection of want of stamp is obviated.

Secondly, But there is another and a more formidable objection, one which can be maintained although the defender had accepted the policies. It is founded upon the 7th section of the Act 30 Vict., cap. 23, that ‘no contract or agreement for sea insurance (other than such insurance as is referred to in the fifty-fifth section of “The Merchant Shipping Act Amendment Act 1862”) shall be valid unless the same is expressed in a policy; and every policy shall specify the particular risk or adventure, the names of the subscribers or underwriters, and the sum or sums insured; and in case any of the above-mentioned particulars shall be omitted in any policy, such policy shall be null and void to all intents and purposes.’

The Lord Ordinary, in the face of this express statutory provision, is obliged to hold that the policies (which were delivered upon the above assumption) are null, and therefore that no legal obligation lies upon the defender to make payment of the premiums. The policies bear to be subscribed by three persons who are members of the committee, and one of whom is also manager. But they subscribe not for themselves alone, but ‘for ourselves and the other members of the Inverkeithing Marine and Freight Assurance Association.’ The names of the other members are not given, and the case comes therefore within the purview of the Act of Parliament. Mr Arnould in his ‘Treatise on Marine Insurance,’ vol. i. p. 151, gives a history of the insurance clubs, of which the Inverkeithing one is an example, and refers to the section of the Act of Parliament in question, in reference to the transactions of these clubs, with this remark—‘As neither the sum insured nor the names of the underwriters are capable of being ascertained, the provision of the statute threatens to prove fatal to these clubs, probably without any intention of so affecting them on the part of the Legislature.’ The sum insured is ascertained under the policies in the present case, but the names of the underwriters are not. On the face of the document they are not merely the three persons who sign, but these persons along with a number of others not named. The present case cannot be distinguished from that of Arthur Average Association, L.R., 10 Ch. 542, 20th June 1875.

The objection in law here given effect to ought to have been stated in the outset, and so saved the leading of a proof which has turned out to be useless. The Lord Ordinary has given his opinion upon the import of that proof, in case a court of review may differ from him upon the construction of the statute. But holding that the proof has been thrown away, in consequence

Page: 783↓

of the plea not being stated tempestive, he has limited the award of expenses in favour of the defender.”

The pursuers reclaimed, and argued—As regards the year 1878, there was a continuing contract; further, there was an express contract in virtue of the letters of the pursuers and the failure of the defender to reply. As to the year 1879, the contract was continued by tacit renewal. The Arthur case is to be distinguished from the present case upon four grounds—(1) There there was a special rate policy; (2) no rules as here; (3) no one personally bound; (4) it was impossible to say who were the assured, or what their liability. Moreover, the statute is a revenue statute, and its object is accomplished if the stamp-duty is secured.

The respondents argued—That admitting the letter instructing insurance, the defender before the completion of the contract refused to accept the bills or take delivery of the policies until the average on the “Estramadura” was adjusted and paid by the club. If his letters instructing insurance were not carried out the defender had locus pœnitentiœ. A new rule was introduced. The policies were not delivered, and a new term was introduced into the contract which excluded tacit renewal without acquiescence. The sums insured were different in amount. As regards 1879 the pursuers were in bad faith in continuing the defender's insurance without his approval, and after his refusal to accept the bills.

Authorities— In re Arthur Average Association, 10 L.R. (Ch. App.) 542; Arnould, Marine Insurance, i. 151; in re Teignmouth and General Mutual Shipping Association, 14 L.R. (Eq.) 148; Marshall, Marine Insurance, p. 228, note a; Xenos v. Wickham, 33 L.J. (Ex. Ca.), C.P. 313— rev. 2 L.R. (Eng. and Ir. App.) 296; Somervill v. Rowbotham, June 27, 1862, 24 D. 1187; Dowell v. Moon, 4 Camp. 166; Bell's Prin. sec. 465; Mills v. Albion Insurance Company, May 13, 1826, 4 S. 575, 3 W. & S. 218; Gray v. Gibson, 2 L R., C.P. 120.

At advising—