Scottish Court of Session Decisions

This was an action at the instance of the Sailing Ship “Bairmore” Company, Limited, the owners of the sailing ship “Blairmore,” and Thomas Dickie & Company, shipowners and marine insurance brokers, Glasgow, as the managing owners of that vessel, in which the pursuers sought to recover as for a constructive total loss under certain time policies of insurance effected by them for £15,000 on the “Blairmore” for the period from 2nd April to 3rd June 1896, of which sum £100 was underwritten by the defender. It was arranged that the pursuers' claims against the other underwriters should be ruled by the decision in the present case.

The summons was signeted on 1st December 1896.

Each of the policies contained a clause providing that “the acts of insurer or insured in recovering, saving, or preserving the property insured shall not be considered waiver or acceptance of abandonment.”

The following statement of the facts as alleged or admitted by the pursuers is taken from the opinion of the Lord Ordinary ( Kyllachy):—“The ‘Blairmore’ was, it appears, lying in San Francisco Bay on the 9th April 1896. On that day she was struck by a squall and sank. She thereby became, at least for the time, a constructive total loss. This, I think, is hardly disputed. At all events, notice of abandonment was duly given to the underwriters on 15th April 1896, and although that notice was not accepted, but declined, it must, I think, for present purposes be assumed that at the date of the notice the vessel was so placed that, if an action had been at once brought, the owners must have recovered as for a total loss. But what happened in point of fact was this. The owners did not at once bring their action, and the underwriters declining to accept the notice of abandonment, proceeded to raise the ship, and before action was brought they had succeeded in doing so, and in placing her safely in San Francisco harbour. The cost was considerable, amounting, as is averred by the defender, to £7600, a cost considerably exceeding what, having regard to the value of the vessel, a prudent owner would have expended for the purpose. Such at least is the pursuers' statement, and, accordingly, it must at this stage be taken as true that but for the high valuation expressed in the policy (a valuation which, in the event of total loss—actual or constructive—fixes the payment to the assured), the underwriters would not have thought of raising the vessel at so great a cost. They did, however, raise her, and she now lies in San Francisco harbour, not indeed ready for sea, but capable of repair, and that at a cost which, as I have said, the pursuers do not allege would equal her actual value.”

The pursuers averred—“(Cond. 4) The cost of raising and repairing said ship would be about £15,000, and her value after being raised and repaired would be about £9600. The pursuers believe and aver that the underwriters actually expended a sum of £8000 or thereby in raising the vessel and bringing her into a place of safety.”

The pursuers pleaded, inter alia—“(1) The said ship having become a constructive total loss, through the perils insured against, and within the period insured against by said policies, the pursuers are entitled to decree against the present defender, with interest and expenses as concluded for. (3) The defences are irrelevant.”

The defender pleaded, inter alia—“(1) The pursuers' averments are irrelevant. (3) The defender's liability as for a constructive total loss, falls to be determined according to the state of matters as they existed at the time when this action was raised. (4) The salvage expenses incurred by the underwriters before the action was raised should be excluded in considering the question of constructive total loss as at that date. (5) In the circumstances above set forth, the vessel at the date of raising this action was not a constructive total loss, the defender ought to be assoilzied.”

The Lord Ordinary, after hearing counsel in the Procedure Roll, on 18th February 1897 issued the following interlocutor:—“Finds that the pursuers' statements are irrelevant as founding a claim under the policy in question for a total loss: Therefore sustains the first plea-in-law for the defender, and dismisses the action and decerns: Finds the defender entitled to expenses; allows an account, &c.

“Opinion.—The pursuers’ company are owners of the ship ‘Blairmore’ of Glasgow, which in April 1896 stood insured on a time policy for the sum of £15,000, and the present action is brought against the underwriters (or rather against one of their number who has been selected to try the question), concluding as for a constructive total loss of the ship. There are several defences, but in the first place the defender pleads that the action is irrelevant, in respect that it is not alleged by the pursuers that as matters stand, and as they stood at the date of the action, the ship is

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incapable of repair at a cost within her actual value.

The record is not, perhaps, in the best shape for a judgment upon relevancy—which apparently both parties desire; but I think it may be taken that the following is the state of the facts, as alleged or admitted by the pursuers.

[ His Lordship then stated the facts as above set forth, and proceeded]—

These being the facts, the first question which arises is this. Is it necessary for the pursuers to aver and prove not only that there was a total loss, actual or constructive, at the date of abandonment, but also that that state of matters continued down to the raising of the action?

On this head the controversy between the parties comes, I think, to a very narrow point.

It was conceded on both sides that the question is one of a kind on which the Scottish Courts, having no established rule of their own, are rightly accustomed to follow the rules established in England. It was also conceded that in the law of England (differing from the law of most Maritime States, including France and America) it has long been a settled rule that, in deciding as between total and partial loss, the date to be looked to is not the date of abandonment, but the date of action. All this the pursuers concede. But according to them the rule or principle thus expressed means, when examined, only this—that the insurers, equally with the insured, are entitled to the benefit, by way of evidence, of all light which may be derived from anything which may have occurred prior to the date of the raising of the action.

Now, as to this, I have only to say that I am unable so to limit the English rule. So limited, it would not, as it seems to me, really differ from the French and American rules, which yet it notoriously does. Moreover, on the construction suggested it would not really be the date of the action, but the date of trial which would have to be looked to. It is not, therefore, surprising that the pursuers could cite no authority for their proposition. I have looked into the English authorities, and rightly or wrongly they seem to me to establish quite clearly that, however well justified the notice of abandonment was when given, yet, if before action is brought the situation has changed, the insurers have the benefit of the change. This is, perhaps, sufficiently apparent from the opinion of Lord Blackburn in the case of Shepherd v. Henderson, L.R., 7 App. Cas. p. 70.

There is, however, a second point raised by the pursuers which is perhaps more arguable. Be it, they say, that the insurers may take advantage of any accident or any act of third parties bettering the situation of the vessel at the date of action, this does not imply that the insurers can themselves intervene, and by operations of their own—conducted it may be at exorbitant cost—convert a total into a partial loss, and so, it may be, escape from their just obligations under a valued policy.

I confess I was at first rather impressed by this argument. But on consideration I have not been able to find any sufficient ground for it. If the rule be that the question between partial and total loss is in suspense until the date of the action I have failed to discover any term in the contract of insurance, or any rule of general law, which should disable the insurers from doing their best in the interval between notice and action to improve the situation to their advantage. The vessel is, we shall say, abandoned and derelict. The underwriters send in search of her and tow her into port. Or she is, as here, submerged—they raise her and place her in a graving dock. I do not, I confess, see why, having done so lawfully, they should be bound to discuss with the insured the propriety or cost of their operations; or why, not choosing to do so, they should be bound to charge as for salvage, and to have such charge treated as a charge affecting the vessel. The true position is rather, I take it, this, that the shipowner in the cases figured has had the benefit of a gratuitous, just as he might have had the benefit of an accidental, salvage; and that his claim under his policy, which is a claim for indemnity, must be considered in view of that fact.

It would of course be a different matter if the defender's interference with the vessel could be construed as an acceptance of the abandonment; or, what comes to the same thing, could be held as implying an assumption of ownership. But there are two difficulties in the way of that conclusion. In the first place, as has more than once been decided, salvage operations by the insurers do not per se imply acceptance of abandonment. They only do so when the whole circumstances justify the insured in so inferring. In the second place, there is in the present policy an express clause providing that ‘the acts of the insurer or insured, in recovering, saving, or preserving the property insured, shall not be considered a waiver or acceptance of abandonment.’

I cannot, therefore, hold that the underwriters were not at liberty, after notice of abandonment, to raise the ship with a view to converting her from a total into a partial loss; or that the cost which they incurred in doing so falls to be treated as if it were a charge by outside salvors affecting the vessel. I should perhaps add that although I have not been able to find any express decision upon this point, it is a point noticed in Arnould on Marine Insurance, 2, 972, 6th ed., and the author's opinion seems to be that the English rule (being what it is), involves as a corollary the right of the insurers to repair as far as they please after notice of abandonment and before action.

The result on the whole is, that as the ship is now raised and in safety, and as the pursuers do not aver that she cannot be repaired within her actual value, I must hold this action to be irrelevant, and dismiss the same. This of course will not prevent the pursuers from bringing, if

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necessary, another action claiming as for a partial loss.”

The pursuers reclaimed, and argued—(1) The question whether there was a constructive total loss must be determined by the state of matters at the date when notice of abandonment was given— Robertson, Forsyth, & Company v. Stewart, Smith, & Company, February 10, 1809, F.C. Though the ultimate decision of that case in the House of Lords (2 Dow 474) rested on other grounds, the view upon which the Court of Session had proceeded was not disapproved. That case had never since been questioned in Scotland. As a decision of the Whole Court it ruled the present. In Shepherd v. Henderson, February 25, 1881, 8 R. 518, there were dicta by Lord Craighill at page 527 and Lord Young at page 529 in favour of the proposition now maintained, which was more in consonance with principle than that sustained by the Lord Ordinary, and was, moreover, in accordance with the law of France—Arnould on Marine Insurance, 1029, and the law of America; Arnould on Marine Insurance, 1030; 2 Phillips, No. 1705; see also 2 Valin 143, tit. Insurance, art. 60; Emerigon, c. 17, tom. 2, p. 194. If the law of England was as maintained on the other side it was unique. The decisions of the English Courts were not binding on this Court. (2) Even if the law of England was to be followed, it was not at variance with the reclaimers' proposition. They did not dispute that if it appeared subsequent to the date of notice that at the date of notice there had been no constructive total loss, then the notice would not be good or binding on the underwriters, and the English rule as conclusively and generally established went no further than this. In Bainbridge v. Neilson (1808), 10 East. 329, 10 R.R. 316, the ship was erroneously supposed to be in possession of the enemy, whereas before notice was given she had been recaptured. In Holdsworth v. Wise (1828), 7 B. and Cr. 794, the ship had been brought into port when notice was given, and was not in fact a derelict as supposed. In Lozano v. Jansen (1859), 2 Ellis and Ellis, 160, the facts were very special and it was held that a constructive total loss was made out. Lord Eldon's doubts in Robertson, Forsyth, & Company, cit., had never been departed from in the House of Lords. Lord Blackburn's statement of the law of England in Shepherd v. Henderson, 7 App. Cas. at page 70, was confined to cases where it “turned out” at the date of action that there had not been a total loss at the date of notice. In this case it was admitted that at the date of notice the ship was a total loss. That could not be disputed, as she was at the bottom of the sea. In any view, the English rule as formulated by the respondent was only established in cases of capture which had no analogy to the present. Actual submersion was a different case altogether from capture. When a ship was at the bottom she ceased to be a ship. A ship was finally and conclusively a constructive total loss when she was in such a position that no prudent owner uninsured would have thought it worth while to salve her.—See The Scottish Marine Insurance Company of Glasgow v. Turner, March 3, 1853, 1 Macq. 334, per Lord Truro at page 339. Here no prudent owner uninsured would have thought of attempting to salve the vessel. (3) Even if the law of England was settled to the effect maintained by the defender, and even if this Court were bound to follow it, the ship here was a constructive total loss at the date when action was brought. The cost of raising and repairing the vessel was £15,000, and her value when repaired would be only £9600. The reclaimers were not barred from maintaining that the vessel was worth less than the value mentioned in the policy—Arnould on Marine Insurance, 1051; Irving v. Manning (1847), 1 H. of L. Cases (Clark) 287. The amount expended by the underwriters in raising the ship must be taken into account in considering whether at the date of action brought the ship was a constructive total loss—Arnould on Marine Insurance (6th ed.), 1034 and 1048. The underwriters were not entitled to raise the ship and then decline to pay for a total loss on the ground that she could be repaired for less than she would be worth when repaired—Emerigon, c. 17, sec. 6, p. 231; Arnould, 972; 2 Phillips' Insurance, No. 1706. If they were to be held justified in so acting, then they could always escape liability under a valued policy when it was their interest to do so. It would be no valid answer to a notice of abandonment that the underwriters would undertake to raise a vessel, neither was it a good answer that they had in fact raised her.

Argued for the respondent—(1) It was settled in England by a long series of decisions that the existence of a constructive total loss must be determined by the state of matters as at the date of action brought—Arnould Marine Insurance (6th ed.) 1028; Bainbridge v. Neilson, cit.; Falkner v. Ritchie (1814), 2 Maule & Selwyn, 290; Patterson v. Ritchie (1815), 4 Maule & Selwyn, 393 (decided subsequent to and in view of Lord Eldon's doubts in Robertson, Forsyth, & Company, cit.); Brotherston v. Barber (1816), 5 Maule & Selwyn, 418; Shepherd v. Henderson, cit., per Lord Blackburn, 7 App. Cas. at p. 70. No contrary rule was established in Scotland— Robertson, Forsyth, & Company, cit., was ultimately decided on another ground. It had always been assumed that the laws of England and of Scotland on this question were the same—Bell's Comm. (ed. M'L.) i. 654. When in a question of maritime law a rule was well settled in England and no contrary rule was established in Scotland, the Scottish Courts were bound to follow the English rule— Currie v. M'Knight (1897), App. Cas. 97; Hay v. Le Neve, 2 Sh. App. 403. The law maritime was common to all civilised maritime states. It was not either Scottish or English municipal common law. It was derived both by England and Scotland from a common source. Decisions by English Admiralty Courts therefore were decisions with reference to law which was

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in force both in England and Scotland, and in the absence of Scottish authority to the contrary ought to receive effect in this Court— Currie v. M'Knight, cit., per Lord Halsbury, L.C., at p. 101, and per Lord Watson at p. 103, and authorities cited by him. If the English rule were to prevail then the proposition contended for was that “if, before action brought, the goods have been restored to the assured … under such circumstances as ought to have induced a prudent man to take possession of them, his claim could only be made for a partial loss”— Lozano v. Jansen, cit., 2 Ellis & Ellis, 160, per Lord Campbell, C.-J., at page 177. The English rule was not confined to cases where the ship had been erroneously supposed to be lost at the date of notice, and that error had been discovered before action brought, but applied also to cases where the ship was truly a constructive total loss at the date of notice but had ceased to be so before action brought— Patterson v. Ritchie, cit.; Brotherston, cit.; Arnould Marine Insurance (6th ed.) 1028. It was quite general, and not confined to cases of capture— Holdsworth v. Wise, cit.; Arnould, 1028. (2) Apart from authority the English rule was well founded. Even in the case of a valued policy the obligation of the insurer was to indemnify. The value in the policy was merely the conclusive standard of indemnity (Arnould, 301); subject to that qualification the contract was one for indemnity only ( Irving v. Manning, cit.), and the assured's right of action “must be founded upon the nature of his damnification, as it really is at the time of action brought”— Hamilton v. Mendes (1761), 2 Burr. 1198, per Lord Mansfield, C.-J., at page 1210; Bell's Comm. (ed. M'L.), 655, note 4; Patterson v. Ritchie, cit.; Brotherston, cit.; Arnould, 1029. If at the date when action was brought all the loss which the insured could suffer was a partial loss, he was no more entitled to sue for a total loss than he would be to sue for a sum of money which had been paid to him— Patterson v. Ritchie, cit. per Lord Ellen-borough, C.-J., at page 396. If any other view were taken, a valued policy was a gambling contract and illegal— Brotherston, cit. per Lord Ellen-borough, C.-J., at page 423. This branch of law was highly technical. The total loss was only a total loss by fiction of law, and the property was not in fact lost at all. There could be no hardship to the insured when he got the property insured handed over to him in as good a condition as it ever was. (3) It followed from the doctrine of indemnity that if at the date of action brought the vessel insured was in such a condition that she could be repaired to be worth more than it would cost to repair her, without taking into account what the underwriters had expended before action brought, the insured could only claim for a partial loss. The amount expended by the underwriters before action brought was not to be taken into account in estimating whether the loss was total or partial at the date of action brought—Arnould, 972; and see 2 Valin Comm., liv. iii., tit. vi., des Assurances, art. 60, page 144. The underwriters were entitled at common law, apart from the clause in the policy, to raise the ship as salvors without committing themselves to acceptance of abandonment (see Shepherd v. Henderson [1881], 7 App. Cas. 49, per Lord Penzance at page 63), but the clause was conclusive. Where outside salvors salved at a cost of two-thirds of the value when salved, the loss was held only partial— Thornely v. Hebson (1819), 2 B. and Ald. 513; where the repairs were made at the expense of the owner and exceeded the value of the ship when repaired, the bulk of the cost for repairs having been incurred before notice of abandonment, it was held that there was no total loss— Chapman v. Benson (1847), 5 C.B. 330. (4) As matter of expediency it would be intolerable if the obligations in a policy of marine insurance underwritten in the United Kingdom were to vary according to the domicile of each individual underwriter.