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Bass Brewers Ltd v Independent Insurance Company Ltd [2001] ScotCS 204 (09 August 2001)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Prosser

Lord Osborne

Lord Dawson

XA61/00

OPINION OF THE COURT

delivered by LORD PROSSER

APPEALS

From the Sheriffdom of Glasgow and Strathkelvin at Glasgow

BASS BREWERS LIMITED

Pursuers and Appellants;

against

INDEPENDENT INSURANCE COMPANY LIMITED

Defenders and Appellants:

_______

Act: S.P.L. Wolffe; Wright Johnston & Mackenzie (Pursuers)

Alt: Wylie, Q.C., A.E. Smart; Simpson & Marwick (Defenders)

9 August 2001

[1] In this action, the pursuers Bass Brewers Limited crave a declarator that the defenders, Independent Insurance Company Limited, are bound to indemnify them for losses sustained by them as a result of a fire at Dalandhui Hotel, Gairlochhead, in terms of a contract of insurance between the parties dated 26 September 1992. They further seek decree for payment of four specified sums. By interlocutor dated 3 April 2000, the sheriff reserved a number of the parties' pleas in law, sustaining or repelling certain other pleas in whole or in part, and allowed the parties a proof before answer. Both parties have appealed, but the appeal for the pursuers is of relatively limited scope, and at the hearing of the appeals, the main issues were those raised by the appeal by the defenders. Before turning to specific issues, we should note that the primary submission advanced on behalf of the defenders was that the appeal should be allowed, and the action dismissed.

[2] On 30 August 1994, the Dalandhui Hotel was substantially damaged by fire. The proprietors of the Hotel were Dalandhui Hotel (U.K.) Limited. In the summer of 1992, the present pursuers had advanced a sum of £150,000 to the proprietors, and obtained a Standard Security over the Hotel in security of the proprietors' debts to them. In September 1992, the proprietors entered into a contract of insurance with the present defenders in respect of the Dalandhui Hotel. In terms of the Schedule to the policy document the Insured are identified as "Dalandhui Hotel (U.K.) Limited and Bass Brewers Limited per Tennant Caledonian Breweries (for their respective rights and interests)." It is provided in the policy document that, in consideration of the payment of the premium, the present defenders "will indemnify the Insured in the terms of this Policy against the events and cover set out in the Sections operative and occurring in connection with the Business during the Period of Insurance or any subsequent Period for which the Company agrees to accept payment of the Premium." The insurance was renewed with effect from 26 September 1993 (with somewhat altered endorsements) and it is not disputed that it was in force at the date of the fire.

[3] It is moreover undisputed that this was not joint insurance, but a composite contract of insurance, with the proprietors being insured for their proprietorial interest, and the pursuers being separately insured for their interest as heritable creditors holding a Standard Security over the Hotel premises.

[4] It is convenient to set out certain of the provisions of the contract of insurance, before turning to the history of the pursuers' claim and the submissions made by the defenders in their appeal. The policy contains a number of General Conditions. Of these, Condition 1 is concerned with alteration in risk or interest, and is not directly in point. Condition 2 is headed "Duties of the Insured", and provides that the Insured shall take all reasonable care to do various things, in various respects. Condition 3 excludes from cover damage consequent upon access to the premises having been effected during any time when the premises are closed against customers, unless locks and other protective measures are in operation. Condition 4 contains certain warranties as to alarm installations, and Condition 5 contains further specific warranties. Conditions 6 and 7 are significant in the present case, and we set them out more fully:

"6. Observance

The due observance and fulfilment of the terms, exceptions, conditions and endorsements of this Policy in so far as they relate to anything to be done or complied with by the Insured and the truth of the statements and answers in the proposal shall be conditions precedent to the liability of the Company to make any payment under this Policy.

7. Claims

(a) The Insured shall in the event of any occurrence likely to give rise to a

claim under this Policy report it immediately to the Company and provide in writing full details within 30 days (within seven days if caused by riot or civil commotion) and:

(i) ...

(ii) take immediate action to minimise loss...

(iii) give all evidence, information and assistance as the Company

may require...

(iv) forward to the Company immediately upon receipt every letter,

claim, writ, summons or legal process

(v) ...

(b) No admission, offer, promise, payment or indemnity shall be made or

given by or on behalf of the Insured without the written consent of the Company which shall be entitled at its discretion to take over and conduct in the name of the Insured the defence or settlement of a claim and to take proceedings at its own expense and for its own benefit in the name of the Insured to recover compensation or secure indemnity from any third party..."

[5] Condition 8 provides for rateable liability when there is other insurance covering the same damage. Condition 9 is again of significance in the present case, and is in the following terms:

"9. Fraud

If any claim under this Policy shall be in any respect fraudulent or if any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy all such benefit shall be forfeited. This Policy shall be voidable in the event of misrepresentation, misdescription or non-disclosure in any material particular."

[6] Conditions 10, 11 and 12 are concerned with cancellation, arbitration and instalment premiums respectively. The General Conditions are followed by certain General Exceptions, but none of these is here in point.

[7] In relation to the present case "Section A - Buildings" contains certain further provisions which are in point. The section commences with an extended definition of the word Buildings, and goes on to deal with the Cover, listing as Insured Events certain specified perils, together with accidental physical damage caused by any event not excepted in the Policy. After a provision dealing with the Limit of Liability, the section goes on to provide as follows:

"Basis of Claims Settlement

(i) Where the Buildings are destroyed - the cost of rebuilding in a

condition equal to but not better or more extensive than their condition when new.

(ii) Where the Buildings are damaged - the cost of repair and restoration of

the damaged portion of the buildings to a condition substantially the same as but not better or more extensive than their condition when new.

(iii) Where, for any reason, a payment cannot be made in accordance with

(i) and (ii) above the liability of the Company will be arrived at as if this Basis of Claims Settlement had not been incorporated and shall be subject to the terms and conditions of this Section including Condition (c) Average."

Still within Section A - Buildings, there are contained certain Conditions, Extensions and Exceptions. Of these, only the Conditions need be referred to. These are as follows:

"(a) The work of the rebuilding or restoration...must be carried out within a

reasonable time.

(b) No payments shall be made until rebuilding, repair or restoration costs

have actually been incurred unless otherwise agreed in writing by the Company.

insured be collectively greater than the sum insured...then the Insured shall be considered as being his own insurer for the difference and shall bear a rateable proportion of the Damage accordingly."

[8] At the outset of his submissions, counsel for the defenders usefully identified three main areas of dispute. We can summarise these briefly.

[9] First, under reference to General Conditions 6 and 7, it was submitted that the requirement in terms of Condition 7(a) (in the event of any occurrence likely to give rise to a claim, to report it immediately and provide full details within 30 days) was in terms of Condition 6 a condition precedent to liability. The pursuers had not complied with that requirement of Condition 7, and did not aver that they had done so. There was thus no relevant averment of liability.

[10] Secondly, the provisions in relation to fraud, contained in General Condition 9, were applicable. It was not suggested that the pursuers had made a claim which was in any respect fraudulent, nor that they had used any fraudulent means or devices to obtain any benefit. But there were averments of fraudulent means or devices being used by the other Insured - the proprietors. And it was submitted that in these circumstances, there would be forfeiture by the Insured pursuers of all benefit under the Policy.

[11] Thirdly, the pursuers were seeking payment in settlement of their claim. In terms of Section A - Buildings, if as here the buildings were damaged, the Basis of Claims Settlement was specified at paragraph (ii) under that heading - the cost of repair and restoration of the damaged portion of the Buildings to a condition substantially the same as but not better or more extensive than their condition when new. "Cost" must mean actual cost. But in any event, in terms of Condition (b), no payments were to be made until rebuilding, repair or restoration costs had "actually been incurred", unless otherwise agreed in writing by the Company. The Company had not given any such agreement, and in any event rebuilding, repair or restoration costs were not averred actually to have been incurred to any extent. There was accordingly no basis for seeking payment.

[12] Various other issues were raised by the defenders, and the interlocutor pronounced by the sheriff, giving effect to the conclusions which he had reached, is quite complex. The pursuers' grounds of appeal raise certain issues which are in effect counterparts of the issues raised by the defenders' appeal, but in addition raise a question of personal bar or waiver. It is convenient to consider first the three main areas of dispute which we have mentioned, together with the question of bar or waiver. As regards each of these three main issues, it is to be observed that if the contentions for the defenders are well-founded, on any one of them, the result would be dismissal of the action.

[13] Underlying all three of these issues is the fact that this is an apparently standard form of contract, suitable for cases in which there is only one Insured, and that Insured is the proprietor of the Insured Buildings. Each of the three main issues raised in the present case involves a question as to how the terms of the policy are to be given effect where, in addition to an Insured who has the proprietorial interest, there is another Insured, whose interest in the Buildings is a security interest, as a heritable creditor. As we have noted, it is accepted that each of the two Insured is to be regarded as insured for his own interest, in what is effectively a quite separate contract of insurance from the contract to which the other Insured is a party. But use of the one document to effect both contracts of insurance may make it necessary to consider whether and how particular terms take effect, in relation to the heritable creditors' contract of insurance.

[14] A question of that kind arises quite sharply in relation to General Condition 9, and the issue of fraud. Condition 9 is badly drafted. It contains two alternative conditional clauses - "If any claim under this Policy shall be in any respect fraudulent", and "if any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy". The succeeding main clause is that "all such benefit shall be forfeited." That main clause is understandable in relation to the second conditional clause, but with its reference to "all such benefit" it does not link satisfactorily with the first conditional clause, which contains no reference to benefit. It may well be that on a broad reading, sense can be made of the first conditional clause and the effect which it is intended to have. Be that as it may, in the present case, it is the second conditional clause which is said to be in point.

[15] On behalf of the defenders, it is not contended that the pursuers used any fraudulent means or devices to obtain any benefit under the policy. What is said that the other Insured, the proprietor company, or persons acting on their behalf, used fraudulent means or devices to obtain benefit under the policy, and that in these circumstances, not only that Insured, but "the Insured", including the pursuers, forfeited all benefit under the policy. The reference to anyone acting on "his" behalf did not mean that only one Insured was in contemplation - the singular would cover the plural. And the provision that "all such" benefit was to be forfeited should properly be read as referring not merely to such benefit as an Insured had sought to obtain by fraudulent means or devices, but as covering "any benefit under this Policy". Even if only one of the two Insured had used fraudulent means or devices in order to obtain some benefit under the policy, both Insured would forfeit all benefit under the policy, whether or not any particular benefit had been claimed or sought by both, by fraudulent means or devices, or otherwise.

[16] On behalf of the pursuers, it was submitted that the construction sought by the defenders effectively deleted the word "such": if the reference was to all benefit, the word was unnecessary, and reading the word with its natural meaning it was plain that some particular type of benefit was being referred to - in this case, plainly the benefit which the Insured had tried to obtain by the use of fraudulent means or devices. Correspondingly, taking that reading, only the Insured who had used these means or devices, and had thereby tried to obtain benefit, would be affected by Condition 9 in any particular circumstances. Benefit was only forfeited by a particular Insured who would otherwise have benefited through the use of fraudulent means or devices, by himself or someone acting on his behalf. It was not merely a question of whether the words "the Insured" could be construed as plural. What was being suggested by the defenders was that these words meant "either or both of the Insured", and then construing the whole sentence as meaning that for some reason this conduct on the part of one Insured would result in forfeiture by the other entirely innocent Insured of all benefit under his entirely separate contract of insurance.

[17] Provisions of this kind depend upon their own terms. A contractual provision for forfeiture of normal benefits would have to be very clearly expressed. We are unable to read Condition 9 as a provision whereby one contracting party would forfeit benefit upon the basis that a party to a separate contract had conducted himself in some fraudulent manner, which might plainly be relevant to his own rights under his own contract, but would have no apparent relevance to the regulation of rights and obligations between insurers and another insured under a separate contract. We reject the argument advanced on behalf of the defenders in relation to Condition 9.

[18] We turn to General Conditions 6 and 7. In relation to Condition 6, the submission on behalf of the defenders was very simple. That Condition provided that the due observance and fulfilment of any conditions in the policy "in so far as they relate to anything to be done or complied with by the insured" were conditions precedent to liability. There was no justification for saying that this particular provision would be part of the contract between the heritable proprietor and the insurers, but not part of the contract between the heritable creditor and the insurers. Whether one was considering the heritable proprietors' contract of insurance, or the heritable creditors' contract of insurance, it was plain that General Condition 7(a) required the Insured in question to do or comply with a variety of things. And if there had not been due observance and fulfilment of General Condition 7, in so far as it related to anything to be done or complied with by the Insured in question, then in terms of General Condition 6 a condition precedent to liability would not have been met, and there would be no liability. If, in terms of their own contract of insurance, the pursuers had not duly observed and fulfilled these requirements under General Condition 7, the defenders would have no liability to make any payment to them. Even if the heritable proprietors had immediately reported the fire as an occurrence likely to give rise to a claim by them, and had provided full details within 30 days, that could not constitute performance by the pursuers as heritable creditors of their own separate obligations in terms of this Condition. In any event, the question of whether there was an occurrence likely to give rise to a claim by the heritable proprietors was a different question from the question whether there had been an occurrence likely to give rise to a claim by the heritable creditors. It was for the pursuers to fulfil their own obligations in terms of their own contract with the defenders. They did not aver that they had done so, and had thus made no relevant case on liability.

[19] In reply upon this matter, counsel for the pursuers advanced a number of arguments. It was submitted that General Conditions 1 to 5 inclusive set out the "substantive obligations" of the Insured. And while it was not suggested that there was any difference between what the heritable proprietor had agreed to, and what the heritable creditor had agreed to, it was submitted that the obligations undertaken, although in the same terms, would lead to very different practical requirements and consequences, depending on whether the Insured in question had proprietorial or security interests and rights. Even the warranty provisions were incumbent upon both Insured alike, although in practical terms it might be harder for a security holder to ensure that the warranty was not breached. At all events, these five conditions were said to be substantive, as opposed to Conditions 7 to 12 inclusive, which were said to be of a different character, and "procedural". It was submitted that this distinction was important, when one came to consider how Condition 6 should be construed. It was submitted that Condition 6 applied only to Conditions 1 to 5, and not Conditions 7 to 12, the former, unlike the latter, being conditions which related to "anything to be done or complied with by the Insured", and "due observance and fulfilment" relating to substantive and not procedural issues.

[20] Moreover, it was submitted that the word "and", following upon the words "anything to be done or complied with by the Insured" and preceding the words "the truth of the statements and answers in the proposal" had a conjunctive force, linking these two phrases, so that (as we understood the argument) the due observance and fulfilment of any particular condition would only be a condition precedent to liability if the condition in question related both to something to be done or complied with by the Insured, and also to the truth of the statements and answers in the proposal.

[21] We are not persuaded that there is any force in these submissions. We are satisfied that in terms of Condition 6, the truth of the statements and answers in the proposal is made a condition precedent, and that in addition, and separately, the due observance and fulfilment of the terms, exceptions, conditions and endorsements of the policy, in so far as they relate to anything to be done or complied with by the Insured, are also made conditions precedent. Moreover, we see no basis upon which the reference in Condition 6 to "conditions...of this Policy in so far as they relate to anything to be done or complied with by the Insured" can be regarded as not referring to any of General Conditions 7 to 12. The expression is a general one, and in so far as any of General Conditions 7 to 12 relate to anything to be done or complied with by the Insured, they are in our opinion plainly conditions within the scope of General Condition 6, so that their due observance and fulfilment is made a condition precedent to liability.

[22] We should add that whether any particular matter is intended to constitute a condition precedent may itself be a matter of construction, and in the present contract it will of course be necessary to look at any particular condition, in so far as it relates to anything to be done or complied with, and to consider whether the due observance and fulfilment of that condition in that respect is such that it can constitute a condition precedent. In this connection, counsel for the pursuers referred us to Scott Lithgow Limited v. The Secretary of State for Defence 1989 S.C. (H.L.) 9, and in particular the observations of Lord Keith of Kinkel at page 21. But in the present case, the provision in General Condition 6 that the matters in question "shall be conditions precedent" is express and unequivocal. And before turning to General Condition 7, we would note that in Scott Lithgow the provision was that the Insured "should" report immediately, whereas General Condition 7(a) in the present case provides that the Insured "shall" report and provide details in terms of the Condition. We turn therefore to Condition 7.

[23] Even on the hypothesis that a failure in due observance and fulfilment of the reporting requirements of Condition 7(a) would constitute breach of a condition precedent, counsel for the pursuers submitted that it did not "bite" in the circumstances of this case. It was submitted that the reference to "the Insured" in this context could not sensibly be read as applying to a heritable creditor, with only a security interest. Condition 7 had plainly not been framed with a heritable proprietor in mind. What had to be done or complied with in terms of head (i) envisaged the kind of knowledge which a proprietor would have, but a security holder might well not have. Similarly, head (ii) made good sense in relation to a proprietor, but not in relation to a mere security holder. And generally, it would be a proprietor who would become aware of events at the insured subjects which might give rise to a claim. The provisions of Condition 7(b) were likewise hard to apply in relation to someone who had merely a security interest. Moreover, and fundamentally, the only occurrence likely to give rise to a claim by a security holder was non-indemnification of the proprietor: if the value of the security subjects was restored, upon a claim being made by the proprietor, the security holder would have no claim. The occurrence of a fire was no doubt likely to give rise to a claim by the proprietor. But it was not prima facie likely to give rise to a claim by the security holder, and having regard to all the considerations mentioned, General Condition 7 could not be given proper sense in the context of the security holder's insurance contract.

[24] Further and in any event, if notice and details were given to the insurers by the proprietor, so that the insurers were timeously in possession of the knowledge which Condition 7(a) was designed to ensure, there was, it was submitted, no failure by the pursuers to comply with the requirements of General Condition 7. The Condition was not to be read as demanding that one inform the insurer of something already within his knowledge. The object of the Condition was to put him in a state of knowledge of the occurrence, not to make or give notice of any claim. In the present case, the insurers had the requisite knowledge, and moreover had it from the other Insured. The condition precedent had been met, and there was liability to make any payment which was due in terms of the other provisions of the contract.

[25] We appreciate that there may be circumstances in which it may seem unnecessary or superfluous to report an occurrence or provide details, when it is clear that doing so will add nothing to the insurers' knowledge of the occurrence in question. And it may seem particularly absurd to require one of two Insured, with different interests, to report and give details of an occurrence when the other Insured has already done so. In some cases, issues of personal bar or waiver may arise, so that what may seem absurd consequences will not flow from a failure to duplicate steps which have already been taken to inform the insurers of what has happened. We return to issues of that kind, when dealing with the appeal taken by the pursuers. But apart from bar or waiver, we are not persuaded that an Insured whose interest is one of security is not bound by Condition 7. Such practical difficulties as may arise do not seem to us to make the clause unworkable for such an Insured. In regard to the insurance of a security holder, the natural reading of the provision is that it is he who must in the given event report it immediately and provide details within 30 days. The fact that another Insured is under the same obligation, and may have performed it, or that the insurer may extraneously have obtained the information which would be contained in such a report and provisional details, does not appear to us either to constitute performance of the security holder's obligation as the Insured under his own contract, or to relieve him of that obligation.

[26] It is of course true that the need for a security holder to make a claim will not arise if the property is fully restored upon a claim being made by the proprietor. And that fact has a bearing upon the question of whether a particular occurrence is "likely" to give rise to a claim by the security holder. But we are not persuaded that the word "likely" in this context must mean "probable", so that the likelihood of a claim by the security holder would only arise, perhaps long after the event, when it has become apparent that the property will not be restored to its original value upon a claim by the proprietor. The word appears to us to be ill-chosen, and we note the expression "may give rise" which was used in a similar provision in the contract which was considered in Alfred McAlpine plc v. B.A.I. 2001 All E.R. (Comm.) 545, although in that case the issue did not concern a condition precedent. In our opinion, the word "likely", in the present context, is most naturally read as equivalent to "liable" or the like, and we are satisfied that apart from issues of bar or waiver, the pursuers failed to comply with the requirements of Condition 7, with the consequence that the condition precedent has not been met. It was submitted that this was a "draconian" result. But where a party has accepted that due observance and fulfilment of certain conditions is a condition precedent, it will of course be important for him to ensure that he complies meticulously with the conditions in question. If he fails to do so, the consequences are those to which he agreed in terms of his contract.

[27] Before coming to the third main area of dispute - the provision in Condition (b) of section A, that no payments are to be made until costs have actually been incurred - it is convenient at this juncture to consider the cross-appeal, which is concerned with the defenders' right to invoke the notice provisions of General Condition 7(a). In their pleadings, the pursuers aver that Dalandhui reported the occurrence of the fire to the defenders, almost immediately, and that they (Dalandhui) informed the defenders that "a claim was likely to be made under the policy". It is averred that the defenders were appraised of "this fact" within days of the fire and in any event no later than 28 September 1994. Having averred that the defenders proceeded to appoint loss adjusters to deal with the claim, and that they investigated the cause of the fire, the pursuers go on to aver that on 28 February 1995 the defenders wrote to the pursuers' agents stating their belief that the fire had been started deliberately. The pursuers' averments continue as follows:

"They indicated that they were continuing to investigate the circumstances of the fire. They stated that on conclusion of their investigations they would inform them of their 'definitive position as regards the claim'. On or about 6 March 1996 the pursuers' agents intimated their intention to submit a formal claim under the policy. At no time did the defenders indicate that such a claim would be regarded as out of time. Esto the pursuers' claim was out of time (which is denied) then the defenders having acknowledged that a claim existed are personally barred from subsequently rejecting the claim as coming too late."

In addition to this averment of personal bar, the pursuers have a plea in law to the same effect.

[28] In the pursuers' grounds of appeal, after setting out the contentions that the requirement to give notice was not a condition precedent affecting the pursuers, and that if there was such a requirement it could be fulfilled by notification by either Insured, the pursuers go on to submit that the sheriff erred in excluding the averments of personal bar from probation. However, that contention is founded inter alia upon a proposition that if insurers have already accepted liability, notwithstanding insufficiency of notice, they are not entitled to repudiate liability at a later date for want of notice. The defenders' actings, and the duration of the delay, might amount to evidence of acceptance of liability. In the presentation of the appeal, this line of reasoning was pursued, but it was acknowledged that the submission was not essentially one of personal bar, but one of waiver. Despite that shift of position, and the corresponding absence of pleadings relating to waiver as such, we were content to allow counsel for the pursuers to advance the argument in its altered form.

[29] If the argument were sound, parties were agreed that it would require proof before answer upon the point. In presenting this argument, counsel for the pursuers did not contend that there had been any waiver prior to March 1996, although it was to be noted that in February 1995 the defenders had thought it right to inform the pursuers' agents of the position as they saw it. But upon receipt of the pursuers' intimation of an intention to claim, in March 1996, the defenders had done nothing, between then and the submission of the pursuers' claim on 14 August 1996. Throughout that time, they could have responded to the intimation of intention to claim by taking the point that the claim would be out of time. In failing to do so, and allowing the pursuers to proceed to the stage of making the formal claim, the defenders must be regarded as having "passed from" the point which they could have taken. They had implicitly indicated that they were not taking the point, and must be regarded as having waived it.

[30] In support of these propositions, counsel for the pursuers referred us to Donnison v. Employers' Accident & Livestock Insurance Company Limited, (1897) 24 R. 681. In that case, a policy of accident insurance provided that it was to be a condition precedent to recovery that notice should be given within 14 days of the accident. The insured died about a month after an accident, no notice of the accident having been given until three days before his death. Notice was thus not timeous. There was a further condition that in the case of death, the Insured's representatives should agree to a post-mortem if required. After the Insured's death, the company asked for a post-mortem, the widow agreed and it took place. The insurers did not tell the widow that they wished to reserve their right to reject the claim on the basis that there was no timeous notice. Observing that "It is no slight or unimportant thing for a woman to consent to a post-mortem examination of her husband's body", the Lord Ordinary held that in insisting on the post-mortem examination, which would be of no possible benefit if they were to stand upon want of notice, the insurers must be held to have waived their right to take that objection. The Second Division affirmed the decision of the Lord Ordinary, and at page 686 the Lord Justice Clerk said this:

"I think that the insurance company was bound to make up their minds at once what course they proposed to take as to the defence of no timeous notice - whether to take their stand on it or not. If they were satisfied that they had a good defence to the claim in the plea of no timeous notice, then they should have taken their stand on that defence. If otherwise, they should have abandoned it altogether."

Counsel for the pursuers submitted that these observations were applicable to the present case. On receipt of the March intimation, the defenders were obliged to make up their mind, and either take the point or be regarded as having abandoned it. In reply, counsel for the defenders relied upon the absence from the pleadings of any averments of waiver, but more particularly submitted that the mere absence of response after the March letter was quite different from the positive step of requiring a post-mortem. That would have been a wholly inappropriate step, unless there was a valid claim. In the present situation, it was the pursuers, and not the defenders, who appeared to have "passed from" their rights. Not only had they done nothing between the fire in September 1994 and February 1995, when the defenders wrote to them. They had done nothing for more than a year thereafter. It had then taken them five more months to submit a claim. Nothing which the defenders had done, or not done, implied waiver.

[31] Every case of implicit waiver must turn on its own facts. But we see no real analogy between the present case and Donnison. In the present case, it does not appear to us that the defenders did anything which implied that they were treating any claim by the pursuers as a valid one, or which would call for reservation of their right to found on the lack of timeous notice. We are not persuaded that the pursuers' averments upon this matter raise any relevant issue of waiver.

[32] In these circumstances, therefore, the action falls to be dismissed upon the basis that a condition precedent of liability has not been met. It is nonetheless appropriate that we should consider the third main issue, as to the basis of claim. The position adopted by counsel for the defenders is essentially a very simple one. The claim is for indemnity, but the defenders' obligation was to indemnify the Insured "in the terms of this Policy". There was no obligation to indemnify upon any other basis than that which was provided for in Section A as being the basis of claims settlement. The buildings having been damaged, the relevant basis upon which a claim for indemnity was to be settled was that found at head (ii). The claimant was not entitled to anything other than the cost of repair and restoration as there described. And in terms of Condition (b), the claimant would not be entitled even to partial or interim payments until rebuilding, repair or restoration costs had actually been incurred, unless the company agreed otherwise in writing. The pursuers had averred that the costs of repair and restoration of the damaged portion, inclusive of professional fees, "are" around £300,000. It was clear from the averments that this did not mean "have been", or even "will be". But it was also clear that the basis upon which indemnification was sought was indeed the cost of repair or restoration (although apparently on a hypothetical basis) and that it was head (ii) which provided the only possible basis for such a claim.

[33] While the position was complicated or confused by the fact that there was an alternative claim based upon loss of value, if a claim for cost of repair and restoration were to be seen as ill-founded, the simple position was that head (ii) applied where the buildings were damaged, and there was no reason why the repairs and restoration could not have been carried out, thus providing a proper basis in cost for indemnification. The position was further confused by the fact that the pursuers were restricting their claim to the four specified sums for which decree was sought, and by their averments that the Hotel decreased in value, although to a sum in excess of the sums sued for. But the primary position was a simple one: head (ii) and Condition (b) applied, and the averments provided no foundation for a claim upon that basis.

[34] On behalf of the pursuers, we did not understand it to be disputed that where a building was damaged, head (ii) would normally apply. But it was submitted that the meaning of both head (i) and head (ii) was affected by the existence of head (iii). That was effectively a proviso or qualification, which would disapply the earlier heads in certain circumstances, and provide an alternative basis of claim. It was submitted that the present case fell within head (iii). Head (iii) applied "where for any reason a payment cannot be made in accordance with (i) and (ii) above". The building had not been repaired or restored. Apparently departing from the primary basis of the claim set out on record, counsel submitted that in these circumstances, in terms of head (iii), the liability of the company was to be arrived at not in terms of head (ii), but as if the Basis of Claims Settlement had not been incorporated. Liability would still be "subject to the terms and conditions of this Section including Condition (c) Average." But it appeared to be submitted that Condition (b) would not apply. Diminution in value was the alternative basis on general principle. In particular, the nature of a heritable creditor's interest justified that approach. The interests of such a creditor was in the capacity of the Insured subject to meet the debt. It was appropriate that he should receive as indemnity the value of his lost security.

[35] In dealing with the submissions advanced to him, the sheriff required to deal with a variety of problems, and a number of authorities, which may be in point in various circumstances where both a proprietor and a security holder make or may make claims. When initially presenting the present appeal, counsel for the defenders took us over this territory. But having regard to the terms of the pursuers' pleadings, and the arguments advanced on their behalf in the appeal, we do not see these matters as directly in point and we do not think it would be useful or appropriate for us to deal with them on a hypothetical basis. We are not persuaded that head (iii) comes into play merely because neither the proprietor nor the heritable creditor has proceeded (as either of them would be entitled to do) with actual expenditure upon actual works. And while head (iii) might come into play in various circumstances, we are satisfied that in this case actual expenditure could have been incurred, by either the proprietors or the pursuers, so that the relevant requirements are to be found in head (ii) and Condition (b). They are not met, and in this respect as in relation to the condition precedent the pursuers' appeal must be refused, the defenders' appeal allowed and the action dismissed.