United Kingdom House of Lords Decisions

Lord Chancellor (Cave).—[After the narrative quoted supra.]—It is convenient to refer first to the defence founded on concealment and misrepresentation, and I have come without hesitation to the conclusion that those defences are well founded. It is provided by section 17 of the Marine Insurance Act, 1906, that a contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party. By section 18 of the same Act it is provided that “Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured,” and further, that “Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.” Now, in this case it cannot be seriously contested that, in the state of the insurance market at that time, the circumstance of the Greek interest in the vessel was a material circumstance which would have influenced the judgment of a prudent insurer in fixing the premium or determining whether he would take the risk. The facts under this head are summed up by the Lord Justice-Clerk in a passage in his opinion which I will read:—“The ‘Spathari,’” he says, “was purchased by Demetriades, who was a Greek. Thereafter, she was no doubt ostensibly transferred to Borthwick, but only for a limited time and for limited purposes. When the ‘Spathari’ reached Greece her ownership was to revert to Demetriades, and she was thereafter to pass into the hands of Greeks. During the voyage to Greece she was to be managed by a Greek, Demetriades. He was entitled to the freight, and he was also liable for the disbursements, apart from insurance. He was, moreover, interested in the cargo. In short, the ‘Spathari’ was infected with the Greek taint throughout. Her past, her present, and her future were permeated by Greek interest. Now, the evidence is clear that, at the date when these insurances were effected, Greek vessels were taboo in the marine insurance world. They were sinking in alarming numbers, and underwriters fought shy of insuring them. If they insured them at all, they did so at exceptionally high premiums. I am quite satisfied, and indeed I do not think that it was disputed, that, if the true facts regarding this vessel, as I have rehearsed them, had been fully disclosed to the underwriters, if what I might term her Greek interest had been laid bare, she would not have been insured at all. That these facts were material I cannot for a moment doubt. That they were not disclosed is matter of admission.”

It was argued before the Inner House that, if the underwriters desired information on these points, it was their duty to ask for it. But on that plea the learned Lord Justice-Clerk observed that, in the state of the marine insurance market with regard to Greek ships at the date when this vessel was insured, no such duty was cast upon the insurers; and he added that “as Borthwick was ex facie owner of the ‘Spathari,’ there was nothing to put the insurers, so to speak, on the scent of a Greek interest, and there was therefore no duty on their part, which it can be said that they neglected to discharge, to make inquiries on that topic. They did not waive inquiry, because there was nothing to put them on their inquiry.” With these observations I entirely agree, and I am of opinion on this ground alone that the action was properly dismissed.

But, further, I am disposed to agree with the learned Judges of the Second Division in holding that there was actual misrepresentation leading up to the contract. The underwriters were told that the ship was a British ship, and her British character was emphasised to them; but in fact she was not really entitled to be upon the British Register. It is provided by section 1 of the Merchant Shipping Act, 1894, that a ship shall not be deemed to be a British ship unless owned wholly by persons of the description therein specified, a description which does not include an alien. By section 9 of the same Act it is provided that a person shall not be entitled to be registered as owner of a ship or of a share therein until he has made and signed a declaration of ownership, which is to contain a declaration that, “to the best of his knowledge and belief, no unqualified person or body of persons is entitled as owner to any legal or beneficial interest in the ship or any share therein.” By section 57 of the same Act, it is provided that “the expression ‘beneficial interest,’ where used in this Part of this Act, includes interests arising under contract and other equitable interests.” Now, for myself, I cannot doubt that, having regard to all the circumstances of this case—to the fact that the vessel, though purchased by the appellant, was made over to Borthwick, a man without means and having a seat in the appellant's outer office; that the appellant guaranteed Borthwick's mortgage to Constant; that, under the agreement of the 19th of February 1921, the ship was to be made over to the appellant at the end of the voyage, and he was to pay the expenses of the voyage and to be credited with the freight—the appellant had an actual beneficial interest in the ship which should have been sufficient to prevent the registration of the ship as a British ship. On this ground also, therefore, if it were necessary, I should be prepared to hold the contract of insurance to be void.

There remains the defence founded on the scuttling of the vessel. It was found both by the Lord Ordinary and by the Inner House, on evidence which on the face of it would appear to be irresistible, that the vessel had in point of fact been scuttled by Malley. The connivance of the appellant with that proceeding was held by the Lord Ordinary not to have been proved, but by the Second Division to be fully established. When your Lordships had fully heard the arguments of the learned counsel on the questions of concealment and misrepresentation, counsel were asked whether, assuming the House to be against the appellant on those grounds, they desired to argue the question of the appellant's privity to the scuttling; and they replied that, on that assumption, it would be a waste of the time of the House to ask your Lordships to enter upon this further inquiry, the result of which could not affect the fate of this appeal. In these circumstances the question whether the appellant is proved to have brought about the scuttling of the “Spathari,” or to have connived at the scuttling, has not been argued before this House; and, accordingly, I express no opinion upon that question.

For the reasons which I have given I am of opinion that this appeal fails, and I move your Lordships that it be dismissed with costs.

Lord Dunedin.—I concur. I think the judgment of the Court of Session was right so far as it has been argued before us, and I wish to make it very clear that no reason has been suggested to me why it should have been wrong on any particular point.

Lord Shaw of Dunfermline.—I so entirely agree with the judgment of my noble and learned friend upon the woolsack that I feel loth to add anything; but I may be permitted to state briefly how the case strikes my own mind.

In this case I wish to stand only by those outstanding facts which were mentioned in that portion of the argument on the whole case which your Lordships thought it necessary to hear.

In the first place, I am of opinion that the true owner of that ship while it was in British waters was not Borthwick, but was Demetriades. I think the representation that Borthwick was the owner of the ship was a false representation, and the concealment of the name of Demetriades from the list of owners was a false and improper concealment. In those circumstances this ship was registered and flew the British flag contrary to the statute of 1894. Contrary to its provisions, a person not a British subject should have been entered as the owner, but a British owner (the wrong owner) was entered instead.

But even although that plea, which goes to the root of this case, might be held not completely affirmed, in any event this stands without contradiction—that the interest of Demetriades, not a British subject, was a beneficial interest under contract; and, accordingly, under the 9th section of the Act of 1894, in any event, whether Borthwick was entered as owner or not, the interest of Demetriades should have been made the subject of declaration accompanying the registration, and this was not done. Had that fact of beneficial interest been made the subject of declaration under the Act, then registration would have been refused. Accordingly, the first substantial fact to start with is that this ship was entered on the British Register by reason of misrepresentation and concealment, as just stated.

I carry forward that falsehood and concealment to the rights of the parties under the Marine Insurance Act, 1906. In my opinion the pursuer is not entitled to recover for these two reasons:—In the first place, that it is sound law that, when registration of a British ship is obtained, any contract of insurance following that registration carries forward into the contract all the representations or concealments, or the misrepresentations, that were at the back of the false registration of the vessel. No person thus falsely registered is entitled to escape from the responsibility of these representations and concealments made and practised by him when the ship was put upon the Register. These things leading to false registration are carried forward into this insurance contract.

But there was another and a particular representation which is really not separate from, but a branch of, what I have been now saying. One outstanding and material misrepresentation was that this was a British ship. In my opinion, as I have said, that was material enough to avoid the contract when the falsehood in that regard had occurred in the declaration made when the ship was put upon the Register. But, when we come to the actual fact of the nationality of the vessel, how material it is appears from the evidence of Mr Harper, the editor of Lloyd's Shipping List. That gentleman gives the official statistics with regard to a long period of time, namely, the period from 1st September 1920 to 30th November 1921. During that period fourteen British vessels were lost, and during that same period twenty-seven Greek vessels were lost, that is to say, nearly double the number of Greek vessels to British. But that is not really the substantial comparison. The substantial comparison is the relation of Greek losses to Greek tonnage afloat, as compared with British losses to British tonnage afloat; and the startling of fact is that for every 22,000 Greek tons afloat one vessel was lost, whereas in the case of the British registered ships one loss occurred only in the case of 1,570,000 tons afloat. A contrast so startling as that requires very little evidence in a law Court to convince the Court that in the insurance and shipping world any representation which would conceal the Greek nationality of the vessel was a material matter for the contracting parties. That misrepresentation or concealment on that subject having occurred, the defence is completely justified.

When that was pointed out to the learned counsel for the appellant—who presented the case, it is needless to say, with all the cogency which the facts made permissible,—it was agreed that, logically, the case took an end. Accordingly, I make no pronouncement whatever as to the judgment of the Court below, except to guard myself by saying that I make no suggestion of any kind that the unanimous judgment of the Judges of the Division in the Inner House was, in any particular, imperfect or improper.

The judgment stands, and without comment further upon my part upon it, except only this. In the course of the argument your Lordships heard disclosed to the House what was the nature of the cargo which this vessel contained. A large portion of that cargo was cod and herring fish which had had an unsatisfactory history. The vessel was loaded with these fish, and one of the circumstances of the vessel going down in calm water five miles from shore was that one of the boats waited. It has been suggested that that boat waited with part of the crew in order to make sure that the vessel was really a total loss. Well, I am not to pronounce any judgment upon that further than this, that, if it was not that, it at all events is consoling to reflect that the distress of these people in seeing the ship go down would be mitigated by the consideration that at last, and not too soon, that unsavoury cargo had reached its proper destination, namely, the bottom of the sea.

Lord Sumner.—The evidence satisfies me that, as between Mr Hercules Demetriades and Mr Borthwick, the latter had no interest in the s.s. “Spathari” except as trustee for the former, if indeed the document dated 19th February 1921 is anything but a blind. Obviously those concerned found it advantageous to get the ship placed on the British Register, and a contract, under which he purported to buy the ship for £9000 would be useful to Mr Demetriades, when he came, as he says he hoped to come, to resell the ship to his clients at the same price. If the ship was to fly the British flag, some British subject must be found to make the declaration without which she could not be registered as a British ship. If she was to be insured through reputable insurance brokers on terms applicable to British ships, Mr Demetriades must remain invisible. In both respects Mr Borthwick was a convenience. In any others he was a mere underling. Looking behind this document, I think that, from the time she was bought from her former Finnish owners, the “Spathari” belonged to Mr Demetriades. At any rate the whole beneficial interest in her was Greek.

These facts were not disclosed to the underwriters. On the contrary, it was represented to them that the “Spathari” was a British ship. The facts were fully known to both Mr Borthwick and Mr Demetriades, and, if the former was the person who was to attend to the insurance, it was an insurance ultimately for account of Mr Demetriades, and what the former caused to be represented to the underwriters affects and binds the latter. As a matter of business, no one can doubt that both were privy to it.

On the evidence of the disfavour with which risks on Greek shipping were then regarded, it is plain that disclosure of the truth must have affected the underwriters' minds, and they were entitled to have the ship's Greek connexions disclosed to them, unless they ought to have known them already in the course of their business, which obviously could not be the case, or ought to be deemed to have waived the disclosure, for which no ground has been, or can be, suggested.

The representation that the “Spathari” was a British ship was in a sense true. She had been placed on the British Register ad hoc, but it was really an untruth, told, in my opinion, so far as Mr Borthwick and Mr Demetriades are concerned, with intent to deceive. Under the Merchant Shipping Act the interest which Mr Demetriades had in her was such that the “Spathari” was not qualified to be placed on the British Register, and, when the facts became known, she was liable to be seized and in due course forfeited to the Crown, with serious consequences to such persons as made or were privy to the making of the misleading declarations by which registration was obtained. To represent her to the underwriters as a British ship, when she never should have had the appearance of a British ship and was liable to be removed at any time from the Register, is, in my opinion, a misrepresentation of fact, which was false to the knowledge of these two persons.

On these grounds I think that the Second Division was right in adhering to the decision of the Lord Ordinary. The Dean of Faculty, correctly perceiving that such conclusions as these would lead to the failure of this appeal, elected not to continue the argument, which he had begun, upon the question whether the ship was purposely cast away with the appellant's privity. No opinion, therefore, need be expressed on this issue. I will only say, ex abundanti cautela, that, as far as I am concerned, the limited opinions I have expressed are not intended or desired to cast any doubt on the judgment of the Second Division in its other aspects. In any case, on this issue it is the judgment of the Second Division that stands.

Lord Chancellor.—I have been informed by my noble and learned friend, Lord Buckmaster, who is not able to be here at this moment, that he concurs in the motion which has been made.