Macaura v Northern Assurance

Page[1925] All ER Rep 51, Also reported [1925] AC 619; 94 LJPC 154; 133 LT 152; 41 TLR 447; 69 Sol Jo 777; 31 Com Cas 10 1 of 2 DOCUMENTS Macaura v Northern Assurance Co Ltd and others HOUSE OF LORDS [1925] All ER Rep 51, Also reported [1925] AC 619; 94 LJPC 154; 133 LT 152; 41 TLR 447; 69 Sol Jo 777; 31 Com Cas 10 HEARING-DATES: 6, 9 MARCH, 3 April 1925 3 April 1925 CATCHWORDS: Insurance - Insurable interest - Property of company - Interest of shareholder or creditor. HEADNOTE: Neither a creditor of nor shareholder in a company has any property, legal or equitable, in the property of the company, and, therefore, neither has an insurable interest in any particular asset of the company, and this is so even though the debt due from the company to the creditor is a very large sum and the shareholder is practically the sole shareholder of the company. Notes Appeal from an order of the Court of Appeal in Northern Ireland affirming an order of the King's Bench Divisional Court of the High Court of Justice in Northern Ireland, made on a Case Stated by an arbitrator. The appellant, who was the owner of an estate in co Tyrone with the timber thereon, some of which was felled and some unfelled, by an assignment of 30 December 1919, agreed to sell all the timber both felled and standing on the estate to a company for the sum of 42,000 pounds. That sum was satisfied by the allotment to the appellant of 42,000 fully-paid shares in the company of 1 pound each, which was the total amount issued by the company, so that the appellant was the sole owner of the shares in the company. The appellant had also financed the company, and was an unsecured creditor for 19,000 pounds. The appellant effected insurances on the timber against fire with various insurance companies. On 22 February 1922, the greater part of the timber was destroyed by fire, and on 12 June 1922, the appellant instituted an action in the High Court for the recovery of moneys alleged to be due under the policies. By an order dated 21 July 1922, all proceedings in the action were stayed and the matter in dispute was referred to arbitration as provided by the policies. The arbitrator held that the appellant had not at any time during the currency of the policies any insurable interest in the timber, the subject-matter of the policies, and he submitted for the decision of the King's Bench Division (inter alia) the following questions: "Had the said Gerald J. Macaura any insurable interest in the said timber by reason (a) of his being the beneficial owner of all the shares in the said company; or (b) by reason of his being a creditor of the said company?" The King's Bench Divisional Court in Northern Ireland (HENRY, CJ, and BROWN, J) answered that question in the negative, and that decision was affirmed by the Court of Appeal in Northern Ireland (ANDREWS and MOORE, LJJ) The appellant appealed to the House of Lords. NOTES: Referred to: IR Comrs v Clark & Sons, Ltd, British American Tobacco Co v IR Comrs, [1941] 2 All ER 86. As to insurable interest in fire policies see 22 HALSBURY'S LAWS (3rd Edn) 310 et seq, and for cases see 29 DIGEST 311-313. CASES-REF-TO: The total price paid was. 5 LT 53. The following opinions were read. ESQ. therefore. 35 LJ Ex 94. 2 March LC 452. were not called on to argue. PHILLIMORE JUDGMENTBY-1: LORD BUCKMASTER: JUDGMENT-1: LORD BUCKMASTER: The appellant is the owner of the Kellymoon estate in the county of Tyrone. 14 WR 499. the amount to be paid for the timber felled and unfelled being 27. assigned the whole of it to a company known as the Irish Canadian Saw Mills. Neither the amounts nor the exact language of the policies are material for the purposes of the present appeal. fully paid 1 pound shares in the company No further shares than these were ever issued . the greater part of its was destroyed by fire . 555.. 72. HL. 9 WR 743. The appellant upon whose estate the timber in question was originally standing on 30 December 1919. and MF Healy for the appellant.000 pounds satisfied by the allotment to the appellant or his nominees of 42. ATKINSON. 29 Digest 43. 69 Sol Jo 777. The . 10 Com Cas 203. Also reported [1925] AC 619.000 pounds. (4) Paterson v Harris (1861) 1 B & S 336. the appellant effected insurance against fire on timber and wood goods in the open situate on the Kellymoon domain not within a hundred yards of any saw mill or any building in which woodworking by power other than wind or water was carried on. for Hoey & Denning. The history of the matter can be stated in a few sentences. 36 LJ Ex 78. KC. (2) Moran. and (ii) whether the respondents were. Reported by EJM CHAPLIN. 15 WR 435. it was stated that the companies must decline to accept liability for the loss of any timber within a hundred yards of the saw mill. 1 March LC 124.Page [1925] All ER Rep 51. 42. [1905] 2 KB 555. 1594. affirmed (1867) LR 2 Exch 139.000 pounds was to be paid for the cost incurred by the appellant in felling the timber that was then down . Barrister-at-Law. Bircham & Co. (3) Lucena v Craufurd (1806) 2 Bos & PNR 269. 14 LT 65. 3 April. KC. in an answer sent on behalf of all the companies. The timber when cut remained lying on the appellant's land. 709. ES Murphy. Ex Ch. 30 LJQB 354.The company proceeded with the operations of cutting the timber. at liberty to raise the contention that he had no such interest in the manner in which it was raised in the course of these proceedings. 29 Digest 97.The appellant accordingly claimed against the companies upon the policies and. it had all been felled and sawn up in the saw mills In the course of these operations the appellant had become the creditor of the company for 19. COUNSEL: Serjeant Sullivan. PANEL: LORDS BUCKMASTER. 133 LT 152. nor is the fact that the policies were really effected in the name of the appellant and the governor and the company of the Bank of Ireland. in the circumstances. 2772. 41 TLR 447. 54 WR 250.000 pounds and beyond this it is stated that the debts were trifling in amount. 31 Com Cas 10 Cases referred to: (1) Godsall v Boldero (1807) 9 East. 29 Digest 116. and on 22 February 1922. on 30 May 1922. Dublin. 121 ER 740. 127 ER 630. Galloway & Co v Uzielli. 7 Jur NS 1276. WRENBURY. for the real questions that arise for determination are (i) whether the appellant had any insurable interest in the goods the subject of the policies. The respondents are five insurance companies with whom at various dates in January and February 1922. 29 Digest 200. SUMNER. while a further 15. Ltd. and William Lowry (all of the Irish Bar) for the respondents. 29 Digest 343. S L Brown. (5) Wilson v Jones (1866) LR 1 Exch 193. 57. 15 LT 669. 103 ER 500. Solicitors: Herbert Z Deane & Co. JUDGMENT-READ: The House took time for consideration. 74 LJKB 494. 21 TLR 378. and by the end of August 1921.000 pounds. KC. 94 LJPC 154. The probability that if the debtor's ship should be lost he would be less able to pay his debts does not. and the learned judge said that "in so far as the plaintiffs' claim depends upon the fact that they were ordinary unsecured creditors of the shipowners for an ordinary unsecured debt. and the appellant. and this view has been supported in the Court of King's Bench and in the Court of Appeal The question as to the competency of the arbitrator to determine the dispute as to the insurable interest of the plaintiff only arises if no such insurable interest can be recognised by the law.This difficulty was realised by counsel for the appellant. in my opinion. who really based his case upon the contention that such a claim was recognised by authority and depended upon the proper application of the definition of insurable interest given by LAWRENCE. this moral certainty becomes dissipated and lost if the asset be regarded as only one in . 133 LT 152. 41 TLR 447. each shareholder would be equally entitled. Also reported [1925] AC 619. that first arises for consideration. LJ. There is no means by which such an interest can be definitely measured and no standard which can be fixed of the loss against which the contract of insurance could be regarded as an indemnity. upon this case. It must. I find equally with him a difficulty in understanding how a moral certainty can be so defined as to render it an essential part of a definite legal proposition In the present case. I am satisfied that it must fail . but he held that in the circumstances the appellant had no insurable interest in the timber. if the shares were all in separate hands. I agree with the comment of ANDREWS. and on 21 July 1922.a calculation almost impossible to make.If he were entitled to insure because he held all the shares in the company. But the principles on which the decision of this case rests must be independent of the extent of the interest he held . in my judgment. cannot establish his claim as creditor. upon the means and probability of payment which the continuance of a debtor's life affords to his creditors and the probability of loss which would result from his death In Moran. 31 Com Cas 10 appellant and the Bank of Ireland accordingly instituted proceedings by issuing writs against each of the respondent companies. but this depended. for he has no legal or equitable interest therein. in my opinion. the extent of his insurable interest could only be measured by determining the extent to which his share in the ultimate distribution would be diminished by the loss of the assets . Turning now to his position as shareholder. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound-up If he were at liberty to effect an insurance against loss by fire of any item of the company's property. as was said by LORD ELLENBOROUGH. this must be independent of the extent of his share interest . therefore. but practically the whole interest in the company was owned by the appellant. As a creditor his position appears to me quite incapable of supporting the claim If his contention were right it would follow that any person would be at liberty to insure the furniture of his debtor. the decision expressly depended upon the fact that the creditors had a right in rem against the vessel. 94 LJPC 154. and upon the point initially raised in the letter to which reference has been made the arbitrator decided in the appellant's favour. and it is this point. an accurate statement of the law. no shareholder has any right to any item of property owned by the company. J. 69 Sol Jo 777.The appellant could only insure either as a creditor or as a shareholder in the company. which is dependent upon the safe arrival of the ship" This is. He would receive the benefit of any profit and on him would fall the burden of any loss. and each of the statements of claim delivered contained the following allegation: "3 The plaintiffs were at the date of the effecting of the said policy of insurance and at the time of the loss and damage hereinafter mentioned interested in the said timber to the amount be insured thereon as aforesaid" . Upon the hearing of the arbitration several charges of fraud and dishonesty were made against the appellant. this interest has always been recognised. It is true that since Godsall v Boldero (1) where a creditor of Mr Pitt was held entitled to effect an insurance upon his life.Page [1925] All ER Rep 51. and if he was not entitled in virtue of either of these rights he can acquire no better position by reason of the fact that he held both characters. all of which failed. therefore. an order was made to that effect. legal or equitable. Now. Galloway & Co v Uzielli (2) where a creditor for ships' necessaries was held entitled to insure the ship. give to the creditor any interest.On production of the policies all these actions must have been dismissed since each contained a clause referring all disputes to arbitration and making the award of the arbitrator a condition precedent to any liability on the part of the companies Instead of pleading this as a defence to the actions the companies applied to stay the actions and refer the matters in dispute to arbitration. though it might be regarded as a moral certainty that the appellant would suffer loss if the timber which constituted the sole asset of the company were destroyed by fire. in Lucena v Craufurd (3) (2 Bos & PNR at p 302). be admitted that at first sight the facts suggest that there really was no person other than the plaintiff who was interested in the preservation of the timber It is true that the timber was owned by the company. and no such claim has ever been recognised by the courts. he had merely permitted their remaining upon his land. co Cork. nor was it there under any contract that enabled him to hold it for his debt. though it lay on his land by his permission. construing the policy as one really expressed to be on the cable. but both MARTIN. The court. 41 TLR 447. 69 Sol Jo 777. so far as I can see. therefore. and the company owed him a good deal of money. and neither is in point here. He owned almost all the shares in the company. J. and the books are full of decisions and dicta that he had none Paterson v Harris (4) and Wilson v Jones (5) are very special cases. properly regarded. this consideration it was that assisted the court in determining that the insurance was upon the adventure in which the shareholder had an interest and not upon the cable in which he had none. of Skibbereen. but it was held that this was not the true construction of the policy It was not argued that. 31 Com Cas 10 an innumerable number of items in a company's assets and the shareholding interest be spread over a large number of individual shareholders The authorities which have the closest relation to the present are those of Paterson v Harris (4) and Wilson v Jones (5) In the first of these cases a shareholder in a company that was established for the purpose of laying down a submarine cable between the United Kingdom and America. and not in favour. seems to me to make no difference. the appeal should be dismissed. but it was expressly stated that he had no such interest in his shares in the company. Neither a simple creditor of nor a shareholder in a company has any insurable interest in a particular asset which the company holds Nor can the appellant's claim to insure be supported on the ground that he was a bailee of the timber.Page [1925] All ER Rep 51. and should be dismissed with costs JUDGMENTBY-2: LORD SUMNER: JUDGMENT-2: LORD SUMNER: This appeal relates to an insurance on goods against loss by fire It is clear that the appellant had no insurable interest in the timber described. for in fact he owed no duty whatever to the company in respect of the safe custody of the goods. and.The debt was not exposed to fire nor were the shares. stated that the plaintiff had no direct interest in the cable as a shareholder in the company. but. It was not his It belonged to the Irish Canadian Sawmill Co. Also reported [1925] AC 619. No authority has been produced for the proposition that the appellant had any insurable interest in the timber in any capacity. In the former there was no plea traversing the allegation that the plaintiff had an insurable interest. and. in the Exchequer Chamber. if it were. dealt with the case as one in which interest was admitted therein. He had no lien or security over it. but its decision of the case after this admission of interest is not a decision that a shareholder as such has an insurable interest in a company's assets themselves In the latter. while the timber was its only asset. in his opinion. neither as creditor nor as shareholder. not to its goods. the shareholder had no interest to insure. 133 LT 152. which would have lessened the risk. I think Wilson v Jones (5) is against. was never argued In Wilson v Jones (5) where another policy was effected by a shareholder in the same company. There are no other cases that even approximately approach the present case. he had no responsibility to its owner for its safety. JUDGMENTBY-3: LORD WRENBURY: JUDGMENT-3: LORD WRENBURY: . and concluded:] For these reasons I am of opinion that this appeal must fail. not by the fire. it was distinctly held that the policy was not upon the cable. could he insure the company's assets. [HIS LORDSHIP dealt with further contentions of the appellant which do not call for report. the appellant must fail. effected an insurance upon his interest in the cable. in the Court of Exchequer and WILLES. of the appellant's contention Upon the merits of this dispute. [HIS LORDSHIP dealt with the further contentions already mentioned and said that. and. His relation was to the company.He had no "concern in" the subject insured. B. and the fact that he was virtually the company's only creditor. and after the fire he was directly prejudiced by the paucity of the company's assets. 94 LJPC 154. He stood in no "legal or equitable relation to" the timber at all . it was held that the shareholder insured had an interest that he could insure in the profits of the adventure so described. therefore. but upon the shareholder's interest in the adventure of the cable being successfully laid It was attempted by the underwriters to limit the insurance to an interest in the cable itself. The shareholder's insurable interest in the cable does not appear to have been disputed and the real question. Ltd. where the policy described the subject-matter of the insurance in a very obscure manner. . in the assets of the corporation. and that neither he nor any creditor of the company has any property.I think the appeal should be dismissed.Page [1925] All ER Rep 51. legal or equitable. I have read and concur in the judgment delivered by my noble and learned friend LORD SUMNER.] DISPOSITION: Appeal dismissed. even if he holds all the shares. 69 Sol Jo 777. is not the corporation. Also reported [1925] AC 619. 94 LJPC 154. 31 Com Cas 10 This appeal may be disposed of by saying that the corporator. Further. 133 LT 152. 41 TLR 447. [LORD ATKINSON and LORD PHILLIMORE concurred.