Manifest Shipping Co. v. Uni-Polaris Shipping Co. et al., (2001) 266 N.R. 50 (HL)

• Case Date: January 18, 2001
• Jurisdiction: Canada (Federal)
• Citations: (2001), 266 N.R. 50 (HL)

Manifest Shipping Co. v. Uni-Polaris (2001), 266 N.R. 50 (HL)

MLB headnote and full text

Manifest Shipping Company Limited (respondent) v. Uni-Polaris Shipping Company Limited and others (appellants)

([2001] UKHL/1)

Indexed As: Manifest Shipping Co. v. Uni-Polaris Shipping Co. et al.

House of Lords

Lord Steyn, Lord Hoffmann, Lord Clyde, Lord Hobhouse of Woodborough and Lord Scott of Foscote

January 18, 2001.

Summary:

A fire broke out on a vessel while at sea causing extensive damage. The shipowner (the insured) claimed under a mar­ine insur­ance policy (time pol­icy), which covered the ship to a value of U.S. $3.2 million. The insurers raised two defences under the Mar­ine Insurance Act (U.K.), 1906. Firstly, the insurers argued that under s. 39(5) an insurer was not liable where the ship, with privity of the insured, was sent to sea in a unseaworthy state (which allegedly occurred in this case). Secondly, the insurers argued that the insured breached its continuing duty of utmost good faith under s. 17 of the Act, by failing to disclose cer­tain material to the insurers. The insurers argued that this duty continued notwith­standing that litigation had started. Accord­ingly, the insurers argued that they were entitled to avoid the whole con­tract ab initio - with retrospective effect - and therefore had a complete defence to the whole of the claim, both the constructive total loss and the partial loss. The trial judge held that the defence was made out under s. 39(5) so far as the constructive loss claim was concerned. The trial judge held however that the defence based on a lack of good faith failed both in law and on the facts. The trial judge entered judgment for the insured limited to the partial loss (U.S. $1.7 million). Both sides appealed.

The Court of Appeal dismissed the in­­sur­ers' appeal affirming that the defence based on a lack of good faith failed. The court, however, allowed the insured's appeal, reversing certain of the trial judge's findings regarding the defence under s. 39(5). The Court of Appeal therefore entered judgment for the insured for the claim for constructive total loss (i.e., U.S. $3.2 million). The in­surers appealed, arguing that both defences should have succeeded.

The House of Lords dismissed the appeal.

Insurance - Topic 8323

Marine insurance - Duty of insured - Utmost good faith - Insurers denied liabil­ity under a marine insurance policy alleg­ing a breach of the duty of utmost good faith under s. 17 of the Marine Insurance Act (U.K.), 1906 - The insurers argued that the insured was under a con­tinuing duty of the utmost good faith to disclose to the insurers any information material to the claim and which might affect their deci­sion to pay or defend the claim - The insurers argued that this duty continued notwith­standing that litigation had started and had been breached by the insured's failure to disclose certain facts (i.e., two accident reports) material to one of the insurers' defences - Accordingly, the insurers argued that they were entitled to avoid the whole contract ab initio (with retrospective effect), and therefore had a complete defence - The House of Lords affirmed that this defence failed - See paragraphs 37 to 78, 81 to 111.

Insurance - Topic 8323

Marine insurance - Duty of insured - Utmost good faith - The Marine Insurance Act (U.K.), 1906, s. 17, provided 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." - An issue arose as to whether the obligation of good faith and disclosure in s. 17 continued to apply unqualified once the parties were engaged in hostile litigation before the courts - The House of Lords opined that once the parties were in litigation it was the pro­cedural rules which governed the extent of the dis­closure which should be given in the liti­gation, not s. 17 as such, though s. 17 might influence the court in the exer­cise of its discretion - See paragraph 77.

Insurance - Topic 8323

Marine insurance - Duty of insured - Utmost good faith - The Marine Insurance Act (U.K.), 1906, s. 17, provided 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." - Insurers argued that the obligation in s. 17 continued through­out the relationship with the same content and consequences - Thus, the insurers argued that "any non-disclosure at any stage should be treated as a breach of the duty of good faith: it has the same essen­tial content and gives rise to the same remedy - the right to avoid" - The House of Lords discussed whether there was a con­tinuing duty of disclosure - The court stated that the "... authorities show that there is a clear distinction to be made between the pre-contract duty of disclos­ure and any duty of disclosure which may exist after the contract has been made" - The court discussed the ambit of the post-con­tract s. 17 duty and whether non­dis­closure short of fraud would consti­tute a breach of s. 17 - See paragraphs 53 to 57 and 95 to 102.

Insurance - Topic 8442

Marine insurance - Actions by insured against insurer - Defences - Insured privy to unseaworthiness of ship - A fire broke out on a vessel while at sea causing exten­sive damage - The marine insurers (time policy) denied liability under s. 39(5) of the Mar­ine In­surance Act (U.K.), 1906, which provided that an insurer was not liable where the ship, with privity of the insured, was sent to sea in a unsea­worthy state - The trial judge held that the defence was established - The judge held that the master's lack of knowl­edge regarding the ship's fire extinguishing system amounted to unseaworthiness and although the insured did not have actual direct knowl­edge of the relevant unseaworthiness, the insured had a state of mind which was equivalent to knowledge ("blind eye knowledge") - The Court of Appeal re­versed the decision - The House of Lords af­firmed the appel­late decision, holding that the evidence did not, on the correct view of the law, sustain the finding of priv­ity - The defence failed - See para­graphs 21 to 36 and 112 to 120.

Insurance - Topic 8442

Marine insurance - Actions by insured against insurer - Defences - Insured privy to unseaworthiness of ship - The Marine Insurance Act (U.K.), 1906, s. 39(5), pro­vided that "in a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness." - The House of Lords stated that the test for "privity" was subjective: "Did the assured have direct knowledge of the unseaworthi­ness or an actual state of mind which the law treats as equivalent to such knowl­edge?" (so called "blind-eye knowl­edge") -"If the shipowner deliberately refrains from examining the ship in order not to gain direct knowledge of what he has reason to believe is her unseaworthy state, he is privy to the ship putting to sea in that unseaworthy state." - Further, the privity had to be of an individual who was identi­fied with the insured - See para­graphs 23 to 27 and 86 to 94.

Cases Noticed:

Mutual and Federal Insurance Co. v. Oud­tshoorn Municipality, [1985] 1 S.A. 419 (South Africa C.A.), refd to. [paras. 5, 44].

Carter v. Boehm (1766), 3 Burr. 1905, refd to. [paras. 5, 42].

Thomas v. Tyne and Wear SS Freight Insurance Association, [1917] 1 K.B. 938, refd to. [para. 16].

Standard Oil Co. of New York v. Clan Line Steamers, [1924] A.C. 100, refd to. [para. 22].

Ship Eurysthenes, Re, [1977] Q.B. 49, refd to. [paras. 24, 113].

Ship Gloria, Re (1935), 54 Ll. L.R. 35, refd to. [paras. 26, 114].

Pan Atlantic Insurance Co. et al. v. Pine Top Insurance Co., [1995] 1 A.C. 501; 171 N.R. 81 (H.L.), refd to. [para. 42].

Pawson v. Watson (1778), 2 Cowp. 786 (K.B.), refd to. [para. 42].

Bates v. Hewitt (1867), L.R. 2 Q.B. 595, refd to. [para. 43].

Britton v. Royal Insurance Co. (1866), 4 F. & F. 905 (N.P.), refd to. [paras. 44, 103].

Dalglish v. Jarvie (1850), 2 Mac. & G. 231 (Ch.), refd to. [para. 44].

Bell v. Lever Brothers, [1932] A.C. 161, refd to. [para. 45].

Banque Keyser Ullmann S.A. v. Skandia (U.K.) Insurance Co., [1990] 1 Q.B. 665 (C.A.), affd. [1991] 2 A.C. 249; 199 N.R. 382 (H.L.), refd to. [para. 46].

London Assurance v. Mansel (1879), 11 Ch. D. 363, refd to. [para. 47].

Cantiere Meccanico Brindisino v. Janson, [1912] 3 K.B. 452, refd to. [para. 47].

Overseas Commodities Ltd. v. Style, [1958] 1 Lloyd's Rep. 546, refd to. [paras. 48, 81].

Bank of Boston Connecticut v. European Grain and Shipping Ltd., [1989] A.C. 1056 (H.L.), refd to. [para. 50].

Chandris v. Argo Insurance Co., [1963] 2 Lloyd's Rep. 65, refd to. [para. 50].

Lishman v. Northern Maritime Insurance Co. (1875), L.R. 10 C.P. 179, refd to. [para. 54].

Cory v. Patton (1872), L.R. 7 Q.B. 304, refd to. [paras. 55, 96].

Niger Co. v. Guardian Assurance Co. (1922), 13 Ll. L.R. 75 (H.L.), affing. (1921), 6 Ll. L.R. 239, refd to. [paras. 56, 97].

Bank of Nova Scotia v. Hellenic Mutual War Risk Association (Bermuda), [1988] 1 Lloyd's Rep. 514, refd to. [para. 56].

New Hampshire Insurance Co. v. MGN Ltd., [1997] L.R.L.R. 24, refd to. [paras. 56, 101].

NSW Medical Defence Union v. Transport Industries Insurance Co. (1985), 4 N.S.W.L.R. 107, refd to. [paras. 56, 100].

Probatina Shipping v. Sun Insurance, [1974] Q.B. 635, refd to. [para. 58].

Leon v. Casey, [1932] 2 K.B. 576, refd to. [para. 58].

Twizell v. Allen (1839), 3 M. & W. 337 (Ex. Ct.), refd to. [para. 59].

Henderson v. Underwriting & Agency Association Ltd., [1891] 1 Q.B. 557, refd to. [para. 59].

Village Main Reef Gold Mining Co. v. Stearns (1900), 5 Com. Cas. 246, refd to. [para. 59].

Boulton v. Houlder Brothers Co., [1904] 1 K.B. 784, refd to. [para. 59].

Goldschmidt v. Marryat (1809), 1 Camp. 559 (N.P.), refd to. [para. 60].

Graham Joint Stock Shipping v. Motor Union Insurance Co., [1922] 1 K.B. 563, refd to. [para. 60].

Beresford v. Royal Insurance Co., [1937] 2 K.B. 197, refd to. [para. 62].

Goulstone v. Royal Insurance Co. (1858), 1 F. & F. 276 (N.P.), refd to. [para. 63].

Orakpo v. Barclays Bank Insurance Ser­vices, [1995] LRLR 443 (C.A.), refd to. [paras. 65, 104].

Reid & Co. v. Employers' Accident and Livestock Insurance Co. (1899), 1 F. (Ct. of Sess.) 1031 (Scot.), refd to. [para. 65].

Galloway v. Guardian Royal Exchange (UK) Ltd., [1999] Lloyd's Rep. IR 209 (C.A.), refd to. [paras. 67, 104].

Lek v. Mathews (1927), 29 Ll. L.R. 141, refd to. [para. 67].

Royal Boskalis Westminster NV v. Moun­tain, [1997] LRLR 523, refd to. [paras. 68, 107].

Ship Michael, Re, [1979] 2 Lloyd's Rep. 1 (C.A.), refd to. [paras. 70, 104].

Ship Litsion Pride, Re, [1985] 1 Lloyd's Rep. 437, refd to. [paras. 71, 81].

SS Blairmore Co. v. Macredie, [1898] A.C. 593, refd to. [para. 74].

Polurrian SS Co. v. Young (1913), 19 Com Cas. 143, refd to. [para. 74].

Rego v. Connecticut Insurance Placement Facility (1991), 593 A.2d 491 (Conn. Sup. Ct.), refd to. [paras. 75, 83].

CTI v. Oceanus - see Container Transport International Inc. v. Oceanus Mutual Underwriting Association.

Container Transport International Inc. v. Oceanus Mutual Underwriting Associa­tion, [1984] 1 Lloyd's Rep. 476 (C.A.), refd to. [para. 79].

Liberian Insurance Agency Inc. v. Mosse, [1977] 2 Lloyd's Rep. 560, refd to. [para. 81].

Phoenix General Insurance Co. of Greece SA v. Halvanon Insurance Co., [1985] 2 Lloyd's Rep. 599, refd to. [para. 81].

Compagnie Financiere et Commerciale du Pacifique v. Peruvian Guano Co. (1882), 11 Q.B.D. 55, refd to. [para. 109].

Jones v. Gordon (1877), 2 App. Cas. 616, refd to. [para. 112].

Statutes Noticed:

Marine Insurance Act (U.K.), 1906, sect. 17 [para. 18]; sect. 39(5) [para. 15].

Authors and Works Noticed:

Blackstone's Commentaries (4th Ed. 1876), vol. 2, c. 30, pp. 412, 413 [para. 5].

Clarke, Malcolm A., Law of Insurance Contracts (3rd Ed. 1997), p. 746 et seq. [para. 64].

Halsbury's Laws of England (4th Ed. Reissue) (1994), vol. 25, p. 284, para. 492 [para. 62].

MacGillivray's Insurance Law (9th Ed. 1997), para. 19-59 [para. 4].

Millner, M.A., Fraudulent Non-Disclosure (1957), 76 S.A.L.J. 177, pp. 188, 189 [para. 5].

Smith, T.B., A Short Commentary on the Law of Scotland (1962), p. 836 [para. 5].

Welford and Otter-Barry's Fire Insurance (4th Ed. 1948), p. 289 et seq. [para. 62].

Counsel:

Gordon Pollock, Q.C., and David Foxton, for the appellants;

Jonathan Sumption, Q.C., and Stephen Hofmeyr, Q.C., for the respondent.

Agents:

Ince and Co., for the appellants;

Hill Taylor Dickinson, for the respondent.

This appeal was heard on October 9-12, 2000, by Lord Steyn, Lord Hoffmann, Lord Clyde, Lord Hobhouse of Woodborough and Lord Scott of Foscote of the House of Lords. The decision of the court was delivered on January 18, 2001, and the following opinions were filed:

Lord Steyn - see paragraph 1;

Lord Hoffmann - see paragraph 2;

Lord Clyde - see paragraphs 3 to 8;

Lord Hobhouse of Woodborough - see paragraphs 9 to 80;

Lord Scott of Foscote - see paragraphs 81 to 120.