1914 Dec. 15

3PLR/1915/4 (HL)



[1915] 1 A.C. 499 









Gordon Hewart, K.C. (with him Silvain Mayer, K.C., D. Owen Evans, and W. A. Barton), for the appellant.

B. Matthews, K.C. (Holman Gregory, K.C., and P. B. Durnford with him), for the respondents.

Solicitors for appellant: Fielder, Jones & Harrison, for C. T. Rhodes & Son, Halifax.

Solicitors for respondents: Andrews, Ogilvie & Fisher



INSURANCE AND REINSURANCE: Fire Insurance – Policy – Arbitration Clause as to Amount of Claim – Condition Precedent to Action – Repudiation going to Root of Contract – Waiver.

ALTERNATIVE DISPUTE RESOLUTION: Insurance agreement – Arbitration clause – when inserted and asserted as a condition precedent – attitude of court thereto




A claim was made for indemnity for the loss of goods by fire under a policy the conditions of which provided (1.) that if the claim were fraudulent or if the loss were occasioned by the wilful act or with the connivance of the insured all benefit under the policy should be forfeited, and (2.) that if any difference arose as to the amount of any loss such difference should, independently of all other questions, be referred to arbitration, and that it should be a condition precedent to any right of action upon the policy that the award of the arbitrator or umpire of the amount of the loss if disputed should be first obtained. The insurance company repudiated the claim in toto on the ground of fraud and arson:-


Held, that the repudiation of the claim on a ground going to the root of the contract precluded the company from pleading the arbitration clause as a bar to an action to enforce the claim.


Scott v. Avery (1856) 5 H. L. C. 811 distinguished.


Decision of the Court of Appeal reversed.


APPEAL from a decision of the Court of Appeal reversing a judgment of Darling J. The appellant and Mitri Mahli, since deceased, carried on business as hardware merchants at Port Limon in the Republic of Costa Rica, and they had insured their stock in trade on the premises against loss by fire with the respondents and several other companies. The policies effected with the respondents contained the following conditions.

“XII.   If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the insured or any one acting on his behalf to obtain any benefit under this policy; or if the loss or damage be occasioned by the wilful act, or with the connivance of the insured; … or if the claim be made and rejected and an action or suit be not commenced within three months after such rejection, or (in case of an arbitration taking place in pursuance of condition XVII. of this policy) within three months after the arbitrator or arbitrators or umpire shall have made their award, all benefit under this policy shall be forfeited.”

“XVII. If any difference arises as to the amount of any loss or damage such difference shall independently of all other questions be referred to the decision of an arbitrator, to be appointed in writing by the parties in difference, or if they cannot agree upon a single arbitrator, to the decision of two disinterested persons as arbitrators, of whom one shall be appointed in writing by each of the parties within two calendar months after having been required to do so in writing by the other party. In case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipt of notice in writing requiring an appointment, the other party shall be at liberty to appoint a sole arbitrator; and in case of disagreement between the arbitrators, the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meetings. The death of any party shall not revoke or affect the authority or powers of the arbitrator, arbitrators or umpire respectively; and in the event of the death of an arbitrator or umpire another shall in each case be appointed in his stead by the party or arbitrators (as the case may be) by whom the arbitrator or umpire so dying was appointed. The cost of the reference and the award shall be in the discretion of the arbitrator, arbitrators or umpire making the award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall be first obtained.”


On April 20, 1910, the premises of the appellant’s firm at Port Limon and the goods thereon were destroyed by fire.


Immediate notice of the loss was given by the firm to the respondents and the other offices with whom they were insured.


After a long correspondence with a view to settling the claim of the appellant’s firm and proving the amount of the loss, on November 8, 1910, the agent of the appellant’s firm in Manchester wrote to the respondents, who were acting on behalf of all the insurance companies, a letter in which he fixed the claim of the firm at 62501.


The respondents’ solicitors replied on November 18: “You are, of course, aware that your correspondents in Costa Rica were tried for arson in respect of the fire out of which this claim arises, and although upon appeal the judge held that the charge was not proven, we have been compelled to advise our clients that the circumstances are such that they ought not to admit the claim contained in your letter.”


After some farther correspondence the respondents’ solicitors definitely informed the appellant’s then solicitors that the letter of November 18 was to be taken as a total rejection of the claim.


Thereupon the claimants commenced actions against the several companies to enforce their claim, but all the actions except that against the respondents were stayed, the parties agreeing to be bound by the result of that action.


By their defence the respondents pleaded that the plaintiffs’ claim was fraudulent, in that the amount claimed was grossly in excess of the value of the goods; that the plaintiffs set fire to their premises or connived at their being set on fire; and that the plaintiffs had not complied with condition XVII., and that it was a condition precedent to any right of action on the policy that an award of the amount of loss or damage if disputed should be first obtained.


The action was tried before Darling J. and a special jury. The jury found that the plaintiffs did not set fire to their premises or connive at their being set on fire, and that they did not make a fraudulent claim within condition XII., and they assessed the value of the goods at 3000l. Darling J. thereupon entered judgment for the plaintiffs for 543l. 2s. as being the proportion of the loss for which the respondents were responsible.


The respondents applied for judgment or a new trial on several grounds, and among others on the ground that the judge was wrong in law in holding that the action was maintainable having regard to the provisions of condition XVII.

The Court of Appeal (Vaughan Williams, Farwell, and Kennedy L.JJ.) held that the action could not be maintained, on the ground that there had been no arbitration to assess the amount of damage.


The appeal to this House was originally opened in July last before a differently constituted House, but after some argument the hearing was adjourned indefinitely to enable the respondents to adduce further evidence.


  1. Dec. 14, 15.


Gordon Hewart, K.C. (with him Silvain Mayer, K.C., D. Owen Evans, and W. A. Barton), for the appellant.

The point was never reached at which it could be said that there was an effective dispute as to amount. The respondents repudiated the claim in toto on the ground of fraud and arson; therefore any inquiry as to damages would be futile. The respondents by agreeing to treat the action as a test action in respect of the matters in dispute between the insured and all the insurance companies concerned have waived any right they might otherwise have had under condition XVII. Further, if they had intended to rely upon that condition they ought to have applied for a stay of proceedings under s. 4 of the Arbitration Act, 1889, and they are now estopped from contending that arbitration under condition XVII. is a condition precedent to a right of action under the policies.


[He was stopped.]


  1. B. Matthews, K.C. (Holman Gregory, K.C., and P. B. Durnford with him), for the respondents.

It is a term of the contract that no action shall be brought on the policy until the dispute as to the amount has been referred to arbitration. The clause expressly provides that the difference shall be referred “independently of all other questions.” This is similar to the arbitration clause which was held to be pleadable in bar in Scott v. Avery. (1) Here there was a difference as to the amount before the repudiation, and there having been a difference it cannot be wiped out by a claim going to the root of the contract unless that difference has been adjusted.


[VISCOUNT HALDANE L.C. In Municipal Council of Johannesburg v. D. Stewart & Co. (1902) (2) Lord Shaw says: “It does not appear to me to be sound law to permit a person to repudiate a contract and thereupon specifically to found upon a term in that contract which he has thus repudiated.”]


In that case the arbitration clause was purely collateral: the award of the arbitrator was no part of the cause of action. Here the quantification of the amount is a condition precedent to any cause of action, and if under such a contract it is to be said that the clause does not apply where the insurance company sets up fraud or arson, is not that tearing up the contract? Trainor v. Phoenix Fire Assurance Co. (3) shows that this question is not affected by the fact that a charge of fraud is made against the assured. There is no conflict between conditions XII. and XVII. The respondents are not repudiating the contract but are asserting that the conditions of the contract give them a defence. Repudiation of a claim under the contract is not the same thing as repudiation of the contract. The respondents’ repudiation is based on the stipulations of the contract itself. It is not open to the appellant at this stage of the proceedings to contend either that the condition has been waived or that no difference has arisen as to the amount. Both those are questions of fact for the jury, but neither of those questions was submitted to the jury. If the appellant intended to rely on either of those points he should have asked to have them left to the jury.





My Lords, I believe your Lordships are unanimously of opinion that this case ought to be disposed of upon the preliminary point. Shortly described, the nature of the question was this: The appellants, who were plaintiffs in the action in the Court below, took out various policies of insurance with insurance companies, of whom the respondents were one, and it has been agreed that, as these policies were substantially in the same form, the present action should be taken as a test action and should dispose of the claims under them.


My Lords, the insurance was over property at Costa Rica, and the form of the policy was a policy over stock of textiles and hardware or other non-hazardous merchandise the property of the insured on the premises of a certain store at a certain place in Port Limon in Costa Rica; and the insurance under the particular policy sued on, the policy which was taken as a test case, was for 800l. Then there were certain conditions, and two of them are of importance. [His Lordship read conditions XII. and XVII.]


Now, my Lords, what happened was this. There was a loss occasioned by fire at Port Limon; the appellants made a claim under the policy and the respondents took up the ground that the loss was caused by the felonious acts of the appellants. They charged arson, and they said that the claim was a fraudulent claim. That was obviously a case which, if made out, went to the very root of the matter, because clause 12 of the policy which I have read says that if the claim was fraudulent or the damage was occasioned by any wilful act then all benefit under the policy is to be forfeited; and that attitude is again formally taken up by the respondents, because when the action was brought by the appellants on which this appeal arises the respondents in their defence took this ground, that they maintained that the appellants were not entitled to claim under the policy.


Now, my Lords, no doubt it is true that the policy contains an arbitration clause with a very stringent addition to it, to the effect that the going to arbitration is a condition precedent to the right to sue; and if that had been all, – if the action had been brought upon a policy containing such a clause and no more had happened, – then, on principle and on authority, the claim could not have been maintained without fulfilling the condition precedent; because by the law of this country you can make most contracts which you desire, and, among others, a contract that you will not come under liability under a contract unless that liability is defined in a particular way, it may be by an arbitrator. Scott v. Avery (1) is a decision of this House to the effect that that is the law. But in Scott v. Avery (1) the action was brought upon a contract containing such a clause, and to the declaration a plea was put in raising this term of the contract: that the action could not be maintained because the plaintiff had contracted that he should have no cause of action unless there had been a previous arbitration. On that the plea was demurred to, and this House, after consulting the judges, who differed very much in opinion, ultimately decided that the demurrer was not a good demurrer, that the plea was a good one, and that the action could not be maintained. That was in effect a decision upon the demurrer. But the present case, as I have already pointed out, is different; there has been in the proceedings throughout a repudiation on the part of the respondents of their liability based upon charges of fraud and arson, the effect of which, if they are right, is that all benefit under the policy is forfeited. But one of the benefits is the right to go to arbitration under this contract, and to establish your claim in a way which may, to some people, seem preferable to proceeding in the Courts; and accordingly that is one of the things which the appellants have, according to the respondents, forfeited with every other benefit under the contract.


Now, my Lords, speaking for myself, when there is a repudiation which goes to the substance of the whole contract I do not see how the person setting up that repudiation can be entitled to insist on a subordinate term of the contract still being enforced. As I have said, this is not like the case of Scott v. Avery (1); it is a case under which the consequences with which we are dealing arise from the established fact of repudiation. When the case went to trial it was heard before Darling J. and a special jury, and the jury found that the case of fraud and arson had broken down; they found for the plaintiffs upon those issues, and the learned judge gave judgment, not that the case should go to arbitration, but for 3000l.; and I think that was probably right, the arbitration clause having gone with the repudiation. The respondents appealed to the Court of Appeal on two grounds: first that the arbitration clause was a bar to the action, and secondly for a new trial on the ground that the verdict was against the weight of evidence, and also on the ground that there was further evidence which ought to be taken into account. The second ground was sought to be made good on a notice of motion, which, I gather, was out of time, but which, under special circumstances, it was hoped that the Court of Appeal would none the less give leave to entertain.


My Lords, the Court of Appeal has never disposed of the motion for a new trial on either of the grounds which I have indicated; it has only disposed of the case on the footing that the arbitration clause is a bar, a conclusion which, for the reasons I have already assigned, I am unable to concur in. I am therefore of opinion that the judgment of the Court below must be reversed and that this case should go back to be disposed of by the Court of Appeal on the motion for a new trial; and I think that the most convenient form in which to put our judgment will be this: to reverse the order which set aside the judgment of Darling J., without prejudice to any application that the respondents may make to the Court of Appeal with a view to restoring and disposing of the notice of appeal which relates to the new trial; that any possible proceedings under Darling J.’s judgment should be stayed for a month with a view to such application; and also that the respondents should pay the costs here and, I think, in the Court of Appeal also.


My Lords, I move accordingly.




My Lords, I concur. I certainly have not the slightest idea that in pronouncing the judgment we are about to give we are in the faintest way throwing any doubt upon the decision of this House in Scott v. Avery. (1) That decision of Scott v. Avery (1) was again upheld by this House in the more recent case of Caledonian Insurance Co. v. Gilmour (2), where the Lord Chancellor (Lord Herschell) puts the matter in a single sentence when he says that the question is “whether where the only obligation created is to pay a sum ascertained in a particular manner, where, in other words, such ascertainment is made a condition precedent to the obligation to pay, the Courts can enforce an obligation without reference to such ascertainment.” Personally I should rather like to reserve my opinion as to what would have been the effect if the respondents, instead of pleading as they did, had pled in this way: “We will allow this question to be disposed of at law by a jury as to whether there was fraud and arson or not,” and had gone on to say, “but in the event of that being negatived we wish this ascertainment of actual damage to be ascertained by arbitration.” I should like to reserve my opinion on whether they might have said so with effect.


My Lords, the very clear argument of Mr. Matthews tried to make out that if he once showed that at a certain time in Costa Rica a certain difference had arisen, then that brought into full operation and effect the condition precedent in clause 17 as applicable to all suits. My Lords, I do not think that view can be maintained, because clause 17 provides for the case of a difference arising as to the amount of loss, and then says that it shall be a condition precedent to any right of action or suit on the policy that the award of such arbitrator, and so on, of the amount of loss or damage, if disputed, shall be first obtained. I think it is perfectly clear that that article necessarily refers to an existing difference, not an historical difference; and it seems to me that when the attitude was taken up by these parties, which was taken up in the letters which have been read to us which the Lord Chancellor has referred to, in England, – that they repudiated the claim altogether and said that there was no liability under the policy, – that necessarily cut out the effect of clause 17 as creating a condition precedent against all forms of action. I therefore concur in the motion which has been made by my noble and learned friend on the woolsack.




My Lords, I concur on this short ground. I think that article 17 refers to existing disputes and differences about the amount of loss sustained, and in a contract such as this I do not think that article has any application whatever when the persons to indemnify say “You yourself brought about the destruction of the goods which were insured for the loss of which you claim to be indemnified, and we rely upon an article which provides that in that state of circumstances all benefit under the policy is forfeited.” I therefore think the order should be made which has already been suggested by noble and learned friend on the woolsack.



My Lords, I concur.



My Lords, I concur. The respondents raised an issue on which, if they had succeeded, the appellant would have forfeited all benefit under the policy, including the benefit that would have been derived under clause 17 of the policy. At the same time I should like to express my opinion that no difference had arisen as regards matters which could come for decision under clause 17, and that consequently the clause had no application.


Order of the Court of Appeal reversed and judgment of Darling J. restored without prejudice to any application which may be made to the Court of Appeal with a view to restoring and disposing of the notice of appeal so far as concerns the other grounds not entertained on the previous occasion, and any possible proceedings under the judgment of Darling J. to be stayed for one month with a view to such application being made. The respondents to pay the costs in the Court of Appeal and also the costs of the appeal to this House.


Lords’ Journals, December 15, 1914.


[1915] A.C. 499


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