3PLR – M H SMITH (PLANT HIRE) LTD V. D L MAINWARING (T/A INSHORE)
POLICY, PRACTICE & PUBLISHING LAW REPORTS, 3PLR
M H SMITH (PLANT HIRE) LTD
V.
D L MAINWARING (T/A INSHORE)
COURT OF APPEAL, CIVIL DIVISION
[1986] 3 ALL E.R. 342
9 JUNE 1986
3PLR/1985/53 (CA-E)
BEFORE THEIR LORDSHIPS
O’CONNOR, KERR LJJ,
SIR DAVID CAIRNS
BETWEEN
M H SMITH (PLANT HIRE) LTD
AND
D L MAINWARING (T/A INSHORE)
REPRESENTATION
CHARLES HOLLANDER – for the defendants
WYN WILLIAMS – for the plaintiffs
Solicitors: Stitt & Co, agents for D O Thomas & Co, Swansea (for the defendants);
Hugh James Jones & Jenkins, Cardiff (for the plaintiffs).
Bebe Chua Barrister.
MAIN ISSUES
INSURANCE AND REINSURANCE LAW:- Right of subrogation of insurance company – Meaning of – Basis of in equity – Principle that the right of subrogation enables insurers to be able to compel the assured to bring an action against a wrongdoer in respect of the loss for which they have indemnified the assured, or they may themselves simply sue in the name of the assured – Whether the right of subrogation does not have the effect of transferring to the insurers any cause of action which the assured may have against the wrongdoer except by a legal assignment to the insurers – Legal effect for a company that has wound up – Whether insurers can successfully apply to be substituted for the company – Companies Act 1985, ss 651, 654. In review
INSURANCE AND REINSURANCE LAW:- Right of subrogation of insurance company – Where insured person refuses to bring the action or to allow insurer sue in their name in respect of the loss for which they have already indemnified the insured – How insurers may validly bring the suit – Need for the insurers to join the assured in bringing an action against the debtor or assured
COMPANY AND CORPORATE LAW – WINDING UP:- Legal effect for right of action and subrogation – Need for a party relying on the right of action of a company that has wound up to apply to have the company restored to the register of companies – s. 654 of the Companies Act, 1985
DEBTOR AND CREDITOR:- Recovery of pecuniary claim against a wrongdoer or judgment debtor for a loss indemnified by an insurance company – Options available to the insurance company – Right of subrogation – Limits of – Legal assignment – When necessary – Option where insured has been wound up
ETHICS – LEGAL PRACTITIONER:- Bringing a suit in the name of a party that has legally ceased to exist – Attitude of court thereto – Order for legal practitioner to pay cost of litigation of solicitor of the other party
TRANSPORTATION AND LOGISTICS – BOAT HIRER:- Sinking of boat hired to transport a machinery (dumper) across a river – Claim for damages for negligent operation of boat – Where sunk machinery was insured – Right of insurers to claim against boat operators for indemnified loss – Basis and extent of
PRACTICE AND PROCEDURE – ACTION:- Exercise of the right of subrogation – Limits of – Whether extends to a wound up company – How an insurance company can secure an action from a third party wrongdoer/debtor with a reluctant but indemnified insured person
PRACTICE AND PROCEDURE – COURT:- When will order solicitor of losing party to pay the cost of litigation to the winning side
HISTORY AND SUMMARY
A dumper belonging to the plaintiff company was lost when the boat which the plaintiff company had hired from the defendants sank when the dumper was loaded into it. The dumper was insured and the insurers paid out on the plaintiff company’s claim in respect of its loss. The insurers then commenced proceedings in the name of the plaintiff company against the defendants, claiming that the boat sank and the dumper was lost due to their negligence. However, before the action was commenced the plaintiff company had been dissolved. An application was made for leave to substitute the insurers as plaintiffs and the defendants applied to have the action struck out. The registrar made an order substituting the insurers as plaintiffs. On appeal the judge set aside that order, and ordered the action to proceed as originally constituted. The defendants appealed.
Held – Appeal allowed.
Although the insurers by their right of subrogation were entitled to bring an action against the defendants in the name of the plaintiff company, that right did not have the effect of transferring the cause of action to the insurers. The insurers could only bring an action in their own name if they had taken an assignment of the cause of action from the assured which had not been done in this case. On the facts, when the plaintiff company was dissolved, it became a non-existent party and thus there was no party in whose name any action could be started. It followed that the insurers were not entitled to bring an action against the defendants in the name of the non-existent plaintiff company. Accordingly the judge had erred in law and the order would be struck out.
Cases referred to in judgment
Castellain v Preston (1883) 11 QBD 380.
Compania Colombiana de Seguros v Pacific Steam Navigation Co [1964] 1 All ER 216, [1965] 1 QB 101, [1964] 2 WLR 484.
Cousins (H) & Co Ltd v D & C Carriers Ltd [1971] 1 All ER 55, [1971] 2 QB 230, [1971] 2 WLR 85, CA.
Mason v Sainsbury (1782) 3 Doug KB 61, 99 ER 538.
Morris v Ford Motor Co [1973] 2 All ER 1084, [1973] 1 QB 792, [1973] 2 WLR 843.
Randall v Cockran (1748) 1 Ves Sen 98, 27 ER 916, LC.
Yates v Whyte (1838) 4 Bing NC 272, 132 ER 793.
Appeal
DL Mainwaring (T/A Inshore) (the defendants) appealed against the order of his Honour Judge Michael Evans QC dated 9 January 1986 whereby he allowed the appeals of the defendants and of the plaintiffs, MH Smith (Plant Hire) Ltd against the order of Mr Deputy Registrar Alan Jenkins dated 6 December 1985. The facts are set out in the judgment of O’Connor LJ.
MAIN JUDGEMENT
9 June 1986. The following judgments were delivered.
O’CONNOR LJ.
In 1980 a company known as M H Smith (Plant Hire) Ltd hired a boat from the defendants in order to transport a dumper on the River Llwchwer in South Wales. Unfortunately when the dumper was loaded into the boat it sank. The British Engine Insurance Co insured the dumper, and in due course they paid out the claim. They claimed that the boat had sunk as a result of the negligence of the defendants, their servants or agents, and in July 1985 they began an action against the present defendants in the name of their assured. Unfortunately the company, M H Smith (Plant Hire) Ltd, had been wound up and finally dissolved in March 1985 so that it did not exist at the date of the particulars of claim. This was not immediately known to anybody, apparently, at the time. There was an authority to the insurers to take proceedings in the name of the assured dated July 1984, and I have no doubt that the solicitors, in perfectly good faith, issued the proceedings as a result of that authority in the name of the assured. They did not inquire or know that the company no longer existed. So too as far as the defendants were concerned. They delivered a defence and counterclaim, and it was only in November 1985 that they discovered that the company had been wound up. Thereafter the plaintiffs applied to the court for leave to substitute the insurers as plaintiffs. The defendants applied to the court to have the action struck out and for the solicitors to be ordered to pay the costs, as is the rule, because (this is nothing to do with good faith or otherwise) they must be deemed to have launched proceedings without any instructions.
Those matters came first of all before the registrar, and the registrar made an order substituting the insurers as plaintiffs. An appeal was made to the judge, who came to the conclusion that the argument addressed to him by counsel for the plaintiffs (Mr Williams) was well founded, namely that this was only a matter of form and it did not really matter what name the claim was brought in. He ordered that both the summons to strike out and the summons to substitute the insurers as plaintiffs should be dismissed and that the action should go forward as originally constituted. Against that order the defendants appeal.
In my judgment the judge fell into error in this case. It has long been the law, where insurers have paid a claim, that they stand in the shoes of the assured in order to recover anything which is relevant to that claim. The law has long been that subrogation entitles the insurers to bring an action in the name of the assured against the wrongdoer to recover anything that is recoverable. The reason for that is that the right of action is vested in the assured. The cases show that an action can be brought by the insurer in its own name where it has taken a legal assignment of the cause of action from the assured. That has not been done in the present case. Thus the insurers were entitled to instruct solicitors to bring this action in the name of their assured as long as the assured existed, but in March of 1985 the assured ceased to exist when the company was dissolved. There was no company in whose name any action could be started. In my judgment that has got nothing to do with the right of subrogation. It is a straightforward statement that a non-existent party cannot be party to an action.
Nothing in the law of subrogation will save that situation. We have been referred to a number of cases, starting with Mason v Sainsbury (1782) 3 Doug KB 61, 99 ER 538 through Yates v Whyte (1838) 4 Bing NC 272, 132 ER 793 down to Morris v Ford Motor Co [1973] 2 All ER 1084, [1973] 1 QB 792 where Lord Denning MR reviewed the authorities on subrogation. They make it quite clear, as Lord Denning said ([1973] 2 All ER 1084 at 1089-1090, [1973] 1 QB 792 at 800-801)
`Where an insurer – or any other person who enters into a contract to indemnify another – pays the amount of the loss or damages to the insured, he is entitled to the advantages of every right of action of the assured, whether in contract or in tort, which may go in diminution of the loss: see Castellain v Preston [(1883) 11 QBD 380, [1881-85] All ER Rep 493] and H Cousins & Co Ltd v D & C Carriers Ltd [[1971] 1 All ER 55, [1971] 2 QB 230]. This entitlement, too, does not depend on the contract itself but on the `plainest equity’. At any rate, Lord Hardwicke LC said so: see Randall v Cockran [(1748) 1 Ves Sen 98] as explained in Yates v Whyte [(1838) 4 Bing NC 272 at 283]. But this entitlement does not amount to an assignment of the right of action. It does not entitle the insurer or the indemnifier to sue in his own name a wrongdoer who has caused the loss or damage … I should say, for sake of completeness, that if the insured assigns his right of action to the insurers and notice of the assignment is given to the wrongdoer, the insurer can now sue in his own name: see Compania Colombiana de Seguros v Pacific Steam Navigation Co [[1964] 1 All ER 216, [1965] 1 QB 101].’ (Lord Denning MR’s emphasis)
Counsel for the respondents further sought to escape from the difficulty by reference to the provisions of the Companies Act 1985. Where a company has been dissolved, s 651 provides:
`(1) … the court may at any time within 2 years of the date of the dissolution, on an application made for the purpose by the liquidator of the company or by any other person appearing to the court to be interested, make an order, on such terms as the court thinks fit, declaring the dissolution to have been void.
(2) Thereupon such proceedings may be taken as might have been taken if the company had not been dissolved.’
Thus there was machinery available to the insurers to apply to the court under s 651 of the Companies Act 1985 for the company to be revived. That they have not done.
Counsel for the respondents submitted that the effect of s 654, the headnote to which section says that the property of dissolved companies is to be bona vacantia, shows that this right of action vested in the Crown, and he has submitted that that is the equivalent situation to that which might exist where a natural person dies and personal representatives have been appointed.
This matter was never argued below. In my judgment whether it be right or wrong, and I express no opinion about it, it cannot possibly save the present proceedings. The reason for that is that no application has been made to the Crown for permission to bring the action in the name of the Crown, nor is this a case where there is any instruction to join the Crown as the defendant, and in my judgment it cannot possibly save these proceedings, whatever those rights may be. They are entirely novel. There is no authority on this topic, and for my part I am satisfied that whatever may be the true position under s 654 of the 1985 Act, it cannot save the present proceedings. I would allow this appeal and order that the action be struck out and that the solicitors be ordered to pay the costs.
KERR LJ.
I agree. It must be borne in mind that the right of subrogation which is acquired by insurers on payment of a claim is no more than an equitable right against their assured. The effect of that right is that they may be able to compel the assured to bring an action against a wrongdoer in respect of the loss for which they have indemnified the assured, or they may themselves simply sue in the name of the assured. But the right of subrogation does not have the effect of transferring to the insurers any cause of action which the assured may have against the wrongdoer. Such transfer can only be effected by a legal assignment to the insurers, as happened in Cia Colombiana de Seguros v Pacific Steam Navigation Co [1964] 1 All ER 216, [1965] 1 QB 101 mentioned by Lord Denning MR in the passage cited by O’Connor LJ. Alternatively, if the insurer encounters difficulty in persuading the assured to bring the action in respect of the claim for which he has indemnified him, or if he refuses to allow his name to be used, then he can join him in the action in order to compel him to do so, in the same way as the holder of an equitable assignment can bring an action against the debtor or wrongdoer by joining the assignor. If the assignor or, as in this case, the assured is no longer in existence, because the company has been dissolved, then unfortunately for the insurer none of those things can be done by him, since he himself has no cause of action against the wrongdoer. All that he can do, as O’Connor LJ has said, leaving aside the novel suggestion made in relation to s 654 of the Companies Act 1985, is to apply to have the company restored to the register. To contend, as counsel for the insurers suggested, that the problem is only one of form and not substance, is as untenable in the present state of the law as it would be in relation to the different consequences of an equitable, as opposed to legal, assignment.
I agree that this appeal must be allowed.
SIR DAVID CAIRNS.
I agree that the appeal must be allowed for the reasons given in the two judgments already delivered.
Appeal allowed with costs.
