HASSAN MOUSA v. PHOENIX ASSURANCE CO.

(HIGH COURT)

HASSAN MOUSA v. PHOENIX ASSURANCE CO.

HC-CS-642-1958-

Principles

· Arbitration—Stay of proceedings to allow for arbitracion—Court will not order stay on one party’s application where proceedings have reached paint where stay would be unfair

· Insurance—” Basis” clause in policy—Truth of insured’s statements in proposal is condition precedent of insurer’s liability

· Insurance—Road traffic insurance—Asses of value of written-off car—insurer liable only for market value

· Insurance—Road traffic insurance—Repair of insured car arranged by insurer— Insurer acts as agent of car owner and must obey his instructions

Plaintiff’s car, insured with defendant company, was damaged in a crash.Defendants took it to a garage to be repaired, but plaintiff cabled defendants that they should stop the repairs and do nothing without plaintiff’s instructions.Defendants stopped the repairs and the car was simply left in the garage and eventually sold as scrap upon dissolution of the garage firm’s partnership, Plaintiff claimed from defendants the full value for which the car was insured. Defendants alleged that even if the car was a write-off, they were not bound to pay the full insurance value, but only the value the car had at the time ofthe crash.
In the course of negotiations defendants offered plaintiff a sum representing their assessment of the car’s value at the time of the crash in full settlement. which plaintiff rejected. Defendants then discovered that plaintiff had made a false statement in his proposal form, to the effect that no car owned by him had sustained an accident in the past three years, whereas in fact his previous car had been damaged while being driven by a fitter of that car’s service agents. The policy of insurance on the present car contained a “basis” clause making the truth of plaintiff’s statements in the proposal a condition precedent of any liability of defendants under the policy. Defendants therefore denied any liability to plaintiff, The policy contained an arbitration agreement, but plaintiff brought an action against defendants without reference to arbitration. Defendants at no time applied for stay of proceedings pending arbitration. Plaintiff sued defendants on the policy of insurance, ‘and for allowing the car to be sold as scrap.
Held: (i) An insurer who arranges for the repair of an insured car acts simply as the agent of the insured owner, and must. therefore obey the insured’s instructions regarding the repairs.
(ii) Where the insured orders the insurer to stop the repairs and gives no further instructions, the insurer is entitled to take no further action in respect of the car, and is not responsible if the car becomes lost or otherwise disposed of.
(iii) Where an insured car is written off in an accident, the insurer is liable for the value of the car at the time of the crash,
(iv) ‘Where a contract of insurance contains a “basis “. clause making the truth of statements in the insured’s proposal a condition precedent of the insurer’s liability, proof of an untrue statement in the proposal will be a complete defence to an action against the insurer on the policy, even though the statement is completely irrelevant to the present dispute and would have been ‘ irrelevant to the insurer’s decision to accept the proposal. The parties by their contract having deemed the statement material, the court cannot say that It is not material.
(v) A party should not be allowed to apply for stay of proceedings pending
arbitration where he has not filed the proper application in respect of the arbitration agreement as required by Civil Justice Ordinance 1929, s. 163; nor will such a stay be allowed on the application of one party where the proceedings have gone so far that a stay would be unfair and contrary to principle, Civil Justice Ordinance 1929, S. 164, notwithstanding.

Judgment

T. Cotran D.j March 10, 1960 :—On January 10. I955 plaintiff insured his motor-vehicle No. K—1973 with defendants’ company for a period which ended on December 31, 1955. As usual in motor policies of this nature, plaintiff filled in, or caused to be filled in, a proposal form (ExhibitA) The policy is Exhibit D) 9 and, the proposal and declaration are part of the policy, having been included therein by virtue of the “basis” clause appearing at the beginning of the policy. Plaintiff estimated the value of the car at the time of the insurance at £S.1.500.

On October 4, 1955. whilst the policy was still in force, plaintiff while driving on his way to Medani overturned the car. It was extensively damaged. Plaintiff informed defendants of the accident, and defendants sent one of their servants, with an assistant, to collect it. The car, though badly and extensively damaged, was brought under its own steam to the garage of Messrs. Stamatopoulos and Zafirellis, who undertook to repair it for £S.400 In doing so defendants were acting as agents of plaintiff and exercising their right under Clause 4 of the conditions in the policy. Repairs were started, but plaintiff, who was then on leave in Cairo, by letter (Exhibit D. 3) and by cable, ordered them to stop repairing the car. In his cable plaintiff said: “Stop repairing car at once. Previous communications warned you never touch car without written consent” (ExhibitD. 2)

Defendants, as I said, are not the owners of the car, but the insurers. They were ordered by plaintiff to stop repairing the car and they have done so. When plaintiff came back from leave some time in December 1955, he claimed that the car was a complete write-off, and that defendants should pay him the full insurance value, i.e., £S.1,500, This defendants refused to do. Many meetings took place between the parties. At one of those meetings a Mr. Acton from Mitchell, Coutts & Co. was called by defendants. In my opinion Mr. Acton was not called in to arbitrate and I believe him when he says he was asked by Mr. Haydon, defendants’ representative, as a friend, to give him an idea about the condition of the car. Mr. Acton has appeared before me as a witness. Unfortunately his memory was a little hazy about the details. I do not blame him, for the accident took place over four years ago. But what is certain is that Mr. Acton did not say that the car was repairable for £S.400. It is only Messrs. Stamato poulos and Zafirellis who thought they would be able to repair it for this price. Mr. Acton does not remember if he had advised defendants’ representative that the car was a write-off. Plaintiff alleges that the car was a complete write-off, but it is curious that he has not produced one single witness, apart from his own evidence, to say that the car was completely irrepairable. One of course understands the anxiety of car owners after their cars are smashed, and their attempts to get from their insurers full value, but insurance companies are business people and this in practice rarely happens. I can also understand plaintiff when he thinks that the car, when repaired, cannot possibly be put exactly in its former condition especially here in the Sudan where garages are not fully equipped. On the other hand if the insured thinks that his smashed car is completely irrepairable he must get evidence to that effect, and satisfy the court that he is right.

There is plenty of evidence, and indeed it is admitted by defendants’ witness (D.W. 2), that plaintiff was offered £S.1,100 but that this was turned down by him. In my opinion he was very badly advised in refusing this offer, because even if I hold in plaintiff’s favour (which I do not) that the car was a complete Write-off, he is not at all entitled to the whole value of the car. The car is a 1953 model and must have done several thousand miles since January 1, 1955. Furthermore in August 1955 the same car had an accident which necessitated repairs costing some £S.80 (Exhibit D. 7 (a), (b) and (c)). If the car, which was a 1953 model, was worth £S.1,500 in January 1955, in my opinion, it could not have been worth much more than £S.1,100-£s.1200— ten months later.

In Edney v. De Rougement (1927) 28 Lloyd’s Reports 215, the official referee gave a judgment in which he laid down the principles applicable and the method to be applied, in determining the loss: (1) the value of the car at the time of loss is to be calculated upon a basis of depreciation; (2) the rate of depreciation is to be ascertained by finding upon the evidence in each case what was the theoretical life of the car; (3) the depreciation for the first year (i.e., from the date it was bought by the assured) will be the rate percent. so found plus something in respect of the dealer’s commission on the car; (4) the depreciation for the last year will be the rate so found less the scrap value of the car at the end of its life; (5) the rate of depreciation is to be applied from year to year to the car’s value at the beginning of each year, and not yearly to its original cost.

In the result the official receiver held that an American car bought in February 1924 for £S.500 was at the time of its destruction by fire in December 1926 worth £S.255 In the same case it was held that the price for which a prospective purchaser would have bought the car was not a proper test. Further, the market price at which a car of similar make, type and year could be bought at the time of loss does not seem to be a fair test either. Shawcross, Motor Insurance 509 (2nd ed. 1949).

It might be interesting to see what has happened to plaintiff’s car. It was apparently left in Messrs. Stamatopoulos and Zaflrellis’ garage for a couple of years. Mr. Stamatopoulos and Mr. Zafirellis, in the meantime; quarrelled and their partnership was dissolved. Plaintiff’s car, which was really no more than scrap by that time, was sold as such by the liquidator of the partnership for some £S.55 to a Mr. Hanun. In my opinion, if it is necessary to decide the point, it is plaintiff who is responsible for the waste of the car and not defendants. It is his car after all, and not the company’s. Defendants, in transferring it to the garage, as I said, were simply acting’ as his agents. He has never ceased to be the owner. He has ordered them not to touch it” and they have done so. He has taken a chance. If the court held it was a complete write-off, then he would lose nothing, but if the court held it was repairable then, by completely forgetting about it or neglecting it, he has got only himself to blame.

I have said before that plaintiff was ill advised in refusing defendants’ offer of £S.1,100 I say this again because after they made the said offer defendants discovered that plaintiff had failed in his proposal form to disclose a previous accident to a car belonging to him which took place in April 1953. Plaintiff owned a Vauxhall car. It was given by plaintiff to Messrs. Sudan Mercantile for servicing or something of the sort, and whilst it was in the hands of Sudan Mercantile, one of their fitters drove it and smashed it. In the proposal form for the car, subject-matter of this case, plaintiff was asked the following question: “Give particulars of any accidents which have occurred to any car belonging to you or to your driver or any person allowed by you to drive, during the last three years.” Plaintiff answered “None.” Now of course, this answer was not the true answer and had it not been for the proposal form clause embodied in condition of the policy, I would have probably held that this non disclosure by plaintiff was not material because obviously he was in no way to blame for the accident; and even if he had disclosed it, it would not, in my opinion, have mattered to the insurance company because it would not have influenced the judgment of the prudent insurer in fixing the premium or determining whether he will take the risk”: Marine Insurance Act, 1906, s. 18 (2), and Yorkshire Insurance Co. v. Campbell [1917] A.C. 218.

One cannot help feeling a great amount of sympathy for plaintiff because defendants, apparently, now not only refused to write off the car and give plaintiff full value but repudiated their liability relying on Cause 9 of the conditions in the contract (Exhibit D. 9). Mr Hayden, the representative of defendants, has noted in red pencil on the proposal form “1953— £ S.200 not his fault—in hands of Sudan Mercantile,” which indicates that defendants did. not regard plaintiff as morally blameworthy in failing to disclose the accident; and one would hope that even at this late stage some ex gratia payment could be made.

I have briefly referred to the “proposal form clause” embodied in Clause 9 of the conditions in the contract. Clause 9 provides: “The due observance and fulfilment of the terms conditions and endorsements of this policy in so far as they relate to anything to be done or complied with by the insured and the truth of the statements and answers in the said proposal shall be a condition precedent to any liability of the Company to make any payment under this policy” [italics added]. The parties having agreed to make the truth of the answers in the proposal form a condition precedent to the nsurers’ liability, it follows that the question of the materiality or otherwise of the non-disclosure of a fact becomes irrelevant. “Where such a term appears in the contract of insurance, as is generally the case, it is well settled that the question of materiality in relation to any circumstance which is dealt with in the proposal form or the answers thereto becomes irrelevant. By making the truth of the matters stated a part of the contract, the insured and insurers are deemed mutually to agree that every circumstance therein included is a material circumstance in fact, in relation to which non-disclosure or misrepresentation will avoid the contract”: Glicksman v. Lancashire and General Assurance Co. [1925] 2 K.B. 593 and Condogianis v. Guardian Assurance Co. [1921] A.C.125

.The position with regard to this clause (Clause 9 of the policy) has been admirably summarised by Shawcross, Motor Insurance 625 (2nd ed. 1949) as follows:

1. Should the statements of the assured in the proposal form, specifically incorporated by the basis clause with and identified in the schedule of the policy depart to any extent from the truth, either by way of concealment or mis-statement, the insurers in reliance on this condition may repudiate liability to the assured.

2. The question of the substance or the materiality of the facts concealed or mistated is irrelevant in determining the rights of the insurers to repudiate under this condition.

3. The insurers are not by relying upon such a condition avoiding a liability which is incumbent upon them, the position in law being that since the conditions precedent to the insurers’ liability have not been satisfied, there is, and never has been any liability upon them.

4. The condition under review does not derogate from, but is supplemental to, the common law rights of the insurers to repudiate for non-disclosure or misrepresentation of a material fact.

Learned counsel for plaintiff has not pleaded, or taken up later, a point that appeared in the evidence which is of some interest.

There is evidence that though plaintiff signed the proposal form, he did not in fact fill it in himself but allowed the company’s servant to do so. Plaintiff said that he read the questions in the proposal form. He then said that he does not remember being asked about accidents made by others. Even if plaintiff’s answer is truthful it would not help him because it is obvious that the company’s servant was in fact writing down the answers given by plaintiff himself. If the law does not come to plaintiff’s rescue if he has signed the prnposal form without reading its contents, then, a fortiori, it does not help him if he has actually read them. “ In any case,” said Scrutton L.J. in Newsholme Brothers v. Road Transport and General Insurance Co. [1929] 2 K.B. 356 376 I have great difficulty in understanding how a man who has signed, without reading it, a document which he knows to be a proposal for insurance, and which contains state ments in fact untrue, and a promise that they are true, and the basis of the contract, can escape, from the consequences of his negligence by saying that the person he asked to fill it up for him is the agent of the person to whom the proposal is addressed.”

There is one final point which I would not have touched upon had there not been an issue framed covering it. This point relates to arbitration, and is referred to in issue 3. It is needless to say that that issue is completely irrelevant now. Plaintiff’s former suit, HC.CS-541-1957 (which he has abandoned) stated in the statement of claim that there was an arbitration according to Clause 8 of the contract. In this suit he alleges that he called upon defendants to arbitrate and they refused. It must be said in fairness to the company that there is not one iota of evidence to show that they refused to arbitrate. In any event if plaintiff wanted arbitration his learned counsel must have followed the proper procedure as laid down in Civil Justice Ordinance 1929, S. 163. At one time before writing this judgment, I thought I would stay the proceedings because, again to quote from Scrutton L.J. (Valle Jones v. Liverpool and London and Globe Insurance Co. (1933] 46 LI.L.R. 313, “It has long been settled that the courts approached the matter with the tendency to say that people who make agreements should keep them, and that when a man has agreed to refer a claim to arbitration, he ought not to go to court unless there is some overwhelming reason why he should not observe the terms of the contract.” But I am now convinced not only that it is unfair to everybody concerned to stay proceedings, but at this stage it would be contrary to the letter and spirit of Civil Justice Ordinance 1929, S. 164, and all principles relating to arbitration. A party to an agreement containing an arbitration clause is left free to commence proceedings in contravention of his agreement, since no submision is permitted to take effect by way of ousting the jurisdiction of the court, but it is open to the other party to apply for a stay. In this suit plaintiff did not apply to the court to order arbitration. The court cannot and, especially in this case, it will not on its own motion order arbitration. Defendants have not asked for it either.

For all these reasons judgment is entered in defendants’ favour with costs.