Macbeth & Co. v. Maritime Insurance Co. [1908] UKHL 988
(Before the Lord Chancellor (Loreburn) , Lords Robertson and Collins .)
45 SLR 988Macbeth & Company v. Maritime Insurance Company.Subject_ Insurance — Marine Insurance — Constructive Total Loss — Cost of Repairs — Value of Wreck. Facts:In deciding the question whether or not there has been a constructive total loss of a vessel which has been wrecked, the selling value of the wreck falls to be added to the cost of repairing the vessel.A vessel's value was £12,000. She was wrecked. The cost of repairing her was £11,000; the wreck was worth £1000. Held that she was a constructive total loss.Judgment of Court of Appeal reversed.Angel v. Merchants' Marine Insurance Company (1903), 1 K.B. 811, overruled.Appeal from a judgment of the Court of Appeal ( Lord Alverstone, C.J., Buckley and Kennedy, L. JJ. ), who had affirmed a judgment of Walton, J., in favour of the respondents, the defendants below, at the trial of the action before him without a jury.The facts sufficiently appear from the considered judgments, infra.Lord Chancellor (Loreburn) —In this case the steamship “Araucania” was insured by the respondents in a valued policy for £12,000, free of particular average, and with a condition that in reckoning whether or not there should be a constructive total loss the repaired value should be taken at the valuation of £12,000. She went ashore. The learned Judge has found, and it is not disputed, that the cost of repairing was £11,000. So if that alone is to be considered, she was not a constructive total loss. But she would be so if, to the cost of repairing, the selling value of the wreck were to be added. Whether or not it ought to be added is the question before the House. The learned Judges, both in the Court of first instance and in the Court of Appeal, answered that question in the negative, not upon any view of their own, but in deference to the decision of Angel v. Merchants' Marine Insurance Company , pronounced by the Court of Appeal in 1903. In Angel's case one of the Lords Justices expressed himself on this point in terms of dissent from his colleagues. This question admits of ready answer as soon as it is ascertained what is the true test by which a court is to be guided. Really the choice lies between two tests. One is that a ship has become a constructive total loss if the cost of repairing her would exceed her value when repaired. The other is that she has become so when a prudent uninsured owner would not repair her having regard to all the circumstances. If the former test be adopted, then this appeal must be dismissed, because the cost of repairs here is £11,000, and the repaired value is £12,000. If the latter test be adopted, then the appeal must be allowed, for no sensible man would have repaired this ship if he could have made a better thing of it by selling her as a wreck, and it is found that he could have done so. If this were an open question, there seems to me ground for arguing that the former is the sound view. But I think that this is not really an open question, notwithstanding the recent decision in Angel's case. I will not enter upon a criticism of the authorities. I have had the advantage of seeing in print the opinion of Lord Collins, who fully discusses them, and I agree in his conclusion. When once the test of what a prudent uninsured owner would do, whether he would sell the ship where she lies or repair her, is admitted, it follows that the value of the ship where she lies must enter into the calculation, and this test has been laid down repeatedly by many high authorities over a long period of time. I think that it was too late to disturb it in 1903. I will merely add that in my opinion the rule can only apply where there has been a wreck or something equivalent to a wreck. If anPage: 989 ↓
Lord Robertson —I find it impossible to refuse the demand of the appellants. When a ship has been damaged during a voyage the practical question is, Shall she be repaired or abandoned? The pros and cons on this question are, as it seems to me, necessarily of a commercial and pecuniary nature, and necessarily looked at from the standpoint of the person whose pocket is affected. It follows that a balance-sheet has to be drawn up, showing what is gained and what is lost by repairing on the one hand and by abandoning on the other. Now, I am unable to see how such a balance-sheet can be accurate unless it includes the corpus of the damaged ship. The curious part of the respondents' case is that they do include it, but only on one side of the account, for it is part of the value of the ship if repaired. I can see no reason why it should not enter the account on the opposite hypothesis—that the ship is not repaired—and it would unquestionably do so, as matter of business, in determining the decision of any rational man who had to consider the question. It was urged, however, that in a contract of insurance what is insured is the ship as a thing, and not in its relation to the commercial enterprises of its owner. While, as presented, this sounds plausible, it is fallacious. What is insured is the life of the ship as a living instrument of commerce; and the owner is not credited with any romantic attachment to the ship, so that he will keep life in her at all costs and to the sacrifice of the commerce of which she is an instrument. Again, there is nothing in the argument that the wrecked ship, if abandoned, may after all be bought and resuscitated and resume activity in other hands. This merely means that a wrong judgment was come to on the question of fact, and that the cost of repair was well-spent money instead of, as was thought, ill-spent money. But whichever view be taken of the present controversy, some conclusion must be come to in each case on the question whether it is worth while to repair, and the argument necessarily assumes, in any case in hand, that the conclusion come to is right. In what I have said I have proceeded on the assumption that in ascertaining whether there is a constructive total loss, one has to hold an inquest, as it were, and consider whether the ship shall be repaired or shall be abandoned. I do so, first of all, because I do not see how there can be such a thing as a constructive total loss without this being done; and secondly, because it has for long been laid down by very high authorities that the criterion is the presumable judgment of the owner, on the footing of his being uninsured and acting in his own interests. I desire to say that my judgment is given on principle, and not merely on authority.Lord Collins —This is virtually an appeal from the judgment of the Court of Appeal in Angel v. Merchants' Marine Insurance Company , and raises the question whether, in determining whether a ship seriously damaged by perils insured against can be treated as a constructive total loss, the owner is entitled to add the break-up value of the wreck to the estimated cost of repairs. The circumstances which will justify an owner in abandoning his vessel when he elects not to repair her are thus stated in Arnould on Marine Insurance, 5th ed., p. 1003—“On that question the rule of law is clearly established, but variously expressed. By Blackburn, J., it is said ‘the question between the assured and the underwriters on a ship is whether the damage sustained may be so far repaired as to keep it a ship, though not perhaps so good a ship as it was before, without expending on it more than it would be worth’— Rankin v. Potter . By Tindal, C.J., it is said to be that ‘where the damage to the ship is so great from the perils insured against as that the owner cannot put her in a state of repair necessary for the pursuing of the voyage insured except at an expense greater than the value of the ship, he is not bound to incur that expense, but is at liberty to abandon and treat the loss as a total loss’— Benson v. Chapman ( 6 M. & G. 792). The same thing as more briefly expressed by Patteson, J. ( Irving v. Manning ), is thus—‘Would a prudent owner uninsured repair?’ or rather, as Wilde, B., said ( Grainger v. Martin ), ‘Would he sell unrepaired?’” On the same subject Blackburn, J., thus expresses himself in Kemp v. Halliday —“The question whether it is practicable to save the subject-matter within the meaning of the phrase as explained by Maule, J., in Moss v. Smith has been differently left to the jury. In Gardner v. Salvador ( 1 Moo. & R. 116) Bayley, B., left it to the jury to say whether by means within the reach of the captain, which he could reasonably use, the ship could be saved. The mode of putting the question generally adopted has been to ask whether a prudent uninsured owner would have done it. In Rosetto v. Gurney ( 11 C.B. 176) the Court, approving of what has been said by Maule, J., in Moss v. Smith , state the rule thus—‘If the damage is reparable, the loss is total or partial according to circumstances. If the damage cannot be repaired without laying out more money than the thing is worth, the reparation is impracticable, and therefore, as between the underwriters and the assured, impossible.’ The three modes of expression all seem to me to convey the same idea. No means which would cost more than the object is worth can be considered reasonable, and a prudent uninsured owner would not adopt them. But if the means within his reach would cost less than the object is worth, a prudentPage: 990 ↓
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Appeal sustained.Counsel for the Appellants— Scrutton, K.C.— Bailhache— D. Stephens. Agents— Holman, Birdwood, & Company, Solicitors.Counsel for the Respondents— J. A. Hamilton, K.C.— F. P. Mackinnon. Agents— Waltons, Johnson, Bubb, & Whatton, Solicitors.