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Case Number

O.C.J Appeal No. 79 of 1922; Suit No. 639 of 1922

Attorney(S)

Binning with Jinnah, for the appellant.
Taruporevalla, with him Kanga, Advocate-Genera], and Inverarity, for the respondents.

Judges

Sir Norman Macleod
Kt., C.J
Crump, J.

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Smart Summary

Structured Summary of the Opinion (Macleod, C.J.)

Factual and Procedural Background

The plaintiffs sued an insurance company to recover loss or damage to goods stored in a godown at Bapty Road that were insured for Rs. 2,50,000. A fire occurred on 21 March 1921 and the plaintiffs gave notice on 22 March 1921. Correspondence between the parties continued from March 1921 until January 1922. Key policy provisions relied upon in the dispute were clause 13 (which set out various contingencies that could forfeit benefit under the policy, including where “the claim be made and rejected”) and clause 18 (an arbitration clause providing that differences as to amount of loss were to be referred to arbitration and that an award was a condition precedent to suit where arbitration took place).

On 6 January 1922 the plaintiffs indicated willingness to go to arbitration if the defendants admitted the dispute related to the amount of loss; they threatened to file suit if no such intimation was received. The defendants replied (7 January) that clause 18 gave each party two calendar months to appoint an arbitrator and indicated they thought other questions might be involved besides the amount. On 12 January 1922 the defendants informed the plaintiffs that they did not agree upon the amount claimed, could not yet admit liability, and pointed out that, under clause 18, ascertainment of the amount by arbitration was precedent to any suit.

The defendants filed a contentious written statement, the main defence being that an award was a condition precedent to suit. The plaintiffs applied (17 July 1922) for various reliefs, including inspection of the defendant’s surveyors’ report, that preliminary issues be tried (specifically whether the 12 January letter rejected the claim and whether plaintiffs could sue without an award), and particulars of the other questions the defendants alleged were involved. The court ordered the suit to be set down for trial of the two preliminary issues. On trial the Judge found (1) the defendants by the 12 January letter did reject the plaintiffs' claim, and (2) that the suit was maintainable. Nevertheless, the court below also ordered the suit stayed and the parties referred to arbitration under clause 18. The present opinion addresses the appeal from that decision.

Legal Issues Presented

Whether the defendants' letter of 12 January 1922 amounted to a rejection of the plaintiffs' claim under the policy.
Whether, as a result of such rejection, the plaintiffs had a right of action (i.e., whether an award under the arbitration clause was a condition precedent to suit in the circumstances).
Whether the court below correctly stayed the suit and referred the parties to arbitration in accordance with clause 18.

Arguments of the Parties

Plaintiffs' Arguments

The plaintiffs expressed readiness to go to arbitration if the defendants admitted the dispute was solely as to the amount of loss; otherwise they would sue. (Letter dated 6 January 1922.)
Where the claim is made and rejected (as set out among contingencies in clause 13), a right of action accrues and a suit may be brought (clause 13 provides for suit within three months from rejection).
The plaintiffs sought preliminary determination of whether the 12 January letter amounted to rejection and whether, given the events, they could file suit without obtaining an arbitration award.

Defendants' Arguments

The defendants maintained that clause 18 required disputes as to amount to be referred to arbitration and that an award was a condition precedent to suit; their written statement framed that as the main defence.
By letter of 7 January 1922 the defendants relied on clause 18's two-calendar-month period for appointment of arbitrators, suggesting they were entitled to that time to consider appointment.
The defendants contended there were questions other than the amount of loss involved; by letter of 12 January 1922 they said they could not yet admit liability on the policy and reiterated that ascertainment by arbitration was precedent to suit.
One party to the appeal (referred to in the opinion as the appellants) relied on the decision in Woodall v. Pearl Assurance Co. to support the proposition that making an award was a condition precedent to a right of action.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Woodall v. Pearl Assurance Co.	Held that the making of an award was a condition precedent to a right of action under the policy wording examined in that case (condition 11).	The appellants relied on this decision. The court distinguished that case on its different policy wording and held Woodall inapplicable to the present policy terms.
Jureidini v. National British and Irish Millers Insurance Company, Limited	Held that repudiation of a claim on a ground going to the root of the contract precluded the insurer from pleading the arbitration clause as a bar to an action to enforce the claim.	The court found clause 13 in the present policy substantially identical in relevant respects to the clause considered in Jureidini and relied on Jureidini to support the proposition that a repudiatory rejection allows the insured to bring an action without awaiting arbitration of amount.

Court's Reasoning and Analysis

The court examined the relevant policy provisions (clauses 13 and 18) and the correspondence between the parties from March 1921 to January 1922. The court emphasised that clause 13 listed several contingencies which, if established, entitled the insured to bring an action without an award. One such contingency is expressly "if the claim be made and rejected", with a limitation period of three months from the date of rejection.

On the facts, the court found it "obvious" from the correspondence that the defendants were extremely unwilling to go to arbitration and had consistently sought grounds to dispute liability rather than submit to arbitration. The letter of 12 January 1922 was interpreted by the court as a clear repudiation or rejection of the plaintiffs' claim: the defendants stated they did not agree upon the amount and that they could not yet admit liability. That statement, the court held, amounted to a rejection.

Legally, the court distinguished Woodall v. Pearl Assurance Co. because the policy language there made an award a condition precedent, whereas the present policy's clause 13 contained an express contingency for "claim made and rejected" allowing suit within three months of rejection. The court relied on Jureidini v. National British and Irish Millers Insurance Company, Limited for the principle that a repudiation going to the root of the contract precludes an insurer from relying on an arbitration clause to bar suit. Applying those principles, the court held that once the defendants had rejected the claim, a right of action accrued to the plaintiffs to have the rejection judicially tested.

The court explained the sequence of remedies: the plaintiffs could sue to have the court decide whether the rejection was justified; only if the court decided that the rejection was wrongful would it become necessary to determine the amount of loss, and then questions could arise as to whether the amount should be ascertained by the Court or by arbitration. The court expressly noted that the latter question was not before it in this appeal.

The court criticised the lower court's order staying the suit and referring the parties to arbitration, explaining that it was not competent for the Judge to order arbitration on the summons and that the order staying the suit was therefore improper in the procedural context. The appellate court therefore set aside the stay and referral to arbitration while dismissing the appeal with regard to the decision on the preliminary issues that had been tried.

Holding and Implications

Core Ruling: The appellate court dismissed the appeal in respect of the findings on the preliminary issues but set aside the lower court's order that the suit be stayed and the parties referred to arbitration under clause 18.

Consequences for the parties:

The defendants' 12 January 1922 letter was held to be a rejection of the plaintiffs' claim, thereby giving the plaintiffs a right of action under clause 13 (subject to the three-month limitation from the date of rejection provided in that clause).
The order staying the suit and referring parties to arbitration was set aside; the proceedings were ordered to continue in the ordinary course.
Appellants were ordered to pay the costs of the appeal.

Broader implications: The opinion applied existing authorities (distinguishing Woodall and relying on Jureidini) but did not purport to lay down a novel general principle beyond these applications. The court noted but did not decide whether, if the court were to find the rejection wrongful, the arbitration clause would still require arbitration of the amount; that question was outside the scope of the present appeal.

Disposition: Appeal dismissed (with respect to the decided preliminary issues); order staying suit and directing arbitration set aside; proceedings to continue. Solicitors for appellants: Messrs. Little & Co.; Solicitors for respondents: Messrs. Thakoredas & Co.

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Eagle Star And British Dominions Insurance Company v. Dinanath And Hemraj, A Firm

Macleod, C.J:— The plaintiffs filed this suit to recover from the defendant Insurance Company the amount of loss or damage, which, they said, they suffered in consequence of the fire, which had occurred to the godown at Bapty Road, in which there were goods, belonging to the plaintiffs, which had been insured with the defendant company for Rs. 2,50,000.

The relevant clauses in the policy for the purpose of this appeal are clauses 13 and 18.

Clause 13 says:—

“If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, 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 insured, or any one acting on his behalf shall hinder or obstruct the company in doing any of the acts referred to in condition 12, 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 the 18th condition 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”.

Clause 18 is set out as follows:—

“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 so to do 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 costs of the reference and of 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”.

The fire occurred on March 21, 1921, and notice was given by the plaintiffs on the 22nd. Correspondence ensued, but I need not refer to it beyond pointing out that it continued from March, 1921 until January, 1922. Clearly it was the defendants' case that there were disputes between the parties other than disputes with regard to the amount of loss or damage which the plaintiff's had suffered owing to the fire. On January 6, the plaintiffs wrote as follows:—

“We beg to draw your attention to condition 18 of the Policy which provides that in case of difference as to the amount of loss or damage suffered by our clients, such difference should be referred to arbitration. Our clients are prepared to go to arbitration if you intimate to our clients that the difference has arisen between our respective clients as to the amount of loss or damage suffered by our clients. If we do not receive any intimation from you within three days from the receipt hereof by you that the difference is as to the amount of loss or damage our clients will have no alternative but to file a suit against your clients at their risk as to costs”.

In reply to that the defendants wrote oh January 7, 1922, as follows:—

“If you will again refer to the condition you will see that each party must appoint an arbitrator within two calendar months after having been required to do so in writing by the other party and in case either party shall refuse or fail to appoint an arbitrator within two calendar months after the receipt of the notice in writing requiring an appointment the other party shall be at liberty to appoint a sole arbitrator. It appears that under the above condition our clients are entitled to a period of two calendar months from the time when they are called upon to appoint an arbitrator within which to consider such appointment. We agree that there is a difference as to the amount of any loss or damage but we think there may also be other questions involved”.

On January 10, 1922, the plaintiffs wrote:—

“We shall thank you to let us know what other questions your clients say are involved in the matter in addition to the dispute as to the amount of loss or damage”.

The defendants replied on January 12, 1922:—

“We are in receipt of your letter of the 10th instant and in reply we have to say that our clients do not agree upon the amount claimed and further that it is their carefully considered opinion that under the conditions of the policy they cannot yet admit liability on the policy and they also point out that under condition 18 of the policy the ascertainment of the amount of loss by arbitration is precedent to any suit being filed against them”.

The defendants filed a very contentious written statement. Their main defence was that under the terms of the policy it was a condition precedent to suit that there should be an award. Then the plaintiffs took out a summons on July 17, 1922, asking for reliefs of so varied a nature that the greatest care was necessary in passing orders upon it. The plaintiffs asked (1) that the defendant company should disclose and produce for inspection of the plaintiffs the report made by the surveyors appointed by the defendant company, (2) that the suit might be set down on board for trial of preliminary issues whether the defendant company by their solicitors' letter of January 12, 1922, did not reject the plaintiffs' claim, and whether in the events that had happened the plaintiffs were not entitled to file the suit without obtaining the award as to the amount of loss or damage sustained by them, and (3) that the defendant company should give particulars of the other questions which they alleged were involved in addition to the dispute as to the amount of loss or damage. As I have so often pointed out, when it is necessary before an order for discovery can be made, that certain questions in the suit should be first decided, the proper order to make is that the suit should be set down for the settlement of the issues. The Judge will then be in a position to decide which of the issues are necessary to be determined before the question of inspection or discovery can be decided. The same procedure should be followed when one party suggests that the suit can be decided on the hearing of a preliminary issue. On the summons an order was made that the suit should be set down for trial of the preliminary issues (1) whether the defendant company by their solicitors' letter of January 12, 1922, rejected the plaintiffs' claim under the policy, and (2) whether in the events that had happened the plaintiffs were entitled to file the suit without obtaining an award as to the amount of loss or damage sustained by them, and, on the defendants stating through their counsel that there were no other questions involved except as to the amount of loss or damage sustained by the plaintiffs, no directions were considered necessary as to the particulars asked for with reference to the allegation in paragraph 8 of the written statement. On the trial of these issues the Judge came to the conclusion (1) that the defendant company did reject the claim of the plaintiffs by their letter of January 12, 1922, and (2) that the suit was maintainable.

On reading the correspondence which lasted from March 21, 1921, to January 12, 1922, it is obvious that the defendants were extremely unwilling to go to arbitration so that the amount of loss or damage which had been suffered by the plaintiffs might be ascertained, and had been all along endeavouring to find out some ground on which they might dispute their liability on the policy. Even when they were asked to go to arbitration on the question of loss, they pointed out that they had two months under the policy to appoint an arbitrator. Then they said that besides the question as to the amount of loss or damage other questions were involved which could not be tried by arbitration. Then, finally, when they were asked what those questions were, they could only say that it was their carefully considered opinion that under the conditions of the policy they could not admit liability on the policy. The defendants then clearly stated that there were questions involved in the case which had to be decided before they would admit that they were liable to pay the amount of loss which would be ascertained by arbitration. And, in my opinion, the defendants by that letter of January 12, 1922, rejected the plaintiffs' claim.

The next question is whether such rejection gave to the plaintiffs a right of action, or whether as now claimed by the defendants no right of action could accrue to the plaintiffs until the amount of loss had been ascertained by arbitration. The appellants relied on Woodall v. Pearl Assurance Co.. In that case condition 11 was:

“If any question shall arise touching this policy or the liability of the company thereunder or the extent or nature of such liability or otherwise howsoever in connection herewith then the assured…may refer and shall be bound …to refer the same to arbitration,…and no person shall be entitled to bring or to maintain any action or proceeding on this policy except for the sum awarded under such arbitration”.

It was there held that the making of an award was a condition precedent to a right of action. But the terms of the policy in this case are entirely different and are almost identical with the terms of the policy in Jureidini v. National British and Irish Millers Insurance Company, Limited in which it was 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. The words in clause 12 of the policy in that case were, as far as I can see, the same as the words in clause 13 in the suit policy. It is true that the defendants there resisted the claim on the ground of fraud. But in clause 13 there are various contingencies set out which if established entitle the insured to bring an action without an award having been made by arbitrators. One of these contingencies is “if the claim be made and rejected” which if established gives a right of action, the period of limitation provided for the suit being fixed at three months from the date of the rejection. While it is also provided that where arbitration takes place in pursuance of condition 18 of the policy, three months' time should be allowed for a suit to be brought after the award has been made. Therefore it is quite obvious that a right of action accrued after the company rejected the claim. Naturally that question would have first to be decided by suit as under clause 18 that question could never have been referred to arbitration. Therefore when the defendants had rejected the claim, the plaintiffs had a right of action in order that it might be decided by the Court whether such rejection was right or wrong, and it was only in the event of that question being decided in favour of the plaintiffs that it would become necessary that the amount of loss or damage should be ascertained. The only question that might then arise would be, whether, after the Court had decided that the rejection of the plaintiffs' claim by the defendant company was wrong, the amount of loss or damage would have to be ascertained by the Court or by means of arbitration or whether the arbitration clause had gone with the repudiation as Lord Haldane thought it would : see Jureidini v. National British and Irish Millers Insurance Company, Limited. That is not a question before us now. The suit was only set down for hearing for trial of the two issues which were contained in the summons, and as a result of the findings on those issues the hearing of the suit would continue the ordinary course. We do not quite understand how the learned Judge came to make an order that the suit should be stayed, the parties being referred to arbitration as provided in clause 18 of the policy, because it was not competent for the Judge to deal with the question of arbitration on the summons. No doubt, when the order was made on the summons, the defendants stated through their counsel that there were no other questions involved except as to the amount of loss or damages sustained by the plaintiffs, but that was on the question whether an order should be made for particulars. Whether the defendants could raise any other questions now in the face of that statement need not be considered. The appeal with regard to the decision on the issues set down for trial must be dismissed; but we set aside the order of the/Court below that the suit should be stayed.

Appellants to pay the costs of the appeal.

Proceedings must continue in the ordinary course.

Solicitors for the appellants : Messrs. Little & Co.

Solicitors for the respondents : Messrs. Thakoredas & Co.

Appeal dismissed.

G.G.N

Eagle Star And British Dominions Insurance Company v. Dinanath And Hemraj, A Firm

Structured Summary of the Opinion (Macleod, C.J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Plaintiffs' Arguments

Defendants' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Eagle Star And British Dominions Insurance Company v. Dinanath And Hemraj, A Firm

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