IN THE
HIGH COURT OF MALAWI
PRINCIPAL
REGISTRY
CIVIL CAUSE
NO. 108 OF 1989
BETWEEN:
FINANCE BANK
OF MALAWI.................................................PLAINTIFF
-and-
BRIAN
HANKS...........................................................1ST DEFENDANT
-and-
THE ESTATE OF
ATHER HASAN
SYED QUADRI.................................2ND DEFENDANT
MATTHEWS
CHINTHITI.............................................3RD DEFENDANT
R.E. BROWN
AND OTHERS.......................................4TH DEFENDANT
Chagwamnjira,
of Counsel for the Plaintiff
Christie, of
Counsel for the 4th Defendant
Magwira
(Miss), Official Interpreter
RULING
Tembo, J. This is an appeal of the plaintiff against
the decision of the learned Registrar, late Mr. Qoto, which he made on 30th
August, 1999. The Registrar had heard
and determined the summons of the 4th defendants which had been made under Ord.
14A - of the Rules of the Supreme Court(RSC).
By their
summons, the 4th defendants, the underwriters, had asked the learned Registrar
to determine a number of questions of law or construction. Thus without prejudice to the 4th
defendants defences based on avoidance or otherwise:-
(1) Whether on a true and proper construction
of the policy, the plaintiff is entitled to an indemnity from the underwriters
pursuant to clause 2;
(2) If (contrary to the underwriter’s
case) it is held that the plaintiff is
entitled to indemnity under insuring clause 2, whether any such right is
excluded April 3, 2001from coverage under the policy by virtue of exclusion 4
(X);
(3) In
so far that it is the plaintiff’s case as set out in paragraphs 4, 27-29
inclusive of the Amended Statement of Claim that the First and Second
defendants are entitled to indemnity from underwriters such a claim is excluded
by virtue of exclusion 4(X) of the policy; and
(4) In the event that the plaintiff is not
entitled to an indemnity from the underwriters pursuant to the policy, whether
the plaintiff has any other right to proceed against the underwriters.
Let me, at
this point, state the fact that the policy, under consideration, though it was
arranged and issued in the United Kingdom, it has an overseas jurisdiction
clause. By that clause, the Insurance
Policy shall be governed by the Laws of Malawi and the courts in Malawi have
jurisdiction in any dispute in relation to the Policy.
At the outset
of the hearing, the learned Registrar had ruled that Questions 2 and 3 were
unsuitable for determination under Order 14A of the RSC, in that those
questions would involve the determination of evidence and facts which cannot be
done without a full trial.
Eventually,
the learned Registrar only determined question 1. His answer to the question was in the negative. Thus, that the plaintiff was not entitled to
an indemnity from the underwriters pursuant to clause 2 of the policy. Having so decided or determined question 1,
in the circumstances, the learned Registrar felt that it was unnecessary for
him to also consider question 4.
The court has
heard full oral arguments of counsel for and against the appeal. Besides that both sides have made written
submissions on the issues involved in the appeal.
Order
58 r.1 appeal
At this
stage, let me point out that the appeal is made pursuant to Order 58 r.1
of RSC. Such being the case, this
appeal ought to be dealt with by way of an actual rehearing of the summons of
the 4th defendants which led to the ruling or order under appeal. I have to treat the matter as though it had
come before me for the first time. Be
that as it may, the plaintiff, being the party appealing, even though the
original summons was not by it but against it, had the right as well as the
obligation to open the appeal. Besides
the foregoing, I should give to the ruling of the learned Registrar the weight
it deserves, although am not in any way bound by it: These are principles
enunciated in the judgment of Lord Atkin in Evans v Bartlam (1937)
A.C. 473, p. 478.
Order
14A application
It is expedient
to expressly note that the summons of the 4th defendants was made under Order
14A of R.S.C. Let me make the following
pertinent observations on conditions precedent to the evoking of the procedure
under that Order. The court may upon
the application of a party determine any question of law or construction of any
document in any cause or matter at any
stage of the proceedings where it appears to the court that:
(a) such
question is suitable for determination without full trial of the action; and
(b) that
the determination will finally determine the entire cause or matter or any
claim or issue in the case, subject only to any possible appeal.
Besides the
foregoing, it is a matter of vital importance that there should be no dispute
of facts respecting a point or issue of law to be determined by the court. Alternatively, the parties should agree on
the facts to which the point or issue of law to be so determined relates. The test, therefore, of whether a question
of law is suitable to be determined under this procedure is whether all the
necessary and material facts relating to the subject matter of the question
have been duly proved or admitted. This
means that there is no dispute or no further dispute as to the relevant facts
at the time when the court proceeds to determine the question. In the premises, the suitability of
disposing of an action under this procedure entirely depends on whether the
court can determine the question of law raised without a full trial of the action.
Besides, the
court is not justified, under this procedure, even with the consent of the
parties, in deciding abstract questions of law raised by pleadings. The court’s function remains to be, and is,
to decide questions of law when arising between parties as a result of a
certain state of facts: Stephenson, Blake & Co. -v- Grant Legros
& Co. Ltd (1917) 86 L.J. Ch. 439
In addition
to the foregoing, where for the purposes of deciding questions of law it is
necessary or desirable to ascertain the facts beyond those that appear in the
pleadings, the court should not order the trial of those questions as a
preliminary point of law, especially where the law is itself unsettled or
obscure. Finally, the question of law
to be determined by the court, under
this procedure, should be stated or formulated in clear, careful and precise
terms, so that there should be no difficulty or obscurity, still less any
ambiguity, about what is the question that has to be determined.
As to
evidence, summons under Order 14A should be supported by affidavit deposing to
all the material facts relating to the questions of law or construction to be
determined by the court. For purposes
of Order 41 r. 5 (2) of R.S.C., proceedings under Order 14A are not
interlocutory proceedings, since by its nature, the application will decide the
rights of the parties and will terminate the action or otherwise finally
dispose of it: Rossage -v- Rossage (1966) 1 W.R.L. 249. For that reason, the affidavits for use in
proceedings under Order 14A ought only to depose to such facts as the deponent
is able of his own knowledge to prove.
The House of
Lords has strongly protested against the practice of courts of first instance
allowing preliminary points of law to be tried before and instead of first
finding the facts: In Tilling -v- white man (1980) A.C. 1, 17; and
Allen -v- Gulf Oil Refining Ltd (1981) 1 All E.R. 353, 355 Lord
Wilberforce said the following (respectively) -
“The learned
judge took what has turned out to be an unfortunate course. Instead of finding the facts, which should
have presented no difficulty and taken a little time, he allowed a preliminary
point of law to be taken...So the case has reached this House on hypothetical
facts, the correctness of which remains to be tried. I, with others of Your Lordships, have often protested against the
practice of allowing preliminary points to be taken, since this frequently adds
to difficulties of courts of appeal and tends to increase the cost and time of
legal proceedings. If the practice
cannot be confined to cases where the facts are not complicated and the legal
issues short and easily decided, cases outside this guiding principle should at
least be exceptional.”;
“My Lords, I
and others of Your Lordships have protested against the procedure of bringing,
except in clear and simple cases, points of law for preliminary decision. The procedure indeed exists and is sometimes
useful. In other cases, and this is
frequently so where they reach this House, they do not serve the cause of
justice. The present is such an
example...... The fact is that the
result of the case must depend on the impact of detailed and complex findings
of fact on principles of law which are themselves flexible. There are two many variables to admit of a
clear - cut olutions in advance”.
The plaintiff
is the Finance Bank of Malawi (the bank).
It is suing the four dependants, who include the 1st, 2nd and 3rd
defendants. These were directors and
officers of the bank. The 2nd defendant is dead, instead his estate is
sued. The 4th defendants, the
underwriters, are sued on behalf of and represent eight Lloyds Syndicates which
subscribed to a Lloyd’s Directors’ and Officers Policy of insurance (Number
479/PF IN 0596A01) (the Policy) issued on 18th April, 1997, to the bank. This policy is a claim made policy covering
the period 1st November, 1996 to 31st October, 1997.
The bank is
alleging that it has lost a total sum of money slightly in excess of
K100,000,000 and is therefore claiming damages from the 1st, 2nd and 3rd
defendants for breach of duty of care in that these defendants failed to apply
sound banking policies; laid down banking rules and that they also failed to
supervise staff among other things.
Besides that, it is alleged that these defendants, thus 1st, 2nd and 3rd
defendants were negligent in the performance of their duties in the area of
lending funds and credit management. In
that respect, it is said that during trial the plaintiff will demonstrate that
the advances or loans, particulars of which are, specified in the statement of
claim were given out negligently thereby making the plaintiff lose sums of
money in excess of K76,000,000; thus being part of the sum of K100,000,000
which the bank claims to have lost due to the negligence of the 1st, 2nd and
3rd defendants.
In proving
the case for failure to apply sound banking policies and failure to follow laid
down procedure and failure to supervise staff in respect of 1st, 2nd and 3rd
defendants, the plaintiff will use the principle of RES IPSA LOQUITUR
to demonstrate that these losses cannot be explained in any other way other
than on grounds of negligence.
Finally,
respecting the 4th defendants, it is the case for the plaintiff that by a
policy of insurance for the period 1st November, 1996 to the 31st October,
1997, the 4th defendants insured the directors and officers of the bank. They agreed to pay out on behalf of the
directors and officers of the bank any loss made against them during the period
of insurance which is duly notified to the 4th defendants for any wrongful act
committed by persons in the capacity of officers or directors of the bank. That the 1st, 2nd and 3rd defendants who
were Managing Director, Corporate Director and Corporate Manager, respectively,
were such directors and officers of the bank in terms of the policy of
insurance in question. It is alleged by
the plaintiff that these persons had committed wrongful acts of negligence.
The plaintiff
will use the form of policy document for its full purport and effect and
thereby claim from the Insurance payment of any award or damages or
compensation which the court will order that the 1st, 2nd and 3rd defendants pay in terms of the insurance
policy document.
The 1st, 2nd
and 4th defendants have served a joint
amended defence. The 4th defendants
make their defence without prejudice to any rights to avoid the policy on the
grounds of non-disclosure and misrepresentation or any defence based on breach
of warranty. In the view of the 4th
defendants the plaintiff is not entitled to any indemnity pursuant to insuring
clause 2 of the policy or at all.
Further or in
the alternative and without prejudice to the foregoing, the 4th defendants say
that any claim (denied) which the plaintiff might have is excluded by virtue of
exclusion 4 (X).
That the
policy was subject to the insured directors and officers of the bank committing
any or alleged wrongful acts or omission individually or collectively. The 1st and 2nd defendants deny any wrongful acts on their part. And it is the view of the 4th defendants,
that their liability does not arise where the directors and officers deny
liability, as they have done.
It is further
the view of the 4th defendants that the policy of insurance excludes the 4th
defendants’ liability in a case which is consequent upon the directors or
officers dishonesty, fraud and malicious conduct. In that connection, it is said that the 3rd defendant was
convicted of theft of K32,787,949.50 which he embezzled dishonestly,
fraudulently and maliciously from the bank.
The 4th
defendants say that they can only pay the claim if it is not excluded and if it
occurred during the period of insurance which is 1st November, 1996 to 31st
October, 1997. The 4th defendants
further say that part of the theft of K32,787,949.50 was committed in August,
September and October, 1996, thus, before the policy was issued.
It is also
said that to some extent, the fidelity insurers of the plaintiff paid up to the
maximum limit of liability chosen by the plaintiff for which the plaintiff has
not disclosed or reduced the amount in the plaintiff’s statement
of
claim. In that connection, it is the
view of the 4th defendants that the policy of insurance excludes loss arising
from a claim to the extent that an indemnity or payment is available from any
source, other than the policy issued.
Further, the
policy excludes the 4th defendants’ liability from any claim consequent upon
any circumstances existing prior to the inception date of the policy which is
1st November, 1996. In that respect, it
is said that the directors or officers
or the bank knew or ought to have known that those circumstances could give
rise to a claim. That loss of K32,787,
949.50 was known by several members of staff of the bank prior to the policy
inception date. In addition, the bank
ought reasonably to have known from the daily status print out reports. In that connection, that most of the claims
arising from the so called negligent lending in the sum of K79,469,154.50
relate to the period 1995 to October, 1996, thus, before the policy was
effected. Thus, the 4th
defendants are not liable for losses occurring outside the period of insurance.
The 4th
defendants also say that in the month of August, 1996, the bank had intended to
effect a directors and officers insurance with the 4th
defendants. For that purpose the bank
then signed and delivered to the 4th defendants a declaration in
writing dated 23rd August, 1996 which the bank agreed should be
basis of the contract which the bank decided to effect. On the faith of the statements contained in
the declaration the 4th defendants granted the policy sued on. That the declaration, the basis of the
insurance was not true in every respect, that there were in it false
statements, misrepresentations and concealment and suppression of the truth,
particulars of which are set out in paragraph 8 (a) to (d) of the Amended
Defence.
That part of
K79,460,194.50 is consequential loss arising as interest from the money
allegedly negligently lent out by the bank.
In that connection it is said that the policy of insurance excludes any
consequential loss.
It is denied
by the defendants that it is a term or condition of the policy that costs of
starting the claim, whether the bank succeeds or not, should be paid by the 4th
defendants. In the view of the
defendants costs follow the event.
In the
premises, the defendants deny liability for the loss averred in the bank’s
amended statement of claim and, therefore, pray that the action be dismissed
with costs.
CONSIDERATION
OF ISSUES RAISED
In grounds of
appeal 1 to 5, the bank, in essence, is attacking the finding of fact by the
learned Registrar that the 4th defendants had avoided the policy and had
returned premium in respect of the 3rd defendant. On behalf of the bank, Mr.
Chagwamnjira has argued that there was no evidence before the Registrar on the
basis of which such a finding would rightly have been made. The affidavit of Saineti Ellard Jussab,
dated 30th June, 1999, is challenged.
By that affidavit Mr. Jussab deposes to the fact that he is informed by
the 4th defendants that the policy, in question in these proceedings, has been
avoided by the 4th defendants as against the 3rd defendant on the ground of
material non-disclosure relating to the 3rd defendant’s dishonesty. There is thereto exhibited, therefor, a copy
of 4th defendants’ lawyer’s letter to the 3rd defendant at Zomba Maximum
Prison.
In view of
the legal requirement that affidavits for use in proceedings under Order 14A
ought only to depose to such facts as the deponent is able of his own knowledge
to prove, Mr. Jussab’s affidavit would
not be admissible for the purpose. That
affidavit purports to contain a statement of fact based on double hearsay
sources of information to Mr. Jussab.
Mr. Jussab would not of his own knowledge depose to such a fact. In the premises, I reverse the order or
ruling of the Registrar in that respect.
Ground 6,
that the Registrar had erred in ignoring without discussion at all the
objections of the plaintiff that the summons under Order 14A was misconceived
in that it was not a proper mode of starting the matter, it being contrary to
the requirement of Order 14A, thus that
the determination of the summons would not and has not resulted in the final
determination of the entire cause or matter or issue in question. In that connection, by his written
submission, Mr. Chagwamnjira says that both parties are not aware as to whether
the case of the plaintiff should, therefore, proceed to trial. That both parties are not sure if by that
decision, the 4th defendants were henceforth discharged as parties
from the case. Further, that the
parties wonder if the case ought to proceed without the 4th
defendants. Besides that, that the
parties are not sure if by the decision of the learned Registrar, the court is,
in effect, saying that it is only the 1st, 2nd and 3rd
defendants who can sue the 4th defendants in relation to the
insurance policy in the case.
Yes, it is
the requirement of the procedure under Order 14A that the determination of the
question of law or construction of a document must result in a final judgment
or order. Thus upon making its
determination of the question of law or construction, the court may dismiss the
action or make such order or judgment as it thinks just. In this way, the action will be finally
disposed of without a full trial and the judgment or order will have the same
force and effect as the judgment or order after a full trial of the
action. This ought to be so in regard
to the position of the plaintiff and the 4th defendants only. In fact the summons were to relate to that
position only. A perusal of the summons
clearly bears out that view. Consequently,
the determination of the learned Registrar, now appealed against, and, if
confirmed herein, that of this court in that regard would henceforth entail the
discharge of the 4th defendants from the case. On the other hand, that decision would in no
way effect the position between the plaintiff and the 1st, 2nd
and 3rd defendants in the case.
The summons does not seek that effect upon the determination of the
questions before the court.
Besides the
foregoing, the requirement that there ought not to be dispute as to facts relating
to the questions of law or construction of document or that parties must admit
the facts relative to those questions of law or construction of document: In regard to the summons, a number of facts
are in dispute between the parties relative to the questions of law or
construction put forward for the determination of the court.
Yes, the
learned Registrar had determined that question 2 and 3 appeared to be
questions, in regard to which there would be issues of fact or evidence which
could only be resolved at the trial.
The parties appear to have raised no challenge to that
determination. In the result, no
submissions were made before me on this point.
Although such is the position, I will nonetheless, in passing, allude to
these questions later in this ruling.
At this point
let me specifically consider question 1 which is that without prejudice to the
4th defendants’ other defences based on avoidance or otherwise whether on a
true and proper construction of the policy the plaintiff is entitled to an
indemnity from the underwriters pursuant to clause 2? Clause 2 of the policy provides as follow:
“Underwriters
agree, subject to the terms, conditions, limitations and exclusions of this
Policy to:
(a) pay on behalf of the directors or officers
of the company loss arising from any claim first made against them during the
period of insurance and notified to underwriters during the period of insurance
by reason of any wrongful act committed in the capacity of directors or officer
of the company except and to the extent that the company has indemnified the
directors or officers.
(b) pay on behalf of the company loss arising
from any claim first made against the directors or officers during the period
of insurance and notified to underwriters during the period of insurance by reason of any
wrongful act committed in the capacity of director or officer of the company
but only when and to the extent that the company shall be required or permitted
to indemnify the directors or officers pursuant to the law, common or statutory
or the memorandum and articles of association”.
Clause 3 of
the policy prescribes definitions to be used in relation to the policy. It is expedient that some of those
definitions be set out herein as follows:
“Director or
Officer” means any natural person who was or is or may be a Director or Officer
of the Company and in the event of death their estate, heirs legal
representatives or assigns.
“Company”
means the bank.
“Period of
Insurance” 1st November,
1996 to 31st October, 1997 both days inclusive.
(e) “Wrongful Act” shall mean any actual or
alleged wrongful act or omission by directors or officers individually or
collectively, by reason of their being Directors or Officers of the Company. Related or continuous or repeated or
causally – connected wrongful Acts shall constitute a single Wrongful Act.
(f) “Loss” shall mean legal liability of the
Directors or Officers to pay:
(1)
damages or
costs awarded against the Directors or Officers,
(2)
settlements as
agreed by underwriters (such agreement shall not unreasonably be withheld),
(3)
costs and
expenses.
(7)
“Costs and
Expenses” shall mean all reasonable and necessary fees and expenses incurred by
or on behalf of the Directors or Officers with the written consent (such
consent shall not unreasonably be
withheld) of Underwriters resulting
solely from the investigation and or defence
and or monitoring and or settlement of any claim and appeals therefrom.
“Claim” shall mean
(i) any
writ or summons or other application of any description whatever or cross claim
or counter claim issued against or served upon any Director or Officer for any
Wrongful Act, or
(ii) any
written communication alleging a Wrongful Act to any Director or Officer.
INTERPRETATION OF CONTRACTS RULES
A consideration of the questions put before
the court for determination, as of necessity, involves the interpretation of
the policy document. It is, therefore,
expedient that a moment be spared for a statement on rules of interpretation
which govern the interpretation of contracts in general, and insurance
contract, in particular. The learned
Registrar had clearly and substantively dealt with this subject in his ruling
now appealed against. During the
hearing of this appeal none of the
learned counsel have raised any challenge against the ruling of the Registrar
relative to his statement on the principles of law on this subject. If any thing at all, counsel merely urged
the court to confirm the sources of the Registrar’s statement on the
subject. That I have done and do
confirm that the position was rightly and accurately put. In the circumstances, I do adopt the
statement, thus to say, that an insurance policy ought to be construed like any
other contract and the “object to be sought to be achieved in construing any
contract is to ascertain what the mutual intentions of the parties were as
to the legal obligations each assumed by the contractual words in which they
sought to express them” per Lord
Diplock in Pioneer Shipping Ltd.
V B.T.P. Tioxide Ltd. (1982) A.C. 724 at p 736.
It is also clear approach to the question of
construction of contracts of insurance
to seek objectively to ascertain the intention of the parties from the
words they have chosen to use. If those
words are clear and admit of one sensible meaning, then that is the meaning to
be ascribed to them – and that meaning is taken to represent what the parties
intended. If however the words are not
so clear and admit of more than one meaning, then the ambiguity may be resolved
by looking at the aim and genesis of the agreement choosing the meaning which
seems to make the most sense in the context of the contract and its surrounding
circumstances as a whole. Further, contracts must be interpreted
against their background. This principle
was expressed by Lord Hoffmann in Investors Compensation Scheme Ltd. V
West Bromwich Building and Same and Hopkin and Sons (a
firm and others) (1998) 1 All E.R. 98.
The principles expressed by him were:-
“But I think I should preface my explanation of my
reasons with some general remarks about the principles by which contractual
documents are nowadays construed ¼.. I do not
think that the fundamental change which has overtaken this branch of the law,
particularly as a result of the speeches of Lord Wilberforce in Prenn V
Simmonds (1971) 1 W.L.R. 1381 1384 and Readon Smith Lime Ltd. V. Yngvar
Hamsen – Tangen (1976)
W.L.R. 989 is always
sufficiently appreciated. The result has been, subject to one important exception,
to assimilate the way in which such documents are interpreted by judges to the
common sense principles by which any serious utterance would be interpreted in
ordinary life. Almost all the old
intellectual baggage of ‘legal’ interpretation has been discarded. The principles can be summarized as follows:
Interpretation is the ascertainment of the
meaning which the documents would convey to a reasonable person having all the
background knowledge which would reasonably have been available to the parties
in the situation in which they were at the time of the contract.
The background was famously referred to by
Lord Wilberforce as the “matric of fact” but this phrase is, if anything, an
understated description of what the background may include. Subject to the requirement that it should
have been reasonably available to the parties and to the exception to be
mentioned next, it includes absolutely anything which would have affected the
way in which the language of the document would have been understood to a
reasonable man.
The law excludes from the admissible
background the previous negotiations of the parties and their declarations of
subjective intent. They are admissible
only in an action for rectification.
The law makes this distinction for reasons of practical policy and, in
this respect only, legal interpretation differs from the way we would interpret
utterances in ordinary life. The
boundaries of this exception are in some respects unclear.
The meaning which a document (or any other
utterance would convey to a reasonable man is not the same thing as the meaning
of its words. The meaning of words is a
matter of dictionaries and grammars” the meaning of the document is what the
parties using those words against the relevant background would reasonably have
been understood to mean. The background
may not merely enable the reasonable man to choose between possible meanings of
words which are ambiguous but even (as occasionally happens in ordinary life)
to conclude that the parties must for whatever reason have used the wrong words
or syntax ¼ The “rule” that words should be given their
“natural and ordinary meaning” reflects the commonsense proposition that we do
not easily accept that people have made linguistic mistakes, particularly in
formal documents. On the other hand, if
one would nevertheless conclude from the background that something must have
gone wrong with the language, the law does not require judges to attribute to
the parties an intention which plainly could not have had. Lord Diplock made this point more vigorously
when he said in Antaios Compania Naviera S.A. V Salen Rederierna A.B.
(1985) A.C. 191, 201:
If detailed semantic and syntactical analysis
of words in a commercial contract is going to lead to a conclusion that flouts
business commonsense, it must be made to yield to business commonsense.”
DECISION AND REASONS THEREFOR
Bearing in mind the numerous persuasive legal
arguments which both counsel have made before me, thus, orally and in writing,
it is my considered view that the learned Registrar was right in coming to the
conclusion he reached on question 1, in particular, and generally on the rest
of the questions raised in the summons then before him. To begin with, it must be pointed out that
guided by the rules of interpretation, set out hereinbefore, the court is
called upon to consider, interpret and apply specific provisions of an
insurance contract in answering the questions raised before it. By question1, the 4th dependants
seek a determination of the court, without prejudice to the 4th
defendants other defences based on avoidance or otherwise, whether on a true and
proper construction of the policy the plaintiff is entitled to an indemnity
from the underwriters pursuant to clause 2.
And close 2 of the policy, is as follows:
2. INSURING CLAUSE
Underwriters agree, subject to the terms,
conditions, limitations, and exclusions of
this policy, to:
Pay on behalf of the Directors or Officers
of the Company Loss arising from any
claim first made against them during the period of Insurance and notified to
Underwriters during the Period of Insurance by reason of any Wrongful Act
committed in the capacity of Director or Officer of the Company except for and
to the extent the Company has indemnified the Directors or Officers.
Pay on behalf of the Company Loss arising
from any claim first made against the
Directors or Officers during the Period of Insurance and notified to
Underwriters during the Period of Insurance by reason of any Wrongful Act
committed in the capacity of Director or Officer of the Company but only when
and to the extent that the Company shall be required or permitted to indemnify
the Directors or Officers pursuant to the law, common or statutory, or the
Memorandum and Articles of Association”.
It is expedient to read the foregoing
provision of the policy together with the first paragraph to the policy in
order to better understand the fact that, not the Company but, its directors or
officers were the persons who were insured under the policy. It does not matter that the contract of
insurance might have been, or was in fact, arranged and paid for by the
Company. That paragraph says that:
“We Underwriters of the Syndicates whose definitive numbers and proportions are shown in the Table attached hereto¼hereby agree, in consideration of the payment to us by or on behalf of the assured of the premium specified in the schedule, to insure against loss, including but not limited to associated expenses specified herein, if any, to the extent and in the manner provided in this policy.”
Now in regard to insuring clause 2 (a), the 4th defendants agreed to discharge or pay on behalf of the directors or officers loss arising from any claim made against the directors or officers of the company. Applying the definitions of “loss” and “claim” to clause 2(a) that clause then means that 4th defendants agreed to discharge or pay on behalf of the directors or officers any legal liability of the directors or officers to pay damages or costs awarded against them or legal liability of the directors and officers to pay settlement as agree by 4th defendants. Until the legal liability of the directors or officers is established, the duty of the 4th defendants to pay does not arise.
Indeed, upon a true and proper construction of clause (2)(a), no other conclusion clearly, definitely and readily renders itself available to the court other than that it is the directors and officers who acquire rights against the 4th defendants. The Company has no rights under clause 2(a). That is the position when the company does not indemnify the directors or officers. So, in such a case, where the Company does not indemnify its directors or officers, the company would have no basis for any rights against the 4th defendants. This is what the policy of insurance, the contract, says in that regard.
This means that, in regard to clause 2(a), upon the legal liability of the directors or officers of the Company being established, only the directors or officers, being the insured would legally be entitled to sue the 4th defendants therefor. In that situation the Company has no standing to sue the 4th defendants and that is so notwithstanding the fact that the insurance policy under consideration might have been or was in fact arranged and paid for by the Company. It is the insured who must sue the 4th defendants (the insurers) in this case.
In that respect, the decision of the House of
Lords in the case of Bradely v Engle Star Insurance Co. Ltd (1982)
A.C. 957 is the authority. From the
headnote, the brief facts of that case were that, the applicant was employed by
a Company in a cardroom of its cotton mill for a considerable number of years. She was later certified by a medical panel
to be suffering from a respiratory disease caused by the inhalation of cotton
dust. The Company was wound up. Subsequent to that, intending to bring an action against the defunct
Company’s insurers under s.1(1) of the
‘Third Parties (Rights against Insurers) Act, 1930, she applied for pre-action discovery against the insurers
pursuant to s.33(2) of the Supreme
Court Act 1981. She sought an order
that the insurers should disclose the terms and particulars of all contracts of
insurance issued by them to the defunct Company in respect of the Company’s
liability to its employees for personal injuries sustained at work during the
relevant periods. The district
registrar had granted the application but his order was reversed by MacPherson
J. on the insurer’s appeal. The Court of Appeal dismissed her
appeal. She made a further appeal to
the House of Lords which was also dismissed.
In dismissing the appeal, the House of Lords held that under a policy of
insurance against liabilities to third parties, the insured person could not
sue for an indemnity from the insurers unless and until the existence and
amount of his liability to a third party had been established by a judgment of
a court in an action, or by an award in an arbitration, or by an agreement
between the insured and the third party.
In delivering the decision of the House of Lords, thus affirming the
decision of the Court of Appeal in the case, at page 966, Lord Brandon of
Oakbrook said this:
“In my opinion the reasoning of Lord Denning
M.R. and Salmon L.J. contained in the passages from their respective judgments
in the Post Office case set out above, on the basis of which they
concluded that, under a policy of insurance against liability to third parties,
the insured person cannot sue for an indemnity from the insurers unless and
until the existence and amount of his liability to a third party has been
established by action, arbitration or agreement, is unassailably correct.”
The pertinent passages, referred to, of the
decisions of Lord Denning M.R. and Salmon L.J. are as follows, respectively –
Referring to section 1 (1) of the Act of
1930, Lord Denning M.R. said (1967) 2
Q.B. 363, 373 – 374 –
“Under the section the injured person steps
into the shoes of the wrongdoer. There
are transferred to him the Wrongdoer’s rights against the insurers under the
contract. What are those rights? When do they arise? So far as the ‘liability’ of the insured is
concerned, there is no doubt that his liability to the injured person arises at
the time of the accident, when negligence and damage coincide. But the ‘rights’ of the insured person
against the insurers do not arise at that time. The policy says that ‘the Company will indemnify the insured
against all sums which the insured shall become legally liable to pay as
compensation in respect of loss of or damage to property.’ It seems to me that the insured only
acquires a right to sue for the money when his liability to the injured person
has been established so as to give rise to a right of indemnity. His liability
to the injured person must be ascertained and determined to exist, either by
judgment of the court or by an award in arbitration or by agreement. Until that is done, the right to an
indemnity does not arise.”
“But whether or not there is any legal
liability and, if so, the amount due from Potters to the Post Office can, in my
view, only be finally ascertained either by
agreement between Potters and the Post Office or by an action or
arbitration between Potters and the Post Office. It is quite unheard of in
practice for any assured to sue his insurers in a money claim when the actual
loss against which he wishes to be indemnified has not been ascertained. I have never heard of such an action and
there is nothing in law that makes such an action possible.”
In the circumstances, it being the undisputed
view between the parties, that the legal liability of the directors or
officers, except in respect of the 3rd defendant, towards the
Company is not yet established the directors or officers cannot sue the 4th
defendants on the policy at the moment.
Yes, such must be the case even in relation to the 3rd
defendant. Although the plaintiff has
obtained a default judgment against the 3rd defendant so as to
satisfy the requirement for the establishment of the legal liability of the
insured towards the third party, it is the contention of the 4th
defendants that they have avoided the
policy in respect of the 3rd defendant. This issue ought first to be determined at the trial in the case
between the plaintiff and the 3rd defendant to ascertain if such is
indeed the position.
In that connection I have earlier on in this
ruling reversed the decision of the learned Registrar where he purported to
hold that in fact the 4th defendants had avoided the policy in
respect of the 3rd defendant.
So, it is a mere assertion by the 4th defendants which can be
determined by evidence at the trial.
That being the case it is arguable that the 3rd defendant may
sue the 4th defendant so that he is indemnified of his legal
liability to pay the default judgment to the, Company, plaintiff. Even if such were to be the position, the
person to sue the 4th defendants ought not to be the plaintiff but
the 3rd defendant. Query
whether the 3rd defendant would be able to successfully sue the 4th
defendants in view of exclusion clauses 4(X) and 4 (V). The position of the 4th
defendants with regard to these clauses is fully reserved. No arguments have been made in respect
thereto during appeal. Be that as it
may, what is important to note is that the right to sue the 4th
defendants does not vest in the plaintiff and, that in the circumstances, only the 1st, 2nd and
3rd defendants may sue the 4th defendants upon the legal
liability of the 1st, 2nd and 3rd defendants
towards the Company first being
established. The position of the 3rd
defendant require to be clarified by evidence at the trial to establish whether
or not the policy has been avoided in respect of him.
Turning to insuring clause 2(b), it is
apparent that this clause clearly appears to apply in circumstances where the
directors are legally liable to pay damages to a third party; where the Company pays those damages to the
third party on behalf of its directors and officers; and where, therefore, the
Company then seeks from the 4th defendants reimbursement of the sums
of money which it has paid to the third party on behalf of its directors or
officers. In that connection, Mr.
Chagwamnjira has vehemently argued that at the trial the plaintiff will show
that in fact it has suffered such a loss and that it has made good such a loss
on behalf of the directors or officers.
He has gone on to say that were it not for the Company to have done so,
the operations of the bank would have collapsed. So, this is a case in point under clause 2(b) and Mr.
Chagwamnjira maintains that the plaintiff therefore ought to be indemnified by
the 4th defendants. In the
court’s view, until that far, Mr. Chagwamnjira is right and the court accepts
his view.
However, the position of the plaintiff in
that regard is compounded by the submission made by Mr. Christie on behalf of the 4th defendants
that the situation of the plaintiff, in that case, is caught up by the
prohibition in Section 163 of the Companies Act 1984,thus, Cap. 46:03 of the
Laws of Malawi. That section is as
follows:
“Avoidance of 163. No Provision, whether contained
in the
provisions memorandum or
articles of a Company, or in
exempting any contract with the Company,
shall exempt
officers any directors or
other officer of a Company, or
indemnify him
against, any liability which by
virtue of any
rule of law, would otherwise attach
to him in
respect of any negligence, default, breach of duty or breach of trust of which
he may be guilty in relation to the Company.”
To this
argument, Mr. Chagwamnjira has fought back by asserting, very forcefully, that the insurance policy
contemplated such a position, and that by its clause 9(d), the insurance policy
excluded the operation of section 163 of Cap. 46:03 from applying to the
insurance policy. It is an interesting
and very persuasive argument, one which deserves a substantive consideration of
the court. First clause 9(d) of the
policy must be set out herein as follows:
“9 CONDITIONS
Underwriters
shall not avoid this Policy by reason only that they may be so entitled by
virtue of any statute or rule of law that makes or deems void any provision or
contract to indemnify or make payment to any Director or Officer of the Company
against liability for any Wrongful Act.
Underwriters rights to avoid this Policy for any other reason, including
but not limited to misrepresentation or non-disclosure, remain unaffected.”
It would seem
that Mr. Christie was content merely to assert the fact that S.163 of Cap.
46:03 barred the plaintiff from
indemnifying the directors or officers of the Company. He appears not to have specifically reacted
to Mr. Chagwamnjira’s submission in that regard. Be that as it may, it suffices to note that the provision 9(d) is
a provision prescribed in a contract with the Company. Further, it ought to be noted that section
163 prohibits any such provision either in a memorandum, or articles of a
Company or in any contract with the Company.
Besides, the expression of the prohibition is made in a mandatory
form. Given that situation, it is idle
for Mr. Chagwamnjira, and indeed the parties to the Policy of Insurance in
question that they purported to exclude the application of S.163 from applying to the policy. There is no room for exclusion. That, therefore, means both provisions, that
is clause 2(b) and clause 9(d) are void for illegality, to the extent that they
seek to contradict the provisions of S.163, in so far as the prohibition is
concerned. So, where does the plaintiff
stand under clause 2 (b) as supported by clause 9(d)? Its position is not any better than that which it has under
clause 2 (a). It cannot sue the 4th
defendants to seek indemnity at all.
Finally, that
then leaves the court with the consideration of the position of the plaintiff
under question 4. The learned Registrar
had not considered this question for reasons
already given. However, I have
been specifically asked to consider and answer it now, notwithstanding the learned
Registrar’s earlier position on it.
What, once again, does the question say? It is this:
(4) In the
event that the plaintiff is not entitled to an indemnity from the underwriters
pursuant to the Policy, whether the plaintiff has any other right to proceed
against the underwriters?”.
To begin with
let me accept as correct Mr. Christie’s submission that the only way by which the plaintiff would be allowed to
proceed against the 4th defendants, in circumstances envisaged under
question 4, would be under some statutory provision allowing third parties to
do so. Further, I should accept as
correct the position submitted by Mr. Christie that, in the country, the only statutory provision which we have
in that respect is section 65A of the Road Traffic Act which is not applicable
to the circumstances of the instant case.
Indeed I should further accept as correct that at common law the
plaintiff cannot directly maintain a suit against the 4th
defendants. Such being the position,
and as I have already clearly and succinctly stated above that it matters not
that the plaintiff might have, or that in fact they did, arrange and paid for
the contract of insurance, it is the insured who can sue the insurers in the
case. That in this case, the policy
shows that the directors and officers of the Company were the insured without
any legal disability from maintaining suit against the 4th
defendants, providing that the directors and officers’ legal liability to a
third party has first been established.
On his part,
Mr. Chagwamnjira vehemently lamented the fact that he could not see why a party
to the insurance contract, thus the plaintiff, would be said not to have
standing to sue the 4th defendants, another party to it. Be that as it may, the unfortunate position
in insurance contract remains to be what I have repeatedly already stated
above, that it is the insured person who have rights, and not any other person,
to sue the insurers. That position is
only altered in favour of third parties by express statutory position to that
effect. There is no such statute in
place which would apply to the instant case for the benefit of the plaintiff in
that regard.
Having gone
that far, I can only adopt and use the words of Lord Brandon, that for the reasons I have given, and despite the
natural sympathy which one is bound to
feel for the difficulty in which the plaintiff finds itself, I would dismiss
this appeal. It is so ordered. I would only add that even if the appeal had
succeeded, the plaintiff would still have had other serious difficulties to
surmount with regard to the operation and application of exclusion clauses 4(X)
and (V), on which the position of the 4th defendants has been fully
reserved.
Costs for
this appeal are for the 4th defendants. It is so ordered.
Made in Chambers
this 28th day of March, 2001 at Blantyre.
A.K. Tembo
JUDGE