The Ceylon Insurance Co.. Md., v. Itichard
Present . Gratiaen J. and Gunasekara J.
THE CEYLON INSURANCE CO., LTD., Appellant, andRICHARD et al., Respondents
S. C. 374—D. C. Colombo, 18,8-23
Motor Car Ordinance, No. 45 of 1938—Part 8—Insurance against third party risks—Scope of insurer's liability to third party—Restrictive and excepted conditionsin policy—Breach of excepted condition—Action for declaration of non-liability—Statutory rights and obligations of injured party—Requirement of prescribednotice to injured party—Sections 54, G3, 69, 7b, 127, 128, 130, 133. 134, 137,138. '
In an action instituted under Section 137 of the Motor Car Ordinance by aninsurer to obtain a declaration of non liability for breach of an excepted condi-tion in a policy of insurance in respect of third party risks issued in conformitywith the requirements of Part 8 of the Motor Car Ordinance—
Held :(i) As between insurer and insured, their rights and obligations
inter se are measured solely by the terms of their contract, so that the contractualduty ot the former to indemnify the latter may be avoided on any lawful groundwhich the parties might mutually agree upon.
The Ceylon Insurance Co., Ltd., t>. Richard
Ab far as the injured party is concerned, however, his right against theinsurer to claim direct satisfaction of a decree entered in his favour against theinsured is unaffected by the terms of the contract itself unless the insurer isprotected by a declaration (under section 137) that there haB been a breachof a condition in the policy which falls within one or other of the categories of,excepted conditions enumerated in Section 130 (4).
A person who drives an insured motor car of a weight which is in excess'of that which is specified in his certificate of competence is not “ the holder ofa certificate of competence " within the meaning of Section 130 (4) (c) (ii) ofthe Motor Car Ordinance.
If an insurer desires, by obtaining a declaratory decree against ilieinsured under Section 137, to escape his statutory obligations towards theinjured third party under Section 133 as well, he must, within the statutoryperiod fixed by the proviso, give to the third party a notice specifying the parti-cular condition a breach of which is relied on; and no breach other than thatso specified can be relied on in order to escape the statutory obligation imposedby Section 133.
If no such notice or if a defective notice (in .which no particulars arespecified) is furnished to the third party, the latter's statutory right to obtainsatisfaction of his decree under Section 133 direct from the insurer would beunaffected by any declaration of non-liability which the insurer may obtainagainst the insured in terms of Section 137; in that event, the insurer mustfirst discharge his obligation under Section 133, and then seek his remedy againstthe insured under Section 138.
PPF.AT, from a judgment of the District Court, Colombo.
Defendant was the owner of a motor car which was 23 cwts. 3 quartersin weight. Plaintiff Company issued to the defendant in respect of thismotor car a comprehensive policy of insurance, covering third partyrisks. It was, however, a condition of the policy that the Companyshould not be liable in respect of any claim arising while the vehicle was“ being driven by …. an * excluded driver ' ” as defined inthe Schedule to the jaolicy. The expression “ excluded driver ” wasdefined in the Schedule and included “ any person who is not the holderof a certificate of competence unless he has held and is not disqualifiedfrom obtaining such certificate ”. Subsequently, when the car wasbeing driven on the public highway by the defendant’s employee, it metwith an accident in consequence of which the added defendant sustainedcertain injuries. It was established that on the day of the accident thedriver did not possess, and had never possessed, a certificate of competenceauthorising him to drive a car whose weight exceeded 19 cwts.; he hadonly possessed a certificate of competence which in terms authorised himto drive motor cars weighing “ 19 cwts. and below
Plaintiff Company commenced the present proceedings under section137 of the Motor Car Ordinance, No. 45 of 1938, for a declaration againstthe defendant that it was not liable to indemnify him in respect of theaccident on the ground .that the car was at the .relevant time being drivenby “ an excluded driver ” within the meaning of .the policy. TheCompany further prayed for a declaration that, as the condition inrespect of which a breach had been committed was a condition of a kindauthorised by Section 130 (4) of the Ordinance, it was not liable, under
8J. N. B. 89182 110/57)
The Ceylon Insurance Co.t Ltd., t. Richard
Section 133, to pay any damages that may be decreed in an action whichhad already been instituted against the defendant by the injured partyand was still pending. Notice of the institution- of the present proceedings■was given to the injured party (added-defendant) who thereuponintervened in order-to protect his rights against the Company.
H. V. Perera, K.C., with H. Wanigatunga and M. Ramalingam, forthe plaintiff appellant.
N.K. Choksy, K.C., with J. M. Jayamanne, for the defendantrespondent.
S. J. Kadirganiar, with E. R. S. R. Coomaraswamy, for the added-defendant respondent.
Cut. adv. vult.
August 1, 1951. Ghatiaen J.—
This action relates to a policy of insurance in respect of third-partyrisks issued in conformity with the requirements of Part 8 of the MotorCar Ordinance, No. 45 of 1938. It wdll be convenient if I set out shortlythe scheme of this legislation which has been introduced for the protectionof members of the public who might be injured on the highway throughthe negligence of drivers of motor vehicles.
Sections 127 and 128 prohibit the user of a motor car, as defined inthe Ordinance, unless there is in force a policy of insurance (issued byan “ authorised insurer ”) against third-party risks in relation to the useof the vehicle by the .driver concerned. Section 130 generally rendersinoperative, as far as the rights of third parties against the insurerare concerned, any restrictive conditions in the policy which may bindthe insured person himself, except to the extent provided by Section 130 (4).For the purposes .of the present case it is sufficient to refer only to onecategory of the excepted conditions, namely, a condition of non-liabilityif the accident occurs at a time when the car is being driven “ by anyperson who is not the holder of a certificate of competence ”. Section130 (4) (c) (ii). Should the insured become liable under a decree to paydamages to an injured person in respect of an accident occurring at atime when the policy is in force, Section 133 imposes a duty on the insurerto satisfy the decree by payment direct to the injured person—unless theinsurers are entitled to escape liability on the ground that there has beena breach of an excepted condition such as I have previously described.As a condition precedent to relief from such statutory liability, however,Section 137 requires the insurer, within a prescribed period, to obtain adeclaration from a Court of competent jurisdiction that a breach has beenestablished of ‘‘a condition of the policy being one of the conditionsenumerated in Section 130 (4) ”. The proviso to Section 137 also requiresthat notice of such an action, specifying the breach of the condition relied
GRATIAEN J.—The Ceylon Insurance Co., Ltd., v. Richard07
on, should be given within a prescribed period to the injured party whose'rights against the insurer are regulated by the Ordinance and not by the-terms of the contract itself. The injured party on receipt of this notice-is empowered, if he so desires, to be made a party to the declaratoryaction instituted under Section 137. The underlying purpose of this:legislation is made clear by the provisions of Section 138. As betweeninsurer and insured, their rights and obligations inter se are measuredsolely by the terms of their contract so that the contractual duty of theformer to indemnify the latter may be avoided on any lawful groundwhich the parties might mutually agree upon. As far as the injured■party is concerned, however, his right against the insurer to claim directsatisfaction of a decree entered in his favour’ against the insured is un-affected by the terms of the contract itself unless the insurer is protectedby a declaration (under Section 137) that there has been a breach ofcondition in the policy which falls within one or other of the eategoi-iesof excepted conditions enumerated in Section 130 (4). Subject to this,the insurer must pay the injured third party and seek thereafter torecover from the insured any sum which exceeds the amount of his strictliability under the contract subsisting between them. It will thus beseen that the insurer’s statutory liability towards a third party may wellexceed his contractual liability towards the insured himself. It is per-missible and proper, in my opinion, for a Court whose jurisdiction isinvoked under Section 137, to enter a decree, if the circumstancesso warrant, declaring that the injured party’s rights against the insurershall not be affected by a declaration >n respect of the insurer’s rightsagainst the insured.
I shall now consider the facts of the' present case. The plaintiff Com-pany is an “ authorised insurer ” within the meaning of the Ordinance.The defendant was at all material times the owner of a Wolsley motor carNo. Z 784 which was S3 cwts. 3 quarters in weight. On April 11, 1946, theCompany issued to the defendant in respect of this motor car a comprehen-sive policy of insurance, covering third party risks, for a period of oneyear. It was a condition of the policy that the Company should not beliable in respect of any claim arising while the vehicle was “ being drivenby … an. ‘ excluded driver ' ”, which expression is defined inthe Schedule to the policy as meaning;
“ (1) any person other than the insured or a person driving with theinsured’s express or implied permission;
(2) any person who is not the holder of a certificate of competenceunless he has held and is not disqualified from obtaining suchcertificate ”.
It will be seen that the first category of “ excluded driver ” under thepolicy corresponds to the class dealt with by Section 130 (4) (b) (i■) of theOrdinance. The second category corresponds to, but is narrower than,the class dealt with by Section 130 (4) (c) (ii). In fact, the Companywas entitled, if it so desired, to relieving itself, in terms of the policy, ofstatutory obligations to a greater extent than it has chosen to do in thepresent case.
GRATIAEN J.—The Ceylon Insurance Co., Ltd., v. Richard
On May 17, 1946, when the car was being driven on the public high-way by the defendant’s employee J. P. Silva, it met with an accidentin consequence of which the added-defendant, who is a minor, sustainedcertain injuries. The added-defendant, through his next friend, has suedthe defendant, with notice to the Company, in action No. 18,669 in theDistrict Court of Colombo for the recovery of Bs. 15,000 as damages inrespect of the accident. I understand that this action has been pending-for over four years.
Dn December 18, 1947, the Company commenced the present pro-ceedings under Section 137 of the Ordinance for a declaration againstthe defendant that it was not liable to indemnify him in respect of theaccident because the motor car was at the relevant time being drivenby "an excluded driver’’ within the meaningofthepolicy. The
Company further prayedfora declaration that,asthecondition in
respect of which a breachhadbeen committed wasa condition of a kind
authorised by Section 130(4)of the Ordinance, itwasnotliable, under
Section 133, to pay any damages that may be decreed in favour of theadded defendant against the defendant in the pending action No. 18,869(which I assume the parties concerned will some day have the energyto bring to a conclusion). Notice of the institution of the present pro-ceedings was given to the added defendant who thereupon intervened inorder to protect his rights. The learned District Judge after hearingarguments upon the relevant provisions of the Ordinance and upon themeaning of the contract of insurance; dismissed the Company’s actionagainst the defendant with costs. The added defendant was orderedto bear his own costs. The Company then appealed to this Court askingfor a reversal of the judgment against it. The added-defendant hasfiled certain cross objections in terms of Section 772 of the Civil ProcedureCode.
I propose in the first instance to consider the merits of the caseas between the Company and the defendant, without reference to thestatutory rights and obligations of the added defendant and the Companyinter se.
It is common ground that on the day of the accident J. P. Silva wasdriving the insured motor car with the express permission of the defendant.He did not therefore fall within the first category of “ excluded driverdefined in the Schedule annexed to the contract. It is also commonground, however, that Silva did not possess, and had never possessed,a certificate of competence authorising him to drive a car whose weightexceeded 19 cwt. He only possessed a certificate of competence P3which in terms authorised him to drive private motor cars weighing" 19 cwt. and below ”, whereas the weight of the insured car, as I havealready pointed out, slightly exceeded 23 cwt. In spite of these admittedfacts the learned District Judge took the view that the Company couldnot rely on a breach of the condition of the policy which excludes liabilitywhen the car is being driven by " a person who is not a holder of a certi-ficate of competence unless he has held and is not disqualified fromobtaining such certificate ”. With great respect, I find it impossibleto appreciate the logic of the learned District Judge’s conclusions on thispart of the case.
GRATIAEN J.—The Ceylon Insurance Co., Ltd. t>. Richard
The contract of insurance relates expressly to the Wolsley motor carNo. Z 764, and to no other vehicle. It is therefore quite apparent that therelevant part of the definition of “ excluded driver ” in the schedulemakes it a condition of liability that the driver should possess at therelevant time or have previously possessed (without any supervening•disqualification) a certificate of competence issued by the Commissioner-of Motor Transport authorising him to drive a motor car of a description(in respect of weight or any other factor) to which the insured vehiclebelongs. It is true that Section 63 of the Ordinance divides “ motorcars ” into only five specified classes, and that the insured vehicle fallswithin the class described in Section 63 (e). It is also true that Section54 prohibits a person from driving a motor car “ of any class " on a highwayunless he is the holder of an effective certificate of competence which isvalid “ for that class of motor carsIf these two Sections had stood
.by themselves, there might have been some justification for the viewthat the licensing authority, when issuing certificates of competence,has no authority to submit a particular “ class ” of vehicle to somefurther sub-classification. But this is precisely what Section 69 of theOrdinance empowers him to do. It expressly declares:—
■*' (1) Notwithstanding anything contained in this Part the Commis-sioner may in his discretion issue to any person a certificate ofcompetence expressed to be valid for a specified motor car orfOr motor cars of any specified weight or description.
(‘2) No person who is the holder of a. certificate of competence issuedunder sub-section (1), shall drive on a highway any motor carother than the motor car specified in that certificate or a motorcar of the weight or description specified in that certificate, asthe case may be ”.
It is quite apparent that Silva’s certificate of competence was not validfor the insured vehicle or for any motor car whose weight exceeded 19cwt. There are obvious reasons why the Commissioner should, in thepublic interest, be vested with a discretion in matters of this sort, andit is no less reasonable for an insurer to insist as a condition of his liabilitythat the vehicle should be driven by some person whom the licensingauthority has certified as competent to drive a motor car of the particular■weight and description to which the insured vehicle corresponds. A•contract must be construed with reference to its context, and it would bemonstrous to suggest that the terms of the policy would be satisfied ifthe driver possessed only a certificate of competence in such a restrictedform that he could not drive the insured vehicle without committing apunishable offence.
It has also been suggested that as Silva was not an “ excluded driver ”within one part of the definition of that term he could not be regarded a3“ excluded ” even if he fell within the second category of excluded drivers.This argument must be rejected because it does great violence to thelanguage of the contract. It would imply that liability attaches to theCompany if, for instance, the insured consciously permits the vehicle tobe driven by a lima tic or a person whose certificate of competence has
GRATIAEN J.—The Ceylon Insurance I/O., Ltd., v. Richard
been cancelled by a Court of law under Section 75 of the Ordinance ;similarly, it would imply an agreement to indemnify in a case where aperson who possesses a valid certificate of competence steals the car anddrives it without the owner’s permission. The language of the policydoes not sanction the imputation of such reckless benevolence on thepart of the insurer.
For the reasons which I have set out I take the view that the Companywas under no contractual liability to indemnify the defendant in respectof the accident which occurred on March 17, 1946. I am also of the opi-nion, for similar reasons, that the breach of the condition relied on by theCompany was a breach of a condition contemplated by Section 130 (4)
(ii) of the Motor Car Ordinance, No. 45 of 1938, because Silva was not“ the holder of a certificate of competence ” wi.thin the meaning of thatsection. If, therefore, the Company has satisfied the conditions pres-cribed by the proviso to Section 137, it would also be entitled to claimnon-liability to satisfy, in terms of Section 133 of the Ordinance, the decreewhich the added-defendant may obtain against the defendant in actionNo. 18,669 of the District Court of Colombo. In order to decide thislatter question, it is necessary to consider the cross-objections filed onbehalf of the added-defendant.
As I have previously stated, the added-defendant exercised his right tointervene in this action in order to protect his rights against the Company.His intervention was specially necessary because the Company hadexpressly asked for a declaration of non-liability to satisfy the decree inthe pending proceedings in D. C. 18,669. He associated himself withthe defences raised by the defendant, and to that extent his objectionshave failed. He has in addition raised two additional issues (1) that theDistrict Court of Colombo had no territorial jurisdiction to entertain theCompany’s action and (2) that as far as he is concerned the Companycannot claim the benefit of its declaration of non-liability against thedefendant because he has not within the prescribed period been furnishedwith a notice from the Company, as required by the proviso to Section137,“ specifying the breach of the condition on which (it) proposes
to rely ”. The section expressly declares that such a notice is a conditionprecedent to an . insurer's right to escape his statutory obligations underSection 133.
We have had the benefit of a very well-considered – argument fromMr. Kadirgamar on the issue as to jurisdiction, but it is unnecessary togive a definite decision on this question because the added-defendant’ssecond objection is in my opinion entitled to prevail.
The only notice which the Gompany furnished to the added-defendantwithin the prescribed period is contained in the letter P7 datedDecember 16, 1947, informing him that the Company intended to instituteproceedings against the defendant “ for a declaration that there has beena breach of a condition enumerated in S.eetion 130 (4) of the Ordinanceand specified in the Policy of Insurance ”. It is apparent, and Mr.Perera has very properly conceded, that this notice does not purport tospecify the particular condition a breach of which is relie.d on. Indeed,Section 130 (4) enumerates as many as a dozen conditions. The purpose of
GRATIAEN J.—The Ceylon Iivtnrance Co., Ltd., v. Richard
the proviso is abundantly clear, and has been explained by the Court ofAppeal in England in connection with Seetion 10 of the Road Traffic Act,1934, which corresponds to Section 136 of our local Ordinance, in whichsimilar words—viz., a “ notice …. specifying the non-disclosureor false representation on which he proposes to rely ”—appear.Vide
Zurich General Accident and Liability Insurance Co. v. Morison *. Apply-ing the ratio decidendi of this authority, I would in the present case say: —
that if an insurer desires, by obtaining a declaratory decree against
the insured under Section 137 of the Ordinance, to escape hisstatutory obligations towards the injured third party underSection 133 as well, he must within, the- statutory period fixed bythe proviso give to the third party a notice specifying theparticular condition a breach of which is relied on; and nobreach other than that so specified can be relied on in orderto escape the statutory obligation imposed by Section 133 ;
that if no such notice or if, as in this case, a defective notice (in
which no particulars are specified) is' furnished to the thirdparty, the latter’s statutory right to obtain satisfaction of hisdecree under Seetion 133 direct from the insurer would be un-affected by any declaration of non-liability which the insurermay obtain against the insured in terms of Section 137; in thatevent, the insurer must first discharge his obligation under Section133 and than seek his remedy against the insured underSection 138.
The principle is clear enough. The terms of the policy of insuranceare matters within the knowledge of the immediate parties to the contract,whereas pedestrians and others, for whose benefit compulsory insurancelegislation has been introduced, have no voice as to the warranties andconditions in insurance policies. The Ordinance withdraws statutoryprotection from an injured third party only if contractual conditions of aparticular kind are proved to have beeen violated, and then only providedthat the third party has been duly furnished with particulars of the breachrelied on. This procedure enables the injured man to investigate thespecific allegations of which he has been given notice within the prescribedperiod, so that he can decide whether or not to protect himself bycontesting the grounds on which the insurer seeks to escape the statutoryobligation’s imposed on him by Section 133. If, upon such investigation,the third party is satisfied that the insurer is protected, the third partymight well consider in any particular case that the expense of obtaining adecree which does not bind the insurer but only an impecunious tort-feasor would be profitless.
It has been’ suggested that, although the notice served on the added-■defendant did not comply with the requirements of the proviso, he mustbe deemed, by having intervened in these proceedings, to have waivedthe deficiencies in the notice. On the contrary, the purpose of a thirdparty’s intervention, which is expressly contemplated by the proviso,is to enable him to protect himself by relying on the defective notice
(1942) 2 KJi. 55 C. A.
GRATIAEN J.—The Ceylon Insurance Co., Ltd., o. Richard
so as to ensure that his statutory rights are declared to be unaffected bythe order "which the insurer is seeking to obtain against the insured.To impute some idea of a notional waiver to the conduct of the added-defendant in this case seems to me to be unwarranted by the circumstancesof this case. I refuse to believe that there is any principle of law underwhich words of protest can, at the moment and indeed by the very factof their utterance, become converted into words of condonation.
For the reasons which I have given, I would set aside the judgmentappealed from, and enter a decree in the following terms: —
(o)declaring that, as between the plaintiff and the defendant, there-has been a breach of a condition in the policy of insuranceNo. 2,200 dated April 11, 1946, so as to relieve the plaintiffof its contractual obligations to indemnify the defendant inrespect of the accident which occurred on May 17, 1946 ;
declaring that, as between the plaintiff and the added-defendant,.
the plaintiff is nevertheless under a statutory obligation to payto the added-defendant the amount of the decree includingcosts, which might be entered in favour of the added-defendantagainst the present defendant in action No. 18,669 of theDistrict Court of Colombo ;
declaring further that, as between the plaintiff and the defendant,.
the plaintiff will be entitled to recover from the defendant,both under the terms of the said policy No. 2,200 and by virtue-of Section 138 of the Motor Car Ordinance, No. 45 of 1938, suchamount as may be paid by the plaintiff to the added-defendantin satisfaction of the decree in the said action No. 18,669.
I would also make order that the plaintiff should pay to the added-defendant his costs both here and in the Court below, but that the-defendant should pay to the plaintiff its costs in both Courts.
Gijnasekara J.—I agree.
Judgment set asde.
THE CEYLON INSURANCE CO., LTD., Appellant, and RICHARD et al., Respondents