WIJAYARAYANA , Appellant, and GENERAL INSURANCE CO.LTD , Respondent

102-NLR-NLR-V-47-WIJAYARAYANA-Appellant-and-GENERAL-INSURANCE-CO.LTD-Respondent.pdf


Yijayarayana c. General Insurance Co., ltd.
289
1946Present: Howard C.J. and do Silva J.WUAYARAYANA, Appellant, and GENERAL INSURANCECO., LTD., Respondent.
198—D. C. Colombo, 15,283.
Arbitration—Insurance policy—Clause providing for arbitration in case ofdifference or dispute—Jurisdiction of Court in case of absence of dispute—Arbitration Ordinance (Cap. 83), a. 7.
One of the clauses of a policy of insurance provided that “ all differencesarising out of this policy shall he referred to the decision of an arbitrator.”When a claim was made by plaintiff, the insured, the defendantinsurance company stated that it proposed * to repudiate liabilitybecause the plaintiff had violated policy conditions. The particular actof violation was not stated. The defendant company was asked onwhat grounds it denied liability and the reply sent to the plaintiff wasthat when the latter made his claim it would be the occasion forinforming him on what ground liability was repudiated.
Held, that, in the circumstances, when action was brought, there wasno difference or dispute which could be referred to arbitration.
A
PPEAL from a decision of the District Judge of Colombo. Theplaintiff based his aotion on a policy of insurance effected with the
defendant company in respect of his motor car. The plaintiff’s motoroar collided with a rickshaw puller who recovered damages against theplaintiff. On being called upon to indemnify the plaintiff the defendantcompany refused to do so. In its defence the defendant companypleaded that it was under no liability to indemnify the plaintiff byreason of the fact that the latter had violated the conditions of the policyby instituting this action without reference to arbitration. The learnedDistrict Judge dismissed the plaintiff’s action holding that the mattersin dispute between the plaintiff and the defendant were not referred toarbitration and in such, circumstances the plaintiff could not maintainthis aotion.
H. V. Per era, K.C. (with him Walter Jayaioardene), for the plaintiff,appellant.—The agreement that the award of the arbitration shall be acondition precedent to any right of action against the company was not abar to this aotion as there was not, in fact, any difference or disputeto go before an arbitrator.
Even if there was such a dispute the defendant company has by its- conduct waived its rights under the relevant clause of the agreement—Toronto Railway Co.v. National British and Irish Millers Insurance Co., Ltd.1Assuming that the arbitration clause was binding and assuming also thatthere was a dispute to be referred to arbitration, the order dismissingthe plaintiff’s action is wrong ; the learned District Judge should havestayed the action and referred the parties to arbitration. Section 7 ofthe Arbitration Ordinance is wide enough to catch up a case where partieshave agreed that no action shall be brought until the arbitrator has givenhis award.
1 (1914) 111 L. T. 555.
13—xXiVn.13. N. A 62810-658 (7/46)
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HOWARD C.J.—Wijayarayana v. General Insurance Co., Ltd.
N. Nadarajah, K.C. (with him D. W. Fernando), for the defendant,respondent.—The relevant clause in the agreement expressly makes anaward of the arbitrators a condition precedent to the bringing of an action,and the only course open to the learned District Judge was to dismiss theplaintiff’s action. See Scott v. Avery1 ; Trainor v. The Phoenix FireAssurance Co.2. The conduct of the respondent did not amount to awaiver of its rights under the arbitration clause. Section-7 of theArbitration Ordinance is similar in terms to section 11 of the CommonLaw Procedure Act of 1854 which was in force when Scott v. Avery wasdecided.
H. V. Perera, K.C., in reply.—-In Scott v. Avery {supra) no cause ofaction could arise until the award of the arbitrators was given for thereason that the plaintiff was entitled under the agreement to sue onlyfor such sum as may be awarded by the arbitrators. The plaintiff’saction had therefore to be dismissed. The present case is different as theaction is based on an unqualified right of indemnity. The Common LawProcedure Act of 1854 had not been enacted at the time the Court ofExchequer gave judgment in Scott v. Avery {supra).
Cur. adv. wit.
June 26, 1946. Howard C.J.—
The plaintiff who appeals from a decision of the District Judge,Colombo, bases his action on a policy of Insurance with respect to hismotor car effected with the defendant company. The plaintiff’s motorcar collided with a rickshaw puller who recovered damages against theplaintiff. On being called upon to indemnify the plaintiff the defendantcompany refused to do so. In its defence the defendant companypleaded that it was under no liability to indemnify the plaintiff by reasonof the fact that the latter had violated the terms and conditions of thePolicy by instituting the present action without reference to arbitration.The learned. Judge in dismissing the plaintiff’s claim has held that thematters in dispute between the plaintiff and the defendant companywore not referred to arbitration and in such circumstances the plaintiffcannot maintain this daim.
Clause 7 of the Conditions of the Policy which relates to arbitration isworded as follows :—
“ All differences arising out of this Policy shall be referred to thedecision of an arbitrator to be appointed in writing by the parties indifference or if they cannot agree upon a single rbitrator to chedecision of two Arbitrators one to be appointed in writing by each ofthe parties within one calendar month after having been required inwriting so to do by either of the parties or in case the Arbitral orsdo not agree of an Umpire appointed in writ .ig by the Arbitratorsbefore entering upon the reference. .The Umpire shall sit with theArbitrators and preside at tht ;*.• meetings and the making of an Awardshall be a condition precedent to any right of action against the
> (1855' 10 E. R. 1121.
(1892 65 L. T. 825.
HOWARD C.J.—Wijayarayana v. General Insurance Go., Ltd.
291
Company. If the Company shall disclaim liability to the Insuredfor any claim hereunder and such claim shall not within twelve calendarmonths from the date of such disclaimer have been referred to arbitra-tion under the provisions herein contained then the claim shall for allpurposes bo deemed to have been abandoned and shall not thereafterbe recoverable heroimder.”
It was held by the learned Judge and has been contended byMr. Nadarajah, on behalf of the respondent company, in this Court thatclause 7 of the conditions in the Policy provides that a reference toarbitration is mad.e a condition precedent to the defendant’s liabilityin a Court of Law. Mr. H. V. Perera on the other hand, maintains thatsection 7 of the Arbitration Ordinance (Cap. 83) applies and that theplaintiff having, in spite of the arbitration clause in the policy, soughthis remedy in Court, the remedy of the d.efendant company was to movethat Court proceedings be stayed and the matter referred to arbitration.Section 7 of the Arbitration Ordinance is word.ed as follows :—
“ Whenever the parties to any deed or instrument in writing to behereafter made or executed, or any of them, Shall agree that anyexisting or future differences between them shall be referred, to arbitra-tion, and any one or more of the said, parties, or any person claimingthrough or under them, shall nevertheless commence any actionagainst the other party,.or against any person claiming through orunder them, in respect of the matters so agreed to he referred, it shallbe lawful for the Court in which the action is brought on applicationby the defendants, or any of them, upon being satisfied that nosufficient reason exists why such matters cannot be roferred to arbitra -tion according to such agreement as aforesaid, and that the defendantsor any of them were, at the time of the bringing of such action, andstill are, ready and willing to join and concur in all acts necessary andproper for causing such matters to be decided by arbitration, to makean order staying all proceedings in such action, and compellingreference to arbitration on such terms as to costs and otherwise as tosuch Court may seem fit :
Provided always that any such rule or order may, at any timeafterwards, be discharged or varied as justice may require.”
In support of his contention Mr. Nadarajah has cited the case ofScott v. Avery l. This case was decided in 1856, and the law in forcewhen the case was under consideration by the English Courts containeda provision similar to section 7 of the Arbitration Ordinance, namely,section 11 of tho Common Law Procedure Act, 1854. This provision wassubsequently recreated in section 4 of the Arbitration Act 1889 (52 and53 Viet c. 49). In Scott v. Avery (supra) a policy of insurance waseffected in a mutual insurance company on a ship, ono of the conditionsof which was that the sum to be paid to any insurer for loss should in thefirst instance be ascertained by tho Committee ; hut if a difference shouldarise between the insurer and the committee relative to the settling ofany loss or to a claim for average, or any other matter relating to tho
1 (1855) 10 E. R. 1121,
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HOWARD C.J.—Wijayarayana v. General Insurance Co., ltd.
insurance the difference was to be referred to arbitration in a way pointedout in the conditions : provided always that no insurer who refuses toaccept the amount settled by the Committee shall be entitled to maintainany action at law until the matter has been decided by the arbitratorsand then only for such sum as the arbitrators shall award and theobtaining of the decision of the arbitrators was declared a conditionprecedent to the maintaining of the action- The Court of Exchequergave judgment for the plaintiff- in error. On error brought the Court ofExchequer Chamber reversed that judgment, and gave judgment for thedefendant in error. A further writ of error was brought and the Judgeswere summoned : Eleven Judges attended. By a majority of one theJudges were of opinion that judgment should be given for the defendantin error. With that opinion The Lord Chancellor, Lord Campbell andLord Brougham agreed. In the judgment of the Lord Chancellor atpp. 1136-1137 the following passage occurs :—
“ And that, I take it, is what was alluded to by Lord Hardwicke,in the case of Wellington v. Mackintosh (2 Atk. 569), which was this: Thearticles of partnership in that case contained a covenant that any disputeshould be referred. A bill was filed by one of the partners, and aplea set up that covenant to refer as a bar to the bill. Lord Hardwickeoverruled that plea, but said that the parties might have so framedthe deed as to oust the jurisdiction of the Court. I take it, thatwhat Lord Hardwicke meant wag, that the parties might have soframed the stipulations amongst themselves, that no right of actionor right of suit should arise until a reference had been previouslymade to arbitration. I think it may be illustrated thus : If I covenantwith A to do particular acts, and it is also covenanted between us thatany question that may arise as to the breach of the covenants shall bereferred to arbitration, that latter covenant does not prevent thecovenantee from bringing an action. A right of action has accrued,and it would be against the policy of the law to give effect to anagreement that such a right should not be enforced through the mediumof the ordinary tribunals. But if I covenant with A. B. that if I do oromit to do a certain act, then I will pay to him such a sum as J. S.shall award as the amount of damage sustained by him, then, until
J.S. has made his award, and I have omitted to pay the sum awarded,my covenant has not been broken, and no right of action has arisen.The policy of the law does not prevent parties from so contracting.And the question is here, what is the contract ? Does any right ofaction exist until the amount of damages has been ascertained in thespecified mode ? I think clearly not. – The stipulation here is, thatthe sum to be paid to the suffering member shall be settled by thecommittee. Certain proceedings are provided to obtain the decisionof arbitrators, and there is this express stipulation, that ‘ the obtainingthe decision of such arbitrators on the matters and claims in disputeis hereby declared to be a condition precedent to the right of anymember to maintain any such action or suit.’
“ That the meaning of the parties therefore was, that the sum to berecovered should be only suoh a sum as, if not agreed upon in the first
HOWARD C.J.—Wijay&rayana v. General Insurance Co., Ltd.
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instance between the committee and the suffering member, should bodecided by arbitration, and that the sum so ascertained by arbitrationand no other, should be the sum to be recovered, appears to me to be dearbeyond all possibility of controversy. And if that was their meaning,the circumstances that they have not stated that meaning in theclearest terms, or in the most artistic form, is a matter utterlyunimportant. What the Court below had to do was to ascertainwhat was the meaning of the parties as deduced from the languagethey have used. It appears to me perfectly clear that the languageused indicates this to have been their intention, that, supposing therewas a difference between the person who had suffered loss or damageand the committee as to what amount he should recover, that wasto be ascertained in a particular mode, and that until that modehad been adopted, and the amount ascertained according to thatmode, no right of action should exist. In other words, that the rightof action should be, not for what a jury should say was the amount ofthe loss, but for what the persons designated in that particular form ofagreement should so say.”
The basis of the judgment was that until the award was made no rightof action accrued. Lord Campbell in his judgment stated that it wasclear that no action should be brought against the insurers until thearbitrators had disposed of any dispute that might arise between them.It was declared to be a condition precedent to the bringing of any action.Lord Campbell then proceeded to discuss the legality of a such a contractand held that there was nothing illegal in it. Unless there was someillegality, the Courts were bound to give it effect. His Lordship thenproceeded to differentiate the case from that of Thompson v. Chamock *,where it was held that if the contract between the parties simply containa clause or covenant to refer to arbitration and goes no further, then anaction may be brought in spite of that clause, although there has been noarbitration. In this connection Lord Campbell at p. 1139 states asfollows:—
“ Therefore, without overturning the case of Thompson v. Charnockand the other cases to the same effect, Your Lordships mayhold that, in this case, where it is expressly, directly, and unequivocally-agreed upon between the parties that there shall be no right of actionwhatever till the arbitrators have decided, it is a bar to the action thatthere has been ho such arbitration.”
It would appear that in Scott v. Avery (supra) before the action wasbrought a difference and dispute arose between the Committee and theplaintiff relating to the insurance, to wit, as to the extent of the said lossand as to the repairs done to the ship and as to the sum to be paid by theAssociation to the plaintiff in respect of such loss. In Scott v. Avery(supra) there was a difference or dispute between the parties which wasclearly defined and could be referred to arbitration under the terms ofthe policy. No such defined difference exists in the present case. In 1
1 (1817) 8 T. R. 139.
1«-J. H.A 62810 (7/46)
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HOWARD C. J.—Wijayarai/ana v. General Insurance Co., Ltd.
their letter of May 8, 1943, the defendants state that they propose torepudiate liability because the plaintiff has violated policy conditions.The particular act of violation is not stated. In a letter of June 5, 1943,the plaintiff’s proctor asks on what specific grounds the defendants denyliability. On June 17, 1943, the defendants replied to this letter bystating that when a claim is made, it would be the occasion for informingthe plaintiff of the grounds on which liability is repudiated. On July 6,1943, the plaintiff’s proctor informed the defendants that his clientproposed to institute an action against them. On July 12, 1943, thedefendants repudiated liability. The correspondence between the partiesindicates merely a general repudiation of liability by the defendants. Inthese circumstances does the case come within the principle decided inScott v. Avery (supra) ? The latter case was comprehensively reviewedIn Trainor v. The Phoenix Fire Insurance Company 1. At p. 827 LordColeridge C.J. stated that the case was exactly within the decision ofScott v. Avery (supra) as interpreted by Lord Cranworth and LordCampbell and it is a clause agreeing to refer all matters in differencebetween the assured and the insurer, as a condition precedent to theassured maintaining any action against the insurer. The Lord ChiefJustice further stated that if there was a clause stating that “ we agreethat no cause of action under any circumstances shall arise upon thispolicy with which the Courts shall deal ” or “ under no circumstancesshall the Courts of Law have anything to do with disputes arising underthis clause,” such a clause would be invalid as an attempt to take awayaltogether from the Courts disputes between particular parties and toclose the doors under all circumstances and under every conceivablestate of the case. The Lord Chief Justice then proceeded to state thatthis is not what had been done. What had been done was to say thatbefore the Courts can try a case certain conditions precedent shall befulfilled and the judgment in Scott v. Avery (supra) had already determinedthat it matters not whether it is one or more of those Steps ; it mattersnot whether it is liability or the amount of liability if it is limited to beinga condition precedent to the maintenance of an action. It will beobserved, however, that in the case of Trainor v. The Phoenix Fire Assur-ance Company (supra), the action was not dismissed, but the proceedingswere stayed. The defendants in that case very rightly stated that theywere ready and willing to have the matter settled by arbitration asprovided by the policy.
In my opinion, the matter in issue is governed by the House of Lordscase of London and North Western <fc Great Western Joint Sailway Com-panies v. J. II. BiUington 2. The headnote of this case is as follows :—
“ A Railway Act confirming a Provisional Order, after empoweringthe railway company to charge a reasonable sum for certain servicesrendered to a trader, by way of addition to the tonnage rate, enactedthat ‘ any difference arising under this section shall be determinedby an arbitrator to be appointed by the Board of Trade at the instanceof either party.’ The company having sued the respondents for
(1892) 65 Law Times 825.
* (1899) A. O. 79.
■21*5“
HOWARD C.-T.—IVijnyarayana v. General Insurance On., Ltd.
services under this section, the respondents objected to the jurisdictionof the Court on the ground that the matter was one Tor the arbitratorto determine :—
Held, that as there had been no difference existing between theparties before action brought the arbitrator had not and theCourt had jurisdiction.
The decision of the Court of Appeal (1898), 2 Q. B. 7, reversed andthe decision of Wright and Darling JJ. restored upon the aboveground.”
The facts of this case are as follows :—
“ The appellants having brought an action in the county court atChester against the respondents to recover £38.7s. for siding rents forcoal wagons, the respondents gave notice to defend and defended theaction on the ground that the county court had no jurisdiction todecide the matters in issue in the action, such jurisdiction beingousted by the London and North-Western Railway Company (Ratesand Charges) Order Confirmation Act 1891 (54 & 55 Viet. c. ccxxi.)Sched. s. 5. That section empowers the company to charge a reason-able sum, by way of addition to the tonnage rate, for certain servicesrendered to a trader, and proceeds thus :‘ Any difference arising
under this section shall be determined by an arbitrator to be appointedby the Board of Trade at the instance of either party.’ The sidingrents were for 6d. a day for every wagon not released and remainingN on the company’s premises after four days allowed to the respondentsfor unloading. The county court judge found as a fact that nodifference had arisen before action brought as to the question whetherthe charge of 6d. was a reasonable one, or whether the four days was areasonable time for unloading. The learned Judge added: * Thedefendants knew of the charge being made against them; they*accepted the services with such knowledge, though protesting againstthe right of the plaintiffs to make any charge ; they make no complaintthat the amount of the charge was unreasonable, or the period of fourdays, so as to enable the plaintiffs to apply to have such questionsettled by arbitration, nor do they take any step themselves to havethe question so settled. When action is brought they say, andapparently for the first time, the question between us is as to thereasonableness of the charge of 6d. and therefore for another tribunal.’The Judge therefore gave judgment for the plaintiffs. The defendantshaving appealed, the Queen’s Bench Division (Wright and Darling JJ.)dismissed the appeal with costs. The Court of Appeal (A. L. Smithand Chitty L.JJ.) reversed this decision and entered judgment for thedefendants.”
In his judgment Lord Halsbury L.C. stated at p. 81 as follows :—
“ that a condition precedent to the invocation of the arbitratoron whatever grounds is that a difference between the parties should
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HOWARD C.J.—Wijayarayana v. General Insurance Co., Ltd.
have arisen, and I think that must mean a difference of opinion beforethe action is launched either by formal plaint in the county court orby writ in the superior Courts. Any contention that the parties could,when they are sued for the price of the services, raise then for thefirst time the question whether or not the charges were reasonable andthat therefore they have a right to go to an arbitrator, seems to me tobe absolutely untenable. If, in the ordinary course of things, somequestion had arisen between the parties which they wanted toarbitrate upon, and a submission to arbitration were agreed uponin this form—which very commonly is the form—“ that all mattersin difference shall be submitted to AJB.”, it would be a conditionprecedent to the arbitrator entering upon any form of inquiry therethat the person who insisted that there was a difference should showthat the difference had arisen before the submission to arbitrationwas made. That is a matter which has been repeatedly decided,and I should think that no lawyer would hesitate to say that that isthe true condition of the law.”
Lord Ludlow in his judgment at pp. 82-83 also stated :—
“ There is, however, one matter about which I do desire to say aword, and that is this—because I entirely concur with my noble andlearned friend on the Woolsack—that this difference is a differencewhich ought to have arisen before action brought, and that it is toolate afterwards to raise a difference which can be brought within themeaning of this section. It is sufficient for the purpose of this case tosay that it is concluded by the finding of the county court Judge.As I understand that finding (and it is final), it is that there was nodifference existing between the parties at the time the action wasbrought. I think this appeal should be allowed.”
In the present case the defendants in their letter of May 8, 1943, statedthat they proposed to repudiate liability because the plaintiff had violated•policy conditions. The particular act of violation was not stated.They were asked by letter of June 5, 1943, on what specific grounds theydenied liability. On June 17, 1943, by letter the defendants informedthe plaintiff that, when the latter made his claim, it would be the occasionfor informing the plaintiff on what ground liability was repudiated. Inthese circumstances I am of opinion that, as in London and North Western<k Cheat Western Joint Railway Companies v. J. H. BiUington {supra).when action was brought, there was no difference or dispute which couldbe referred to arbitration. The order of the learned Judge is, therefore,set aside. Although the conduct of the defendants has been tortuousand evasive in the extreme I think they are entitled to have an orderstaying the action until the matters in difference between the partieshave been referred to arbitration. I so order and direct further that thecosts of appeal be paid by the defendants. The costs so far incurredin the lower Court will abide the final result of this action.
ds Silva J.—I agree.
Order set aside.