Emo Oil Ltd v Sun Alliance; London Insurance Plc

• Jurisdiction: Ireland
• Judge: Mr. Justice Kearns
• Judgment Date: 22 January 2009
• Neutral Citation: [2009] IESC 2
• Court: Supreme Court
• Date: 22 January 2009

Emo Oil Ltd v Sun Alliance & London Insurance Plc

BETWEEN

EMO OIL LIMITED

PLAINTIFF/RESPONDENT

AND

SUN ALLIANCE AND LONDON INSURANCE PLC.

DEFENDANT/APPELLANT

[2009] IESC 2

Denham J.

Kearns J.

De Valera J.

[S.C. No. 30 of 2006]

THE SUPREME COURT

CONTRACT

Terms

Interpretation - Insurance contract - Ordinary and natural meaning - Parties objective intention - Whether term ambiguous - Whether insolvency of insured buyer occurring within period of insurance - Whether insured entitled to indemnity under policy - Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587, Re Walter L Jacob & Co Ltd [1993] BCC 512 and Analog Devices v Zurich Insurance [2005] 1 IR 274 applied - Appeal allowed (217/2006 - SC - 22/1/2009) [2009] IESC 2

Emo Oil Ltd v Sun Alliance

Facts: The plaintiff an importer and distributor of oil products, claimed an indemnity in a policy of insurance for catastrophe credit from the defendant. The issue arose on appeal as to whether when a winding up petition for insolvency was presented but the winding up order was made after the expiration of the policy, the liquidation could be said to have occurred within the period of the policy. The High Court held that the term “insolvency” had to be interpreted in favour of the plaintiff by reference to the date of the commencement of a winding up as opposed to the date on which a winding up order was made.

Held by the Supreme Court per Kearns J. (Denham, De Valera JJ. concurring), in allowing the appeal that it had been open to the parties to use the term contended for by the plaintiff. The interpretation contended for by the plaintiff would cause significant problems in practice and would flout business sense where the presentation of a winding up petition might not result in any winding up order being made. Open ended exposure of the insurer could exist after the policy had expired. The issue whether the insolvency of the insured buyer had occurred within the period of insurance under the policy would be answered in the negative.

Reporter: E.F.

COMPANIES ACT 1963 S220(2)

INSOLVENCY ACT 1986 PART I (UK)

INSOLVENCY ACT 1986 PART II (UK)

INSOLVENCY ACT 1986 PART III (UK)

INSOLVENCY ACT 1986 PART IV (UK)

INSOLVENCY ACT 1986 PART IX (UK)

INSOLVENCY ACT 1986 S247 (UK)

INSOLVENCY ACT 1986 S425 (UK)

COMPANIES ACT 1963 S212

COMPANIES ACT 1963 S251

INSOLVENCY ACT 1986 S247(2) (UK)

INSOLVENCY ACT 1986 S129(2) (UK)

METTOY PENSION TRUSTEES LTD v EVANS & ORS 1990 1 WLR 1587

ANALOG DEVICES BV & ORS v ZURICH INSURANCE CO & ANOR 2005 1 IR 274 2005 2 ILRM 131 2005/2/242 2005 IESC 12

INVESTORS COMPENSATION SCHEME LTD v WEST BROMWICH BUILDING SOCIETY 1998 1 WLR 896

REARDON SMITH LINE LTD v HANSEN-TANGEN 1976 3 AER 570

UPM KYMMENE CORP & ORS v BWG LTD UNREP LAFFOY 11.6.1999 1999/24/7894

COMPANIES ACT 1963 S218

COMPANIES ACT 1963 S219

COMPANIES ACT 1963 S217

COMPANIES ACT 1963 S286

COMPANIES ACT 1963 S288

COMPANIES ACT 1963 S290

COMPANIES ACT 1963 S150

EEC REG 1346/2000 ART 1

CLARKE THE LAW OF INSURANCE CONTRACTS 5ED 2006 419 PARA 15.5

MANCE, GOLDREIN, MERKIN INSURANCE DISPUTES 2ED 2003 148

GENERAL SHARE & TRUST CO v WETLEY BRICK & POTTERY CO 1881-82 LR 20 CH 260

OFFICIAL CUSTODIAN FOR CHARITIES & ORS v PARWAY ESTATES DEVELOPMENTS LTD (IN LIQUIDATION) 1985 CH 151

WALTER L JACOB & CO LTD, IN RE 1993 BCC 512

COMPANY DIRECTORS DISQUALIFICATION ACT 1986 S7(2) (UK)

EUROFOOD IFSC LTD, IN RE 2004 4 IR 370 2004/18/4004

DYNAMICS CORP OF AMERICA (IN LIQUIDATION) (NO 1), IN RE 1973 1 WLR 63

COMPANIES ACT 1948 S276 (UK)

1 JUDGMENT of Mr. Justice Kearns delivered the 22nd day of January, 2009

2 Judgment delivered by Kearns J. [nem diss]

3 This is an appeal from the judgment of the High Court (Gilligan J.) delivered on 25 ^th November, 2005 in which he determined a preliminary issue in these proceedings in favour of the plaintiff relating to the interpretation of the terms of a policy of insurance entered into by the parties. The policy of insurance was for " catastrophe credit" insurance pursuant to which the plaintiff, an importer and distributor of oil products, claims an indemnity from the defendant.

4 The specific matter in issue is whether, when a winding up petition on grounds of insolvency was presented in respect of one of the plaintiff's buyers during the period of the policy, but the winding up order in respect of that company was made after the expiration of the policy, the liquidation of that company can be said to have " occurred" within the period of the policy. The agreed wording of the preliminary issue is:-

" Whether the insolvency of the insured buyer occurred within the period of insurance under the terms of the policy of insurance, having regard to the terms of section 220(2) of the Companies Act, 1963."

5 In his judgment, Gilligan J. held that the term " insolvency" in the policy should be interpreted by reference to the date of the commencement of a winding up, as opposed to the date on which a winding up order is made and that, accordingly, the winding up occurred within the term of the policy. It is from that finding that this appeal is brought.

FACTUAL BACKGROUND

6 The plaintiff and the defendant entered into a contract for " catastrophe credit insurance" on 1 ^st May, 1997. This policy was renewed by correspondence on varied terms at various dates, the last of which was from the period from 1 ^st August, 2001 to 31 ^st July, 2002, which said term was extended to the 31 ^st August, 2002.

7 The policy provided for cover inter alia in the following circumstances:-

"The insurance provided:

The company will indemnify the insured in respect of the aggregate insured losses in excess of the deductible arising during the normal course of the insured's business from the insolvency or protracted default of an insured buyer.

PROVIDED THAT:

(A) The insolvency or protracted default of the insured buyer occurs during the period of insurance …"

8 The policy defines "insolvency" by reference to a number of events, including the following:-

"Insolvency shall mean that one of the following has occurred in respect of the insured buyer …"

9 · A proposal for a voluntary arrangement has been made and approved under Part I of the (English) Insolvency Act, 1986 (hereinafter referred to as the Act).

10 · An administration order has been made by the court under Part II of the Act.

11 · The appointment of an administrative receiver on behalf of debenture holders or other creditors under Part III of the Act.

12 · A resolution has been passed for the voluntary winding up or an order for winding up has been made by the court under Part IV of the Act.

13 · A bankruptcy order has been made by the court under Part IX of the Act.

14 · Liquidation has occurred as defined in section 247 of the Act (other than a voluntary winding up solely for the purpose of amalgamation or reconstruction on a solvent basis) …

15 · A compromise or arrangement between the insured buyer and his creditors has been sanctioned by the court under section 425 of the Companies Act, 1985.

16 · A valid assignment or composition has been made by the insured buyer for the benefit of his creditors.

17 Or the equivalent as stipulated or in accordance with the local law of the countries specified under the Geographical Limits."

18 The " Geographical Limits" are described as " Eire and U.K.".

19 On 29 ^th August, 2002, the plaintiff presented a Petition seeking the winding up of one of its customers, Dev Oil & Gas Limited ('Dev Oil'). A winding up order was made on 11 ^th September, 2002, i.e. after the expiry of the period of insurance under the policy. If a deduction is made in respect of VAT, the plaintiff alleges that it has suffered a net loss of €647,990.72 from the insolvency of Dev Oil. It further alleges that Dev Oil was an insured buyer within the terms of the policy and that Dev Oil's debts are insured losses under the policy.

RELEVANT STATUTORY PROVISIONS

20 The definition of " insolvency" under the policy is set out above and the issue is the date of the insolvency for the purposes of the policy. It is the defendant's case that only the following limb of the definitions provided is relevant in determining the issue:-

" A resolution has been passed for the voluntary winding up or an order for winding up has been made by the court under Part IV of the English Insolvency Act 1986".

21 The policy provides a possible extension of the definition in that it states " or the equivalent as stipulated or in accordance with the local law of the countries specified under the Geographical Limits". As already noted, the geographical limits are stated in the Schedule to be " Eire and UK".

22 Under Irish law, it is provided by the Companies Acts 1963 - 2006 that a liquidation may occur in one of the following two ways:-

23 a (A) A company may be wound up by the High Court under the jurisdiction given to it under s.212 of the Act of 1963, or

24 b (B) A company may be wound up voluntarily in circumstances outlined in s.251 of the 1963 Act.

25 In defining when liquidation 'has occurred', the policy refers to the definition in s.247 of the English Insolvency Act, 1986, or its equivalent in accordance with Irish Law. There is no equivalent provision in this jurisdiction to s.247(2) of the Act of 1986, which provides:-

"For the purposes of … (certain parts of the Act of 1986), a company goes into liquidation if it passes a resolution for voluntary winding up, or an order for its winding up is made by the court at a time when it has not already gone into liquidation by passing such a resolution."

26 The Irish Companies Acts 1963 - 2006 do not contain an equivalent provision....