paid to the defendant assured, the amount of £ 72,000 for the total loss of the
vessel.
23
On 19 September 1946, the assured, with the insurers’ approval, brought proceedings against the Canadian Government in the Exchequer Court of Canada
claiming damages for the loss of the vessel. The amount of the claim was quantified
and expressed in Canadian dollars. The Exchequer Court held that the
H.M.C.S. Orkney was exclusively to blame. Subsequently, the matter went on
appeal to the Supreme Court of Canada on an issue of limitation of liability, and
thence to the Privy Council. On 25 July 1955, the Privy Council set aside the
judgment of the Supreme Court and restored the judgment of the Exchequer
Court. Eventually, following negotiations between the parties concerned, it was
agreed that the actual value of the vessel at the time of the loss was, in round figures,
£ 75,500 which was converted into Canadian dollars at the current rate of exchange
prevailing at the date of the collision, and which amounted to Canadian dollars
336,040 in round figures. In May 1958, this amount was paid to the assured in
Canada but meanwhile in 1949, the pound had suffered a devaluation resulting in an
overpayment in Canadian dollars when it was paid to the assured of around £ 55,000
more than the £72,000 paid by the insurers and about £ 51,000 more than the value
of the £ on the date of the loss.
24
The stark question raised before the court was who was entitled to the windfall,
that is, the amount of £ 55,000.
25 The amount of £ 72,000 was paid back to the
insurer as the amount to which it was subrogated but the insurer claimed the amount
in excess as well, in other words, the full amount received by the assured. In
addressing that issue, Diplock J. posed the question in an elaborate fashion in the
following words:
The question of principle involved can, I think, be stated thus: Where an insurer pays for a
total loss of the subject-matter insured and the assured, in the exercise of his remedies in
respect of that subject-matter, recovers from a third party an amount which exceeds the sum
so paid by the insurer, can the insurer recover from the assured the amount of that excess.
In explaining his view, he referred to the decision of Brett L.J. in his classic
judgment in Castellain v. Preston
26 where the learned judge had held that a contract
of insurance being a contract if indemnity, the term “subrogation” in relation to a
marine insurance contract was simply a convenient way to refer to terms which are to
be implied, whereby upon indemnifying a loss, the insurer was to be “fully indemnified but never more than fully indemnified”.
27 In the view of Diplock J., the only
terms that should be implied are those that would give business efficacy to the
contract; which would be essential for ensuring that the assured does not receive
from the insurer any amount greater than the actual loss suffered by him. If the
23 Ibid at pp. 481–482.
24 Ibid.
25 Ibid. at p. 482.
26 Supra, note 4.
27 Ibid. at p. 483 referring to the Castellain v. Preston judgment at p. 386.
570
P. K. Mukherjee
vessel.
23
On 19 September 1946, the assured, with the insurers’ approval, brought proceedings against the Canadian Government in the Exchequer Court of Canada
claiming damages for the loss of the vessel. The amount of the claim was quantified
and expressed in Canadian dollars. The Exchequer Court held that the
H.M.C.S. Orkney was exclusively to blame. Subsequently, the matter went on
appeal to the Supreme Court of Canada on an issue of limitation of liability, and
thence to the Privy Council. On 25 July 1955, the Privy Council set aside the
judgment of the Supreme Court and restored the judgment of the Exchequer
Court. Eventually, following negotiations between the parties concerned, it was
agreed that the actual value of the vessel at the time of the loss was, in round figures,
£ 75,500 which was converted into Canadian dollars at the current rate of exchange
prevailing at the date of the collision, and which amounted to Canadian dollars
336,040 in round figures. In May 1958, this amount was paid to the assured in
Canada but meanwhile in 1949, the pound had suffered a devaluation resulting in an
overpayment in Canadian dollars when it was paid to the assured of around £ 55,000
more than the £72,000 paid by the insurers and about £ 51,000 more than the value
of the £ on the date of the loss.
24
The stark question raised before the court was who was entitled to the windfall,
that is, the amount of £ 55,000.
25 The amount of £ 72,000 was paid back to the
insurer as the amount to which it was subrogated but the insurer claimed the amount
in excess as well, in other words, the full amount received by the assured. In
addressing that issue, Diplock J. posed the question in an elaborate fashion in the
following words:
The question of principle involved can, I think, be stated thus: Where an insurer pays for a
total loss of the subject-matter insured and the assured, in the exercise of his remedies in
respect of that subject-matter, recovers from a third party an amount which exceeds the sum
so paid by the insurer, can the insurer recover from the assured the amount of that excess.
In explaining his view, he referred to the decision of Brett L.J. in his classic
judgment in Castellain v. Preston
26 where the learned judge had held that a contract
of insurance being a contract if indemnity, the term “subrogation” in relation to a
marine insurance contract was simply a convenient way to refer to terms which are to
be implied, whereby upon indemnifying a loss, the insurer was to be “fully indemnified but never more than fully indemnified”.
27 In the view of Diplock J., the only
terms that should be implied are those that would give business efficacy to the
contract; which would be essential for ensuring that the assured does not receive
from the insurer any amount greater than the actual loss suffered by him. If the
23 Ibid at pp. 481–482.
24 Ibid.
25 Ibid. at p. 482.
26 Supra, note 4.
27 Ibid. at p. 483 referring to the Castellain v. Preston judgment at p. 386.
570
P. K. Mukherjee