T-2332-74
Intermunicipal Realty & Development Corpora
tion (Plaintiff)
v.
Gore Mutual Insurance Company, c/o Canadian
Marine Underwriters Ltd. and Canadian Marine
Underwriters Ltd. (Defendants)
Trial Division, Collier J.—Toronto, May 1 and 2;
Ottawa, May 15, 1980.
Maritime law — Contracts — Plaintiff obtained policies of
insurance for a ship from defendant underwriters, without
having mentioned that the ship would continue to be managed
by the previous owner/manager whose management had result
ed in the financial difficulties which led to the cancellation of
a previous policy, and which necessitated sale of the ship to
the plaintiff — Also, plaintiff positively asserted that a certain
company would be managing the vessel — Action by plaintiff
for indemnity on the policies for damages sustained —
Defendants allege false misrepresentations — Trial of certain
issues before trial of action itself — Whether policies were
void ab initio — Whether plaintiff entitled to return of premi
ums, and if so, whether defendants are entitled to deduct
broker commission and investigation costs.
Plaintiff purchased a vessel from previous corporate owner
which had failed to pay an insurance premium instalment,
resulting in a cancellation of insurance, and which, as a result
of bad management, later went into bankruptcy. The individual
who had previously managed the ship on a day-to-day basis
continued to do so. A representative of the plaintiff began
negotiations with an insurance broker to obtain insurance for
the vessel. At that time, it was asserted that there was no
connection between the old and new ownership. The previous
poor management, failure to pay the premium and resulting
cancellation of policy were referred to, and it was affirmed that
March Shipping Limited would manage the vessel. At no time
was the name of the previous manager mentioned. On this
basis, the broker arranged coverage with the defendants. Subse
quently, the vessel sustained damages, and a claim was made
under the policies. The defendant underwriters investigated the
claim and took the view that a material false representation had
been made by the plaintiff during the negotiations for the
policies. The underwriters asserted that the representation was
fraudulent and the policy void ab initio. Plaintiff brought this
action for indemnity on the policies. Counsel for plaintiff
agreed that a material misrepresentation as to the ship's man
agement had been made by the broker to the underwriters.
However, they contended that the representation was innocent.
The parties agreed to the trial of the following issues prior to
the trial of the action: whether the policies of insurance were
void ab initio; whether the plaintiff made representations at the
time of applying for insurance such as to have forfeited its right
to the return of premiums; if the plaintiff is entitled to a return
of premiums, whether the defendants are entitled to deduct the
brokerage commission and the costs of the investigation of the
claim.
Held, the claims are dismissed. Misrepresentation includes
not only positive statements, but, particularly in contracts
uberrimae fidei, concealment or non-disclosure. If a positive
statement, or a non-disclosure, influenced the underwriter when
the risk was undertaken, then the policy can be treated by the
underwriter as void ab initio. Here, there was a positive state
ment to the underwriters that March Shipping Limited would
be the vessel's managers. There was, to the underwriters,
non-disclosure or concealment that, in fact, the previous owner
was going to manage the vessel. The material misrepresentation
was fraudulent. It was wilfully made to deceive an underwriter,
in order to induce him to take on the risk. The quality of proof
required where fraud is alleged remains the ordinary civil
standard of balance of probabilities. The defendants met the
heavy onus required of them. The underwriters were entitled to
treat the contract as void ab initio. In cases of fraud, in respect
of a contract of marine insurance, the premium need not be
returned. If the premium was to be returned, a deduction for
the investigating expenses paid by the underwriters would be
made. The expenses would never have been incurred, but for
the action of the insured in inducing the underwriters to accept
the risk. The commission paid to the broker is not deductible.
That was a matter arranged between the underwriters and the
broker.
Hanes v. Wawanesa Mutual Insurance Co. [1963] S.C.R.
154, applied. Venner v. Sun Life Insurance Co.
(1888-90) 17 S.C.R. 394, applied. Bater v. Baler [1950] 2
All E.R. 458, referred to. Hornal v. Neuberger Products,
Ltd. [1956] 3 All E.R. 970, referred to. Feise v. Parkinson
(1811-13) 4 Taunt. 640, referred to. Nuel v. Smith (1840)
7 L.T. 46, 8 L.T. 93, referred to. Anderson v. Thornton
(1852-53) 8 Exch. 425, referred to. Rivaz v. Gerussi
(1880-81) 6 Q.B.D. 222 (C.A.), referred to. Spence v.
Crawford [1939] 3 All E.R. 271, referred to. Clarkson v.
Canada Accident Ass'ce Co. [1932] 3 D.L.R. 188, referred
to. Whittingham v. Thornburgh [1690] 2 Vern. 206, fol
lowed. De Costa v. Scandaret [1723] 2 P. Wms. 170,
followed. Wilson v. Ducket [1762] 3 Burr. 1361, followed.
ACTION.
COUNSEL:
David Marler and Jonathan H. Marler for
plaintiff.
A. J. Stone, Q.C. and K. A. Connidis for
defendants.
SOLICITORS:
Magwood, Pocock, Rogers, O'Callaghan,
Toronto, for plaintiff.
McTaggart, Potts, Stone, Winters & Her-
ridge, Toronto, for defendants.
The following are the reasons for judgment
rendered in English by
COLLIER J.: The plaintiff was the owner of a
vessel, the Lachine Trader. She had formerly been
named the Vigor.
Effective March 16, 1973, the defendant under
writers issued two marine insurance policies, run
ning for one year, insuring the vessel against cer
tain risks, including hull and machinery damage.
The premium paid by the plaintiff, in quarterly
instalments, was $52,400.
In September 1973, while on a voyage, the
vessel sustained damage to her boilers. A claim,
under the policies, was made. The underwriters
carried out some investigation of the claim. During
the course of that investigation, they took the view
a material untrue representation had, during the
negotiations for the policies, been made by the
plaintiff. The underwriters asserted the representa
tion was fraudulent, and the policy void ab initio.
The plaintiff brought this action, for indemnity
and other relief, based on the two policies. The
defendants pleaded a number of defences, includ
ing the misrepresentation one outlined above. The
pleadings raise the issue as to whether, if the
defendants are correct, the premiums paid by the
plaintiff, or some portions of them, should be
returned.
A consent order was obtained that, prior to the
trial of the action itself, the trial of certain issues
be heard.
Those issues are as follows:
(a) whether or not the policies of insurance referred to in
paragraph 2 of the Plaintiff's amended Statement of Claim
were void ab initio or voidable and had been voided as
alleged in paragraphs 3 to 8 of the Defendants' further
amended Statement of Defence.
(b) If (a) is determined in the affirmative, whether or not the
Plaintiff made representations to the Defendants, at the time
of applying for the said policies of insurance, such as to have
thereby forfeited its right to the return of the premiums paid
for the said policies.
(c) if (a) is determined in the affirmative, and (b) in the
negative, whether or not the Defendants are entitled to
deduct from the return of the said premiums, the brokerage
commission and expenses referred to in paragraphs 29 and 30
of the Defendants' further amended Statement of Defence,
and claimed in paragraph 34 of the Defendants' Counter
claim.
(d) all matters of interest and costs.
Paragraphs 3 to 8 of the further amended
defence set out the underwriters' allegations as to
the representations said to have been made; their
alleged falsity; and the decision to treat the poli
cies as voidable.
The trial of the issues came on before me.
I directed the general onus, in respect of the
issues, was, in the circumstances, on the underwrit
ers; they should lead evidence first. That was done.
I go to the facts.
The vessel, when known as the Vigor, had been
owned by William Ziff & Son, Ltd. One Bernard
Ziff was a shareholder, and president of that Com
pany. He, in fact, managed the vessel on a day-to
day basis. Insurance coverage had been obtained
on the Vigor effective October 22, 1971 to October
22, 1972. The Vigor operation was quite unsuc
cessful. Because of financial problems, payment of
a premium instalment on the policy was not made.
The underwriters cancelled the policy. The owner
Company, at some stage, went into bankruptcy.
The witness Saul Josephson was, from June 30,
1971 to June 11, 1973, the secretary and a director
of the plaintiff Company. He was, as well, an
officer of another company, Harrel-Gapin Enter
prises Ltd. He had interests in still other compa
nies. He was chief executive officer of Quebec
Steel Products Ltd. He was, and is, an experienced
business man. He is now 63 years old.
He has been a friend of Bernard Ziff since
boyhood. Ziff is also a business man. From
approximately 1955 to 1961, Ziff was employed by
one of the Josephson companies. Their personal
and business relationship has continued through
out the years.
At some stage during the Vigor operation,
Josephson, or one of his companies, guaranteed the
indebtedness of Ziff, or of the Company which
owned the Vigor, to Affiliated Factors, Corp. The
latter had apparently financed the purchase of the
Vigor, or its operations. Josephson, or one of his
companies, had been required to pay a substantial
sum on this guarantee.
Josephson was requested by his friend Ziff to
provide assistance in respect of the financial prob
lems the Vigor operation had created. Josephson
agreed to purchase the vessel. It was decided to
put her out on charters. Because the Vigor finan
cial disaster was known, he decided to change the
name of the vessel. Because of his personal time
commitments in respect of his other companies,
Josephson was unable, nor did he intend, to have
anything to do with the day-to-day management of
the Lachine Trader. That was to be done by Ziff.
Ziff, and the new owner (in effect, Josephson),
were to share equally in the profits of the new
venture.
Josephson wanted to obtain insurance coverage
on the vessel. Ziff had given him advice as to the
type of coverage that should be sought.
I turn now to the evidence of Marc Lachance.
Lachance, in March of 1973, was employed by
Reed Shaw Osler Limited, Montreal. Reed Shaw
Osler Limited were insurance brokers. Lachance
was a careful, credible witness. He had made
notes, at the time, of the matters I am about to
relate. He had been able to refresh his memory
from the Company file. That file contained a
number of telexes, sent and received by him, which
became exhibits at the trial of these issues.
Lachance said he received a telephone call from
Josephson on March 13 or 14, 1973. He felt it was
probably March 14. Josephson explained he had
just purchased the Lachine Trader; that it was
presently uninsured. He indicated the obtaining of
insurance was a matter of some urgency. Lachance
discussed the request with his superior, Peter Shel-
ton. Shelton told him what information would be
needed: a description of the vessel; the intended
use or operation; the loss experiences, if any; and
the ownership of the vessel.
Lachance, on the same day, met Josephson at
his office at 45 St. Joseph Street, Lachine,
Quebec. Josephson told Lachance about the pur-
chase of the vessel. He said something to the effect
he had been a guarantor on a loan the previous
owners had on the vessel. He told Lachance there
was no remaining connection between the new
owners and the old. He referred to the bad man
agement of the previous owners, the failure to pay
the premium, and the cancellation of the previous
insurance policy on the Vigor. He said the previous
brokers could not provide coverage for the new
owners. He gave Lachance copies of the previous
insurance policy on the Vigor, as well as some
letters and memoranda from the Vigor's former
insurance brokers. Josephson said he was
endeavouring to enter into a contract, or had
entered into a contract, with March Shipping Lim
ited to manage or operate the Lachine Trader. The
name Bernard Ziff was not mentioned.
Lachance telexed brokers in London describing
the risk, so that interested underwriters might be
canvassed. This was on March 15, 1973. The telex
set out Harrel-Gapin Enterprises Ltd. as the new
owner. The Lachine Trader was described as
ex-Vigor. The former owners, William Ziff &
Sons Ltd., were referred to. So was the cancella
tion of the previous policy for non-payment of
premium.
London brokers replied by telex (Ex. 6) request
ing information as to:
"CLAIMS RECORD OF NEW OWNERSHIP/MANAGEMENT'', AND
"ALSO PLEASE CONFIRM THAT NEW OWNERSHIP HAS NO
CONNECTION WITH PREVIOUS NON-PAYING OWNERSHIP".
Lachance telephoned Josephson immediately.
He advised him, almost word for word, what the
telex contained. He was told by Josephson the new
ownership had no claims record; there was no
connection between the old and new ownership.
Josephson also added the vessel was being
managed, or was to be managed, by March Ship
ping Limited.
Lachance, on the same day, sent a telex to
London. It is, in part, as follows (Ex. 7):
1) NEW OWNERS HAVE NEVER OWNED VESSEL, SHIP WILL BE
MANAGED BY MARCH SHIPPING MTL., NO EXPERIENCE AVAIL
ABLE THAT WE KNOW...
2)...
3) NEW OWNERS HAVE NO MORE CONNECTION, VESSEL
BOUGHT....
Lachance testified that, at no time during that
telephone conversation, was the name Bernard Ziff
given to him. Nor the name March Chartering
Limited.
Lachance, on the same day, tried to place the
risk with the defendants. He spoke with Peter
Smith of Canadian Marine Underwriters Ltd. in
Toronto. He told him March Shipping Limited
were, or were going to be, the managers of the
vessel.
On March 16, Lachance received a telex from
the London brokers. That telex said in part (Ex.
8):
THIS RISK HAS BEEN TRIED BY SEVERAL OTHER BROKERS
PAST FEW WEEKS. MOST CLUBS DOUBTFUL THIS UNCONNECT
ED PREVIOUS OWNERS.
The London brokers said they had been unable to
obtain any firm quotations in the London market.
As a result of Lachance's telephone conversation
with Peter Smith, coverage, on a limited basis, was
obtained for the week-end. Lachance delivered a
hand written cover note (Ex. 10) to Josephson on
March 16.
By March 19, full coverage had been arranged
with the defendants. On that day, Lachance went
to Josephson's office. He gave him a letter from
Shelton, dated March 16, 1973, setting out a
quotation for full insurance coverage. He also
delivered a letter of his own setting out a quotation
(Ex. 12). On March 20, Lachance advised Mr.
Smith the vessel would be in the name of the
present plaintiff, rather than Harrel-Gapin Enter
prises Ltd.
A few days later, probably March 22, 1973,
Lachance again went to Josephson's office. By this
time, proper cover notes had been prepared. He
took those with him, as well as an invoice for the
first quarterly instalment of premium. The total
premium charged was $52,400. The first payment
required was $3,100. A cheque dated March 22,
1973, from a company called Union Pipe and
Machinery Limited, was given. It was for $3,600.
The extra $500 had to do with a separate matter.
The cheque was signed, on behalf of the Company,
by Josephson and Bernard Ziff.
At that meeting Josephson introduced Lachance
to Ziff. He told him Ziff would be assisting him
(Josephson) in insurance matters; he, Josephson,
was unfamiliar with that field; Ziff, as the previ
ous owner, had experience. According to
Lachance, nothing was said about Ziff being the
vessel's manager, or of his being in charge of its
day-to-day operations.
Finally, Lachance testified that the name March
Chartering Limited was never mentioned at any of
these meetings. The only name given to him was,
as previously stated, March Shipping Limited.
Lachance was not cross-examined. Nor were
any of the matters, subsequently testified to by
Josephson, put to him.
Peter Smith, in 1973 a senior Vice-President of
Canadian Marine Underwriters Ltd., gave evi
dence. He confirmed the telephone call of March
15 from Lachance. He said Lachance gave him
details of the risk, the names Josephson & Harrel-
Gapin Enterprises Ltd., plus the name of the
vessel, and her former name. He asked who would
be managing the vessel. He was told March Ship
ping Limited; that it was new ownership and new
management. He said if the name Ziff had been
given to him, he would not have accepted the risk.
This was because of Ziff's reputation in the marine
and insurance industry.
Josephson testified. The previous dealings be
tween him and Ziff, which I have already set out,
were given in that testimony.
Josephson said he had several meetings with
Lachance. He said he had explained to him, before
the insurance was effected, that Ziff was going to
be in charge of the day-to-day operation or the
management of the Lachine Trader. He told
Lachance that he, Josephson, had made a contract
with March Chartering Limited in respect to the
working of the vessel. He said he introduced
Lachance to Ziff as the man who would be
involved with the daily operation of the vessel; that
all he, Josephson, would be handling, were the
financial matters.
That concludes my review of the essential
evidence.
Counsel for the plaintiff agreed there had been
an untrue representation made to the underwriters;
that by mistake, they had been advised by
Lachance, of Reed Shaw Osler Limited, that
March Shipping Limited would be the ship's
managers; whereas Josephson had specifically told
the brokers that Ziff would be the manager; and
that March Charterers Limited would be obtain
ing charter work for the vessel. It was agreed the
representation as to the ship's managers was a
material one; the underwriters were, in the circum
stances, entitled to treat the policies as void ab
initio. But, it was contended, the representation
was innocent, not fraudulent.
The issue then becomes: if the misrepresentation
was innocent, should the whole of the premium of
$52,400 be returned to the plaintiff? The under
writers argued that if the misrepresentations were
indeed innocent, they are entitled to deduct from
the premium the commission paid to the brokers,
and certain expenses incurred by them in the
investigation of the claim asserted, by the plaintiff,
under the policies. The commission paid by the
underwriters to the brokers was $7,860. The
expenses referred to were $13,457.71. The defend
ants say the net amount payable to the plaintiff is,
therefore, $31,082.29.
But the defendant underwriters contend the
representation was fraudulent, not innocent.
Throughout the whole transaction, there was, it
was said, a wilful intent by the plaintiff, through
Josephson, to deceive. The defendants say that if
there was fraud on the part of the plaintiff, then
they, as the underwriters, are entitled to keep the
whole of the premium paid.
I turn now to the representation made as to the
management of the Lachine Trader.
It was agreed Reed Shaw Osler Limited and
Lachance were the agents of the plaintiff, not the
agents of the underwriters. Any representation
made by the brokers binds the plaintiff. It was also
agreed, as I have earlier said, any representation
as to the management of a vessel is a material one.
Misrepresentation includes not only positive
statements, but, particularly in contracts uber-
rimae fidei, concealment or non-disclosure.' If a
positive statement, or a non-disclosure, influenced
the underwriter when the risk was undertaken,
then the policy can be treated by the underwriter
as void ab initio.
Here, there was a positive statement to the
underwriters that March Shipping Limited would
be the vessel's managers. There was, to the under
writers, non-disclosure or concealment that, in
fact, Ziff was going to manage the Lachine
Trader.
The question is whether that misrepresentation
was innocent, in the sense of a mistake or misun
derstanding, or whether there was a wilful inten
tion on the part of Josephson and the plaintiff to
deceive. Josephson was the directing mind and will
of the owner Company.
I find the material misrepresentation was
fraudulent. It was wilfully made to deceive an
underwriter, in order to induce him to take on the
risk.
I accept the evidence given by Lachance. He
was a careful and honest witness. His memory and
account of what was said is corroborated by the
telex messages sent and received. He had no
reason to fabricate, on key matters, either the telex
messages or his testimony. Nor is there any reason
to hold he misunderstood what Josephson told him.
Josephson had a long association with Ziff. He
knew Ziff's history in respect of ownership and
operation of other vessels, including the Lachine
Trader. Josephson had never owned a vessel him
self. But he had past knowledge, from his own
activities, of chartering vessels. He was an
experienced business man. He knew of the desira
bility, if not the necessity, of insurance coverage in
respect of business matters. That applied as well to
vessels. In 1972, while he had a financial interest,
as guarantor, in the Vigor, he had made inquiries
' See Arnould, The Law of Marine Insurance and Average,
vol. II (1961), (British Shipping Laws, vol. 10—Stevens &
Sons Ltd.) para. 591, for the use of the term non-disclosure,
rather than concealment.
about the insurance then in force (see Ex. 3).
When the vessel was purchased, he wanted cover
age for it.
He knew the name Vigor was a liability. The
name had to be changed. I can understand that.
But there was disclosure to the brokers of the
previous names of the vessel.
Josephson, as a business man, must have recog
nized that Ziff's name, in connection with this new
enterprise, could lead to problems. There had been
a bankruptcy of the Ziff Company, the previous
owner. There had been cancellation of the previous
policy for non-payment of premium. I find that
Josephson did not, for those reasons, disclose to
Lachance that Ziff was going to be the ship's
manager. I accept Lachance's evidence that
March Shipping Limited was designated as
managing the vessel. I find, as well, there was no
mention of March Chartering Limited until after
the question of possible misrepresentation arose in
the fall of 1973.
All this was done knowingly, in my view, with
the intention of inducing coverage from an
underwriter.
In coming to this conclusion I have kept in mind
the quality of proof required where fraud is
alleged. The standard is not the criminal one. The
ordinary civil standard of balance of probabilities
remains. But there are degrees of probability or
proof within that standard.
In Hanes v. Wawanesa Mutual Insurance Co., 2
the Supreme Court of Canada approved the view
expressed by Denning L.J. in Bater v. Bater. 3
The Denning view was also adopted by other
members of the Court of Appeal in a later case,
where fraud was in issue: Hornal v. Neuberger
Products, Ltd. 4
2 [1963] S.C.R. 154 at 161. Cartwright J. dissented on the
facts, but agreed with the majority as to the quality of proof.
3 [ 1950] 2 All E.R. 458 at 459.
4 [1956] 3 All E.R. 970.
To endeavour to pin the badge of fraud on the
plaintiff here, is to make a serious allegation:
The more serious the allegation, the higher degree of probabili
ty that is required; but it need not, in a civil case, reach the very
high standard required by the criminal law.'
The defendants have, in my view, met the heavy
onus required of them.
The next question is essentially one of law. May
the underwriters, on the facts I have found, keep
the premium? The underwriters, on those facts,
were entitled, as they did, to treat the contracts as
void ab initio. The risk, therefore, was never run.
Even if the misrepresentation had been innocent,
the effect on the contracts would have been the
same. The underwriters would have been entitled
to treat the contracts as void ab initio. The risk
would never have attached. But the law, in that
situation, seems reasonably clear. The underwrit
ers could not retain the premium. The insured, or
representor, would be entitled to refund. In this
case, a question was raised as to whether the full
premium should be returned, or whether the com
mission and investigation expenses could be
deducted. In view of the conclusion I have reached,
I do not have to decide, as to innocent misrepre
sentation, whether those deductions should be
permitted.
Counsel for the defendants took the view, as I
have stated earlier, the premium is not, where
there has been fraud, returnable. Counsel for the
plaintiff did not really argue against that conten
tion. The main thrust of his submission was that
there had been innocent misrepresentation only;
the full premium must, in the circumstances here,
be returned.
The earliest cases, dealing with return of premi
um where there had been fraud by the insured,
were in favour of the insured representor. 6 The
premium had to be returned. Those were Chancery
cases. But, in both decisions, the premiums were
directed to be applied to the underwriters' costs of
5 Spencer Bower and Turner, The Law of Actionable Mis
representation, (3rd ed.), Butterworths, 1974, para. 187, pp.
210-211.
6 Whittingham v. Thornburgh [1690] 2 Vern. 206; De Costa
v. Scandaret [1723] 2 P. Wms. 170.
the actions.
The return of premium principle was adopted
into the common law by Lord Mansfield in Wilson
v. bucket.'
But a subsequent series of common law deci
sions established an opposite principle, where there
was fraud by the insured in respect of contracts of
insurance.' In some of those cases, the statement
made is technically, on the facts, obiter. A
rationale of the different result in the case of
innocent misrepresentation on the one hand, and
fraud on the other, is attempted in Marshall,
Marine Insurance, (5th ed.), 1865, at pp. 522-525.
It is there argued that the non-return of the premi
um, in the case of fraud, is a penalty or forfeiture
given to the aggrieved party.
I do not find that rationale convincing or equita
ble. The civil courts should not be in the position
of meting out, by that method, penalties or forfeit-
ures. That is more the function of the criminal
courts.
In a contract case, 9 not involving insurance,
Lord Wright said, in respect of fraud and
restitution:
A case of innocent misrepresentation may be regarded rather as
one of misfortune than as one of moral obliquity. There is no
deceit or intention to defraud. The court will be less ready to
pull a transaction to pieces where the defendant is innocent,
whereas in the case of fraud the court will exercise its jurisdic
tion to the full in order, if possible, to prevent the defendant
from enjoying the benefit of his fraud at the expense of the
innocent plaintiff. Restoration, however, is essential to the idea
of restitution. To take the simplest case, if a plaintiff who has
been defrauded seeks to have the contract annulled and his
money or property restored to him, it would be inequitable if he
did not also restore what he had got under the contract from
the defendant. Though the defendant has been fraudulent, he
must not be robbed, nor must the plaintiff be unjustly enriched,
as he would be if he both got back what he had parted with and
kept what he had received in return. The purpose of the relief is
not punishment, but compensation. The rule is stated as requir
ing the restoration of both parties to the status quo ante, but it
is generally the defendant who complains that restitution is
impossible. The plaintiff who seeks to set aside the contract will
7 [ 1762] 3 Burr. 1361.
8 Tyler v. Horne (1785), Chapman v. Fraser (1793) Mar-
shall, Marine Insurance, (5th ed.), 1865, p. 525. Feise v.
Parkinson (1811-13) 4 Taunt. 640. Nuel v. Smith (1840) 7
L.T. 46, 8 L.T. 93. Anderson v. Thornton (1852-53) 8 Exch.
425. Rivaz v. Gerussi (1880-81) 6 Q.B.D. 222 (C.A.).
9 Spence v. Crawford [ 1939] 3 All E.R. 271 at pp. 288-289.
generally be reasonable in the standard of restitution which he
requires. However, the court can go a long way in ordering
restitution if the substantial identity of the subject-matter of
the contract remains.
In Spencer Bower and Turner, previously cited,
some of Lord Wright's language was used in set
ting out a similar proposition: 10
The object to be achieved by rescission is the restoration of
both parties as nearly as may be to the position which each
occupied before the transaction. This object is expressed in the
Latin restitutio in integrum, a phrase more particularly used by
the courts, however, in referring to the restoration to his
original position of the defendant-representor. Though he has
been at fault, and even fraudulent, yet he must not be robbed,
nor must the plaintiff-representee be unjustly enriched, as he
would be if he received back all that he had parted with and
also kept what he had received in return. The cases therefore
emphasise the restoration of the defendant-representor to his
pre-contract position, less often expressly insisting upon the
right of the plaintiff-representee so to be restored. But the
plaintiff does not need the protection of the doctrine; for he
himself asks for restoration in integrum, as regards his own
position, as of the essence of his claim to rescission. In praying
for rescission he will generally be found to be reasonable as to
the standard of the restitution he asks; for if his prayer is
unreasonable it will be unlikely to succeed. But whatever order
he may ask in his own behalf, he must at least be prepared to
restore the defendant-representor to his original position, as a
condition of the rescission which he claims. And in the next
chapter it will be seen that if it turns out that he is unable to
comply with this condition, his inability to do so will amount to
a good defence to an action for rescission.
Be all that as it may, the Supreme Court of
Canada and the Ontario Court of Appeal have, in
a way, endorsed the no return principle in cases of
fraud: Venner v. Sun Life Insurance Co." and
Clarkson v. Canada Accident Ass'ce Co. 12 The
Venner case was decided under the Civil Code.
The remarks at page 401 are technically obiter, in
that the insurance contract itself provided the
premium would not be returnable in the case of
fraud. The decision can probably be distinguished
on many grounds. In the Clarkson case, the Feise
and Anderson v. Thornton decisions were referred
to. But in Clarkson the point was again obiter,
because the misrepresentation was innocent.
Nevertheless, I propose to follow the traditional
view: that in cases of fraud, in respect of a contract
of marine insurance, the premium need not be
returned. The cases discussed have stood for a very
long time. Their authority and rationale have not
10 Para. 258 at pp. 280-281.
" (1888-90) 17 S.C.R. 394.
' 2 [1932 ] 3 D.L.R. 188.
heretofore been questioned. The marine industry,
and the marine insurance field, have, for many
years, accepted the principle. The doctrine is
implicit in the Marine Insurance Acts. 13 If the law
is to be declared incorrect or changed, then that
should be done, in my view, by a higher court. 14
If I had felt I could direct the premium be
returned, I would, however, have made a deduction
for the investigating expenses paid by the under
writers. Those were expenses incurred to see
whether the claims advanced by the plaintiff were,
in whole or in part, proper matters for indemnity.
The underwriters had the right, if they chose, to
make their own investigation (see lines 96 to 109
of Ex. 1). Even if no such right had been expressed
in the policy, it would be a matter of reasonable
prudence to investigate the particular claims, costs
of repairs and other matters, and not merely leave
the insured to effect repairs, then await a claim for
indemnity. The underwriters' investigation is a
well-known practice in the insurance industry.
The expenses, here, are expenses which would
never have been incurred, but for the action of the
insured in inducing the underwriters to accept the
risk. In my view they would be properly
recoverable.
The same conclusion does not, to my mind,
apply to the commission paid to the broker. It is
not deductible. That was a matter arranged be
tween the underwriters and the broker. The
insured was not a party to that contract. The
insured had no say in how little or how much the
commission should be.
To summarize the result on the issues tried, the
answers are as follows:
(a) Yes
(b) Yes
(c) Answer not required
13 See, for example: Marine Insurance Act, 1906, 6 Edw. 7, c.
41, s. 84(1). The Marine Insurance Act, R.S.O. 1970, c. 260, s.
85(1), and s. 85(3)(a). Marine Insurance Act, R.S.B.C. 1960,
c. 231, s. 86(1) and s. 86(1)(a).
14 Having now set out that whole dissertation, I suspect I, at
some point, lured myself into succumbing to one of the tempta
tions of the Bench as described by Megarry V.C.: the tempta
tion of law. See Megarry V.C., Temptations of the Bench
(1978) 12 U.B.C. Law Rev. 145, at 152-154.
(d) The defendants are entitled to the costs of
this hearing.
I request counsel to prepare a formal judgment
giving effect to these reasons and the outcome of
the issues. It may be that agreement can be
reached, as well, on the outcome of the action
itself, including costs. If counsel cannot agree on
the formal judgment, then application should be
made, through the registry, for a hearing.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.