Question 1
Can Malcolm claim under the insurance with Preacher?
P is claiming that M did not own the goods, that they are owned by the business S. While the goods are owned by S, P is essentially saying that M does not have an insurable interestü. In McNamara the court held that under the common law ownership of shares in a company does not give rise to an insurable interest in the company’s lossesü. However this was reversed under s16(1) ICA which does not require an insurable interest for the insurance to be validü. Thus M is likely to win on this point. What is the nature of M’s loss? The indemnity principle?
Safety Devices
P will claim that the safety devices were inadequate thus a breach of the term of the K relating to the maintenance of safety devices. M will argue that that was not a continuing warranty üüas he was stating that at the time of the extinguisher was appropriately maintainedüü, there was no warranty to continue to maintainü. He may be successful here. Huddleston state that where there is ambiguity as to whether something is a continuing warranty, it should be interpreted contra proferentesüü. Thus if this is not a continuing warranty M has to show that the extinguisher was ok and thus that the statement was not a non-disclosure or misrepresentationüü. If the fire extinguisher was ok at the time the K was entered and the clause was not a continuing warranty then M is entitled to claim under the policy.ü Excellent.
Is River entitled to the stock?
R will claim that the clay and finished goods remained R’s property under the ROT invoices. If the invoices are not a term of the contract between R and M then the clause will not operate and title will pass at the time of the contract under rule 1 of s23(2) ü. If the clause is simply a post contractual invoice it will not apply. However if it is incorporated into the contract it will be effectiveü.
If the ROT clause does form part of the contract can R claim title to the stock or the firefly? Note that this is subject to M getting the stock back from the seller (discussed below) ü. There is an issue with ROT clauses when the goods are mixed. Associated Alloys suggest that where specification occurs title is lost regardless of a clause to the effect that title to the finished product is givenüü. Specification is a question of fact Associated Alloys, can the clay be identified in the pots or returned to original condition? ü Here the clay has probably been fired, changing the composition of the clay. Thus it appears likely that specification has occurred thus R, even if its ROT clause is part of the contract loses title as the clay has been subject to specificationü. But have M & R then created a mortgage? “Give title over mixed product”??
Can M recover the stock from the business?
Her the business (B) will claim that title to them passed under rule 1 at the time of the contract as it was an unconditional contract for specific goods in a discernable state s23(2). M will seek to show that there was no sale to the business, that they were merely agents, selling his product for commissionü. The SOGA where property is transferring s6(1). The question here is whether there was a contract for sale between B and M. This case is analogous to that of Weiner v Harrisüü. While that case concerned a sale or return clause it was held that title never passed to the retailer, the retailer was in substance a selling agentü. Not knowing the precise terms of the contract it appears that this may not be a sale thus title never passes to the business. If this is the case M is entitled to recover the stock though may be liable for breach of contractüü. If however there was a contract of sale between the two then the business will likely retain title though need to pay M 80% of the sale price once soldü.
Is Zoe (Z) entitled to collect from proceeds stock under the floating charge?
Z is entitled to recover the stock from M (assuming M has title, discussed above). The parties have agreed to the floating charges over stock in trade. It is assumed that the parties agreed that crystallization occurred upon defaultüü. Importantly, Z will only have a claim to the goods S has title to. Thus if title is lost due to the ROT clause or the Business’s action then his claim over the stock will not be effectiveüü. It appears that Z will have an action for specific performance to recover the stock from M.
Is Jayne (J) entitled to the statue? Is it a K for the sale of goods? Or labour?
As the contract was for sale it appears the SOGA applies here. As the goods were unascertained future goods at the time of the contract then the appropriate rule is rule 5 23(6)(7)(8) SOGAüü. Under rule five for property to pass in future goods by description, goods of that description must be in a deliverable state appropriated to the contract with assent. Here the goods are future goods as per s10(1) SOGA. The main question in apply rule 5 is has the statute been unconditionally appropriated to the contract? Carlos Federspiel suggests that if the seller can change their mind there is no unconditional appropriation. Further, appropriation may be said to involve some constructive or actual delivery and generally if there is appropriation there will be nothing further for the seller to doü. Here it appears that M could change his mind, he could after all have made here a different statue to satisfy the contractü. Further there appears to be no actual or constructive delivery (unless perhaps if he told her it was finished and that she could collect it). Thus it appears that the statue has not be unconditionally appropriated to the contract. Therefore title remains with Mü.
Excellent coverage and discussion of the issues.
NB:
-River- Mortgage? River v Zoe?
-JC – K for goods or labour?
- M – nature of his loss
31/40
Question 2a
Introduction
The provisions of the ICA relating to the duty of disclosure and duty not to misrepresent do not have the effect of allowing guaranteed recovery where the breach was not fraudulent. An innocent breach of each duty will in some situations mean the insurer will not have to settle the claim or will have liability proportionately reduced. ü
Duty of disclosure under the ICA
Under the ICA the insured has a duty to disclose every matter know by the insuer to affect risk s21(1)(a) or that a reasonable person in the circumstances would know would affect risk s21(1)(b). There is some confusion whether the reasonable person in the circumstances includes intrinsic matter in addition to extrinsic matters. While the second reading speech of the ICA and the case of EE Delphin suggest both extrinsic and intrinsic matters will be considered, this may not be correct. 21st Maylux suggests that only extrinsic matters should be considered and this case was applied by the full Federal Court in HIH Casualty. Thus it appears that if an ‘objective’ reasonable person knew the matter was relevant to risk the it will constitute a non-disclosure. Thus even in the absence of fraud it is possible to breach the duty of disclosure. The effects of breach are considered below. ü
Duty not to misrepresent under the ICA
Under the ICA an untrue statement not based on a reasonably held belief may be a misrepresentation s26(1) where the insure knew or a reasonable person would have known was material to risk s26(2). Thus if a person does not act as a reasonable person with regard to their belief of the facts and a reasonable person would consider the fact material to risk the duty of disclosure will have breached even in the absence of fraud. ü
Remedies for breach of duty of disclosure or duty not to misrepresent
A remedy is only available to an insurer where the breach of either duty affected their decision to insure s28(1) ü. Thus if the insurer would have insured on the same terms for the same premium, no remedy is available. However where there was a non fraudulent misrepresentation or non disclosure the remedy is to reduce the insured payout by an amount hat would place the insurer in the position the would have been but for the breach s28(3) üü. Thus if the insurer would have insisted on higher premiums, the total amount of the higher premiums will be deducted from the payoutü, likewise where an insurer would have insisted on higher excess this will apply, see Alexander Stenhouseüü. IN an extreme situation it appears that if the insurer would have chosen not to insure at all but for the misrepresentation or non-disclosure their liability will be reduced to nil Alexander Stenhouse, though in this situation the premiums may need to be refundedüü (Alexander in obiter) ü. Where an insured misrepresentation or non-disclosure caused the insurer ton enter the contract where they otherwise would not have the insured will not be able to claim on the policy.
Conclusion
An insured may breach both the duty of disclosure and the duty not to misrepresent und the ICA without being fraudulent. Where this is the case their payout is reduced by the prejudice to the insurerü. A the extreme an insurer may not have to payout at allü. Thus even where an misrepresentation or nondisclosure is not fraudulent an insured can not be confident of recovery (especially the full amount) under the policy.
Good clear answer addressing the issues raised!
16/20