Eide UK Ltd v Lowndes Lambert Group Ltd

Section 53(2) of the Marine Insurance Act 1906 gives a marine insurance broker a lien against the policy for specified debts. Where the broker is authorised to collect claims, the lien normally carries a commensurate right to retain collected proceeds to satisfy the secured debt. The provision does not confer a general lien over composite insurance in favour of one co-assured for another co-assured’s separate indebtedness. A broker cannot create a lien extending beyond the interest of the person whose debt is relied on. Accordingly, proceeds collected for a co-assured could not be retained against the placing assured’s debts arising from other insurance business.

The Owners of the vessel Sun Tender, whose interests had been assigned to the Bank, were co-assured with the charterer under policies arranged by Lloyd’s brokers. The brokers collected claims proceeds covering repairs incurred by both the charterer and the Owners, paid them into a mixed account, and sought to retain the whole sum against the charterer’s outstanding balance on other insurance business.

Toulson J, deciding the agreed issue under O.14A RSC, gave judgment for the Bank. He held that section 53(2) created a lien on the policy only, that any right to use proceeds arose from general set-off principles, and that the lien could not be asserted against one co-assured for another’s liability. The brokers appealed. The central issue was whether section 53(2) conferred a general lien over the policies and proceeds in the circumstances of composite insurance.

1. Appeal dismissed with costs. Leave to appeal was refused. The Court of Appeal agreed with the result below, although Lord Justice Phillips held that the judge had erred in failing to recognise the normal relationship between a lien on a marine policy and the broker’s right to retain collected proceeds.
2. In construing section 53(2) of the Marine Insurance Act 1906, the natural meaning of the statutory language is the starting point. The court must also consider pre-1906 case law and mercantile usage. Section 91(2) preserves the common law and law merchant so far as consistent with the Act, and section 87(1) recognises that usage may vary an implication of law.
3. The court made a significant conditional observation that a broker’s possessory lien over a policy normally carries a commensurate right to apply collected claims proceeds towards the debt secured by the lien. The position may survive later discovery of an undisclosed principal if the lien arose earlier and the broker retained possession of the policy. If possession was parted with, continuing security was lost.
4. The ratio was that the general lien in section 53(2) does not apply to composite insurance. The statutory reference to dealings with the person employing the broker as principal addresses the simple case of one employer and one assured. It does not permit that person to impose a general lien on co-assureds for his own running-account debts. A person cannot create a lien beyond his own interest.
5. Maspons Y Hermano v Mildred (1882) 9 QBD 530; (1883) 8 AC 874 supported the conclusion that interests in composite insurance remain distinct and that a lien cannot secure another party’s separate indebtedness. The factual setting of that authority differed from a policy covering a fleet with potentially different interests.
6. A broker will normally be entitled to set off monies collected for a particular assured against that assured’s own indebtedness. That ordinary security did not extend to the Bank’s proceeds in respect of Colne Standby’s debts arising from other insurance business.

• Court of Appeal: The appeal from Toulson J’s order was dismissed with costs. Leave to appeal was refused.
• High Court: On agreed facts under O.14A RSC, Toulson J gave judgment for the Bank. He held that section 53(2) created a lien on the policy only and that the lien could not be asserted against one co-assured for another’s liability.