F.A.I. Insurances Ltd v Custom Credit Corp Ltd

[1980] FCA 42

Re: F.A.I. INSURANCES LIMITED
And: CUSTOM CREDIT CORPORATION LIMITED (1980) 44 FLR 431
N.T. No. G16 of 1979
Insurance

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NORTHERN TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
St. John(1), Fisher(2) and Gallop(3) JJ.

CATCHWORDS

Insurance - Fire Insurance - Insurable interest of mortgagee - whether continuity of insurable interest throughout period of insurance is necessary - change in ownership of subject property - effect of change in ownership on insurable interest of mortgagee - whether resultant interest is distinct new interest.

Insurance - Fire and other risk insurance on property - Change in ownership of subject property - Effect of change in ownership on insurable interest of mortgagee.

HEADNOTE

Three men bought and became the registered proprietors of a leasehold estate in land in Darwin. They mortgaged the land to the respondent, Custom Credit. Custom Credit was specified as mortgagee on a policy of fire and other risk insurance taken out by the three men on the land with the appellant, F.A.I. Insurances. The men sold the land to a company. The company executed a new mortgage over the land in favour of Custom Credit. The insurance policy was not changed. Custom Credit suffered the loss of its security because of Cyclone Tracy, but F.A.I. Insurances declined to indemnify it. Custom Credit successfully sued F.A.I. Insurances for indemnity under the policy of insurance in the Supreme Court of the Northern Territory. F.A.I. Insurances appealed to the Federal Court on the basis that (i) for a period, the respondent had no insurable interest in the land, and (ii) its interest was different at the time of taking out the policy and the time of the loss because there was a new mortgage.

Held, appeal dismissed, that (a) even if the respondent was not registered as mortgagee at all times, it still had a continuous insurable interest in the land because it was entitled to a charge on it for the indebtedness to it; (b) the respondent's interest in the land at both the time of taking out the policy and the time of the loss was as mortgagee, which was sufficient to support its claim.

HEARING

Darwin, 1979, November 23; 1980, April 1. #DATE 1:4:1980

APPEAL.

Appeal from a decision of Forster C.J. of the Supreme Court of the Northern Territory allowing the respondent's claim against the appellant for indemnity under a policy of insurance.

M. Maurice, for the appellant.

T. Coulehan, for the respondent.

Cur. adv. vult.

Solicitor for the appellant: D. Winter.

Solicitors for the respondent: Walter, James & O'Neil.

J. H. TELFER

ORDER

1. The appeal be dismissed.

2. The appellant pay the respondents costs of the appeal to be taxed.

Appeal dismissed.

JUDGE1

This is an appeal against a judgment of the Supreme Court of the Northern Territory awarding Custom Credit Corporation Limited ("Custom Credit") by way of damages the sum of $28,000 against F.A.I. Insurances Limited ("the appellant").

Custom Credit together with Bristev Pty. Limited ("Bristev") commenced proceedings against the appellant claiming idemnity in relation to their respective losses as a result of cyclone damage to a dwellinghouse used as a boarding house. The facts which gave rise to the proceedings, to the extent relevant to this appeal, were not in issue and can be stated briefly.

Bristev, at the time of cyclone Tracy (24 December 1974) was the registered proprietor of a leasehold estate in land pursuant to Darwin Town Area Lease No. 3631 ("the subject land"). This land was situated at lot 4150 Meigs Court, Stuart Park, and erected thereon was the said dwellinghouse. Custom Credit was at that time the proprietor of a registered estate as mortgagee in the land pursuant to Mortgage No. 41714. The dwellinghouse was very severely damaged in the cyclone and Bristev and Custom Credit claimed indemnity for their respective losses under a Policy of Insurance No. DHH61-1745. The trial judge dismissed the claim of Bristev but entered judgment against the appellant in favour of Custom Credit. It was against that judgment that an appeal has been brought before this court. There was no appeal by Bristev.

It is necessary to trace the steps by which Bristev and Custom Credit had acquired their respective interests in the subject land at the date of the cyclone. On 17 August 1972 Steve Paul Timms, Brian llewelyn Johns and Dan Colby ("Timms, Johns and Colby") bought the subject land and borrowed $30,000 from Custom Credit, which loan was secured by a registered mortgage. Under the terms of the mortgage they were required to insure the buildings and improvements on the subject land, and to this end a proposal for houseowners and householders insurance by the appellant was completed on 17 August 1972. The corporate name of the appellant at that time was Australian and International Insurances Limited. The sums proposed for insurance were $28,000 on the improvements and $2,000 on the contents. The insured were noted on the proposal form as "Brian Johns/Dan Colby/Steve Timms Owners and C.C.C. (M)". It is common ground that the letters "C.C.C. (M)" referred to Custom Credit Corporation Limited, the respondent to this appeal, in its capacity as mortgagee. It is relevant to note, for reasons that will ultimately become apparent, that there was nothing in the proposal form to indicate whether Custom Credit had a registered estate as mortgagee or an equitable estate in consequence, for example, of deposit of deeds or an unregistered mortgage or otherwise. Nor was it apparent from the proposal form whether Timms, Johns and Colby had mortgaged the subject land to Custom Credit or had acquired land encumbered at the time of acquisition in favour of Custom Credit. Such matters it would seem were not seen as of any significance.

On 13 September 1972 a policy was issued by the appellant insuring the three owners and "Custom Credit Corporation (Mortgagee)" in respect of "defined events" specified, inter alia, as "Fire, Explosion, Lightning, Thunderbolt or Earthquake" and "Storm and/or Tempest". It was conceded that loss caused to the improvements on the subject land by cyclone Tracy was loss caused by a defined event. This form of property insurance is invariably classified as "fire insurance" even though the policy covers other risks besides loss or damage by fire (The Yorkshire Fire and Life Insurance Co. v The British and Foreign Marine Insurance Co. Ltd. (1905) 3 C.L.R. 196 at p.208).

In June 1973 Colby desired to relinquish his interest in the subject land and to achieve this end Johns and Timms decided to transfer the subject land to Bristev, which was a company of which they were the sole directors and shareholders, and to pay Colby $3,000 which was said to be his share of the deposit paid when the property was first acquired. There was some evidence indicating that at this time instalments due under the mortgage had not been paid in full. The following procedure was adopted to achieve the desired purpose of releasing Colby. On 18 June 1973 the attorney for Custom Credit executed on the memorandum of mortgage the following endorsement of discharge:
"For valuable consideration this day paid to it by the within-named mortgagor Custom Credit Corporation Limited within-named and described hereby discharges all the land affected by the within mortgage subject and without prejudice to all rights and remedies of the said Custom Credit Corporation Limited against the withinmentioned mortgagor personally."

Timms, Johns and Colby were in the body of the mortgage called "the mortgagor". The endorsement of discharge did no more than discharge the subject land from the mortgage and expressly retained the personal liability of "the mortgagor" under the covenants of the mortgage. There was no direct evidence as to whether Custom Credit was repaid the monies due by "the mortgagor" under the mortgage, but the retention of the personal obligation of "the mortgagor" and the acknowledgement of receipt merely of "valuable consideration" supports the inference that monies remained outstanding.

On 19 June 1973 Timms, Johns and Colby executed a transfer to Bristev of an unencumbered estate in the subject land which transfer recited a consideration of $39,000. On the same day Bristev executed in favour of Custom Credit a memorandum of mortgage securing the sum of $33,600 and imposing an obligation on Bristev as mortgagor to insure. On the same day at 1.30 p.m. the memorandum of mortgage with discharge endorsed thereon, the memorandum of transfer and the new memorandum of mortgage were in that order all produced for registration (and subsequently were duly registered). Apart from identifying the particular documents the only oral evidence at the hearing was from Timms who, when asked what happened to the earlier Custom Credit mortgage over the subject property said: "The property of Custom Credit Corporation was transferred into Bristev Pty. Ltd".

Imprecise as this answer was, it also supports the inference that Custom Credit was not repaid on 18 June 1973 the amount of its loan to Timms, Johns and Colby, nor did it make a fresh advance of that amount to Bristev on 19 June 1973. On 19 June 1973 a mortgage in registerable form was executed by the new registered proprietor securing the loan which was increased by a small amount representing either a further advance or arrears.

Much of the evidence tendered to the trial judge was relevant to the question whether the appellant was notified of the change of ownership of the subject land. Certainly the policy was not transferred and the only written intimation of a change was a letter to the appellant subsequent to the transfer to Bristev advising, erroneously, that the subject land was in the name of Johns and Timms and Custom Credit as mortgagee. The trial judge found that the interest of Bristev in the subject land was not insured and thus that company had no right to be idemnified for its loss. This finding was not subject to appeal. The trial judge also found that the policy was, in respect of the years ending 17 August 1974 and 1975 respectively, in the names of Johns and Timms as owners and Custom Credit as mortgagee and was renewed in respect of those years. Certificates to that effect dated respectively 29 January 1974 and 19 August 1974 were on each occasion delivered to Custom Credit.

Before the trial judge the challenge to Custom Credit's claim to an indemnity was based on the contention that the change of ownership of the subject land was a material alteration of risk which was not notified to the appellant. This change of ownership, in consequence of which the owners of the subject land as identified in the policy no longer held an insurable interest in that land rendered the policy, it was argued, void in its entirety. The trial judge did not accept this contention although he said he would have found a significant change of risk if the transfer had been to a company entirely divorced from Johns and Timms. The fact that they were the only shareholders and directors of Bristev satisfied the trial judge that the risk had not so materially altered in consequence of the change of ownership as to enable the appellant to decline liability to Custom Credit.

Before us counsel for the appellant did not so much challenge the reasoning upon which the trial judge supported his conclusion, but rather he relied upon two alternative primary arguments and a third consequential argument. In the first instance he contended that upon the discharge of Custom Credit's original mortgage and the transfer of the land to Bristev the policy lapsed for want of an insurable interest to support it. His second argument was that Custom Credit was not covered by the policy because the interest which it had as mortgagee at the time of the cyclone was not, in point of fact, the interest which it had when the policy was first taken out, but was an entirely separate and distinct new interest. The consequential contention was based on the assumption that the original policy had lapsed and thus its "renewal" in 1973 and 1974 could not have any legal significance.

In respect of the first submission there is no doubt that as a matter of law Timms, Johns and Colby had no insurable interest at the time of the loss caused by the cyclone. Their insurable interest ceased upon the transfer of the subject land to Bristev, assuming (the contrary of which was not suggested by the evidence) that they did not retain a lien for any unpaid purchase monies. As shareholders of Bristev they had, as a matter of law, no insurable interest in a property owned by that company: Macaura v Northern Assurance Company (1925) A.C. 619. However I doubt that it is technically correct, in the circumstances of this matter, to assert that the policy "lapsed" because the original owners ceased to have an insurable interest. It would seem more correct to say that the appellant was not obliged to indemnify them, because, having no insurable interest, they had not suffered a loss.

Timms, Johns and Colby took out the policy on their own behalf as owners and on behalf of Custom Credit as its agent in respect of its interest as mortgagee. It was contended that the insurable interest of Custom Credit ceased to exist when the original mortgage was discharged. Admittedly on the same day its new mortgage granted by Bristev was registered, which mortgage gave it an insurable interest in the subject land, but it was said that there was inevitably a point in time when neither the original owners nor Custom Credit had an insurable interest. Whether such point of time was one second or one year, was immaterial, so the argument ran, for such a break in continuity caused the policy to lapse.

I propose to assume, for the purposes of this argument, that there was, in respect of Custom Credit's insurable interest, a lack of continuity because for a period of time on 19 June 1973 it did not have an insurable interest in the subject matter of the policy of insurance.

The appellant's contention was that it was essential for Custom Credit to show that throughout the period from the date of issue of the policy to the date of the loss it retained an insurable interest. Subsequently in these reasons I will give consideration to the essential features of an insurable interest, but for present purposes Custom Credit's insurable interest was its interest in the land as security for its loan. The appellant claimed that because, for a period of time, between the date of the policy and the time of loss, Custom Credit had no such interest, it had forfeited its right to claim indemnity when the loss insured against was incurred. The ramifications of this conclusion if correct, are far reaching, because, for example, the discharge of one mortgage and immediate registration of another to reflect a change in interest rates would amount to a break in continuity, as would a mortgage to secure a current account which momentarily went into credit. In the first example, for a moment there would exist a loan without security, and in the second, security without a loan.

Counsel for the appellant cited passages from three text books to support his argument, but was unable to point to any decided case where the principle contended for had been applied. The following passages in text books were relied upon: MacGillivray and Parkington, Insurance Law 6th ed. para 1802, Hardy Ivamy General Principles of Insurance Law 2nd ed. at pp. 218 and 274 to 276 and Welford and Otter-Barry, The Law Relating to Fire Insurance 3rd ed. at pp.28 and 29. The reference to MacGillivray and Parkington supra at para 1802 deals with the undoubted situation which arises if the insured parts completely with his interest in the subject matter of the policy. In the circumstance the insured has no longer an insurable interest and can have suffered no loss. There is in the paragraph no reference to the consequence of a break in continuity as contrasted with the outright loss of an insurable interest which is never regained.

After referring on page 274 to the necessity for an insured after a voluntary disposal of the subject matter to retain an insurable interest therein if the policy is to remain valid, the author Hardy Ivamy at p.276 has a passage of more apparent relevance to the present problem. I set it out in full -
"If before loss the assured parts with his interest in the subject matter, the policy comes to an end, by reason of the cesser of the interest on which it was based. Where, by his agreement with the purchaser, the assured does not undertake to be liable in the event of a loss, his right, if any, to enforce the policy does not depend on the interest which he had at the date of effecting the policy, and the rules relating to continuity of interest in the assured apply. The policy therefore would not be revived, and the assured would not be able to enforce the policy in respect of any loss happening after the cesser of interest."

This passage refers both to the rules relating to continuity of interest and the possibility of reviving a policy. The rules relating to continuity of interest, which are set out at pp.25-28 both of that and the 3rd edition (1975) however have reference, in respect of point of time, only to the time of effecting the policy and the time of the loss, and there is no reference to the necessity for unbroken continuity or the consequences of such a break.

Support for the argument of counsel for the appellant reached its highest point in the extract referred to by him from Welford and Otter-Barry, The Law Relating to Fire Insurance 3rd ed. (1932) at p.28. Again it is appropriate I should set it out in full but the crucial passages are contained in the second paragraph hereunder.
"Since the assured must have an insurable interest at the time when the property insured is destroyed, he cannot, if before the fire he has ceased to be interested in such property, suffer damage by any subsequent loss, and he cannot, therefore, recover anything in respect of it, the contract being one of indemnity. Accordingly, upon a transfer of the subject matter the contract of insurance becomes inoperative and an assignment of it to the transfer of the subject matter, unless contemporaneous with the transfer of the subject matter itself or in pursuance of the contemporaneous agreement, does not, in general, enable the transferee to recover under it an indemnity in respect of his own loss.

Where by a subsequent transfer the assured reacquires an interest in the same property, the view has been expressed that the contract is revived, so that, if a loss takes place after the retransfer, he is entitled to recover upon the original contract, notwithstanding the intermediate cesser of interest (Crozier v Phoenix Insurance Co (1870) 2 Hannay (N.B.) 200; May, s.101). This view appears to be unsound. The whole of the interest which the assured has in the property passes away from him upon the original transfer; and any subsequent interest which he may acquire is, in the eyes of the law, an entirely new and different interest (Robson v Liverpool and London and Globe Insurance Co (1900) Times June 23 C.A., per Romer, L.J.). It is more consistent, therefore, with principle to hold that the interest of the assured must be continuous, and that if it ceases the contract comes to an end, and is not revived by the mere reacquisition of his former interest (See North of England Pure Oil Cake Co v Archangel Maritime Insurance Co (1875) L.R. 10 Q.B. 249 (marine insurance) per Cockburn C.J. at p.253).

In the case of an insurance on stock-in-trade, there is, at first sight, an apparent exception to the rule as above stated. It may happen that the assured will sell goods forming part of his stock, and afterwards repurchase them, and add them once more to his stock-in-trade. There is no reason to doubt that the repurchased goods, if subsequently destroyed by fire, would be covered by the contract. In this case, however, it seems that no question of continuity of interest can really arise. The insurance is not on specific goods, but on a fluctuating class of goods, the identity of the specific articles, which may happen at any particular date to make up the class, being immaterial. There is therefore no transfer of the actual subject-matter of insurance, and the continuity of the assured's interest in it is not broken."

Unfortunately for the appellant, the author of the 4th edition of the text book did not share the view of earlier authors as to the consequence of a break in continuity. At p.29 of that edition the following paragraph is substituted for the second paragraph cited above from the 3rd edition.
"Where by a subsequent transfer the assured reacquires an interest in the same property, the view has been expressed that the contract cannot be revived, so that, if a loss takes place after the re-transfer, he cannot recover upon the original contract. The whole of the interest which the assured has in the property passes away from him upon the original transfer; and any subsequent interest which he may acquire is, in the eyes of the law, an entirely new and different interest (Robson v Liverpool and London and Globe Insurance Co (1900) Times, June 23, C.A. per Romer L.J.). It would therefore be more consistent with principle to hold that the interest of the assured must be continuous and that if it ceases, the contract comes to an end, and is not revived by the mere reacquisition of his former interest (See North of England Oil Cake Co v Archangel Insurance Co (1875) L.R. 10 Q.B. 249 (marine insurance) per Cockburn C.J. at p.253). This view is, however, open to doubt. The question would rather appear to depend on whether there is a condition, express or implied, against change of interest, as in the case of temporary change of locality or user. (Crozier v Phoenix Insurance Co (1870) 2 Hannay (N.B.) 200). Further, since the vital dates for insurable interest are those of effecting the policy and of the loss, it is thought that temporary cesser of interest between those dates is not in itself decisive (May s.101)."

In the present matter it can not be said that there was any condition, whether express or implied, against change of interest. Indeed there is no condition in the policy against transfer or assignment of interest without consent (Joske and Brooking Insurance Law p.247). Moreover, all Australian authorities to which I have had regard, attach significance at most only to the date of effecting the policy and the date of loss and I have not found any reference to the necessity of maintaining continuity of interest between those dates. It follows that, assuming without conceding (and in fact ultimately without accepting) that in the present case the whole of the interest of Custom Credit passed away upon the registration of the discharge of the first mortgage, I am not persuaded that in consequence of the interval of time prior to the registration of the new mortgage Custom Credit's interest under the policy lapsed and was not revived by the new registration. It follows that in my view the policy was on foot in respect of Custom Credit's insurable interest in the subject property at the time of the loss.

This finding necessarily concludes against the appellant its first primary argument which I have considered on the assumption that for a moment of time Custom Credit lost its insurable interest. However, it is my opinion, that both in fact and in law such was not the case. This conclusion becomes apparent when the nature of an insurable interest and the happenings at or about the relevant time are considered.

It is necessary at this stage to consider in greater detail the features of an insurable interest. Essentially insurance is an indemnity or payment of a sum to cover an injury, in circumstances where there is, because of the element of risk, the possibility of loss: re Commonwealth Homes and Investment Co (1943) S.A.S.R. 211 at p.231. However, even though not all contracts of insurance are contracts of indemnity, a policy of insurance on property is such a contract: Castellain v Preston (1883) 11 Q.B.D. 380 at p.386 and British Traders Insurance Co. Ltd. v Monson (1964) 111 C.L.R. 86. Where a mortgagee insures, or, pursuant to an arrangement with his mortgagor, is insured against the risk of fire, what is insured is not the debt but the security, and the mortgagee is insured as the holder of the security for the debt: Royal Insurance Co v Mylius (1926)38 C.L.R. at p.489. Thus the insurable interest is the security for a debt and a mortgagee, whether legal or equitable, has an insurable interest in the mortgaged property: Western Australian Bank v Royal Insurance Co (1908) 5 C.L.R. 533 especially at pp.550 and 557 and per Lord Justice Bowen in Castellain v Preston supra at p.398. A lender may have an insurable interest in a property even though it can not be technically said that it holds a mortgage in law or in equity, for an insurable interest has been categorised as "any legal or equitable estate, or any right which may be prejudically affected or any responsibility which may be brought into operation by fire", Western Australian Bank v Royal Insurance Co supra at p.556-7. However, there can not be any "prejudice" unless a debt exists. The classic definition of an insurable interest is that of Lord Eldon in Lucena v Craufurd (1806) N.R. 269; 127 E.R. 630 namely "a right in the property or a right derivable out of some contract about the property". Somewhat more recently in New South Wales to have an insurable interest has been defined as follows: "to be interested in the preservation of a thing is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction": Bank of New South Wales v The North British and Mercantile Insurance Company (1882) 3 N.S.W. L.R. 60 at p.76. It would appear to follow that a lender of money has an insurable interest in a property if there is a presently existing indebtedness in respect of which the property is in some manner charged or obligated.

Because a policy of insurance on property, or more specifically a contract of insurance against fire, is a contract of personal indemnity, it is necessary that at all relevant times the insurer have an insurable interest in the property the subject of the insurance. If it were otherwise, the contract would in essence be a contract of wager, Joske & Brooking Insurance Law supra at p.60. Thus the rationale for the necessity to ensure that the insurer has an insurable interest is the need to establish that the contract is not by way of wager.

It was the contention of counsel for the appellant that on the relevant date, namely 19 June 1973, for at least a moment of time Custom Credit did not have an insurable interest in the subject property. This must be either because there was no indebtedness to it, or assuming an indebtedness, no charging of this indebtedness in any way on the subject property.

I would make two comments at this stage. First of all, I am entitled to assume that the identity of the person initially charging the indebtedness on the subject property was of no concern to the appellant. The appellant did not seek this information in its proposal form and there was no evidence that it enquired. The fact of the charging was relevant and not the identity of the person who executed the security documents. Secondly, for the reasons mentioned earlier in this judgment, there was no evidence that Custom Credit received repayment of its advance to the original owners, and the inference can strongly be drawn that it did not. I would be prepared to find, if it were necessary, that the original indebtedness remained outstanding at all relevant times. If there was no clear evidence on this point, in respect of which the onus lay on the appellant, I see the position as being that the appellant has itself to blame. It did not in its pleadings specifically raise the objection that Custom Credit had at the relevant time no insurable interest, and the grounds upon which it relied to support this allegation: Nicholson v Colonial Mutual (1887) 13 V.L.R. 58 at p.63.

Thus the point remains for determination whether Custom Credit was at all relevant times, and especially on 18 and 19 June 1973, in a position of having some form of charge in respect of the indebtedness on the subject property, whether in the form of a legal mortgage, or an equitable mortgage howsoever created, or in consequence of some enforceable right or agreement, formal or informal. In essence, did it have an insurable interest at all times?

I am reminded of two things. First of all I bear in mind the approach of courts in deciding the question of whether or not an insured has an insurable interest. I refer to the dicta of Brett M.R. in Stock v Inglis (1884) 12 Q.B.D. 564 at p.571 expressed in the following words:
"In my opinion it is the duty of a court always to lean in favour of an insurable interest, if possible, for it seems to me that after underwriters have received the premium, the objection that there was no insurable interest is often, as nearly as possible, a technical objection, and one which has no real merit, certainly not as between the assured and the insurer. Of course we must not assume facts which do not exist, nor stretch the law beyond its proper limits, but we ought, I think, to consider the question with a mind, if the facts and the law will allow it, to find in favour of an insurable interest."

Furthermore, even though doubtless "time like matter is infinitely divisible" (Re Grosvenor (1944) 1 All E.R. 81 per Lord Greene M.R. at p.84) the fact is that all three documents are noted as having been produced at the Lands Titles Office for registration at the same time, namely 1.30 p.m. on 19 June 1973. In my opinion, this being a commercial matter I should not pay excessive regard to the fact that by the established procedures of the Lands Titles Office in circumstances where a clear title is transferred, the discharge of the earlier mortgage was shown as registered immediately prior to the registration of the transfer and the registration of the new mortgage. In point of substance and commercial reality they were registered simultaneously and thus there was no interval; only procedural matters or matters of form support the submission of a break in continuity. I refer to the discussion of an analagous situation by Bray C.J. in Amoco v Rocca Bros (1972) 7 S.A.S.R. 268 at p.334, approved on appeal by the High Court in the same case reported at (1973) 133 C.L.R. 288 especially per Walsh J. at p.304 and Gibbs J. at p.314.

But even if there was such an interval, which counsel for the appellant contended occurred at the moment of registration and not during the time which intervened between the execution of the memorandum of discharge on 18 June and the execution on 19 June of the mortgage by Bristev, Custom Credit was in a position to preserve its right to "charge" its advance on the property. Even assuming there was a period of time when Custom Credit was not the holder of a registered estate as mortgagee, during this period there was in existence a mortgage document in registerable form executed by the person who claimed to be entitled to be registered as owner of the subject land. Moreover, Custom Credit almost certainly (because the original mortgage so provided) had in its possession the duplicate certificate of title without which the registration of discharge of mortgage and the transfer to Bristev would have been difficult if not impossible. The holding of the duplicate certificate of title by a lender would support the inference that it was held by way of charge, and the execution of a mortgage in registerable form by a person entitled to be registered as owner would charge or mortgage in equity that person's interest.

Quite apart from the time when the documents were in the Lands Titles Office awaiting registration, Custom Credit as lender had as a matter of right, in its possession the original memorandum of mortgage with discharge endorsed but not registered, the duplicate certificate of title, and a mortgage in registerable form executed by the party claiming entitlement to ownership of the land. It also doubtless would have been aware of the existence of the memorandum of transfer.

It is my opinion, therefore that Custom Credit had throughout the relevant time a charge in equity upon the subject property, throughout the greater part of the relevant time a registered estate as mortgagee of that property, and the right and the capacity to protect and preserve its entitlement to be so registered It follows that in my opinion there was no moment of time in which Custom Credit was not entitled whether in law or in equity to charge its indebtedness on the subject property. There was at all times a debt outstanding and Custom Credit had the capacity to obtain a registered estate as mortgagee to secure that indebtedness. Without doubt it had at all relevant times at the very least "a right which might be prejudicially affected by the fire"; Western Australian Bank v Royal Insurance Co supra at p.557. At no stage did it so entirely divest itself of this right that it lacked an insurable interest in the subject property, and at all times it was so "circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction".

The second primary argument of counsel for the appellant was submitted in the alternative to the first argument. It was to the effect that Custom Credit's loss was not covered by the policy, because its interest as mortgagee at the time of the loss was not the interest which it had at the time when the policy was taken out. It was contended that it was an entirely separate and distinct new interest. Two crucial changes, it was alleged, had occurred between the time of taking out of the policy ("the time of proposal") and the time of loss. In the first instance there was a "new owner" in that Timms, Johns and Colby had been the owners at the time of proposal and Bristev was the owner at the time of loss. The second significant change, it was contended, was in consequence of the fact that Custom Credit's original interest was created and evidenced by the memorandum of mortgage executed by Timms, Johns and Colby. This mortgage was discharged and a new memorandum of mortgage was executed by another mortgagor, Bristev, for a different amount and on different terms.

It seems to me that counsel's argument came down to this, namely that the appellant was contending that it insured Custom Credit as mortgagee of the subject land, but that its insurance was only in respect of and limited to its interest under the memorandum of mortgage executed by Timms, Johns and Colby and the actual amount secured by that mortgage upon the terms and conditions set out in that document. To the extent that Custom Credit held at the time of loss its estate and interest as mortgagee under a different document executed by Bristev, and for a different amount and on different terms, this interest in the subject land was not covered by the policy. The appellant contended that it was an interest substantially different from the interest which had been insured.

Counsel referred to certain authorities against him which are cited in MacGillivray and Parkington Insurance Law supra at paras 182 and 1803 and Hardy Ivamy General Principles of Insurance Law supra at p.277 but these authorities he contended could be distinguished because they dealt with situations where, as he put it, although the quality of the insured's interest changed it maintained a continuity of interest throughout. As I have already held that Custom Credit maintained continuity of interest for the purpose of keeping the policy afoot at all relevant times, it would appear that the authorities should be accepted as relevant. However I will consider this argument for the purpose of determining, essentially as a matter of construction, exactly what interest of Custom Credit was the subject of insurance, and whether Custom Credit held that interest at the time of loss. As I have said, it seems that this requires construing the proposal and the policy for the purpose of determining whether the appellant was contractually bound to indemnify Custom Credit in respect of its interest as mortgagee of this property, or only its interest as mortgagee under a certain memorandum of mortgage, containing as it did specified mortgagors, a specified sum and specified terms and conditions.

Under the proposal and also under the policy Custom Credit was referred to as an "insured" and was described as a "mortgagee". Under the proposal Timms, Johns and Colby were referred to as "insured" and were described as "owners". Under the policy they were referred to as "the insured". In respect of Custom Credit's interest there was no information given and no enquiry made as to the exact nature of Custom Credit's interest as mortgagee. There was no information sought or given as to whether its interest was as a mortgagee with a registered title or merely in equity, and if so how the equitable estate arose. Likewise there is no information sought or given in respect of the document, if any, creating the mortgage and in particular as to who were the mortgagors, in respect of what sum, and upon what terms and conditions. Not only, as I have said, was there no information on this score, but there was no enquiry and no obligation imposed on anyone to provide such information. The appellant, it would appear, was not concerned to know, and there was no evidence to suggest it did know, any of these details. It can not be said that it regarded such matters as material to the risk. The only question which indicated the extent of the information which the appellant required was in the following form: "Is the property proposed for insurance in any way mortgaged under Bill of Sale or otherwise encumbered?" The answer was "Yes C.C.C".

No information was sought from the owners whether in addition to being owners they were also the mortgagors to Custom Credit. For all that was known to the appellant they might have acquired the land subject to the mortgage, and have been liable under the mortgage not as mortgagors under the instrument but as registered proprietors for the time being of the land. The only other information supplied was that the subject property was occupied by tenants.

Thus the interest of Custom Credit as identified by the contract of insurance was that of mortgagee of the subject property. The interest of Timms Johns and Colby was that of owners of the property, and not necessarily as mortgagors under the document, if any, by virtue of which Custom Credit acquired its interest. Both of these parties were described as the insured under the policy, which policy under condition 2 (Claims Procedure) contemplated that a person other than an insured might be indemnified under its terms. Condition 2(ii) and 2(iii) each commenced with the following words: "The insured or any other person indemnified by this policy". Thus the policy contemplated that in some circumstances a person other than an insured was entitled to claim indemnity for loss, and there was no term or condition in the policy requiring notice of any change of ownership or consent to any change.

It can not be said that the interest of Custom Credit which was insured was an entirely separate and distinct new interest from that which it held at the time of loss. At the time of proposal it had an interest simply as mortgagee of the subject property, which interest it had at the time of loss. Custom Credit's interest under a specified memorandum of mortgage executed by Timms, Johns and Colby in respect of a particular sum and upon nominated terms and conditions was not the sole subject of insurance.

In my opinion it follows that the interest which Custom Credit had at the time of loss was covered by the policy, notwithstanding that technically it was created by a new document with a different mortgagor. It was in respect of its interest as mortgagee of the subject property that Custom Credit was entitled to be indemnified. As a matter of construction of this particular policy I am of opinion in respect of Custom Credit's claim that the change in the nature of Custom Credit's interest as mortgagee and the change in the ownership of the subject land are not material. The interest of Custom Credit at the time of loss was not a separate and distinct new interest.

In presenting his final submission counsel proceeded on the assumption that the policy had lapsed in June 1973 for the reasons previously mentioned. In these circumstances, counsel says, the "renewal" of the policy for the years ending 17 August 1974 and 17 August 1975 could not have any legal significance. This contention was put forward by way of defence to an alternative argument presented by counsel for Custom Credit as a fall-back position if, contrary to his submission, the policy had lapsed. However, as I have found that the policy did not lapse, I am not required to rule on this argument. I would have been inclined to the view (and attracted to it) that the renewals of the policy and the supply of certificates of renewal to Custom Credit were relevant to a plea of estoppel or the formation of a new contract. However the former was not pleaded and not an issue in the proceedings before the trial judge and I agree with counsel for the appellant that the evidence in support of the formation of a new contract and its terms was far from satisfactory. I am relieved that I do not have to consider these arguments.

In my opinion, the appeal should be dismissed with costs.

JUDGE2

I have had the advantage of reading the Reasons for Judgement prepared by Fisher J. I agree with the reasoning and conclusions therein. I would dismiss the appeal with costs.

JUDGE3

I have read the reasons for judgement of Fisher J. I agree with his reasons and conclusions. I would dismiss the appeal with costs.