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Supreme Court of Ireland Decisions
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Cite as:  IESC 2
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Judgment Title: Emo Oil Limited -v- Sun Alliance & London Insurance Company
Composition of Court: Denham J., Kearns J. de Valera J
Judgment by: Kearns J.
Status of Judgment: Approved
Outcome: Allow And Set Aside
Notes on Memo: de Valera J (High Court) also sat and concurred with judgment of Kearns J.
THE SUPREME COURT
De Valera J.
[S.C. No. 30 of 2006]
EMO OIL LIMITED
SUN ALLIANCE AND LONDON INSURANCE PLC.
JUDGMENT of Mr. Justice Kearns delivered the 22nd day of January, 2009
This is an appeal from the judgment of the High Court (Gilligan J.) delivered on 25th November, 2005 in which he determined a preliminary issue in these proceedings in favour of the plaintiff relating to the interpretation of the terms of a policy of insurance entered into by the parties. The policy of insurance was for “catastrophe credit” insurance pursuant to which the plaintiff, an importer and distributor of oil products, claims an indemnity from the defendant.
The specific matter in issue is whether, when a winding up petition on grounds of insolvency was presented in respect of one of the plaintiff’s buyers during the period of the policy, but the winding up order in respect of that company was made after the expiration of the policy, the liquidation of that company can be said to have “occurred” within the period of the policy. The agreed wording of the preliminary issue is:-
The plaintiff and the defendant entered into a contract for “catastrophe credit insurance” on 1st May, 1997. This policy was renewed by correspondence on varied terms at various dates, the last of which was from the period from 1st August, 2001 to 31st July, 2002, which said term was extended to the 31st August, 2002.
The policy provided for cover inter alia in the following circumstances:-
(A) The insolvency or protracted default of the insured buyer occurs during the period of insurance …”
· An administration order has been made by the court under Part II of the Act.
· The appointment of an administrative receiver on behalf of debenture holders or other creditors under Part III of the Act.
· A resolution has been passed for the voluntary winding up or an order for winding up has been made by the court under Part IV of the Act.
· A bankruptcy order has been made by the court under Part IX of the Act.
· Liquidation has occurred as defined in section 247 of the Act (other than a voluntary winding up solely for the purpose of amalgamation or reconstruction on a solvent basis) …
· A compromise or arrangement between the insured buyer and his creditors has been sanctioned by the court under section 425 of the Companies Act, 1985.
· A valid assignment or composition has been made by the insured buyer for the benefit of his creditors.
On 29th August, 2002, the plaintiff presented a Petition seeking the winding up of one of its customers, Dev Oil & Gas Limited (‘Dev Oil’). A winding up order was made on 11th September, 2002, i.e. after the expiry of the period of insurance under the policy. If a deduction is made in respect of VAT, the plaintiff alleges that it has suffered a net loss of €647,990.72 from the insolvency of Dev Oil. It further alleges that Dev Oil was an insured buyer within the terms of the policy and that Dev Oil’s debts are insured losses under the policy.
RELEVANT STATUTORY PROVISIONS
The definition of “insolvency” under the policy is set out above and the issue is the date of the insolvency for the purposes of the policy. It is the defendant’s case that only the following limb of the definitions provided is relevant in determining the issue:-
Under Irish law, it is provided by the Companies Acts 1963 - 2006 that a liquidation may occur in one of the following two ways:-
(A) A company may be wound up by the High Court under the jurisdiction given to it under s.212 of the Act of 1963, or
(B) A company may be wound up voluntarily in circumstances outlined in s.251 of the 1963 Act.
In defining when liquidation ‘has occurred’, the policy refers to the definition in s.247 of the English Insolvency Act, 1986, or its equivalent in accordance with Irish Law. There is no equivalent provision in this jurisdiction to s.247(2) of the Act of 1986, which provides:-
Given that the decision of the High Court was based on the plaintiff’s arguments arising out of s. 220(2) of the Act of 1963 and in particular the deeming provisions therein contained, it is important to set out that provision which is as follows:-
THE HIGH COURT JUDGMENT
As already noted, the High Court (Gilligan J.) interpreted the policy in favour of the plaintiff. He held that the insolvency of Dev Oil occurred on 29th August, 2002 within the period of insurance having regard to the provisions of s.220(2) of the Companies Act 1963.
In his judgment, Gilligan J. reviewed the relevant portion of the policy and found that the definition of insolvency in the policy referred specifically to the equivalent local law in the country specified under the Geographical Limits (i.e. Ireland). He was of the view that in the circumstances of the case and in determining the issue of when the insolvency occurred, that particular issue had to be decided in accordance with Irish law and in particular s.220(2) of the Companies Act 1963.
He did not accept the arguments advanced by the defendant to the effect that the insolvency, within the meaning of the policy, only occurred when the order winding up the company was made on 11th September, 2002. In refusing to follow a leading English decision of Mettoy Pension Trustee Limited v. Evans  1 W.L.R. 1587 he held as follows:-
GENERAL PRINCIPLES IN RELATION TO INTERPRETATION OF CONTRACTUAL TERMS
Both parties to this appeal accept as correct the general approach to the interpretation of contractual terms approved in this jurisdiction in Analog Devices BV v. Zurich Insurance Company  1 IR 274, where this Court adopted the following statement of principles relating to contractual interpretation as set out by Lord Hoffman in the House of Lords decision in I.C.S. v. West Bromwich B.S.  1 WLR 896 at pp. 912 to 913:-
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammar; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Limited v. Eagle Star Life Assurance Co. Ltd. AC 749.
(5) The “Rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would, nevertheless, conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v. Salen Rederierna A.B.  A.C. 191, at p. 201:-
When one speaks of the intention of the parties to the contract, one is speaking objectively – the parties cannot themselves give direct evidence of what their intention was – and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly, when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have had in mind in the situation of the parties.
What the court must do must be to place itself in thought in the same factual matrix as that in which the parties were”.
THE COMMENCEMENT OF A LIQUIDATION
The principle that the winding up of a company commences at the date of the presentation of the petition is well established in Irish company law. It is at a moment in time fixed by statute. There is really no dispute between the parties that the date of presentation of the petition is the beginning of a liquidation and therefore the beginning of its occurrence.
I think it is of importance in the present case to consider briefly the considerations which underpin the doctrine of ‘relation back’ and I have derived considerable assistance from written submissions filed in this case which detail the consequences flowing from the doctrine and which thereby illustrate the raison d’etre for relation back and which include the following:-
(i) Section 218 of the Companies Act 1963 provides that any disposition of property of the company made after the commencement of its winding up is void unless the court otherwise directs.
(iii) Any attachment, sequestration, distress or execution put in force against the property or effects of the company after the commencement of the liquidation is void to all intents by virtue of s.219 of the Companies Act 1963.
(iv) Section 217 of the Companies Act 1963 provides that upon the presentation of petition any action or proceeding against the company in any court may be stayed or restrained at any time after presentation but before a winding up order has been made on the application of the company or any creditor or contributory.
(v) Under s.286 of the Companies Act 1963 any payments made to creditors are deemed to be of fraudulent preference if made within six months of the commencement of the winding up.
(vi) Under s. 288 of the Companies Act 1963 a floating charge on the undertaking of the property created within twelve months before the commencement of the winding up is invalid.
(vii) Under section 290 of the Act a liquidator has twelve months from the commencement of the liquidation to disclaim onerous property.
(viii) When considering restriction under s.150 of the Companies Act 1990, the court has to be satisfied that the directors are directors of the company within a twelve month period prior to the commencement of the winding up, namely, the date upon which the petition was presented.
(ix) The presentation of a petition to wind up a company together with the appointment of the provisional liquidator constitute a judgment in the insolvency proceedings within the meaning of Article 2 of Council Regulation EC No. 1346/2000 (The Insolvency Regulations).
Mr. Denis McDonald, senior counsel for the defendant, pointed out in this context that the mere presentation of a winding up petition may or may not result in a winding up order being made. A petition might not initially be advertised and might be given a new return date, in which case a significant period of time could elapse before it first came before the court. Thereafter, a petition might be contested or even appealed to the Supreme Court. Such contests or appeals might not be resolved until many months - if not years - after the petition was originally presented. If the interpretation contended for by the plaintiff was accepted, it could, he submitted, potentially lead to an open ended exposure on the part of the insurer long after the policy had expired. He submitted that this could hardly have been the intention of the parties when negotiating the policy.
It must be stressed at the outset that this case revolves around an issue of contractual interpretation rather than one of statutory interpretation. Part of the plaintiff’s submission has been to argue that the concept of ‘relation back’ as defined in the Companies Acts should be adopted as an appropriate tool for the interpretation of the contract. Mr. John Gleeson, senior counsel for the plaintiff, argued not only for this proposition but also for the proposition that, in so far as the relation back doctrine created any ambiguity as to the intention of the parties in this case, a construction contra proferentem should be applied so that the issue would be resolved in favour of the plaintiff.
The latter part of this submission may be quickly dealt with. As noted by Clarke: The Law of Insurance Contracts, 5th ed., (London. 2006) at paragraph 15-5:-
In Mettoy Pension Trustees v. Evans  1 W.L.R. 1587, the court was required to interpret the phrase ‘going into liquidation’ in the rules of a pension scheme, in circumstances where a period of just over two months had elapsed between the presentation of a winding up petition and the making of a winding up order. In that case, just as in the present case, the court was engaged in the consideration of a contractual document in order to consider the intentions of its drafters and its effects on the parties thereto. Warner J. had to consider whether the phrase ‘going into liquidation’ meant the actual beginning of a winding up, as a result of the making of a winding up order, or its ‘deemed’ statutory beginning. Put another way, he had to consider whether the words ‘going into liquidation’ were to be construed by reference to the relation back doctrine. He declined to do so, stating at p.1613:-
In the result I think that the reference to the company ‘going into liquidation’ in rule 11(b) is to be construed, in the case of a compulsory winding up, as a reference to the making of the winding up order.”
While Gilligan J. concluded that the issues in Mettoy could be distinguished from the particular circumstances of the instant case, apparently based on the fact that the wording involved was different and that the deed considered the rules of a pension scheme, the factual circumstances of the two cases are quite similar. It seems to me that the phrase ‘liquidation has occurred’ used in the policy is even more clearly distinguishable from the term ‘going into liquidation’ used in Mettoy.
A similar approach was adopted in Re Walter L. Jacob & Co Ltd.  B.C.C. 512. This was a case in which a company director sought to argue that he could not be disqualified under s.7(2) of the English Company Directors Disqualification Act, 1986, in circumstances where more than two years had passed since the date of commencement of the liquidation.
The section provided that proceedings could be taken within two years ‘… beginning with the day on which the company of which that person is, or has been a director, became insolvent’. The director argued that the company must be taken to have become insolvent on the date of the presentation of the petition by reference to s.129(2) of the Insolvency Act, 1986. This was rejected by Hoffman J. who stated:-
It is noticeable that section 7(2) uses the expression ‘the day on which the company became insolvent’. It would, I think, have been perfectly easy, if Parliament had so intended, for the section to use the well known expression ‘the date upon which the winding up commenced’. That would have brought into play section 129(2). But Parliament has not done so and, in my view, the context of section 7(2) requires one to construe the words ‘became insolvent’ with reference to section 247 of the Insolvency Act as meaning the date upon which the winding up order was made.”
I am also of the view that the decisions of Kelly J. in Re Eurofood IFSC Ltd.  4 I.R. 370 and the views expressed by Templeman J. in In re Dynamics Corpn  1 W.L.R. 63 do no more than confirm the application of the ‘relation back’ doctrine, a doctrine which of itself is not in dispute in the present case. Neither decision purports to address a matter of contractual interpretation. The decision of the High Court (Kelly J.) in Re Eurofood IFSC Ltd. related to a net point of the interpretation of Council Regulation EC No. 1346/2000 namely, whether ‘the time of opening of proceedings’ under Article 2 was the date of the presentation of a winding up petition or the date of the making up of the winding up order. There can be no dispute but that the order appointing a liquidator becomes effective as of the date of presentation of a winding up petition, a point relied upon by Kelly J. in Re Eurofood IFSC Ltd, which appears to have formed the basis of the learned High Court judge’s decision in the instant case.
Similarly, the case of In re Dynamics Corpn. was a case involving statutory interpretation and not the interpretation of a contract. In that case the English High Court held that proceedings should be stayed following the presentation of a winding up petition, on the basis that under s.276 of the English 1948 Act, a company was thereafter ‘in the course of winding up’.
I am impressed by the defendant’s argument that the interpretation contended for by the plaintiff would cause significant problems in practice and would flout business common sense, notably in circumstances where the presentation of a winding up petition might not result in any winding up order being made. A petition might not be proceeded with, or a considerable period of time could elapse before it comes before the court. It might be contested at that stage and might even indeed be the subject matter of an appeal. Such contests or appeals might not be resolved for months or years after the petition was originally presented. In such a situation, this could potentially lead to an open ended exposure on the part of the insurer long after the policy had expired.
As Fennelly J. pointed out in the course of his judgment in Re: Eurofood IFSC Ltd.  4 I.R. 370 at 406:-