[HOUSE OF LORDS.]

AND

Insurance - Capture - Property of Alien Enemy - Loss before Beginning of War - Intention to wage War - Seizure by Enemy's Government of Property of its own Subject - Validity of Insurance - Public Policy.

Where a subject of a foreign Government insures treasure with British underwriters against capture during its transit from the foreign State to this country, and the foreign Government seizes the treasure during the transit, and war is afterwards declared between the foreign and the British Governments, the insurance is valid, and an action may be maintained in this country against the underwriters after the restoration of peace, though the seizure is made in contemplation of war, and in order to use the treasure in support of the war.

The important date is the seizure before the declaration of war.

Such an insurance is not against public policy.

Public policy is not a safe or trustworthy ground for legal decision.

The decision of the Court of Appeal, [1901] 2 K. B. 419, affirmed.

THE respondents, a company registered under the law of the South African Republic, in August, 1899, insured, with the appellant and other underwriters, gold against (inter alia) "arrests, restraints, and detainments of all kings, princes, and people," during its transit from the Gold Mines near Johannesburg in the Transvaal to the United Kingdom. On October 2, 1899, the gold was during its transit seized on the frontier by order of the Government of the South African Republic. On October 11 at 5 P.M. a state of war began between the British Government and the Government of the Republic. At the time of the seizure war was admitted to be imminent.

The respondent company had a London office, but its head office was at Johannesburg. Most of its shareholders were resident outside the Republic and were not subjects thereof.

The respondent company having brought an action against

the appellant upon the policy, it was agreed between the parties that the action should be treated as if brought at the conclusion of the war, and that the Blue Book might be referred to for evidence as to the facts. The action was tried without a jury before Mathew J., who held that the appellant was liable. (1) This decision was affirmed by the Court of Appeal (A. L. Smith M.R. and Romer L.J., Vaughan Williams L.J. dissenting). (2)

May 9, 12, 13, 15, 16. Lord Robert Cecil, K.C., and J. A. Hamilton, K.C., for the appellant. The gold was seized for the purpose of waging war against this country, and a contract of indemnity against such a loss is invalid. It is clear that it would be so if the words of the policy expressly applied to such a case. But general words will not make binding a contract which in direct terms could not be enforced. The contract here is one whereby it is sought to make a British subject liable for losses inflicted on an alien enemy by his own Government. Such a contract - the performance of which would obviously tend to diminish the stress of war for the benefit of an enemy - is one to which our Courts will not give effect. Neither directly nor indirectly is it lawful for a British subject to aid an enemy. Suppose a British financier had agreed to lend money to the Transvaal Government for war preparations, or for the equipment of an army threatening Natal; or an engineer was engaged to destroy bridges in our Colonies; or an underwriter had insured foreign ships which were seized by the country at war with us - in any such case would our tribunals enforce the contract? The respondents were alien enemies when the gold was seized. They were a corporation under the laws of the Transvaal, and as much a subject of the South African Republic as any individual could be. The corporation is distinct from its members; its status is not modified by the alleged fact that many or most of its shareholders are British subjects. The principle is well stated by Story J. in Society for the Propagation of the Gospel v. Wheeler. (3) The head-note is: "There is no

(1) [1900] 2 Q. B. 339.

(2) [1901] 2 K. B. 419.

(3) (1814) 2 Gallison, 105, 131.

legal difference as to the plea of alien enemy between a corporation and an individual"; and the judge says: "Where a corporation is established in a foreign country by a foreign Government, it is undoubtedly an alien corporation, be its members who they may; and if the country become hostile it may for some purposes at least be clothed with the same character." The contract is void whether or not it was made in contemplation of war. It is not necessary that war should actually have broken out. In Furtado v. Rogers (1) Lord Alvanley C.J. and his colleagues held that an insurance effected in Great Britain on a French ship before the commencement of hostilities between England and France did not cover a loss by British capture; and that no subject could enter into a contract to do anything which might be detrimental to the interests of his own country. To the same effect is Gamba v. Le Mesurier. (2) That the actual declaration of war is not the decisive period is shewn by several prize cases before Sir William Scott: The Herstelder (3), where, hostilities against the Dutch having begun on September 15, 1795, the country was considered to have been an enemy during "the doubtful state of things"; and see The Danckebaar Africaan (4) and Touteng v. Hubbard. (5) To the like effect are The Boedes Lust (6), The Jan Frederick (7), and Esposito v. Bowden. (8) There Willes J., in giving the judgment of the Exchequer Chamber, thus expresses the whole principle involved: "It is now fully established that the presumed object of war being as much to cripple the enemy's commerce as to capture his property, a declaration of war imports a prohibition of commercial intercourse and correspondence with the inhabitants of the enemy's country, and that such intercourse, except with the licence of the Crown, is illegal." Thus the contract is void whether made in contemplation of war or not. If the general words imply such a liability, they must be read as subject to a proviso "that the

(1) (1802) 3 B. & P. 191, 196; 6 R. R. 752.

(2) (1803) 4 East, 407; 7 R. R. 590.

(3) (1799) 1 Ch. Rob. 116.

(4) (1798) 1 Ch. Rob. 107.

(5) (1802) 3 B. & P. 291; 6 R. R. 791.

(6) (1804) 5 Ch. Rob. 233, 244.

(7) (1804) 5 Ch. Rob. 128, 132.

(8) (1857) 7 E. & B. 763, 779; 27 L. J. (Q.B.) 17.

law of the country to which the insurer belongs be not contravened": Kellner v. Le Mesurier. (1) So Brandon v. Curling (2); Aubert v. Gray (3), overruling Conway v. Gray. (4)

[They also referred to West Rand Central Gold Mines, Limited v. De Rougemont. (5)]

Lawson Walton, K.C., and Carver, K.C. (Scrutton, K.C.,with them), for the respondents. The loss of the gold was within the express words of the policy caused by arrests of princes or peoples. It is for the appellant to shew why the terms of the contract should not be strictly enforced. The construction of the appellant would be an undue extension of the authorities by which the insurance of alien enemies is forbidden. The original foundation of the rule was not public policy, but the primitive conception of war which imputed mutual hostility to the individual subjects of belligerent powers. Thus, in The Hoop (6), all private trading with the enemy was declared to be illegal without the King's licence: "Ex natura belli commercia inter hostes cessare non est dubitandum." The matter was doubtful in Lord Mansfield's time, and the rule was only gradually introduced into the common law as an importation from Admiralty: see Potts v. Bell (7); Bristow v. Towers. (8) Insurance was only illegal because all trade between the subjects of the belligerent powers was prohibited. But a condition of actual war was absolutely essential: Hall's International Law, s. 126, p. 405, 4th ed.; Park on Insurance, vol. i. p. 520, 8th ed. In Arnould's Marine Insurance, vol. i. s. 85, 7th ed., it is laid down that all goods may be insured except those of alien enemies actually engaged in hostilities. There is no ground or authority for any enlargement of the exemption: and subject to it, the property both of subjects and aliens may be insured: see Phillips on Insurance, vol. i. par. 223; Duer on Insurance, vol. i. p. 414. The appellant is

(1) (1803) 4 East, 396, 402; 7 R. R. 581.

(2) (1803) 4 East, 410, 417; 7 R. R. 592.

(3) (1861-2) 3 B. & S. 163; in the Exchequer Chamber, at pp. 169, 182.

(4) (1809) 10 East, 536; 12 R. R. 362, n.; 15 R. R. 615, n.

(5) (1900) 5 Com. Cas. 296.

(6) (1799) 1 Ch. Rob. 196.

(7) (1800) 8 T. R. 548; 5 R. R. 452.

(8) (1794) 6 T. R. 35; 3 R. R. 113, n.

creating a new state of things not recognised by the law: a sort of penumbra of war. There is no foundation for the language of Vaughan Williams L.J. that the enforcement of such a contract "increases the resources of the foreign country for the expected war." The illustrations of the destruction of property for strategic purposes and of the seizure of ships are inapplicable: these would constitute acts of war. Nor do the decisions cited of Sir William Scott in prize cases help the appellant; the property of the alien enemy was in the possession of the Court: Boedes Lust (1); the Court "decides upon the character of the property seized and on the nature and quality of the seizure." So in Campbell v. Innes (2) it was not the insurance which per se was invalid; but the action was held not to be maintainable because of the suppression of the fact that the insured was an American subject. In Bell v. Gilson (3) Buller J. said he had had many conversations with Lord Mansfield, who thought it was a good thing to promote insurances of enemy's property. In Henkle v. Royal Exchange Assurance Co. (4) Lord Hardwicke said: "No determination has been that insurance on enemies' ships during the war is unlawful: it might be going too far to say all trading with enemies is unlawful." Esposito v. Bowden (5) only deals with the state of things after the declaration of war.

Public policy is a very insecure justification of breach of contract. In Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. (6) Lord Watson said: "A series of decisions based upon grounds of public policy, however eminent the judges by whom they were delivered, cannot possess the same binding authority as decisions which deal with and formulate principles which are purely legal." See also Jessel M.R. on the "paramount public policy" of not lightly interfering with freedom of contract: Printing and Numerical Registering Co. v. Sampson. (7) The real policy and interest of the country are that trade should be unrestricted until the actual outbreak of war. Times of

(1) 5 Ch. Rob. 233, at p. 248.

(2) (1821) 4 B. & A. 423; 23 R. R. 328.

(3) (1798) 1 B. & P. 345, 354; 4 R. R. 823.

(4) (1749) 1 Ves. Sen. 317, 320.

(5) 7 E. & B. 763, 779; 27 L. J. (Q.B.) 17.

(6) [1894] A. C. 535, at p. 553.

(7) (1875) 19 Eq. 462-65.

strained relations with other powers are frequent. It would be intolerable if on such occasions - of which the Fashoda incident is an example - trade should be suspended. Moreover, the authorities only refer to independent Sovereign States. The Transvaal was not such a State; and if these doctrines are to be applied here, they would have to be enforced in the case of a tributary State in India, a Colony, or a disturbance in Ireland. The many kinds now known of more or less subordinate States did not exist at the beginning of the last century; and it would be highly dangerous to extend these rules in accordance with the appellant's argument.

The whole argument is in fact based upon a legal fiction. The respondents being incorporated according to the law of the South African Republic are described as aliens. Technically the corporation was a subject of the Transvaal; but it was really a fictitious persona. The majority of the shareholders were British subjects, and it is they who lose, as the money was being exported to pay their dividends. That cannot be public policy by which the result is to inflict heavy loss on British subjects. Far-reaching injury might thus be caused to British enterprise, which has established railway companies in South America and invested its capital in every country in the world.

Lord R. Cecil, K.C., in reply. The prohibition of trading with an enemy except under a Royal licence is older than the case before Lord Hardwicke, and was distinctly laid down in the case of The Ringende Jacob, decided in 1747, and cited by Sir William Scott in The Hoop. (1) It is not necessary to rely on the old unqualified doctrine; but here as a fact there was a general suspension of commercial relations.

The House took time for consideration.

Aug. 5. EARL OF HALSBURY L.C. My Lords, in this case the plaintiffs, who had effected a policy at Lloyd's on a large quantity of gold which was being consigned from South Africa to London, sue on this policy, dated August 1, 1899, in respect

(1) 1 Ch. Rob. at p. 202.

of a seizure by the Transvaal Government of the gold in question on October 2 of the same year. There is no doubt that the loss of the gold is covered by the express words of the policy in question, and the defence to the action rests upon the proposition that the policy was an unlawful contract.

It might be the subject of debate whether I am correct in assuming what I assume for the purposes of my judgment, but for the sake of clearness I do assume that the plaintiff company was an alien, a subject of the Transvaal Government. I also assume, though this also might be the subject of debate, that both parties to the contract had in their minds, on August 1, the possibility and even the probability of war. The making of the policy and the loss under it both accrued before the breaking out of war, which it is agreed between the parties occurred at 5 o'clock on October 11.

All the judges, with the exception of Vaughan Williams L.J., have held that the plaintiffs are entitled to recover upon the policy; and if I rightly understand the reasoning of the learned Lord Justice, he thinks the policy was in its inception illegal, and would have been equally illegal even if no war had intervened. He does indeed say that there could have been no claim if war had not occurred; but he is mistaken, since the assumed imminence of the war and the seizure by the Transvaal Government might have occurred even if war had finally been averted.

The difficulty I have in dealing with the learned judge's judgment is that I do not trace any definite proposition as to what interest of the State, or what public injury, is supposed by him to be involved; but at all events, in whatever sense the learned judge uses this phrase, it is upon this general ground alone that he decides against the plaintiffs.

Now, as I have said, I understand the judgment of Vaughan Williams L.J. is put upon the sole ground that this policy is against public policy. He puts it at various parts of his judgment in different ways. He calls it a contravention of public interest, injurious to the country, inconsistent with public duty, repugnant to the interests of the State, and no doubt there are equivalent phrases to be found in many judgments

where their application is expounded; but the learned judge, beyond using these phrases, does not go on to explain in what sense they are used, and how and on what principles of law the policy in question was unlawful.

I do not think that the phrase "against public policy is one which in a Court of law explains itself. It does not leave at large to each tribunal to find that a particular contract is against public policy. If such a principle were admitted, I should very much concur with what Serjeant Marshall said in the first edition of his work on marine insurance a century ago: "To avow or insinuate that it might, in any case, be proper for a judge to prevent a party from availing himself of in indisputable principle of law, in a Court of justice, upon the ground of some notion of fancied policy or expedience, is a new doctrine in Westminster Hall, and has a direct tendency to render all law vague and uncertain. A rule of law, once established, ought to remain the same till it be annulled by the Legislature, which alone has the power to decide on the policy or expedience of repealing laws, or suffering them to remain in force. What politicians call expedience often depends on momentary conjunctures, and is frequently nothing more than the fine-spun speculations of visionary theorists, or the suggestions of party and faction. If expedience, therefore, should ever be set up as a foundation for the judgments of Westminster Hall, the necessary consequence must be that a judge would be at full liberty to depart to-morrow from the precedent he has himself established to-day; or to apply the same decisions to different, or different decisions to the same circumstances, as his notions of expedience might dictate."

But I do not think the law of England does leave the matter so much at large as seems to be assumed. In treating of various branches of the law learned persons have analyzed the sources of the law, and have sometimes expressed their opinion that such and such a provision is bad because it is contrary to public policy; but I deny that any Court can invent a new head of public policy; so a contract for marriage brokerage, the creation of a perpetuity, a contract in restraint of trade, a gaming or wagering contract, or, what is relevant

here, the assisting of the King's enemies, are all undoubtedly unlawful things; and you may say that it is because they are contrary to public policy they are unlawful; but it is because these things have been either enacted or assumed to be by the common law unlawful, and not because a judge or Court have a right to declare that such and such things are in his or their view contrary to public policy. Of course, in the application of the principles here insisted on, it is inevitable that the particular case must be decided by a judge; he must find the facts, and he must decide whether the facts so found do or do not come within the principles which I have endeavoured to describe - that is, a principle of public policy, recognised by the law, which the suggested contract is infringing, or is supposed to infringe.

If this is the true view, it is not difficult to solve the question whether a contract of insurance made before a war and sought to be enforced in respect of a loss incurred before the war is illegal, either in its inception or at the date when the loss was incurred. However stated it amounts to this - that the thing done must be in its nature an assistance to the public enemy, and if there be no public enemy there can be no aid given to him. Nor is this a mere question of words: the importance of the whole region of public policy involved makes the actual existence of war at the time of the creation of the contract or its fulfilment necessary. I will assume for my present purpose (though I think it might well be debated) that the Transvaal Company did, to quote the language of Vaughan Williams L.J, "enter into this contract with a view to the imminent war which might or might not break out with Great Britain."

I note that the Lord Justice uses the phrase "imminent," and one is disposed to ask, Does that word represent a principle capable of logical application to the propositions ultimately arrived at? It is notorious that for many years the Transvaal Government had been purchasing and storing up arms and ammunition to an enormous extent which could have no other object than a war with this country. Were all the contracts made with British subjects illegal? or with foreigners, breaches

of neutrality on the part of countries of which such subjects were supplying arms and ammunition to the expected enemy of the British Government? No such principle has ever been affirmed by any lawyer yet, and the principles upon which commercial intercourse must cease between nations at war with each other can only be where the heads of the State have created the state of war.

Bynkershoek propounds the principle: [His Lordship read a passage from Qu¾st. juris publici, lib. 1, cap. xxii., beginning "Pr¾misi quemadmodum," and ending "prohibendum est." The passage is quoted in Marshall on Insurance, 3rd ed. p. 30.] Throughout this the actual existence of the public enemy is assumed, and it is, as I have said, no mere technical phrase. It must be the enemy made so by the public authority.

In order to produce the effect, either nationally or municipally, it must be a war between the two nations. No contract or other transaction with a native of the country which afterwards goes to war is affected by the war. The remedy is indeed suspended: an alien enemy cannot sue in the Courts of either country while the war lasts; but the rights on the contract are unaffected, and when the war is over the remedy in the Courts of either is restored.

The earlier writers on international law used to contend that some public declaration of war was essential, and Valin, writing in 1770, does not hesitate to describe Admiral Boscawen's operations in the Mediterranean in 1754 as acts of piracy, because no actual declaration of war had been made; but though it cannot be said that that view is now the existing international understanding, it is essential that the hostility must be the act of the nation which makes the war, and no amount of "strained relations" can affect the subjects of either country in their commercial or other transactions: "Quand le conducteur de l'Žtat, le Souverain, dŽclare la guerre ˆ un autre Souverain on entend que la nation enti�re dŽclare la guerre ˆ une autre nation. Car le Souverain reprŽsente la nation, et agit au nom de la sociŽtŽ enti�re, et les nations n'ont ˆ faire, les unes aux autres, qu'un corps dans leur qualitŽ de nations. Ces deux nations sont donc ennemis; et tous les sujets de

l'une sont ennemis de tous les sujets de l'autre. L'usage est ici conforme aux principes" (Vattel, Droit des Gens, liv. 3, c. 5, § 70).

In Muller v. Thompson (1) Lord Ellenborough held that the voyage to Kšnigsberg in 1810, though the relations were very strained between this country and Prussia, British ships being actually excluded from Prussia, and it being objected that this was an enemy's port, was lawful inasmuch as no war was declared and no act of hostility committed - we could not be said to be at war, which alone could render the voyage unlawful.

Trading with the King's enemies is, of course, illegal. Undertaking by contract to indemnify the King's enemies against loss inflicted by the King's forces is also illegal. Such things are manifestly unlawful; but the words "King's enemies" are a necessary feature of the last proposition.

Substituting the word "aliens," who may possibly or even probably become the King's enemies - and in this case the loss and the policy were both before there were any persons who could answer to that description - it would be, to my mind, to introduce a new principle into our law to hold that the probability of a war should have the same operation as war itself. It is war and war alone that makes trading illegal.

I think no more striking example of the mischief which might result from so loose a mode of applying the principle of public policy in Courts of justice could be found than the example which elicited Serjeant Marshall's protest, which I have quoted above. Lord Mansfield had expressed the opinion that it was good policy to permit an insurance by British underwriters of enemies' goods, because we might obtain more in premiums than we should lose by capture; but this, in my view, was plainly wrong, and Valin, followed by Pothier and Emergon, denounced such insurance, and said that by the English practice one part of the nation was restoring them by insurance what another part took from them by arms.

If it were competent to a Court of law to consider the question which Vaughan Williams L.J. propounds upon principles

(1) (1811) 2 Camp. 610; 12 R. R. 753.

of public policy, apart from the known and ascertained rule that intercourse between nations at war is forbidden (which, for the reasons I have given, I think it is not), I should answer the question in a different way from that at which he arrives. Instead of a known and ascertained rule which makes it clear whether a contract is unlawful or not, each of the contending parties to a contract must look all round the political horizon, and form a judgment whether in some one or more contingencies the fulfilment of it may be injurious to his own country in the event of war; and I note here again the word "imminent" finds a place in the learned judge's question. It seems to me that the hindrance done to the free commercial intercourse between nations would be far more injurious to the interests of both than the injury the learned judge suggests.

But further, as the learned judge himself points out, the question depends, not on what afterwards takes place, but on whether the supposed contract is illegal in its inception. The learned judge says, "the accident of no war occurring would merely prevent any claim arising, but would not affect the legality of the contract or its construction." I think the learned judge is mistaken here, because the Transvaal Government might have seized the gold although no war had taken place; but the proposition is one which discloses the impolitic nature of such a principle. The Courts would have to consider whether war was probable or "imminent," and the contract would have to be regarded as illegal, not because war occurred, but because war was likely to occur. I cannot imagine worse public policy than this.

My Lords, for these reasons I think this appeal should be dismissed, and I only desire to add that the authorities referred to in the argument do not justify the proposition that expected wars render a contract illegal between citizens of the two nations between whom war is anticipated, and to lay down such a rule would be to establish an entirely new code for which there is no authority in the law.

My Lords, I conclude by reading the words of Parke B. on this subject when advising your Lordships' House in

Egerton v. Lord Brownlow and Others (1): "To allow this to be a ground of judicial decision would lead to the greatest uncertainty and confusion. It is the province of the statesman, and not the lawyer, to discuss, and of the Legislature to determine, what is the best for the public good, and to provide for it by proper enactments. It is the province of the judge to expound the law only: the written from the statutes; the unwritten or common law from the decisions of our predecessors and of our existing Courts, from text-writers of acknowledged authority, and upon the principles to be clearly deduced from them by sound reason and just inference; not to speculate upon what is the best, in his opinion, for the advantage of the community. Some of these decisions may have, no doubt, been founded upon the prevailing and just opinions of the public good; for instance, the illegality of covenants in restraint of marriage or trade. They have become a part of the recognised law, and we are therefore bound by them, but we are not thereby authorized to establish as law everything which we may think for the public good, and prohibit everything which we think otherwise."

It is not necessary to go through all the principles of law which may make a contract altogether illegal. As a wagering contract is illegal, so wills creating a perpetuity have no operation in that respect, but it is enough for the purpose I have in hand. They are defined legal principles, known to and absolutely fixed as part of our law, and a judge is called upon to bring the instrument he has to construe to the test - whether it is or is not within such principles; but I do not think he has any jurisdiction to bring into the discussion his own views of what he may consider an inexpedient thing in his own peculiar view of public policy. To permit such a discussion to arise it must be a question of some public policy recognised by the law.

To apply what I have said to this case, I do not deny that a judge has a right to consider whether the thing incriminated is an adherence to the King's enemies, or something calculated to assist them; but I do not think we are at liberty to consider

(1) 4 H. L. C. at p. 123.

whether the contract might be against public policy because one of the parties to it might become an alien enemy afterwards.

For these reasons I move your Lordships that this appeal be dismissed and the judgment of the Court of Appeal affirmed with costs.

LORD MACNAGHTEN (read by Lord Davey). My Lords, I assume that the corporation, which was plaintiff in the action and is now respondent here, was to all intents and purposes in the position of a natural-born subject of the late South African Republic. I do not think it can be entitled to any exceptional favour or to any peculiar indulgence by reason of the fact, if it be a fact, that the bulk of its shareholders were of European nationality. If all its members had been subjects of the British Crown, the corporation itself would have been none the less a foreign corporation and none the less in regard to this country an alien.

I assume, further, that the seizure which has given rise to the claim on which the action is founded was made by the Government of the South African Republic in immediate contemplation of war with this country, which that Government was then determined at all hazards to bring about unless this country would submit to conditions which no Sovereign State with a particle of self-respect could entertain.

Notwithstanding these assumptions, and notwithstanding the very able argument of the learned counsel for the appellants, it seems to me to be perfectly clear that there is no defence to the action.

I think the learned counsel for the respondent was right in saying that the law recognises a state of peace and a state of war, but that it knows nothing of an intermediate state which is neither the one thing nor the other - neither peace nor war. In every community it must be for the supreme power, whatever it is, to determine the policy of the community in regard to peace and war. It is not, I think, for private individuals to pronounce upon the foreign relations of their Sovereign or their country and to measure their own responsibilities arising

out of civil contracts with foreigners by a standard of public policy which they set up for themselves, even though their views may be right in the abstract and might possibly find acceptance with a jury of their countrymen if such a question were within the competence of such a tribunal. Public policy in my opinion, requires a good citizen in matters of this sort to conform to the rule and guidance of the State. However critical may be the condition of affairs, however imminent war may be, if and so long as the Government of the State abstains from declaring or making war or accepting a hostile challenge there is peace - peace with all attendant consequences - for all its subjects.

The result, therefore, in the present case is that, however hostile the intentions of the South African Republic may have been at the moment when this gold was seized, the seizure must be treated as a seizure in time of peace between the Republic and this country.

The event which happened was within the terms of the policy, and there is no ground on which the underwriters can dispute their liability.

The appeal, I think, must be dismissed with costs.

My noble and Learned friend Lord Shand concurs in this opinion.

LORD DAVEY. My Lords, I do not think it necessary to state the facts of this case, or to discuss in any detail the numerous cases which were cited in the course of the argument. I should, if I were to do so, be only troubling your Lordships with a repetition of what has been said, and I believe will be said, by my noble and learned friends. I will content myself by stating concisely how the case presents itself to my mind and the conclusion to which I have arrived.

I think it must be taken that the respondent company was technically an alien, and became, on the breaking out of hostilities between this country and the South African Republic, an alien enemy. I also assume, in accordance with the decision in Aubert v. Gray (1), that the loss occasioned by the embargo

(1) 3 B. & S. 163.

placed on the goods by the assured's own Government might, in ordinary circumstances, be recovered on the policy.

My Lords, there are three rules which are established in our common law. The first is that the King's subjects cannot trade with an alien enemy, i.e., a person owing allegiance to a Government at war with the King, without the King's licence. Every contract made in violation of this principle is void, and goods which are the subject of such a contract are liable to confiscation. The second principle is a corollary from the first, but is also rested on distinct grounds of public policy. It is that no action can be maintained against an insurer of an enemy's goods or ships against capture by the British Government. One of the most effectual instruments of war is the crippling of the enemy's commerce, and to permit such an insurance would be to relieve enemies from the loss they incur by the action of British arms, and would, therefore, be detrimental to the interests of the insurer's own country. The principle equally applies where the insurance is made previously to the commencement of hostilities, and was, therefore, legal in its inception, and whether the person claiming on the policy be a neutral or even a British subject if the insurance be effected on behalf of an alien enemy. The third rule is that, if a loss has taken place before the commencement of hostilities, the right of action on a policy of insurance by which the goods lost were insured is suspended during the continuance of war and revives on the restoration of peace.

In the present case the third rule would have constituted a defence to the present action; but the parties, being desirous to obtain a decision on the merits of the case, waived the objection. I have some doubt whether it was competent for the parties to take this course, for it humbly appears to me that, the objection being one based on considerations of public policy affecting the Sovereign, his Courts should be held bound to take notice of the plaintiff's inability to sue, and I do not think that this observation is inconsistent with Flindt v. Waters. (1) But the point is now happily academic, and I do not desire to make it a ground of judgment.

(1) (1812) 15 East, 260; 13 R. R. 457.

Your Lordships will have observed that, in each of the rules on this subject which I have endeavoured to formulate, the actual commencement of hostilities is made the time when and the occasion on which the rule comes into operation. The learned counsel for the appellant has endeavoured to persuade your Lordships to extend their operation to a period when the relations between two Governments are strained and war is imminent, though the peace has not been broken and negotiations are still continued, on the grounds that the same principles of public policy are as applicable to such a state of things as to a time of actual hostility. In the case before us he says that the seizure of the gold by the Government of the South African Republic was in contemplation of and with a view to the eventuality of war. The seizure of the gold, however, was not in itself an act of hostility against this country.

My Lords, I am not disposed to agree to such an extension of the law, which appears to me to be unsupported by any authority. Public policy is always an unsafe and treacherous ground for legal decision, and in the present case it would not be easy to say on which side the balance of convenience would incline. On the one hand, such an extension of the law as your Lordships are invited to lay down would certainly lead to interference with the lawful contracts and commercial pursuits of the King's subjects. It might conceivably precipitate a state of war which it was the object of statesmen to avert; and I think there is great force in the observation made by Romer L.J. as to the difficulty of determining the intention of a foreign Government, and the embarrassment which might ensue from our Courts being obliged to decide a question of that kind as one of fact. I quote the following passage from the judgment of the learned Lord Justice: "I think the intention of a foreign Government at any given time ought by these Courts, for such a purpose as that which I am now considering, to be treated as conclusively determined by the way in which our Government chooses or has chosen to deal with that foreign Government, and that where our Government has not treated the foreign Government as being hostile at a particular time, our Courts ought not to try and ascertain what was then in the minds

of the King, President, or responsible Ministers, or authorities of the foreign Government."

Against these considerations is to be set only the possible but somewhat remote advantage to our Government which might accrue from the enforcement of the rule contended for by the appellant.

My Lords, I prefer to abide by the limits of the law as laid down in the decided cases and by the text-writers, and I therefore think that the decision of Mathew J. and the Court of Appeal should be affirmed.

LORD BRAMPTON (read by Lord Lindley). My Lords, I am of opinion that the respondent is entitled to your Lordships' judgment. At first sight the case may appear to be fraught with difficulty; but when the material facts, which are few and simple, are ascertained and understood, the difficulty will, as I think, be found to be more apparent than real.

The plaintiff is a company incorporated under the laws of the South African Republic for the purpose of working gold mines therein. The majority of its shareholders are subjects of the United Kingdom. The company has an office and a committee of management in England, and it was a custom of the company to transmit to this country gold bullion for sale and distribution of the profits amongst its shareholders. The company clearly must be treated as a subject of the Republic, notwithstanding the nationality of its shareholders.

In the early autumn of 1899 the company was, in the ordinary course of business, about to send to the United Kingdom a large amount of such bullion, and on August 1 it effected a policy of insurance on its transit from the mines to England with underwriters at Lloyd's, the defendant, a British subject, being one. On October 2 the bullion was placed in the mail train at Johannesburg for conveyance to Cape Town en route for its destination. It reached Vereeniging, the frontier station of the Republic, in safety; but on its arrival there it was seized and appropriated by the then Government of the Republic, and became totally lost to the plaintiff. When the bullion was so seized there can be no

doubt that the friendly relations between this country and the South African Republic were much strained; but both countries were negotiating for a settlement of their differences, and it was not until the afternoon of October 11 that war was declared between them, from which date they continued in open hostility until the end of May, 1902. The action was commenced on January 30, 1900, the crucial issue between the parties being whether war had been commenced, or a state of hostility equivalent to a state of war, so far as the insurance was affected, was in existence between the two countries when the seizure was made on October 2, 1899. If the answer was in the affirmative, the plaintiff, as a subject of the Republic, could not recover upon his policy against the defendant, an English subject and an alien enemy of the plaintiffs' country; for, although covered by the words of the policy, it would have been a loss happening during the existence of hostilities, and within the proviso which, according to the language of Lord Ellenborough in Brandon v. Curling (1), is in all cases considered as engrafted in every insurance, namely, "that this insurance shall not extend to cover any loss happening during the existence of hostilities between the respective countries of the assured and the assurer." The reason he assigns for this is, "because, during the existence of such hostilities, the subjects of the one country cannot allowably lend their assistance to protect by insurance the property and commerce of the subjects of the other." The law is in other words also explained by Willes J. in delivering the judgment of the Exchequer Chamber in Esposito v. Bowden (2): "It is now fully established that the presumed object of war being as much to cripple the enemy's commerce as to capture his property, a declaration of war imports a prohibition of commercial intercourse and correspondence with the inhabitants of the enemy's country, and that such intercourse, except with the licence of the Crown, is illegal." If, however, the answer to the issue between the parties ought to be, as I think it was, rightly found by Mathew L.J., in the negative, the plaintiff company was clearly entitled (subject to a point which was waived) to

(1) (1803) 4 East, 417; 7 R. R. 592.

(2) 7 E. & B. 779.

recover its loss from the defendant, for both the making of the contract of indemnity and insurance and the loss by seizure - which was simply an outrage by the Republic upon its own subject - occurred before the declaration of war. By way of defence it was urged that the seizure of the bullion by the Government of the Republic was incidental to actual or expected hostilities against Her Majesty Queen Victoria, and for the purpose of supplying the Republic with funds to levy war upon Her Majesty, and that, coupled with the actual declaration of war which followed, created a state of hostility against Her Majesty, and rendered the plaintiff's claim for indemnity contrary to public policy and irrecoverable.

This contention, though very ingenious and exceedingly well argued by the learned counsel, affords, in my opinion, no bar to this action. It was an endeavour to extend the well-established principle described by Lord Ellenborough so as to meet the circumstances of this case, in which undoubtedly hostile intentions were made manifest by word and by action during the time negotiations for peace were being carried on, though no declaration or act of war was made or done until after the British Government had signified by silence, on October 11, the non-acceptance of the ultimatum of the Republic received on the previous day. No decided authority supporting this contention was cited to your Lordships, while, in my opinion, reason and good sense are against it.

Every prudent Government naturally endeavours and takes steps to place itself in a condition to uphold its own country in the possible event of a state of hostility arising with any other power, and it would indeed be strange that a declaration of war should be held to have relation back to an indefinite period of time during which both the hostile countries believed themselves to be and conducted themselves towards each other as in a condition of amity, and were negotiating with a view to avoid any rupture of a then existing state of peace. I do not think it necessary to say more.

In my opinion the judgments of Mathew L.J. and of the majority of the Court of Appeal ought to be upheld, and this appeal dismissed with costs.

LORD ROBERTSON. My Lords, the fullness with which this very interesting case is being discussed by some of my noble and learned friends may absolve me from saying more than a few words. I agree that the appeal ought to be dismissed, but I wish to rest my concurrence on one definite ground, namely, that at the date of the seizure the South African Republic was not at war with Queen Victoria. That this company was a Transvaal subject, and that the nationality of its shareholders is immaterial; that the gold was seized as sinews of a war against Great Britain intended by the seizers and morally inevitable: these propositions I accept as the conditions of the argument; and it is obvious that the circumstance that this gold was insured lessened pro tanto the pressure of the war once it broke out.

But then the question is, Does this state of facts bring the case within any prohibition of the common law? Now, after very careful consideration of this question and with a high appreciation of the judgment of Vaughan Williams L.J., I am satisfied that, near as in every sense the state of things at the time of the seizure was to war, it is yet separated from it by a line of the sharpest and most definite kind. It cannot be affirmed that at the moment in question there was a state of war between this country and the Transvaal. That the Transvaal was a future enemy, an intending enemy, that she was arming, and that this seizure was an act of arming - all this I assume and I believe; and if the principle of the cases about actual war really involved cases of impending war, I should not be deterred by the absence of any former decision from applying it. But for the purposes of the present question there are, as it seems to me, but two categories - war and not war; and the difference between the two things is essential. The present case is perhaps as strong a case as can occur, but in it war was still a contingency or futurity. To extend the law's prohibition of trading with the King's enemies to future or contingent enemies would be subversive of the broad and palpable distinction between peace and war, would be unworkable in practice, and productive of endless uncertainty and loss. I mention these considerations not as if we were here as

legislators, or had to decide upon a balance of general considerations. But the question whether it is workable or salutary is one of the tests of any legal doctrine, and I am satisfied that the law against trade with enemies is inapplicable to the events now in question.

LORD LINDLEY. My Lords, I will not detain your Lordships by recapitulating the facts of this case. I will only ask your Lordships to bear in mind that the policy was effected and the loss of the goods insured took place before war was declared or broke out. These facts are of cardinal importance.

Before considering the legality or illegality of the policy, it is desirable to consider the legal position of the company assured by it. The company was incorporated and registered according to the laws of the Transvaal, and it carried on business there. It had gold mines there and extracted gold from them, and sent such gold to England or Europe for sale and division of profits amongst its shareholders. It had also a London office and London committee of management. For all purposes material for the determination of the present appeal the company must, in my opinion, be regarded as a company resident and carrying on business in the Transvaal although not exclusively there. It was subject to the laws of that country. When war broke out the company became an alien enemy of this country: see the American case of Society for the Propagation of the Gospel v. Wheeler. (1) If it becomes material to attribute nationality to the company it would, in my opinion, be correct to say that the company was a Transvaal Company and a subject of the Transvaal Government, although almost all its shareholders were foreigners resident elsewhere and subjects of other countries. But when considering questions arising with an alien enemy, it is not the nationality of a person, but his place of business during war that is important. An Englishman carrying on business in an enemy's country is treated as an alien enemy in considering the validity or invalidity of his commercial contracts: McConnell v. Hector. (2) Again, the subject of a State at war with this

(1) 2 Gallison, 105.

(2) 3 B. & P. 113; 6 R. R. 724.

country, but who is carrying on business here or in a foreign neutral country, is not treated as an alien enemy; the validity of his contracts does not depend on his nationality, nor even on what is his real domicil, but on the place or places in which he carries on his business or businesses: Wells v. Williams. (1) As observed by Sir William Scott in The Yonge Klassina (2), "a man may have mercantile concerns in two countries, and if he acts as a merchant of both he must be liable to be considered as a subject of both with regard to the transactions originating, respectively, in those countries. That he has no fixed counting-house in the enemy's country will not be decisive." See also The Portland. (3)

I pass now to consider the seizure and its effect on the rights of the assured against the underwriters.

The risk of loss by seizure by a foreign Government was clearly insured against in the sense that the general words of the policy covered such a risk. But even if this particular risk is one which cannot be lawfully insured against, the fact that the general words cover it does not render the policy illegal ab initio; the only consequence is that the general words must be read as subject to an implied proviso that they are not intended to cover and do not cover any risk against which it is unlawful to insure. Therefore, if the seizure in question could not be lawfully insured against, the general words ought not to be held to cover it. This rule for dealing with general words in policies of insurance was formulated and acted upon in Furtado v. Rodgers (4) and Kellner v. Le Mesurier (5), and has been recognised ever since. In those cases it was held that general words did not cover loss by capture by British forces of an enemy's goods insured before war broke out.

The policy being effected before war broke out, it is not invalid upon the ground that it was when made a contract with a then alien enemy; nor can it be treated as an invalid contract ab initio by reason of the generality of its terms. This was in fact conceded by the counsel for the appellants in

(1) (9 W. 3) 1 Ld. Raym. 282; 1 Salk. 46.

(2) (1804) 5 Ch. Rob. 302-3.

(3) (1800) 3 Ch. Rob. 41.

(4) 3 B. & P. 191; 6 R. R. 752.

(5) 4 East, 396; 7 R. R. 581.

his reply. The question then is reduced to this: Is the seizure in question one which it is unlawful to insure against?

My Lords, one ground, and one ground only, is invoked to shew that it is, and that ground is the ground of public policy. A contract or other transaction which is against public policy, i.e., the general interest of this country, is illegal (1); but public policy is a very unstable and dangerous foundation on which to build until made safe by decision. On this point I venture to remind your Lordships of the weighty observations of Alderson B. and Parke B. in Egerton v. Brownlow. (2)

The seizure of the gold in the present case was a distinct gain to the captors. To indemnify the owner of the gold against the loss of such gold is clearly a benefit to the owner, and such an indemnity is a benefit to a person who is regarded as an enemy as soon as war breaks out. But he was not an enemy when the policy was effected nor when the gold was seized, and how it can be against the policy of this country to keep faith with him when the war is over I fail to see. He cannot, of course, sue in this country during the war if the defendants raise that objection; but they do not. The contention is that if the war were over this action could not be maintained.

Reference was made in the argument to such cases as The Jan Frederick (3) and The Boedes Lust (4) to shew that contracts made before war breaks out, but in contemplation of it, for the protection of enemy's property against British capture, will not be recognised in this country. This is intelligible enough; for to recognise such contracts would be to defeat the object of this country in effecting the capture. It would be to undo by means of British tribunals the work done for the British nation by its naval or military forces. Anything which would produce, or be calculated to produce, such an effect as that would be clearly against public policy, and be judicially dealt with accordingly. I am unable myself to bring the present case within this principle. The view that public policy requires an extension of rules already recognised so as to meet the present case has been very clearly presented by Vaughan

(1) 4 H. L. C. 161, 195-6.

(2) 4 H. L. C. 106, 123.

(3) 5 Ch. Rob. 129.

(4) (1804) 5 C. Rob. 233.

Williams L.J. in his judgment. I am unable, however, to arrive at the same conclusion. His view appears to me to be based on the doctrine which identifies every subject of a State with its own Government.

This doctrine was no doubt laid down in Conway v. Gray (1), and so long as that case stood there was authority for the proposition that an ordinary policy of insurance does not cover a loss occasioned by the seizure of the assured property by the Government of the country of the assured. But even before 1861 this doctrine can hardly be said to have been regarded as settled law; it has never been accepted in America. The subject was carefully examined in the 2nd edition of Arnould on Insurance, vol. ii. pp. 803 et seq., and in 3 Kent's Commentaries, vol. iii. pp. 292 et seq. In 1861 Aubert v. Gray (2) finally repudiated any such general doctrine in this country. It was, however, unnecessary in that case to decide whether such a seizure would be covered by a policy if the seizure occurred during or in contemplation of war with this country. The Court left this point open; but Conway v. Gray (1) does not cover it, for the embargo there in question was not an act of hostility.

A seizure after war has broken out is very different from a seizure before war has been declared or has actually commenced. It appears to be settled that a British subject cannot even before war insure a person against any loss sustained by him after the war began and whilst he is an enemy of this country: see Furtado v. Rodgers (3) and Brandon v. Curling. (4) Those were cases of capture after war, by the British forces in the first case, and by our allies in the second case; and these authorities go far to shew that if the seizure here had been after war had broken out the policy would not have covered such a loss.

But, apart from Conway v. Gray (1) and others based upon the doctrine there laid down and now exploded, there is no authority for saying that an insurance effected before war does

(1) 10 East, 536; 12 R. R. 362, n.; 15 R. R. 615, n.

(2) 3 B. & S. 163.

(3) 3 B. & P. 191; 6 R. R. 752.

(4) 4 East, 410; 7 R. R. 592.

not cover a seizure of the insured property by the Government of the assured in time of peace, even if war with this country is imminent and shortly afterwards breaks out between that Government and our own.

In Arnould on Insurance, vol. i. p. 135, 6th ed., it is stated generally, "Where the party intended to be insured by the policy does not become an alien enemy until after the loss and cause of action have arisen, his right to sue on the policy is only suspended during the continuance of hostilities and revives on the restoration of peace." For this is cited Flindt v. Waters (1), which warrants the author's statement.

That case is also useful as shewing that, where the insurance is legal in its inception and the loss occurs before war, an action on the policy may be successfully brought even during war if the underwriter does not put on the record a special dilatory plea. The case is an authority for the course taken in this case of obtaining a decision of the controversy between the parties on its merits without waiting for the termination of the war. The general rule laid down in Arnould is a sound intelligible working rule, and covers the present case.

I agree with Vaughan Williams L.J. in thinking that Aubert v. Gray (2) does not quite cover this case; but I cannot agree with him in thinking that public policy requires that this action should be decided in favour of the underwriters.

War produces a state of things giving rise to well-known special rules. It prohibits all trading with the enemy except with the Royal licence, and dissolves all contracts which involve such trading: see Esposito v. Bowden. (3) But threatened war or anticipated war or imminent war is peace, which may not after all result in war; and to apply the rules of war to insurances against loss before war breaks out would paralyze commerce, and often without any real necessity. Is it for the interest of this country to dislocate trade because international relations are strained and war appears probable to the public, who do not know and cannot know the real views and resolutions of the Governments concerned? It must be

(1) 15 East, 260; 13 R. R. 457.

(2) 3 B. & S. 163.

(3) 7 E. & B. 781 et seq.

remembered that contracts of insurance are not by any means the only contracts which have to be considered in this connection: what affects them affects contracts of sale and contracts of carriage both by land and sea, and in fact affects the whole external commerce of the country. Romer L.J. saw this, as is apparent from his judgment.

My Lords, where a policy of insurance is not void ab initio, and a loss from one of the perils insured against happens before war is declared or breaks out, what defence can be offered to an action upon it? I know of none except where the loss is occasioned by British capture followed by war. Of course, if war breaks out before the action is brought or before it is over, the war suspends its prosecution, for an alien enemy cannot sue in this country: Le Bret v. Papillon. (1) Your Lordships are asked to invent a new defence unheard of before, and to say that every policy on a foreigner's property abroad is subject to the implied condition that it shall not be seized by his own Government in order to be used against this country if war breaks out. Such a doctrine, I venture to think, would paralyze legitimate trade and be entirely against the interests of this country.

In my opinion the order and judgment appealed from should be affirmed and the appeal be dismissed with costs.

Solicitors: Waltons, Johnson, Bubb & Whatton; Wm. A. Crump & Son.

(1) (1804) 4 East, 502; 7 R. R. 618.