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MACAURA v NORTHERN ASSURANCE CO [1925] AC 619 House of Lords (Lords

Buckmaster, Sumner, Wrenbury, Atkinson and Phillimore)

• An unsecured creditor who is also a principal shareholder has no insurable interest


in the company’s property

Facts

Macaura owned a large timber estate in Co Tyrone with the timber thereon. In December
1919 he assigned the whole of the timber on the estate to a company called Irish Canadian
Saw Mills Ltd for a total price of £42,000, this being satisfied by the issue of 42,000 £1
shares to Macaura in the company. At various dates in January and February 1922 he
insured the timber against fire with five insurance companies in his own name since most of
it had been felled. On 22 February 1922 the timber was destroyed by fire and Macaura
claimed on the policies. He questions arose as to whether he had an insurable interest in
the timber by reason of: (a) owning almost all the shares in the company; or (b) by reason
of being a creditor of the company.

Held

He had no insurable interest.

Lord Buckmaster:

‘It must, in my opinion, be admitted that at first sight the facts suggest that there really was
no person other than the plaintiff who was interested in the preservation of the timber. It is
true that the timber was owned by the company, but practically the whole interest in the
company was owned by the appellant. He would receive the benefit of any profit and on
him would fall the burden of any loss. But the principles on which the decision of this case
rests must be independent of the extent of the interest he held. The appellant could only
insure either as a creditor or as a shareholder in the company, and if he was not entitled in
virtue of either of these rights he can acquire no better position by reason of the fact that he
held both characters. As a creditor his position appears to me quite incapable of
supporting the claim. If his contention were right it would follow that any person would be a
liberty to insure the furniture of his debtor, and no such claim has ever been recognised by
the courts…

Turning now to his position as shareholder, this must be independent of the extent of his
share interest. If he were entitled to insure because he held all the shares in the company,
each shareholder would be equally entitled, if the shares were all in separate hands. Now,
no shareholder has any right to any item of property owned by the company, for he has no
legal or equitable interest therein. He is entitled to a share in the profits while the company
continues to carry on business and a share in the distribution of the surplus assets when
the company is wound up. If he were at liberty to effect an insurance against loss by fire of
any item of the company’s property, the extent of his insurable interest could only be
measured by determining the extent to which his share in the ultimate distribution would be
diminished by the loss of the assets – a calculation almost impossible to make. There is no
means by which such an interest can be definitely measured and no standard which can be
fixed of the loss against which the contract of insurance could be regarded as an
indemnity…’

Lord Sumner:

‘He owned almost all the shares in the company, and the company owed him a good deal
of money, but, neither as creditor, nor as shareholder, could be insure the company’s
assets. The debt was not exposed to fire nor were the shares, and the fact that he was
virtually the company’s only creditor, while the timber was its only asset, seems to me to
make no difference. He stood in no “legal or equitable relation to” the timber at all. He had
no “concern in” the subject insured. His relation was to the company, not to its goods, and
after the fire he was directly prejudiced by the paucity of the company’s assets, not by the
fire.

No authority has been produced for the proposition that the appellant had any insurable
interest in the timber in any capacity, and the books are full of decisions and dicta that he
had none…’

Comment

Usually incorporation works to the benefit of those who promote and run the company,
however this case is an example of where it operated to the disadvantage of the
incorporator. Perhaps with this case in mind, Khan-Freund in (1944) 7 MLR 54, said:

‘Sometimes, as shown by the cases concerning insurable interest and the


shipowner’s limitation of liability, “corporate entity” works like a boomerang
and hits the man trying to use it.’