HL Deb 06 March 1912 vol 11 cc323-32

LORD ELLENBOROUGH rose to call attention to some of the Reports of Courts of Inquiry into the causes of the loss of ships insured above their value, and to ask the Government whether they will order the Reports of the Courts of Inquiry into the causes of the loss of the "Carnedd Llewellyn," "Oxus," "Cadoxton," "Idle-wild," "Kingswell," "Gunford," "George," "Ouse," " Selworthy," "Cardiff Hall," "Hasland," "Everest," "British Standard," and "Dunsley," the judgments of the Admiralty Courts in the cases of the appeal of the owners of the "Idlewild," and of Paul Braun, who had been master of the " British Standard," and the judgment of the House of Lords in the case of the "Gunford," to be laid before the House.

The noble Lord said: My Lords, the evils of which I am about to complain have, I think, been in existence since the time of Queen Elizabeth. There are traces of them in the "Merchant of Venice." What was Shylock thinking of when he used the words— Ships are but boards, sailors but men: there be land-rats and water-rats. Had he said this in the nineteenth century or in the early part of the twentieth century I should have thought that he was thinking of taking out P.P.I. policies on Antonio's ships and then arranging for their destruction. I am about to call your Lordships' attention to the proceedings of some modern two-legged rats. That they existed in the time of George II is shown by the Preamble of an Act of Parliament passed in 1746, which states that— It has been found by experience that there are in existence many pernicious practices whereby great numbers of ships, with their cargoes, have been either fraudulently lost and destroyed, or taken by the enemy in time of war. And that— By introducing a mischievous kind of gaming or wagering, wider the pretence of assuring the risk on shipping and fair trade, the institution and laudable design of making assurances hath been perverted, and that which was intended for the encouragement of trade and navigation has in many instances become hurtful and destructive to the same.

There is, therefore, nothing new about the crimes to which I am about to refer, but the methods of perpetrating them have been greatly improved upon.

My attention was first called to this class of fraud by a case that occurred when I was in Bombay in 1870. Two English shipbrokers, who were well connected and personally known to many of my friends in Bombay, made a pretence of loading with cotton a vessel called the " Aurora." which lay at anchor close to my ship. Bills of lading were signed in advance for cotton that had not been put on board, and money was raised on the security of these bills of lading. As it was clear that if the "Aurora" reached England the fraud would be detected, the two ship brokers agreed to pay the captain£1,500 and the carpenter£600 on condition of their sinking the ship. The "Aurora " left Bombay on April 11, and was set on fire by the carpenter on the 12th. The captain made no attempt to extinguish the fire, but got a boat out at once. The sea was calm. On the return of the crew to Bombay suspicions were aroused which resulted in a trial that caused a great sensation in that city. Eventually all four culprits confessed their guilt. The carpenter was sentenced to ten years' penal servitude, and the captain to fifteen, the chief conspirators, the two shipbrokers, receiving life sentences. Compared with present-day practitioners, who have raised barratry to a fine art and who manage to avoid punishment for their crimes, these men were mere bunglers.

Take the case of the "Selworthy." At about 5 pm. on March 17, 1910, when about eighty miles from the Canaries, a violent explosion took place in her after hold and a column of water rushed into the ship. The sea was calm. The crew took to the boats. After drifting about for about forty-three hours they were picked up and landed at Genoa, whence they travelled to Cardiff. Major Cooper-Key, His Majesty's inspector of Explosives, held art inquiry at Cardiff. and came to the conclusion that the explosion was due to a charge of high explosive, such as dynamite, which had been deposited in No. 4 hold, and that in his opinion the explosive could only have been so placed and fixed by a member or members of the ship's company. Now comes the question, Who was likely to profit by the crime that was committed? The managing owner gave evidence that the ship cost£8,000 in June, 1909, of which about two-thirds were left on mortgage. The total of the insurance amounted to£15,750. Major Cooper-Key, while acquitting the owners of any attempt to over-insure by misrepresentation, stated that the fact undoubtedly remained that the total loss of the vessel would be very profitable to them. Now in the case of the "Selworthy" it is evident that a crime was committed and that more than one person had a hand in it. Yet it was so skilfully planned that there was not enough evidence to convict any one.

I now come to the case of the "British Standard," of which most of your Lordships have probably heard, because it has been well reported by the Press. She was owned by Brown, Son and Company, who occasionally called themselves by other names, thus leading to confusion. They had previously lost the "Albion" and the "Duffryn Manor." The "Albion" was lost in May, 1908. The total insurances were£32,000, including disbursements, freight, &c. The outside value of the vessel was£16,500, exclusive of disbursements, freight, &c., the value of which is not stated in the report. Also, in addition to the above there were P.P.I. policies for£12,600. So that she was worth a great deal more at the bottom of the sea than on its surface. The cause of her loss was said to be that her steam steering gear jammed at the entrance to the harbour of Corcubion. The Court did not blame any one, but expressed a strong opinion on P.P.I. policies. The "Duffryn Manor" was wrecked on an island off the coast of Ceylon in May, 1909. An inqury was held at Colombo. The Court said"— An attempt was made by one of the witnesses called at the Inquiry to prove that the ship bad been deliberately wrecked. The Court did not accept this view, but, strange to say, their report did not touch on the all-important question of insurance. Mr. Brown originally intended to appoint Captain Vigers, who had lost the "Duffryn Manor," as master of the "British Standard," but as the underwriters objected the agreement with him was cancelled. The firm of Brown, Son & Company, consisting of Frederick Brown and his son Thomas, contracted to purchase a steamer at a cost of£32,500. As they had not got enough money to pay for her,£26,500 was left on mortgage to be paid off by instalments in four years' time. Their previous losses made it difficult for the owners to insure the "British Standard" at normal prices, but eventually an insurance was effected for£32,000 on hull and machinery, at eight guineas per cent.—two guineas above the average. Further insurances were effected which brought the amount up to£55,300, though, according to the owners' statements, the value at risk was only£46,378, so that£8,900 was to be gained if she went to the bottom.

The financial arrangements connected with this ship were exceedingly complicated. Frederick Brown was of German origin and was born in Heligoland. His brother Paul was a naturalised British subject and had originally been a German. Messrs. Brown on March 13 described Captain Paul Braun as a man with a long experience and a clean record. One of the underwriters objected to this statement, saying that Captain Braun had got the "Haxby" and the "Glenroy" on shore, and had had a collision when in charge of the "Lexington." At the inquiry it came out that Captain Braun had lost the "Frankfort" many years previously, and that his certificate had been suspended six months for losing the "Rook." The crew of the "British Standard" consisted of twenty-six men, belonging to fifteen different countries. At the trial evidence was taken through interpreters of Greek, Arabic, Italian, and also of Pigeon English for seine of the coloured men. One wonders what has become of the language test that was recently made compulsory in British ships! On May 25, 1911, when about fifteen miles from Cape Negro, not far from Rio Janeiro, the captain and some of the crew declared that she struck something. Others heard and felt nothing. The Court was of the opinion that the "British Standard" did not strike either a derelict, or submerged wreckage, or a rock, and gave reasons for this opinion that appear to me to be conclusive. No attempt was made to save the ship, either by using pumps or by closing watertight doors. Boats were ordered out at once. The Court said— If the master had promptly taken the measures available to keep the water out, the Court is of opinion that, whatever the cause of the water may have been, there is a strong probability that she would have been saved. The conduct and the omissions of the master and the chief engineer to make some effort to save the vessel indicate an absence of desire to save her. They also stated that the evidence clearly established that she was prematurely abandoned. The Court also said that the master offered money to the second officer in order to induce him to support the master's story as to the loss of the vessel. Not being a criminal Court, it could only deal with the Master and chief engineer by fining them and suspending their certificates. The chief engineer's certificate was suspended for twelve months, and that of the captain for eighteen months. The former was fined fifty guineas; the latter 1,000 guineas.

Captain Paul Braun appealed against this decision to the Admiralty Court. According to The Times of February 8, the Admiralty Court stated that the conclusion was not unreasonable that the master was not sorry that the vessel was likely to sink if all efforts to keep her afloat were avoided, and that this attitude of mind was induced by the existence of the various insurances detailed in the report. The Admiralty Court found that the Court below was fully justified in finding that the ship was abandoned by the wrongful act and default of the master and in suspending his certificate. But, for technical reasons, the Admiralty Court reduced the 1,000 guineas that he had been ordered to pay towards the expenses of the trial to£350. At the Court of Inquiry at Cardiff, after passing sentence in the case of the "British Standard," Mr. Lewis said— Being of opinion that grave malpractices arise from, or are connected with, the over-insurance of vessels, I repeat, with the full concurrence of the able and experienced gentlemen who assist me, the observations that I made at this Court at a previous Inquiry. Over-insurance is not exclusively a private matter between insurers and insured. There are other parties affected whose interests are not protected and whose lives may be endangered i.e., the members of the crew. Where a vessel is over-insured, one of the most powerful incentives for keeping her in good condition and seaworthiness is removed, and over-insurance also offers a dangerous temptation to persons and agents of persons who will gain by the loss of the vessel; whether lost through negligence, unseaworthiness, or foul play, the lives of the crew are imperilled. The effectual prevention of an unnecessary peril to seafaring men is worthy the attention of the Legislature.

Mr. Lewis, the Judge, then quoted from the Courts of Inquiry into the cases of nine over-insured ships lost under suspicious circumstances.

The " Guilford " had paid no dividends for seven years. The total of her insurances was£35,000, of which£6,500 were P.P.I. policies on the personal account of the managing owner. The Court found the value of the vessel to be£9,000 and of the freight£5,000. The managing owner, Mr. Briggs, appointed a man named Sember, who was originally a German, to command this ship. His chief qualification appears to have been that he had been ashore ever since his certificate had been suspended for the loss of the "Perthshire" twenty-two years previously, and that he might, therefore, have been expected to have forgotten how to navigate. Sember ran the ship on shore on three different shoals near the South American coast on three different days, and eventually lost her. Ten of her crew of twenty-six died in consequence of having been landed at an unhealthy place, after exposure. The managing owner said that he did not know of Sember's record. If what he said was true, it was culpable negligence on his part, negligence which was the indirect cause of the loss of ten lives. It was a duty that the owner owed to the crew to have known more about Captain Sember. There has been litigation as to whether the underwriters should pay the insurances in the case of the "Gunford." As that litigation reached this House, I think it would be presumptuous on my part to comment on it in the presence of noble and learned Lords who know so much snore about that part of the matter than I do. I have no sympathy with either of the litigants. All that I have to spare is expended on the ten men, who would not have lost their lives had their ship not been wrecked by an incompetent captain.

I now wish to call attention to the "Rowe" Steamship Company. This company had paid no dividend since its formation in May, 1905. On May 31, 1910, this company owned four vessels. It had the misfortune to lose two vessels on two consecutive days—the "Hasland" on March 29, and the "Everest" on March 30, 1911. As both vessels were over-insured the shareholders are much to be congratulated on their good fortune. The "Dunsley," over-insured to the extent of£9,800, was lost on August 30, 1911, off Bardsley Lighthouse, on her way from Appledore to Birkenhead. The Court of Inquiry was held at Cardiff and presided over by Mr. Lewis. I had intended to say a great deal about the "Dunsley" but as Mr. Buxton recently stated in another place that an application had been made for a re-hearing of the case, I shall only mention the sentence of that Court, which was that the master's certificate be suspended for twelve months; that Mr. Shotton, the superintending engineer, should pay£50; Edwards, the engineer,£100; and the managing owner, Mr. Hannibal Thomas, of Cardiff, was ordered to pay£1,500 towards the expenses of the Inquiry, which had lasted for twenty-one days. There is, of course, great difficulty in obtaining evidence at these Courts of Inquiry, as they are like inquests without a postmortem; but if in cases like the "Selworthy" and the "British Standard" convictions are unattainable, the law certainly requires alteration.

If a modification of the two clauses in Mr. Chamberlain's Bill relating to over-insurance had become law in 1884, the position of the owners of these ships would have been very different, as the over-insurance would have been forfeited to the Crown and the shareholders would have made no profit at all. Secondly, the underwriters would have been fined treble the premiums received by them. Another remedy would be to extend the scope of the jurisdiction of the Courts of Inquiry. They have at present the power to prevent a master mariner from exercising his pro-session by suspending his certificate. When a ship is lost in consequence of the misconduct or false economy of an owner, the Court might be given power to make him abandon his profession by ordering him to sell all his property in shipping within three months under penalty of its being forfeited to the Crown. Or sea insurance might be put on the same footing as fire insurance, which disallows claims above the actual value of the losses incurred. The reason why underwriters often insist on a high insurance is that old ships are now more liable to accidents than new ones, and that policies are free from particular average up to 3 per cent. Thus, if a ship is insured for£10,000, all average above£300 is paid by the underwriter, whereas if she is insured for'£20,000 the underwriter does not pay until it amounts to£600. In his speech in 1884 Mr. Chamberlain said that partial losses were to total losses as 20 to 1. I do not know what the present proportion may be. It has been suggested that underwriters and shipowners should agree to insure on the basis of full declared value on ordinary claims when dealing with old and worn-out ships, but only to insure up to 50 or 75 per cent. of that value for purposes of total loss. On the whole, however, I think it would be better to scrap such ships.

In proportion to our commerce, I believe that there are very few criminal cases similar to the "British Standard" and the "Selworthy," but there are, unfortunately, a much larger number of ships owned by men who, though taking no illegal steps, are indifferent as to whether their ships sink or float, who save too much money on repairs, and who over-insure crazy ships that ought to be scrapped. The latter class of owner is really the more mischievous. For instance, take the case of the "Carnedd Llewellyn," insured for nearly double her value and lost with all hands; whereas in cases like the "Selworthy" and the "British Standard" those on board take care that so-called accidents shall only take place in fine weather, with a minimum of risk to captain and crew. It may be urged that the number of ship-owners of this class is comparatively small, and that therefore legislation is unnecessary. I do not agree with this. There are other crimes that are seldom committed, but yet there are laws to check them. The loss of over-insured ships must fall on some one. As most underwriters flourish, they must get recouped for their losses by putting higher premiums on honestly run ships, so that the honest ship-owner has eventually to pay for the frauds of the dishonest wrecker. As long as the law imposes no check on the purchase of crazy and worn-out ships by single ship companies run by men of straw as managing owners, there will be some ships that are run dishonestly.

One of these men of straw, the owner of the "Queen Olga," recently swindled four master mariners into giving him£600 apiece for the privilege of commanding that ship. As, however, the ship herself was seized by mortgagees, their hard-earned savings disappeared. The former owner of that ship was sentenced to eighteen months imprisonment, but there is nothing to prevent him from resuming his profession of ship-owner when he comes out of gaol. Ship-owners may possibly object to the proposed extension of the powers of the Courts of Inquiry. I therefore suggest as an alternative that they be empowered to deal with malpractices themselves, through the instrumentality of a committee elected by ship-owners and shipping companies, with votes in proportion to the tonnage that they own. Such a committee should have power conferred upon it by Act of Parliament to order any shareholder or owner found guilty of misconduct to dispose of all his shares and property in shipping within three months, under penalty of forfeiture to the Crown. Magistrates and Law Courts should have power to refer such cases as the "Selworthy," "British Standard," and "Queen Olga," to this committee, much in the same way that they call the attention of the Law Society to the conduct of solicitors. Barristers can be disbarred, solicitors can be struck off the Rolls, medical men can be interfered with by what are practically committees elected by their own profession, and I think that similar powers might with advantage be entrusted to ship-owners, who would then be able to get rid of the black sheep who disgrace their calling. My object in asking that these Reports should be laid before the House is to put in an accessible form the case for changes, either in the law or in the customs prevailing between owners and underwriters, changes which would put an end to what has been a disgrace to Great Britain for a period extending from the reign of George II to that of George V.


My Lords, the Board of Trade will be very pleased to grant the Return asked for by my noble friend, and it may be of interest if I state in a few words what has been the effect of the measure passed in 1909 with regard to the insurance of ships. Undoubtedly before that time there was a great deal of abuse in connection with the insurance of ships by persons who had no interest whatever in them, but since that has been made a criminal act it is believed that there has been very little insurance of this kind. As your Lordships are aware, under the Act of 1909 there is no attempt made to deal with over-insurance of vessels by owners themselves, but this question has been considered on several occasions by the Board of Trade, and even as lately as last year the Board wrote to four underwriting bodies asking them for their observations with regard to the "Gunford" judgment and the over-valuation of vessels for insurance. The replies sent to the Board of Trade were to the effect that more time was required to estimate the effect of the "Gunford" judgment. They also thought that underwriters should have a free hand as regards the valuation of vessels. The Board, in view of these replies from the different underwriters, were of opinion that at the present moment it would not be well to bring in any legislation. It may be pointed out that in none of the cases that have come before a Court of Inquiry has it been found that loss of life has been caused as a result of over-insurance. The reports of the different inquiries to which the noble Lord refers will be published and laid on the Table in, I hope, a couple of days.

House adjourned at twenty minutes past Five o'clock, till To-morrow, half-past Ten o'clock.