A company is a separate legal entity. Its shareholders and creditors do not own the company’s assets.
Facts of the Case
Mr Macaura (the appellant) is the owner of a timber estate in UK. In 30 December 1919, He sold all of his timber on his estate to Irish Canadian Saw Mills, Ld in exchange for 42,000 fully paid 1£ shares in the company. Thus, he owns almost all shares of the company. By a policy of insurance of the Northern Assurance Company (the respondent) dated 6 February 1922, the appellant had insured the timbers on his estate against fire in his own name.
On 22 February 1922, a fire had destroyed part of the timber on the estate. He then instituted actions in court against the insurance companies to recover alleged to be due under the policies. The Court stayed the proceedings and ordered the matters in dispute to be referred to arbitration pursuance to the terms in the insurance policies and an arbitrator was appointed. The arbitrator denied the appellant to his claim due to the reason that the appellant did not have any insurable interest in the timber. This decision had upheld by the Divisional Court and was affirmed by the Court of Appeal in Northern Ireland. The appellant then appeals to the House of Lords.
Issue of the Case
Whether a shareholder in a company has an insurable interest on the company’s goods?
Judgment of the Case
In order for the appellant to succeed in his claim, he must first prove that he has an insurable interest in goods. The appellant tried to claim the loss from the respondent based on the reason that he is the only substantial shareholder of the company and thus having interest over the company’s goods.
The Court held that the appellant had no insurable interest in the timber.Neither a simple creditor nor a shareholder in a company has any insurable interest in a particular asset which the company holds. When he sold the timber to the company, the ownership of the timber transferred to the company, a separate legal entity. Thus, he does not have an insurable interest on the timber and could not raise a claim under the insurance policies. Furthermore, the appellant has no lien or security over the timber, thus the Court dismissed this appeal.
Principle of the Case
A company is a separate legal entity. Its shareholders and creditors do not own the company’s assets.