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[2010] ZASCA 89
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Representative of Lloyds and Others v Classic Sailing Adventures (Pty) Ltd (250/09) [2010] ZASCA 89; 2010 (5) SA 90 (SCA) ; [2010] 4 All SA 366 (SCA) (31 May 2010)
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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no
:
250/09
In the
matter between:
THE
REPRESENTATIVE OF LLOY
DS First
Appellant
THEBE
RISK SERVICES (PTY) LTD Second Appellant
DEVEREUX
MARINE CC Third Appellant
and
CLASSIC SAILING ADVENTURES (PTY) LTD
Respondent
Neutral citation: Lloyds & others v Classic
Sailing (250/09)
[2010] ZASCA 89
(31 May 2010)
Coram:
Harms,
Lewis, Cachalia and Malan JJA and Griesel AJA
Heard:
20, 21 May 2010
Delivered: 31 May 2010
Corrected: 7 June 2010
Summary:
Marine
Insurance: parties cannot exclude mandatory provisions of South
African statute by choice of other legal system: validity
of policy
affected by non-disclosure, misrepresentation or illegality
determined by reference to ss 53 and 54 of
Short-Term Insurance Act
53 of 1998
: vessel sinking as a result of latent defect in hull:
Lloyds held liable. Second and third appellants,
joined as defendants,
not liable: entitled to full costs of trial.
_____________________________________________________________
ORDER
______________________________________________________________
On appeal from:
Western Cape High Court (Cape Town) (Cleaver J sitting as court of
first instance):
1 The first appellant’s appeal is dismissed
with costs, including those occasioned by the employment of two
counsel.
2 The
appeals by the
second and third appellants are upheld with costs, including those
occasioned by the employment of two counsel.
3 Paragraph 1.4 of the order of the high court is
replaced with the following:
‘The first defendant is ordered to pay the costs of the second
and third defendants including the costs occasioned by the
employment
of two counsel and the preparation expenses of Mr Child.’
4 The respondent’s conditional cross-appeal
is dismissed.
_____________________________________________________________
JUDGMENT
______________________________________________________________
LEWIS JA
(HARMS DP,
CACHALIA and MALAN JJA and GRIESEL AJA concurring)
[1] The vessel
Mieke
was built as a motorized yacht for fishing in 1997 at the instance of
Mr A Viljoen, the director and shareholder in various companies
which
had fishing vessels, and Mr W Hennop, the skipper over a number of
years of several of the Viljoen vessels. Hennop was the
skipper of
the
Mieke
from inception. The vessel was originally designed and built for
fishing in the southern oceans. The fishing venture proved to
be
unprofitable and Viljoen and Hennop decided to convert the
Mieke
into a luxury charter yacht in 2003. It was transferred to Classic
Sailing Adventures (Pty) Ltd, the respondent. Viljoen is the
director
of and controlling shareholder in Classic Sailing. Once converted
the
Mieke
could accommodate 12 passengers who would fish and indulge in various
other activities from it.
[2] On 15 September 2005 the
Mieke
sailed from Vilanculos off the Mozambican coast. Only the crew were
onboard. Three days later, on 18 September, the
Mieke
sank approximately 58 nautical miles south east of Angoshe off the
coast of Mozambique. The crew, with Hennop as skipper, reached
shore
on a rubber duck (a tender).
[3] The first appellant is the representative
(cited as such in terms of the
Short-Term Insurance Act 53 of 1998
)
of a Lloyds
’ syndicate which had
insured the
Mieke
.
I shall refer to the first appellant simply as Lloyds. The second
appellant, Thebe Risk Services (Pty) Ltd (Thebe), is the insurance
broker that placed the insurance. The third appellant is Devereux
Marine CC (Devereux CC), also an insurance broker which specializes
in hull insurance in the Lloyds market. Classic Sailing claimed from
Lloyds the sum insured – R10m. Lloyds declined to pay.
Classic
Sailing instituted action for payment in the Western Cape High Court,
exercising its admiralty jurisdiction.
[4] In its plea to Classic Sailing’s
particulars of claim Lloyds alleged that it was not liable because
the sinking was caused
by a risk not insured against, and also
because of other special defences. It alleged that Classic Sailing
had not disclosed to
it that Hennop was not certified to serve as the
skipper; it had also not disclosed that the stability information on
board was inaccurate, not in the prescribed form and not approved by
the South African Maritime Safety Authority (SAMSA). In the
alternative Classic Sailing, alleged Lloyds, had misrepresented the
nature of a dispute between it and SAMSA as to the certification
of
Hennop, and that Lloyds was thus entitled to avoid the policy; and
lastly, that the ‘adventure insured’ had been
carried out
in an unlawful manner in breach of the implied warranty of legality
in s 41 of the English Marine Insurance Act of
1906. The insurance
policy expressly stated that the contract was governed by English
law.
[5] If there were any non-disclosures or
misrepresentations made by Classic Sailing these would have been
effected through its insurance
broker since Classic Sailing did not
deal directly with Lloyds. Viljoen had placed all the insurance of
his vessels, owned by different
corporate entities, with Thebe,
represented by Mr M Brown. Brown in turn had instructed Devereux, of
Devereux CC, which specializes
in hull insurance on the Lloyds
market. And Devereux had asked Arthur J Gallagher (UK) Ltd
(Gallagher), accredited Lloyds brokers, to find an underwriter for
the
Mieke
,
which it had done. Accordingly, after action was instituted and on
receipt of the plea, Classic Sailing joined Thebe as the second
defendant and Devereux CC as the third defendant, the claims against
them being conditional on the claim against Lloyds failing.
Classic
Sailing’s claim against Thebe was premised on it having failed
to obtain valid insurance for the
Mieke
in breach of the contract between Thebe and Classic Sailing. The
claim against Devereux CC was premised also on breach of contract
and
in the alternative on breach of a duty of care in delict.
[6] Cleaver J found that there were no material
non-disclosures; no misrepresentation made, and that the
Mieke
had not embarked on an unlawful voyage. He also held that the sinking
of the
Mieke
was due to a latent defect, which was covered by the insurance
policy. He accordingly ordered Lloyds to pay the sum insured, less
the value of the tender which had not sunk – a sum of R9 940
000 – and the costs of two counsel and various experts.
[7] Thebe and Devereux CC were therefore not
liable, but they were awarded only the costs incurred for half of the
hearing since
they took no
active part in
the trial in respect of the cause of the sinking. Lloyds applied for
leave to appeal to this court and Thebe and
Devereux CC applied for
leave to appeal against the costs orders made in respect of them.
Leave to all three appellants was granted
by Cleaver J. Classic
Sailing was also given leave to cross-appeal, conditional on the
appeal by Lloyds succeeding.
[8] I shall discuss each of the special defences
separately. If there is merit in any then the insurance policy may be
avoided and
the question whether the sinking of the
Mieke
was covered by the terms of the policy falls away. The court below
held that Classic Sailing bore the onus of proving that the
risk was
insured against, but that Lloyds had to prove the special defences.
The parties on appeal do not take issue with this.
They also do not
dispute that the policy is governed by English law, but subject to
South African jurisdiction: but they differ
as to the applicability
of South African legislation – the Short Term Insurance Act.
The history in brief
The conversion of the Mieke
[9] Before turning to the special defences some
background is required, both as to the structure of the
Mieke
and the conclusion of the insurance policy. The vessel, described as
a grand bank schooner, was first built in 1997. A schooner
is a small
sea-going fore-and-aft rigged vessel. Originally, schooners had only
two masts, but now often have three or four, and
carry one or more
topsails. Grand Bank schooners are those that plied the oceans off
the Grand Banks alongside the coast of Canada
and Newfoundland.
[10] The
Mieke
was conceived of and designed by Hennop and Mr J Liverick, both of
whom had worked for Viljoen on other vessels. It had both sails
(two
masts) and Caterpillar turbo-charged marine diesel engines. It was 31
metres long and its beam was 7.68 metres. The vessel,
with Hennop as
skipper, was used for long-line fishing for some five years. As I
have said, the fishing venture was not profitable
and Hennop and
Viljoen decided to convert it to a charter yacht which could carry 12
passengers. Liverick, Hennop and Viljoen were
involved in the
redesign, and Hennop acted as project manager for the conversion and
rebuilding, which commenced in 2003. The vessel
was transferred to
Classic Sailing, in which Hennop had some shares but Viljoen had the
majority shareholding.
The conclusion of the insurance policy
[11] In November 2004 Brown, of Thebe, who had long been the broker
for Viljoen’s insurance and that of his various companies,
visited Viljoen in his office in St Francis Bay to discuss insurance
for Viljoen’s businesses generally and for the various
vessels
owned by them. One of the issues discussed was the difficulty Classic
Sailing was having in obtaining certain certificates
from SAMSA for
Hennop.
[12] Viljoen believed that Hennop had all the
necessary certificates – although in respect of three parts of
the syllabus
set by SAMSA to qualify as a skipper of a vessel like
Mieke
,
Hennop had received his certificates from bodies other than SAMSA.
Viljoen and Brown considered that SAMSA was acting unreasonably
in
refusing to recognize Hennop’s certification. But they decided
that any insurer should be apprised of this. Accordingly,
following
the meeting, Brown wrote to Devereux on 23 November 2003, saying that
Classic Sailing had ‘ongoing difficulty’
with SAMSA with
regard to Hennop’s qualifications as skipper. I shall set out
the terms of the letter more fully when dealing
with the issue of
misrepresentation. He attached numerous documents reflecting the
courses completed by Hennop.
[13] Devereux
in turn
wrote to Mr N Paice of Gallagher (the Lloyds broker). Paice, it is
common cause, gave Devereux’s letter to Mr J S
James, the lead
underwriter for the corporate member of the Lloyds syndicate, who was
authorized to determine the terms of any
insurance policy. James, who
testified for Lloyds, said that he had no independent recollection of
any conversation with Paice,
but acknowledged that he had noted the
word ‘seen’ on Devereux’s letter, and said that he
would not have done
so unless he had read the contents of the letter
and the attachments. He dated Devereux’s letter 24 November
2004.
[14] I shall revert to the allegation of
misrepresentation as to Hennop’s qualifications when dealing
with the second special
defence raised by Lloyds. Although in its
plea Lloyds had alleged that there was a non-disclosure of Hennop’s
lack of certification,
this defence is not pursued on appeal, given
the concession of James under cross-examination that he had seen the
documents that
revealed that Hennop did not have all the SAMSA
certificates required. Lloyds relie
d
instead, on appeal, on misrepresentation as to the nature and extent
of the disputes between Classic Sailing and SAMSA as to Hennop’s
certification to avoid liability.
The terms of the policy
[15] The written terms of the contract are set out
in a cover note (Number M041209D). The period covered
was
12 months with effect from 1 December 2004. The ‘interest’
was stated to be ‘Hull Materials Etc, Machinery
Outfit Etc, and
everything connected therewith nothing excluded’. The sum
insured was R10m, which also covered the two tenders,
insured for R80
000 each. The
Mieke
was allowed to ‘trade’ ‘not North of the Equator,
not West of 20° West, not South of 45° South and not
East of
70° East.’ Choice of law and jurisdiction were stated to be
‘English Law and South African Jurisdiction’.
The terms
of the policy were stated to include the Institute (of London
Underwriters) Fishing Vessel clauses, clause 6 of which
deals with
the perils insured against. Clause 6.2 provides that the insurance
covers loss or damage to the vessel caused, inter
alia, by any latent
defect in the machinery or hull, provided that the loss or damage is
not the result of ‘want of due diligence
by the Assured, Owners
or Managers’.
The stability book
[16] Section 226 of the Merchant Shipping Act 57
of 1951 requires the owner of a vessel in the class of the
Mieke
(Class XI) to keep on board the ship ‘such information in
writing about the stability of the ship as is necessary for the
guidance of the master in loading and ballasting the ship’.
Regulation 7(1) of the Safety of Navigation Regulations repeats
this
wording.
1
Regulation 7(3) states that the stability information shall be based
on ‘the determination of the stability . . . by means
of an
inclining test’. Regulation 8 sets out the form of the
stability information and the requirements for drawings and
measurements. Lloyds contended that the stability book on board the
Mieke
at
the time when the insurance policy was concluded had not been
approved by SAMSA. But there is no requirement in the Act or
regulations for SAMSA approval.
[17] When the
Mieke
was first constructed as a fishing vessel in 1997 a stability book,
as required by the regulations, was compiled and approved by
SAMSA.
On its conversion to a charter yacht SAMSA required that a new
stability book be prepared. To this end Liverick was asked
to carry
out an inclining test, which he did, and he requested Mr M Stewart,
who was in Durban, to compile a new stability book.
In doing so,
Stewart relied on the results of the inclining test conducted by
Liverick, as well as on the latter’s general
plan and the
former stability book. The new book was placed on board, but when the
converted
Mieke
sailed to Cape Town early in 2004 she was detained there by SAMSA on
the basis that the stability book had not been approved by
SAMSA.
[18] Stewart advised that 19.3 tons of additional
ballast (heavy material to balance a vessel) be placed in the
Mieke
.
Accordingly Hennop and a crew member, Mr E S Awad, attended to the
pouring of concrete into the
Mieke
’s
sewage tank during one night when she was still detained. There is a
dispute as to how much concrete was added and how
many walls were
constructed to retain it, but this is not relevant for the reasons
that follow. SAMSA granted interim approval
of the stability book on
15 March 2004 after the addition of ballast. The approval was valid
only until 15 April. The
Mieke
was released from detention and sailed to Mozambique, where, but for
one trip to Port Elizabeth, she remained until September 2004.
[19] In September 2004 the
Mieke
returned to Port Elizabeth. She was placed in dry dock and surveyed
by SAMSA. The principal officer of SAMSA in the Port Elizabeth
office, Captain Colenutt, did a hull survey and, on 18 October,
issued a survey report. In it he described the condition of the
hull
and ship side valves as ‘satisfactory’. Colenutt also
issued a survey report: he stated that ‘the required
SAMSA
approved stability book is aboard.’ The following day a Local
General Safety Certificate was issued for the
Mieke
.
This stated that she was a class XI sailing vessel undertaking
charter excursions or unlimited voyages in the Indian Ocean, carrying
12 or fewer passengers. The certificate stated further that the
vessel had been inspected in accordance with the requirements of
applicable regulations. On 21 October 2004 the
Mieke
again sailed for Mozambique.
Application of the English Marine Insurance Act of 1906 and the
provisions of the
Short-Term Insurance Act 53 of 1998
[20] As I have said, the parties to the policy
agreed that the applicable law was English, though South African
courts would have
jurisd
iction. Lloyds
relies on sections of the English Act in support of its special
defences. To the extent that there is inconsistency
or a conflict
between these and the provisions of the
Short-Term Insurance Act,
which
law governs? This question is pertinent to all the special
defences raised by Lloyds.
[21] The general rule is that the choice by
parties to a contract of the governing law – the proper law of
the contract –
is valid.
2
However, legality is a question to be determined by the lex fori.
3
The ius cogens (peremptory law) of the forum cannot be excluded. Our
case law is sparse on this issue, but it is the general view
of
writers on the subject. And it must be that peremptory (mandatory)
rules of the forum – especially legislative provisions
–
apply. Complete party autonomy cannot prevail over the premptory
provisions of a statute, especially where the action is
brought in
terms of the statute (as in this case). The
Short-Term Insurance Act
is
applicable to marine insurance by virtue of the definitions of a
‘short-term policy’ and ‘transportation policy’
which expressly include insurance of a vessel.
[22] Professor Forsythe,
4
in discussing the question whether the lex fori applies even where
the parties have chosen another system of law to govern their
contract, refers to
Voet
5
who drew a distinction between prohibitory statutes, which cannot be
renounced, and dispositive statutes which can.
Sections 53
and
54
of
the
Short-Term Insurance Act on
which Classic Sailing relies are not
prohibitory: they deal with the effect of misrepresentation,
non-disclosure and illegality
– issues to which I shall revert.
But as Forsythe states, the distinction between prohibitory
provisions and others is not
easy to draw. He suggests that where the
lex fori is designed to protect the weaker party in contractual
negotiations the chosen
law, if it is inconsistent, should not
prevail.
6
In international trade, on the other hand, parties tend to be on an
equal footing and may in effect contract out of the lex fori.
[23] Rather than asking whether statutory
provisions are prohibitory or dispositive, a better approach to
determining whether parties
may exclude the operation of statutory
provisions by choice of another system of law might be to question
whether they can waive
the application of the provisions. This
question was addressed in
SA Co-Op
Citrus Exchange v Director-General: Trade & Industry
7
where Harms JA, dealing with procedural statutory provisions, held
that they may be renounced by a party (in that case the State)
for
whose benefit they are enacted. But where public policy and interest
would be prejudiced by a waiver, such provisions cannot
be escaped.
Waiver is not possible, said this court, if it affects public policy
or interest or a right.
8
This principle was affirmed in
De Jager
en andere v Absa Bank Bpk
,
9
where this court held that the application of the provisions of the
Prescription Act 68 of 1969
may be waived by a debtor under a
contract after the prescriptive period has run because renunciation
did not substantially or
materially impact on the public interest.
[24
]
Sections 53
and
54
of the
Short-Term Insurance Act are
at issue in this matter.
Section
53
deals with the effect of non-disclosures and misrepresentations on
an insurance policy, and
s 54
with the effect of a contravention of a
law on a policy.
Section 53
is designed to protect insured parties
who are ignorant, careless or uneducated from unscrupulous insurers
who attempt to escape
liability on the basis of the common law that
has evolved in relation to misrepresentation or non-disclosure.
10
And
s 54
ensures that a policy is not avoided only because the
insured has contravened a law. I shall deal with both sections in due
course.
Given their effect, it should not be open to the parties to
contract out of the application of the provisions of that statute by
choosing another system of law to govern their contract.
11
If an insured cannot waive the benefits of
ss 53
and
54
– as
would be the case because waiver would be contrary to public policy
and interest – then equally contracting out
of the benefits
afforded by the sections cannot be permitted.
[25
] This view is
supported by Professor Michael Martinek,
12
who, referring to Von Savigny,
13
states that a distinction must be drawn between general rules of
private law, which may be governed by a system other than the
lex
fori, and law of strictly positive imperative nature – those
that bear a ‘political, police-related or economic
character’
(Martinek’s translation). In modern Swiss and German private
international law these are what Martinek refers
to as ‘mandatory
interventions’ – ‘norms employed by the state to
regulate private relationships in the
public common interest while
pursuing socio-economic tasks, thereby restricting the individual
freedom of private persons’.
14
These norms are of direct application, much as the values of the
Constitution are. Counsel for Lloyds was constrained to concede
that
parties cannot contract out of provisions – and thus the norms
and values – of the Constitution. The protection
afforded to
insured persons by the
Short-Term Insurance Act, on
this basis, can
likewise not be avoided.
[2
6] There are other
strong indications that the
Short-Term Insurance Act, to
the extent
that it is inconsistent with the English Marine Insurance Act, must
apply. The action was instituted under the former
Act. Lloyds is
regulated by that Act (Part VIII). Moreover, Lloyds relied
extensively on other South African statutes such as the
Merchant
Shipping Act and Safe Manning Regulations. It is difficult to discern
why Classic Sailing should be bound by the provisions
of those Acts
and not entitled to the benefits conferred by those of the
Short-Term
Insurance Act.
[27
] But the definitive
answer, in my view, is to be found in the Admiralty Jurisdiction
Regulation Act 105 of 1983. The Admiralty
Act governs not only
jurisdiction but also the substantive law to be enforced in South
African high courts, all of which are given
jurisdiction for the
hearing of any admiralty action for the enforcement of a maritime
claim. Section 1(u) of the Admiralty Act
defines a maritime claim to
include one relating to ‘marine insurance or any policy of
marine insurance’. Section 3
provides that any maritime claim
may be enforced by an action in personam and may be instituted
against a person in respect of
whom a court has jurisdiction in terms
of Chapter IV of the Insurance Act 27 of 1943. Chapter IV governed
insurance by members
of Lloyds. That Act has been repealed by the
Short-Term Insurance Act. But
the latter Act still governs Lloyds
(Part VIII). The reference to the former Act must be read now as a
reference to the current
Act.
[2
8] Section 6 of the
Admiralty Act reads:
‘
[doja105y1983s6]
Law to be applied and rules of evidence
(1) Notwithstanding anything to
the contrary in any law or the common law contained a court in the
exercise of its admiralty jurisdiction
shall-
(a)
with regard to any matter in respect of which a court of admiralty of
the Republic referred to in the Colonial Courts of Admiralty
Act,
1890, of the United Kingdom, had jurisdiction immediately before the
commencement of this Act, apply the law which the High
Court of
Justice of the United Kingdom in the exercise of its admiralty
jurisdiction would have applied with regard to such a matter
at such
commencement, in so far as that law can be applied;
(b)
with regard to any other matter, apply the Roman-Dutch law applicable
in the Republic.
(2) The
provisions of subsection (1)
shall
not derogate from the provisions of any law of the Republic
applicable to any of the matters contemplated in paragraph
(a)
or
(b)
of
that subsection
(my emphasis).
. . . .
(5) The provisions of
subsection (1) shall not supersede any agreement relating to the
system of law to be applied in the event
of a dispute.’
[29
] Subsection 5 thus
does allow parties to make a choice as to the legal system they wish
to govern their contract. But this cannot
mean that they can contract
out of legislative provisions that amount to ius cogens. One cannot
read subsections 2 and 5 in isolation.
Subsection 5 must be subject
to subsection 2. Read together, as they must be, the subsections mean
that while the parties may choose
a non-South African system of law
to govern their contract, they may not do so where the provisions of
the other system are inconsistent
with peremptory South African law.
The effect of subsection 2 is that
ss 53
and
54
of the
Short-Term
Insurance Act apply
to the contract. And to the extent that the
English Marine Insurance Act is inconsistent with peremptory
statutory provisions it
is not applicable.
15
The first defence: Non-disclosures about the stability book
[30
] Lloyds relied on s
18 of the English Marine Insurance Act 1906 in contending that the
non-disclosure of the facts that the stability
book on board the
Mieke
at
the time when the insurance policy was issued was not approved by
SAMSA, and was inaccurate. Section 18 reads:
‘
(1)
Subject to the provisions of this section, the assured must disclose
to the insurer, before the contract is concluded, every
material
circumstance which is known to the assured, and the assured is deemed
to know every circumstance which, in the ordinary
course of business
,
ought to be known by him. If the assured fails to make such a
disclosure, the insurer may avoid the contract.
(2) Every circumstance is
material which would influence the judgment of a prudent insurer in
fixing the premium, or determining
whether he will take the risk.’
[31
] Cleaver J in the
high court, assuming that s 18 was applicable, considered the English
cases and writers in respect of this section
and held that it was not
necessary to show that ‘the circumstances will have a decisive
influence on the judgment of [a]
prudent insurer’. All that the
latter need show is that the circumstances would have had an effect
on the insurer in weighing
up the risk, and in determining whether to
insure, at what premiums and subject to which conditions. Moreover an
insurer must show
that the non-disclosure induced it to enter into
the contract (even if it was not the sole inducing cause).
[32
] Lloyds argued on
appeal that it relied on two factors that should have been disclosed
to it. First, the stability information
on board was inaccurate and
Viljoen either was or ought to have been aware of this. Second, at
the time when the insurance contract
was concluded the stability book
was not stamped as approved by SAMSA, a material fact that should
have been brought to the attention
of Lloyds. As to the second basis,
there is no requirement in the regulations or elsewhere that SAMSA
approval be indicated through
stamping. And in fact SAMSA had
approved the book prior to the conclusion of the contract of
insurance. That disposes of this ground
for avoiding the contract on
the basis of non-disclosure.
[33
] The first basis –
inaccuracy – of the defence based on non-disclosure is argued
by Classic Sailing to be one it did
not have to meet at the trial. In
its plea Lloyds stated that the particulars of the vessel were
inaccurate. On appeal Lloyds has
argued that the position and
quantity of the ballast was inaccurately described in the stability
book. This proposition was not
put to Hennop when he testified as to
the loading of the ballast. Nor was it put to Viljoen, who had no
first-hand experience of
where the ballast had been placed, but who
represented Classic Sailing as its owner. In fact the high court
found that Classic
Sailing had had to meet a defence only as to
inaccurate calculations. This is what the plea and responses to
requests for further
particulars referred to, and this is what
Stewart testified about in giving evidence as to the design of the
Mieke
and
his recommendation as to the quantity of ballast to be placed in the
sewage tank. He testified also that SAMSA’s naval
architect, Ms
E Dzinic, had been satisfied with line plans for the
Mieke
drawn by Stewart and with the recalculated tonnage, although she had
had queries that required explanation. Changes to figures
reflecting
size and weight made by him subsequently were of no consequence, he
said, and this was not challenged. Moreover, one
of the expert
witnesses for Classic Sailing, Dr J Zietsman, testified that such
differences did not affect the calculations reflected
in the
stability book. Dzinic herself, in April 2004, had concluded that the
2004 stability book was mathematically correct and
acceptable ‘in
essence’. And importantly, James was not asked how he would
have responded had he been advised, through
the brokers, that there
were insignificant differences in measurements reflected in the
stability book.
[34
] As I have
indicated,
s 53
of the
Short-Term Insurance Act applies
to the
alleged non-disclosure. It sets the test for determining whether a
non-disclosure has the effect of invalidating a policy
or excluding
the liability of the insurer. It reads:
‘
[doja53y1998s53]
Misrepresentation
and failure to disclose material information
(1)
(a)
Notwithstanding
anything to the contrary contained in a short-term policy, whether
entered into before or after the commencement
of this Act, but
subject to subsection (2) -
(i)
the policy shall not be invalidated;
(ii)
the obligation of the short-term insurer thereunder shall not be
excluded or limited; and
(iii)
the obligations of the policyholder shall not be increased,
on account of any representation
made to the insurer which is not true, or failure to disclose
information, whether or not the representation
or disclosure has been
warranted to be true and correct, unless that representation or
non-disclosure is such as to be likely to
have materially affected
the assessment of the risk under the policy concerned at the time of
its issue or at the time of any renewal
or variation thereof.
(b)
The
representation or non-disclosure shall be regarded as material if a
reasonable, prudent person would consider that the particular
information constituting the representation or which was not
disclosed, as the case may be, should have been correctly disclosed
to the short-term insurer so that the insurer could form its own view
as to the effect of such information on the assessment of
the
relevant risk.
. . .
‘.
[35
] Thus even if there
had been a failure to disclose that the stability book was not
accurate, it could hardly be said to be material.
The ‘reasonable,
prudent person’ would not have thought that information as to
the measurements of the ship, or a stamp
of approval, affected the
assessment of the risk, given that the purpose of the stability book
information is to guide the master
in loading and ballasting the
ship. SAMSA itself was not concerned about the stability of the
Mieke
. It
had allowed her to sail, from Cape Town to Port Elizabeth and to
Mozambique and back. And the safety certificate issued by
Colenutt on
16 October 2004, which remained valid until 6 October 2005, was not
placed in issue. Accordingly I find that there
was no failure to
disclose by Classic Sailing that would have invalidated the policy or
exempted Lloyds.
The second defence: The misrepresentation as to Hennop’s
certification
[36
] The second special
defence relied upon by Lloyds is that Viljoen, through Brown and
Devereux, misrepresented the nature of the
dispute between Classic
Sailing and SAMSA as to Hennop’s certification as a skipper.
The correspondence between Brown and
Devereux, and Devereux and Paice
of A J Gallagher form the basis of the defence based on
misrepresentation.
[37
] On 23 November 2004
Brown of Thebe sent a fax to Devereux. It was some 19 pages long,
including the cover page which read:
‘
Re: Classic Sailing
Adventures – Cover Note
We advise that the Insured has
an ongoing difficulty with SAMSA with regard to the qualifications of
the skipper of the vessel.
Attached you
will find a mass of documentation dealing with the skipper, Mr Willy
Jan Hennop’s certification which we are
confident would enable
Mr Hennop to operate a charter yacht vessel of the size of the
“
Mieke
”
anywhere else in the world other than the bureaucratic mess that
exists here regarding acceptability of certification from
bodies such
as the Royal Yacht Association U.K. I too have an ongoing fight with
SAMSA regarding the re-issue in the new format
of my own coastal
skippers certificate and I can tell you it is one long bureaucratic
mess.
As matters
presently stand there is confusion in the offices of SAMSA as to
whether or not they are able to issue a South African
Certificate of
Competency as they seem to be unable to decide as to whether or not
they will accept bodies such as the Royal Yacht
Association as being
competent bodies for the certification of seagoing people onboard
yachts, be they commercial or not.
We submit these documents as we
seek confirmation that Insurers are happy with his qualifications.’
Some 14 certificates were attached to the fax.
[38
] On the same day
Devereux sent a fax to A J Gallagher, for the attention of Paice,
attaching the same documents. Devereux wrote:
‘
Re:
Classic sailing – MY “
Mieke
”
The skipper of this vessel a Mr
Willy Jan Hennop is engaged in a dispute with SAMSA regarding his
qualification to act as skipper.
Although the
“
Mieke
”
is not a fishing vessel SAMSA seem keen to impose their authority and
we have been asked to request that you
view
Hennop’s qualifications not to try to override SAMSA but rather
to ascertain whether they satisfy underwriters.
(My
emphasis.)
I believe that Kuttel had a
similar problem with SAMSA but eventually prevailed and his
Yachtmaster Ocean certificate was recognized.’
[39
] Paice took the fax
from Devereux with the attached documents to James at Lloyds. And as
I have already said, James wrote ‘seen’
on the fax. Paice
advised Devereux of this by email the following day. And Devereux in
turn sent an email to Brown on 25 November
2004 advising him that the
underwriters had noted ‘seen’ on his fax. He also
ventured the view that
‘
from a
practical point of view my contract says nothing about compliance
with the Merchant Shipping Act nor has it a skipper’s
warranty
so as your cli
ent
has demonstrated that his skipper has the necessary qualifications .
. . the unseaworthy warranty which is what we would rely
on if the
skipper was unqualified would not be breached.
Underwriters having only noted
“seen” on the documents are basically saying that they
don’t object and as far
as they are concerned the skipper is
acceptable.’
[40
] The high court
found that no misrepresentation had been made. The fact that Lloyds
had been informed that SAMSA had not accepted
Hennop’s
qualifications, and that there was confusion in the SAMSA offices
meant that Lloyds had been put on guard. The court
thus did not
accept the view of an English underwriter, Mr P Northfield, called by
Lloyds. Northfield, who had considerable experience
in marine
insurance, had testified that it was implicit from the letters that
Hennop would receive the certification required from
SAMSA
imminently. Moreover, Northfield had said that a prudent underwriter
would have been substantially influenced as to whether
to accept the
risk, or restrict the terms or adjust the premiums, had he been aware
that the regulatory authority’s certification
was not imminent.
Of course Northfield’s opinion on the meaning of the statements
made is not even relevant:
16
it is for the court to interpret what was said and would be
understood. But the high court found in any event that whether or not
a prudent underwriter would have been influenced, James had in fact
accepted the risk having seen that Hennop was not certified
by SAMSA.
No misrepresentation had thus been proved.
[41
] On appeal Lloyds
accepted that the high court correctly set out the tests for
determining whether a misrepresentation vitiates
a contract. These
were that there must be a statement of fact, present or past, or
opinion, which is untrue, material to the insurer’s
appraisal
of the risk and which in fact induced the insurer to enter into the
contract. (As I have said earlier, the test is now
to be found in
s
53
of the
Short-Term Insurance Act.) But
Lloyds argued that the
statements about Hennop’s qualifications imply that SAMSA would
issue formal certificates; that in
effect the dispute was about minor
paperwork to be completed by an office in disarray; and the matter
was of no consequence. In
effect, the problem with SAMSA was
trivialized, and what was conveyed to James was actually false. The
essence of the defence,
as argued on appeal, was that Devereux had
implied, in his letter of 23 November to Gallagher, that Hennop’s
dispute with
SAMSA would be resolved and that SAMSA would recognize
him as qualified and certificated to skipper the
Mieke
.
[42
] In my view the
letter written by Devereux, seen by James, made it absolutely plain
that SAMSA had not certified Hennop as a skipper
for a vessel of the
class of the
Mieke
.
Lloyds was asked only if it were satisfied with Hennop’s
existing qualifications. James’ conduct made it clear that
it
was. No misrepresentation was proved and the test in
s 53
need not be
applied.
The third defence: Illegal voyage
[43
] Section 41 of the
English Marine Insurance Act provides:
‘
There is an implied
warranty that the adventure insured is a lawful one, and that, so far
as the assured can control the matter,
the adventure shall be carried
out in a lawful manner.’
Lloyds’ argument was that the
Mieke
was sailed in an unlawful manner, contrary to the provisions of the
Merchant Shipping Act, and to the regulations promulgated in
terms of
that Act. Section 73(1) of the Merchant Shipping Act provides that
the owner and master of every ship going to sea from
any South
African port ‘shall ensure that there is employed on board of
that ship . . . the number of officers and other
persons, duly
certificated as provided by regulation . . .’. Contravention
of the section amounts to an offence attracting
a penalty of a fine
or imprisonment not exceeding one year. Section 226(1) of the
Merchant Shipping Act requires that such stability
information as is
necessary for guiding the master in loading and ballasting the ship
be kept on board. And the regulations require
that this information
be reliable and up to date.
[44
] Lloyds argued that
Classic Sailing and Hennop had contravened both these sections
knowingly, and were thus guilty of a breach
of the implied warranty
of lawfulness. Cleaver J in the high court found that the ‘adventure’
was not illegal, relying
largely on English and Australian
authorities in this regard and in part on
s 54
of the
Short-Term
Insurance Act. I
do not consider it necessary to traverse any of the
English or other cases. The defence of illegality can be disposed of
shortly.
[45
] First, the
stability book was on board and met the requirements of the Merchant
Shipping Act, as discussed earlier. And SAMSA
had had no difficulty
in allowing the
Mieke
to sail. It has a discretion to do so under s 85 of the Merchant
Shipping Act. And in relation to the certification of the crew,
even
if no formal exemption had been granted to Hennop, he had been
permitted by SAMSA to sail the
Mieke
.
Colenutt certainly knew that Hennop was going to sail to Mozambique
when he issued the general safety certificate in October 2004.
On the
face of it, no illegality was committed.
[46
] Secondly, Classic
Sailing, through Thebe and Devereux, advised Lloyds that Hennop’s
certificates were not recognized by
SAMSA. It could hardly have
warranted that he was properly certificated. There was thus no
warranty in this regard.
[47
] And thirdly,
s
54(1)
of the
Short-Term Insurance Act is
not consonant with s 41(1)
of the Marine Insurance Act.
17
I have said earlier that Classic Sailing and Lloyds could not
contract out of that Act and to the extent that English law is
inconsistent
with the provisions of the Act it is inapplicable to the
contract. Section 54 (1) provides:
‘
[doja53y1998s54]
54
Validity of contracts
A short-term policy, whether
entered into before or after the commencement of this Act, shall not
be void merely because a provision
of a law, including a provision
of this Act, has been contravened or not complied with in connection
with it.’
On the assumption that Hennop or Classic Sailing were guilty of
contraventions of the Merchant Shipping Act, the effect of s 54(1)
is that the insurance policy would not be void ‘merely because
a provision of a law’ had been contravened.
[48
] Lloyds argued that
the use of the word ‘merely’ indicated that the
contravention must be collateral to the claim and
not related to the
cause of the loss in order for the policy to remain valid. That may
be so. In court the analogy of an insured
car being stolen, and the
insurer refusing to meet the claim because of a traffic offence
committed by the insured before the theft,
was debated. Clearly the
insurer would not be allowed to escape liability in such a case.
[49
] But equally in this
case the sinking of the
Mieke
was not related to Hennop’s lack of certification, nor to the
stability information onboard. That is common cause. In my
view,
s
54(1)
of the
Short-Term Insurance Act precludes
Lloyds from relying
on any breach (if there was one) of an implied warranty introduced by
the English Marine Insurance Act. This
defence must thus also fail.
The sinking of the
Mieke
[50
] The principal
witnesses for Classic Sailing who testified as to the sinking of the
Mieke
were
Hennop and Mr D Grieve, the vessel’s engineer. The cook on
board, Ms C du Plessis, who testified for Lloyds, also described
the
event and took photographs of the vessel, from the tender, as she
sank.
[51
] Prior to the
sinking, and before leaving Vilanculos for Pemba on 15 September
2005, the crew loaded 3 400 litres of diesel in
the fuel tanks. The
weather deteriorated after they left Vilanculos, and a heavy swell
and strong wind lasted about two days. On
17 September Grieve
discovered that they had somehow, inexplicably, lost the fuel taken
onboard at Vilanculos. Hennop decided
to sail to shore. A small
amount of fuel remained in what was termed the ‘day tank’.
The main engine was run at idling
speed. This was not normally done,
and it had the effect of making the engine vibrate.
[
52] Early in the
morning (at about 6h30) of 18 September, Hennop and Grieve were on
deck when the bilge alarm sounded. Grieve went
to investigate. As he
entered the transverse passage in front of the engine room he stepped
into water, which he said was about
ankle depth. He attempted to turn
on the emergency lighting but could not. When he went into the engine
room there was water ‘swishing
in and out, up and down the
walls’. He was able to start the starboard generator, the
lights came on and he primed the mechanical
bilge pump and started to
run the electrical bilge pump. He asked Hennop, who had come into the
engine room, to increase the revolutions
for the main engine. But
there was water everywhere: ‘it was chaos’. And the pumps
were not having any effect. He had
checked several times that the
seacocks in the engine room and elsewhere were closed.
[
53] Hennop, in seeking
the source of the inflow of seawater, noticed that the side passage
close to the rudder compartment, was
full of water. A smell of
exhaust gases was evident in the side passage and the engine room.
[54
] When the water was
about hip-height Grieve had to shut down the generator to avoid
electrocution. He dived below the water level
in the engine room to
see if he could find the source of the ingress of water, but could
see nothing except disintegrating cardboard
boxes that had been
stored there and were floating around. He could hear the hull
cracking. There was a strong smell of diesel.
[
55] Hennop instructed
the crew to bail the water out with buckets, but the inflow of water
was so great that he decided they should
get off the vessel, and
instructed Grieve to see to it. Grieve and the rest of the crew got
on to one of the tenders. Hennop remained
on deck. The vessel was
sinking from the stern. Its exhaust was under water. When Grieve had
discovered that the fuel tanks were
empty, he had noticed that there
were traces of moisture around the exhaust as it exited the hull. The
area was damp. He had not
told Hennop about this, thinking it was of
no significance. But as the vessel sank, Grieve observed from the
tender that there
were no bubbles coming off the exhaust into the
water although the main engine was still running. This too suggested
that something
was amiss in the exhaust area.
[
56] One of the reasons
suggested by Lloyds as to the cause of the sinking was that the cover
for the sewage tank had not been secured.
However, Hennop and Grieve
testified that the hatch cover had been firmly in place at the time
of the ingress of water, although
it had not been bolted down. Grieve
said that when he first went into the transverse passage to attend to
the bilge alarm he had
tried to lift the cover so see if the ingress
was through the sewage tank. But the pressure of water above the
cover was such that
he could not lift it. Hennop too said that when
he had tried to lift the cover the force of the water prevented it
from being moved.
Du Plessis testified that she had seen sewage in
the water swirling through the vessel. No one else had done –
but Hennop
had said he smelled sewage. In fact, nothing turns on this
and it is clear that the very rapid and large ingress of water could
not have been a result of the cover of the sewage tank being
unsecured.
[57
] When the
Mieke
listed to port Hennop jumped off deck and swam to the tender. The
crew watched the vessel come upright again and then sink at the
stern. They proceeded to shore.
The cause of the sinking of the
Mieke
[
58] Cleaver J in the
high court found that Classic Sailing had discharged the onus of
proving that the
Mieke
sank as a result of a latent defect in the hull – an excessive
stress concentration in the structure of the hull which resulted
in a
fatigue failure and associated sudden propagation of cracks and the
sudden ingress of seawater. In this regard, the judge
had regard to
the evidence of Hennop and Grieve, described above, and concluded
that a large mass of water had entered the aft
portion of the
Mieke
,
where the exhaust was located, which caused the
Mieke
to sink by the stern. This conclusion was supported by the evidence
of Hennop that there was a break in the welds where the exhaust
system exited the hull, and by that of Grieve that he could see no
bubbles discharged into the sea when he had left the vessel
and was
on the tender.
[59
] The high court took
the view that in the absence of direct evidence as to the cause of
the sinking, Classic Sailing had to establish
inferentially that the
loss of the
Mieke
was caused by a latent defect – a peril insured against. This
was the approach of the majority of this court in
The
Wave Dancer: Nel v Toron Screen Corporation (Pty) Ltd & another
.
18
Scott JA (in the minority judgment) said:
19
‘
......it
should be observed that while an insured would ordinarily be obliged
to adduce evidence identifying the precise cause of
the loss and the
particular defect responsible therefor, such evidence is not
necessarily essential. In principle there can be
no reason why, in
the absence of evidence as to the precise cause of the loss, an
insured should not in appropriate circumstances
be able to establish
inferentially that the loss was occasioned by a latent defect.
’
The majority considered that on the probabilities
the owner of the vessel, being ‘caring and meticulous’,
20
would not have allowed it to go to sea had he known that there was
any defect in the hull. This court concluded that the inference
to be
drawn from the absence of evidence of wear and tear or patent damage
was that there was an inherent defect covered by the
insurance
policy.
[60] Cleaver J also accepted the evidence of two
expert witnesses who testified for Classic Sailing: Dr J Zietsman and
Dr C Grobler.
Their reports and testimony were based on the evidence
of Hennop and Grieve as to how the sinking occurred, and on
scientific hypotheses
flowing from that and from evidence as to the
structure of the vessel and repairs done to the exhaust in particular
over several
years. Before dealing with their evidence I must
emphasize that where there is eyewitness or direct evidence of an
occurrence this
may render the reconstructions of experts less
relevant or even irrelevant (this observation is particularly
pertinent to the evidence
of Lloyd’s expert Mr A J Sinclair):
see
Parity Insurance Co Ltd v Van den
Bergh
21
and
Van Eck v Santam Insurance Co Ltd
22
where the court said that while it was not unusual for parties to
tender expert evidence to determine the cause of a collision,
the
expert’s evidence is ‘inevitably based on reconstruction
and cannot conceivably bear the same weight as direct,
eye-witness
testimony of the event in question’. See also
Michael
& another v Linksfield Park Clinic (Pty) Ltd & another
.
23
[
61] Before turning to
the evidence of the experts it is important to state that all causes
of the
Mieke’s
sinking save a latent defect in the hull that allowed for the ingress
of seawater can be excluded. The vessel was not scuttled;
the crew
were not negligent; the seacocks were closed; there was no patent
defect and there was no evidence of wear and tear that
had any causal
connection. (Viljoen had thought that a collision with a floating
object might have caused a crack in the hull to
develop, but the crew
had not been aware of any collision and the experts were agreed that
if there had been one sufficient to
cause damage the crew would have
been aware of it. In any event a collision would have been covered by
the policy.)
[
62] Counsel for Lloyds
argued on appeal that there was no objective evidence – such as
that of a SAMSA surveyor – that
wear and tear were excluded:
but Hennop and Viljoen’s evidence that the
Mieke
was in good condition when she set sail for Mozambique was not
gainsaid. The only inference to be drawn then is that the hull was
latently defective. There does not need to be proof of the precise
defect that caused the sinking.
[63
] In any event, it
was the conclusion of an expert, Captain David, hired by Lloyds to
investigate the loss, and whose expert report
was filed by Lloyds,
that there was no readily apparent cause for the sinking: while
discounting the pleaded cause, he could not
say what other factor had
allowed for a rapid ingress of seawater, other than an overflow from
the sewage tank which had not been
properly sealed. This suggestion
is not consonant with the evidence of Hennop and Viljoen and was
rejected by Zietsman. Moreover,
David’s theory would not have
explained the large ingress of water that resulted in the sinking of
the vessel. Interestingly,
David did not testify, although he was
available to Lloyds and in court throughout the proceedings.
[
64] The evidence of the
experts who prepared reports and testified for Classic Sailing
supported the inescapable inference that
there was a latent defect of
the nature pleaded by Classic Sailing. Zietsman, who has a doctorate
in ocean engineering, and over
30 years’ experience, took into
account the evidence of Hennop and Grieve as to the structure of the
vessel and the vibration
of the engine when idling; the invoices
reflecting repairs to the exhaust and the hull in the area of the
exhaust over a period;
prepared a numerical model of the
Mieke
and assessed the rate at which water may have entered the vessel
through various apertures, and did flooding calculations. His
view
was that the sudden and rapid flooding seen by the crew was
consistent with a large aperture having opened to the sea. Although
water might have leaked slowly into the hull when cracking first
occurred, it was probable that there was a sudden growth of a
crack
because of the vibration of the exhaust pipe.
[65
] Over the years
since the
Mieke
was built cracks had appeared from time to time near the exhaust.
These had been repaired by welding. In February 2001 a hole was
cut
in the hull at the stern and the exhaust assembly was replaced with a
stainless steel doubler plate, welded to the hull, to
reduce cracking
in the area of the exhaust exit. The hull itself was made of a
different metal.
[
66] Immediately prior
to the sinking the engine had been idling for some time, causing
vibrations in the hull which Zietsman said
would have exacerbated the
growth of cracks near the engine room. In his report he stated:
‘
These
vibrations most probably served as a driver for sudden crack growth.
. . . The cracks which had previously occurred had been repaired in
part, by welding stainless steel doubler plates on either side
of the
hull. These repairs and modifications probably introduced stress
concentrations at those locations. . . . The repairs to
the exhaust
penetrations through the hull occurred in the splash zone and the
chance of development of corrosion fatigue was thus
enhanced due to
wetting and drying in that area.’
[
67] This hypothesis was
confirmed by Grieve’s evidence that he had noticed damp in the
area of the exhaust. Zietsman could
not find confirmation that the
correct welding procedures had been used to weld stainless steel to
the hull. Even if they had,
however, differential expansion rates of
different metals could lead to excessive stresses, he said.
[68
] Zietsman concluded
that the sudden rapid flooding was probably caused by an aperture or
apertures that developed near the engine
room.
‘
Stress
concentration
s
in those areas, together with fatigue corrosion mechanisms, driven by
the vibrations caused by the engine most probably caused
the cracks
to grow suddenly. . . . The growth of the cracks was most probably
associated with an initially slow, but finally rapid
flooding,
causing the yacht to settle by the stern and then sink.’
[
69]
Zietsman
had requested Classic Sailing to consult a metallurgist, Dr Grobler,
to confirm his conclusions. Grobler spoke to Viljoen
and to the
person who had over the years repaired the hull, Mr F J J Botha,
about the structure of the
Mieke
and the repairs effected over the years. Grobler concluded that the
welding done in the past and the use of the stainless steel
doubler
plate had been far from ideal (the latter increasing the risk of
fatigue cracking) and that there was additional cyclic
loading
because of the differential thermal expansion of the different metals
used. Other factors, such as dissimilar welds, had
also led to
stresses on the hull. There is no need to consider these. Grobler’s
evidence confirmed Zietsman’s conclusions.
[70
] The expert witness
for Lloyds on the question of the cause of the sinking, Mr Sinclair,
also wrote a report and testified. Unlike
Zietsman and Grobler,
however, he did not take into account the evidence of Hennop, Grieve
and Viljoen, and denied that there would
have been excess vibration
caused by the engine idling for a long period. He offered no
explanation as to the reason for the
Mieke
sinking and conceded reluctantly when
cross-examined that the vessel had indeed sunk. He insisted that
there must have been substantial
leaking before the morning of 18
September 2005, which could not have gone unnoticed. He could not of
course counter the evidence
of the crew as to the sudden ingress of
seawater. Cleaver J correctly rejected his evidence.
[7
1] When asked by this
court to point to any finding in relation to the cause of the loss by
the high court that was wrong, counsel
for Lloyds could suggest only
that Cleaver J had drawn his own conclusions not based on evidence.
The learned judge said that because
the exhaust exited above the
water level it was ‘feasible that cracks occurring in the area
would have taken longer to develop’.
The evidence of the cook
had been that at 4h00 in the morning she felt that ‘the vessel
had settled by the stern’.
If that were the case, the learned
judge continued, ‘there would have been more time when pressure
from the ocean would have
been applied to any crack or cracks which
might have been in existence without being observed’.
[
72] But in fact the
court’s conclusion was based on Zietsman’s evidence that
a critical area for corrosion is the splash
zone which is at times
immersed and at times above water and that that was another area
where the crack that ultimately became
a large aperture might have
developed. The criticism is thus without warrant, and there is no
reason to differ from the high court’s
findings as to the cause
of the sinking.
Was the cause of the loss a ‘latent defect’?
[
73] Lloyds argued that
even if the conclusion drawn by the high court (that the
Mieke
sank because of a crack in the hull that had developed into a large
aperture) was correct, the crack was not a latent defect. As
I
understood the argument it was that there was no defect when the hull
was constructed. A fatigue crack that developed during
the course of
sailing was not a peril insured against.
[74
] Cleaver J rejected
the argument, referring to
The Caribbean
Sea
,
24
where Robert Goff J held that fatigue cracks, developed over time,
but attributable to faulty design (also in respect of the manner
of
welding) amounted to latent defects. A combination of circumstances
resulted in a fracture opening up a significant period of
time before
the end ‘of the natural life of this ship’.
25
The court held that the defective design had the effect that defects
would inevitably develop in the ship, but would not amount
to
ordinary wear and tear. A similar approach is to be found in
The
Nukila.
26
[
75] In my view, the
high court correctly found that the ‘excessive concentration in
the structure of the hull’ which
led to fatigue failure as a
result of heating and vibration amounted to a latent defect covered
by the policy. I have already said
that all other causes of the
sinking can be excluded. Accordingly Lloyds is liable on the policy
and Classic Sailing’s conditional
cross appeal does not arise
for consideration.
The appeals by Thebe and Devereux
CC on the costs orders
[
76] Cleaver J correctly
found that because Lloyds was liable, the conditional claims against
Thebe and Devereux CC fell away. And
since I find that Lloyds is
liable, there is no need to consider the soundness of these claims.
But the high court decided that
because counsel for Thebe and
Devereux CC had not participated in the hearing in so far as the
sinking of the
Mieke
,
and whether the loss was covered by the policy, were concerned, they
should be awarded only half the costs of the trial (although
senior
and junior counsel for each had been present throughout the hearing).
They have appealed against the costs awards.
[77
] It will be
remembered that Thebe and Devereux CC were joined by Classic Sailing
as defendants only when Lloyds raised the special
defences. Since
these rested, to a substantial extent, on letters written by Brown
and Devereux, I consider that Classic Sailing
had no choice but to
join both. Brown had written to Devereux, and Devereux had in turn
written to Paice of Gallagher. These letters
formed the basis of the
defences of misrepresentation and non-disclosure.
[
78] It is trite that
the award of costs is a matter within the trial court’s
discretion, although the general rule is that
in commercial
litigation costs follow the event. The discretion must be exercised
judicially, and in this case it must be asked
why the general rule
was departed from.
[79
] Cleaver J
considered that costs in respect of the days on which the evidence on
the sinking, and its cause, was given by Hennop,
Grieve, Zietsman,
Liverick, Du Plessis and Stewart should not be awarded to Thebe and
Devereux CC. This decision ignored the fact
that Thebe and Devereux
CC’s liability was directly affected by whether the sinking was
caused by an insured event –
the latent defect. They were thus
entitled to be represented in court when that evidence was given. And
the evidence was not self-contained.
Viljoen, for example, gave
evidence in respect of the structure of the
Mieke
and the repairs to it, as well as on the misrepresentations and
non-disclosures alleged. Hennop testified as to the sinking and
as to
the stability book and his certification. On what basis should Thebe
and Devereux CC have decided when and when not to be
in court? The
issues were not separated, nor even susceptible to separation.
[
80] Thebe and Devereux
CC were compelled to defend the claims against them, which had been
initiated by the defences raised by Lloyds.
They were entitled to
representation throughout the trial. Counsel for both point out that
these two appellants may have been penalized
with a costs order had
they extended the period of the trial by cross-examining witnesses
unnecessarily.
[81
] In the
circumstances I consider that the discretion exercised by the high
court in awarding Thebe and Devereux CC only half their
costs cannot
be justified. Lloyds must pay the full costs of Thebe and Devereux CC
who were joined only because of Lloyds’
defences.
[
82] In the
circumstances Lloyds’ appeal must be dismissed and the appeals
of Thebe and Devereux CC must be upheld.
1 The first appellant’s appeal is dismissed
with costs, including those occasioned by the employment of two
counsel.
2 The
appeals by the
second and third appellants are upheld with costs, including those
occasioned by the employment of two counsel.
3 Paragraph 1.4 of the order of the high court is
replaced with the following:
‘The first defendant is ordered to pay the costs of the second
and third defendants including the costs occasioned by the
employment
of two counsel and the preparation expenses of Mr Child.’
4 The respondent’s conditional cross-appeal is dismissed.
_______________
C H Lewis
Judge of Appeal
APPEARANCES
FIRST APPELLANT: M Wragge SC (with him D J Cooke)
Instructed by Bowman Gilfillan Attorneys,
Cape Town.
Matsepes, Bloemfontein.
SECOND APPELLANT: M J Fitzgerald SC (with him D Melunsky)
Instructed by Deneys Reitz Inc
Cape Town
Claude Reid Attorneys
Bloemfontein
THIRD APPELLANT: R D McClarty SC (with him P A Corbett)
Instructed by Reillys, Cape Town
Matsepes, Bloemfontein
RESPONDENT:
R W F
MacWilliam SC (with him L Burger)
Instructed by Dawson Edwards & Ass
Cape Town
McIntyre & Van Der Post,
Bloemfontein.
1
Safety of
Navigation Regulations 1968, as amended.
2
2 (2)
Lawsa
(2 ed) ‘Conflict of Laws’ paras 328ff; Christopher
Forsythe
Private
International Law
(4 ed) p 294ff and John Hare
Shipping
Law and Admiralty Jurisdiction in South Africa
2 ed (2009) p 143.
3
Lawsa
op cit para 329.
4
Op cit p 299, fn
33.
5
J Voet
Commentarius
ad Pandectas
Appendix to 1.4 18-22.
6
Op cit p
301 and
Lawsa
op cit para 329 fn 12 and 13.
7
1997 (3) SA
236 (SCA).
8
At
244D-245D.
9
2001 (3) SA
537
(SCA) para 17.
10
On s 53 see
Joubert v Absa
Life Ltd
2001 (2) SA 322
(W) at 328F-H. As to the effect of s 53, and the reasons for its
amendment in 2003, see
Mahadeo
v Dial Direct Insurance Ltd
2008 (4) SA 80
(W) at 86B-87D.
11
See also
Dicey
Morris and Collins The Conflict of Laws
(general editor Sir Lawrence Collins) 14 ed (2006) Vol 2, p 1649,
paras 33-033 and 33-034 dealing with the proposition that in
certain
circumstances parties cannot, with reference to another system of
law, contract out of the English Unfair Contract Terms
Act 1977.
12
‘Codification
of private international law – a comparative analysis of the
German and Swiss experience’ 2002
TSAR
p 234, pp 248ff.
13
The
System of Modern Roman Law
Vol VIII (1849).
14
Martinek op
cit p 249.
15
‘Law’
in subsection 2 is statutory:
R
v Detody
1926 AD 198
at 201 where Innes CJ said ‘The word “laws”
means statutes.’
16
See
KPMG
Chartered Accountants (SA) v Securefin & another
2009 (4) SA 399
(SCA) para 40.
17
It should
be noted that Hare op cit pp 902-903 does not consider the effect of
s 54
(1) of the
Short-Term Insurance Act on
the breach of a warranty
of legality but does state that warranties that the insured will
comply with statutory requirements
is subject to
s 54
, such that a
policy will not be void because of the illegality: p 327 fn 51.
18
1996 (4) SA 1167
(A).
19
At 1179I-1180A.
The
principle was not in issue in the majority judgment.
20
At 1188A-D.
21
1966 (4) SA
463
(A) at 476B-H.
22
1996 (4) SA 1226
(C) at 1229H-1230B; see also the cases cited at 1229I-1231H.
23
2001 (3) SA
1188
(SCA) para 40.
24
Prudent Tankers Ltd S A v
The Dominion Insurance Co Ltd (The “Caribbean Sea”)
[1980] Vol 1
Lloyd’s Rep 338 (QB).
25
At 347.
26
Promet Engineering
(Singapore) Pte Ltd v Sturge & others (The “Nukila”)
[1997]
Vol 2 Lloyd’s Rep 146 (CA). See also
Arnould’s
Law of Marine Insurance and Average
17 ed (2008) 22-22, pp 939-940.