Lloyds of London, Certain Underwriters of v Harrison (24/2003) [2003] ZASCA 83 (18 September 2003)

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[2003] ZASCA 83
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Certain Underwriters of Lloyds of London v Harrison (24/2003) [2003] ZASCA 83; 2004 (2) SA 446 (SCA) (18 September 2003)

THE
SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
CASE NO
: 24/2003
In the matter between :
CERTAIN UNDERWRITERS OF LLOYDS OF
LONDON
Appellants
and
THERESA HARRISON
Respondent
_________________________________________________________________________
Before: ZULMAN, MTHIYANE, NUGENT, LEWIS JJA &
MLAMBO AJA
Heard: 9 SEPTEMBER 2003
Delivered:
18 SEPTEMBER
2003
Summary: Insurance policy –
non-disclosure – vehicle imported unlawfully
_________________________________________________________________________
J U D G M E N T
_________________________________________________________________________
NUGENT JA
NUGENT JA:
[1] The
appellants are the underwriters of a policy of motor insurance that
was first issued to the respondent on 20 September 1999,
and then
renewed a year later. In terms of the policy the appellants undertook
to indemnify the respondent in the event that a certain
Toyota Land
Cruiser was lost or stolen or damaged.
[2] The
respondent alleges that on 23 September 2000 the vehicle was damaged
when it overturned accidentally while being driven by
a certain Mr
Xaba on the instructions of the respondent’s husband. Her claim to
be indemnified under the policy was declined by
the appellants and
she sued them in the High Court at Pretoria for recovery of the
alleged loss.
[3] The
action was tried by Basson J, who separated the question whether the
appellants were liable to indemnify the respondent from
the remaining
issues relating to the
quantum
of the claim. The learned judge
concluded that the appellants were indeed liable to indemnify the
respondent and he issued a declaratory
order to that effect. The
appellants now appeal against that order with leave granted by this
Court.
[4] Numerous matters were in issue at the
trial but it is necessary to deal with only one of them. It is well
established that an
insured has a duty to disclose to the insurer,
prior to the conclusion of the contract of insurance, ‘every fact
relative and material
to the risk … or the assessment of the
premium … of which (the insured) had actual knowledge or
constructive knowledge prior
to the conclusion of the contract of
insurance’, and that a breach of that duty entitles the insurer to
avoid the contract (
Mutual and Federal Insurance Co Ltd v
Oudtshoorn Municipality
1985 (1) SA 419
(A) at 432E-F). That
applies equally if material facts are withheld by an agent who has
been appointed by the insured to negotiate
the insurance on his
behalf (
Randbank Bpk v Santam Versekeringsmaatskappy Bpk
1965
(4) SA 363
(A) at 368H-369A. See too the discussion in the judgment
of the court below reported at
1965 (2) SA 456
(W) esp. at
457E-459B). The general principle in that regard is expressed as
follows in Spencer Bower, Turner and Sutton:
The Law Relating to
Actionable Non-Disclosure
2
nd
ed at par 4.16:
‘
For the purposes of the law of disclosure, as for
other purposes, it may be stated generally, though perhaps somewhat
elliptically,
that the knowledge of the agent is the knowledge of the
principal. This means that, with certain qualifications and
exceptions to
be discussed presently, [none of which is relevant for
present purposes] the law imputes to any party to a contract or
transaction
knowledge of all facts and circumstances of which any
agent of his
for that purpose,
and in that contract or
transaction, is actually or presumptively cognizant.’
[5] The appellants allege that before the
policy was issued the respondent, or her husband (who arranged the
insurance on her behalf),
knew, and failed to disclose, that the
vehicle that was to be insured had been imported into this country
unlawfully. That fact,
so it is alleged by the appellants, was
material to the risk they were called upon to insure, and the failure
to disclose it entitles
them to avoid the claim. (The issue was not
expressly encompassed by the pleadings but was introduced – rather
elliptically –
by agreement at the pre-trial conference and was
thereafter fully canvassed in the course of the trial).
[6] The somewhat perfunctory evidence
presents an incomplete picture of the circumstances in which the
vehicle was acquired. Nevertheless,
what emerged is that early in
1999 the respondent, an air-hostess who ran various small businesses
in her spare time, decided to
acquire a vehicle of the type that is
now in issue. On making enquiries she found that it would be too
expensive to acquire the vehicle
from an authorised Toyota dealer
and, besides, the model she wanted was in short supply, so she
approached a firm known as Moto City
in Randburg and was put in touch
with another firm known as J&H Holdings. (It seems that there was
some relationship between
Moto City and J&H Holdings but what
that relationship was did not emerge from the evidence).
[7] The respondent said that she was told
by J&H Holdings that in order to acquire the vehicle she would
need to pay directly
to the manufacturer in Japan the sum of £15 000
and she understood that to be what she described as a ‘holding
deposit’.
She duly paid that sum into the manufacturer’s London
bank account from funds that were available to her in England. The
vehicle
was delivered to her in September 1999 but only after she
concluded an instalment sale agreement with Stannic pursuant to which
Stannic
purported to sell the vehicle to her for R452 000. An
invoice amongst the documentary evidence purports to reflect the sale
of the vehicle to Stannic by Moto City for an equivalent amount. The
respondent said that she then recovered her ‘holding deposit’
from Moto City.
[8] Those financial arrangements are rather
curious but they are not directly material, for what is in issue is
not the manner in
which the vehicle was purchased but rather the
circumstances in which it entered the country. The evidence in that
regard is even
more curious.
[9] It is not
disputed that after the vehicle was acquired from the manufacturer it
found its way to Swaziland where it was registered
in the vehicle
registry of that country. Documents purporting to have been issued by
the authorities in that country during April
1999 certify that
Swaziland’s Customs, Excise and Sales Duties Act 21 of 1971 had
been complied with, and that no tax was owing
by J&H Holdings.
[10] According to the evidence of a certain
Mr Collins, a deputy director in the Department of Trade and
Industry, which was not disputed,
it is unlawful to import into this
country a vehicle that has been registered in Swaziland unless an
import permit has been issued.
It was also not disputed that if the
vehicle was imported into this country without an import permit
having been issued it was liable
to be forfeited to the State.
(Whether that requirement and its consequence have their source in
the Import and Export Control Act
45 of 1963 or in the Customs and
Excise Act 91 of 1964 was not explored in the evidence but because
that evidence was not disputed
it is not necessary to examine that
question).
[11] The vehicle must have entered this
country from Swaziland and it found its way onto the register of
motor vehicles. According
to the records of the registration
authorities, which were not placed in dispute, the vehicle was first
issued with a registration
number in Butterworth in the Transkei on
30 June 1999. That registration number was drawn from a registration
system that was discontinued
in 1994. (According to the evidence that
former registration system did not require an import permit to be
produced in order for
a vehicle to be registered.) On the same day
the vehicle was transferred to the computerised register of the
Eastern Cape under a
new registration number (how that occurred was
left unexplained) and from there it was transferred during July 1999
to the register
for Gauteng.
[12] According to the evidence it is a
requirement for registration of a vehicle in this country (contrary
to the requirements of
the disused Transkei system) that the import
permit be produced where appropriate. Thus, it was submitted on
behalf of the respondent,
because the vehicle was registered in this
country, it follows that there must have been an import permit for
the vehicle.
[13] That reasoning found favour with the
court
a quo.
The learned judge found that the fact that the
vehicle was registered made out a
prima facie
case that the
vehicle had entered the country lawfully, or at least left it
uncertain as to whether or not it did so, with the result
that the
appellants had failed to discharge the onus that they bore of
establishing as a matter of probability that the vehicle was
imported
unlawfully.
[14] The reasoning adopted by the court
a
quo
assumes that the ordinary requirements for registration of a
motor vehicle are ordinarily met in practice: I see no reason to make
that assumption, particularly in this case in which it is clear that
the vehicle entered the registration system irregularly (in
that the
particular registration system had long been discontinued) and
moreover, that the discontinued system itself did not require
the
production of an import permit.
[15] But in any event the evidence warrants
a more direct approach than inferential reasoning from a dubious
factual premise. According
to Collins the Department of Trade and
Industry keeps a record of all the import permits that it issues in
respect of motor vehicles.
He examined the records of his department
and found no record of an import permit having been issued in respect
of the vehicle that
is now in issue. That evidence, which seems to
have been overlooked by the court
a quo
, for it was not dealt
with in the judgment, was not disputed. In the absence of any
evidence to the contrary it establishes inferentially
that an import
permit was probably not issued.
[16] It is
also probable, in my view, that the respondent’s husband (if not
the respondent) was well aware of that fact. According
to the
respondent her husband, who had been an importer of motor vehicles
himself and must have known that an import permit was required,
was
closely involved in the acquisition of the vehicle. That he played an
active role in arranging for the registration of the vehicle
is
apparent from the documentary evidence, which reflects that the
vehicle was submitted to a roadworthy test in Pretoria, and a
police
clearance certificate was issued in respect of the vehicle, at the
instance of the respondent's husband, on 24 May 1999. In
the absence
of a contrary explanation by the respondent’s husband (who was not
called to give evidence notwithstanding that he
was present during
the trial) the inference is warranted that he participated in
arranging for the import and registration of the
vehicle and thus
must have known that there was no import permit. Whether or not the
respondent was made aware of that fact is not
material for it was her
husband who applied for the insurance on her behalf and he was bound
to disclose facts that were known to
him that were material to the
risk.
[17] In
Oudtshoorn Municipality, supra
,
at 435F-I, it was held by this Court that the test of materiality is
an objective one, to be determined by asking, upon a consideration
of
the relevant facts of the particular case, ‘whether or not the
undisclosed information or facts are reasonably relative to the
risk
or the assessment of the premiums’. In
President
Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk en ‘n Ander
1989 (1) SA 208
(A) at 216D-G Van Heerden JA expanded upon what
that meant as follows:
‘
[D]ie vraag (is) dus
nie of na die oordeel van 'n redelike man die betrokke inligting wel
die risiko beïnvloed nie, maar of dit
redelikerwyse 'n effek mag
hê op ‘n voornemende versekeraar se besluit om al of nie die
risiko te aanvaar of 'n hoër
premie as die normale te verg.
Anders gestel, is die toets of die redelike man sou geoordeel het dat
die inligting oorgedra moes
word sodat die voornemende versekeraar
self tot 'n besluit kan kom. En so 'n oordeel sou hy bereik het
indien die inligting na sy
mening die voornemende versekeraar
redelikerwyse kon beïnvloed het.’
[18] The fact that the vehicle was imported
unlawfully, and was thus liable at any time to be forfeited to the
State, was in my view
a material fact that was required to be
disclosed. In
Geismar v Sun Alliance and London Insurance Ltd and
another
[1977] 3 All ER 570
(QBD), in which it was held that it
is contrary to public policy to enforce a contract of insurance in
respect of smuggled goods,
the court repeated a submission that was
made to it in the following terms, which aptly expresses one of the
reasons why such disclosure
is material (at 573j):
‘
(A) smuggler who insures the value of his smuggled
goods has a positive interest in their loss, theft or destruction as
a means of
converting his impeachable title to an unimpeachable title
to a sum of money. This … might induce a degree of carelessness and
an attitude inconsistent with that which would be required of an
insured person.’
[19] Quite apart from that, an insurer
generally has an interest in the salvage of the goods that have been
insured. Clearly that
interest is compromised if the goods concerned
are liable to be confiscated by the State.
[20] For both those reasons, in my view,
the fact that the vehicle was unlawfully imported was material to the
risk that was sought
to be insured, and ought to have been disclosed
before the insurance was effected. While it is true, as pointed out
by the respondent's
counsel, that the questions that are asked by an
insurer in the proposal form might in some cases have the effect of
limiting the
facts that are required to be disclosed (
AA Mutual
Life Assurance Ltd v Singh
[1991] ZASCA 67
;
1991 (3) SA 514
(A) at 522 E-G) I do
not think the proposal form in this case warranted the conclusion
that the appellants were indifferent to whether
the vehicle was
lawfully imported. There is no dispute that no such disclosure was
made, and in the circumstances the appellants
were not obliged to
meet the claim.
[21] The appeal is upheld with costs. The
order of the court
a quo
is set aside and the following order
is substituted:
“
The plaintiff's claims are dismissed
with costs.”
______________
NUGENT JA
ZULMAN JA)
MTHIYANE JA) CONCUR
LEWIS JA)
MLAMBO AJA)