SUPREME COURT OF APPEAL CONSIDERS MERCHANT SHIPPING ACT WARRANTY
On May 8 2005 the fishing trawler Lindsay collided with the bulk carrier Ouo do Brasil a few miles off the coast near Cape St Francis, South Africa. The fishing trawler capsized and sank soon after the collision. Fourteen crew members lost their lives in the tragedy, which prompted a lengthy Court of Marine inquiry.
The tragedy also resulted in litigation between the owner of the Lindsay (Viking Fishing) and its hull underwriters (Mutual & Federal) arising from repudiation of the claim for loss of the trawler.(1)
The most recent finding on the claim was handed down on March 18 2016 by the Supreme Court of Appeal, which overturned the earlier decision of the Western Cape High Court in favour of the underwriters.
The appeal turned on two issues:
- the proper application of the Merchant Shipping Act warranty in the insurance policy; and
- whether the loss of the Lindsay resulted from want of due diligence on the part of Viking Fishing.
The Merchant Shipping Act warranty is a common feature of hull insurance policies written in the local market and the clause in the Lindsay policy read as follows:
"Warranted that the provisions of the South African Merchant Shipping Act and the regulations pertaining thereto shall be complied with at all times during the currency of this policy, provided that this warranty shall be effective only to the extent of those regulations which are promulgated for the safety and/or seaworthiness of the vessel(s). It is understood and agreed that this warranty shall in no way be construed to nullify the 'inchmaree' Clause, or any part thereof in the Institute Clauses attached to this Policy."
The term 'inchmaree' in the second sentence quoted above refers to events which extend insurance cover under the policy to situations beyond perils of the sea and include, for example, loss of or damage caused by negligence of the master, officers and crew.
Given that Viking Fishing's claim was based on an inchmaree event, it argued that, on a plain reading of the insurance policy, the Merchant Shipping Act warranty did not apply to such claims and that there had been no breach of the warranty. The court agreed.
In the circumstances, the court found that it was not necessary to determine the legal effect of a breach of warranty, but it did express the following view on the nature of the warranty which may, in time, influence the court's approach in such cases:
"Such warranties are to be construed favourably towards the insured because of their impact upon the liability of the insurer. In other words they are to be given a practical and businesslike construction in the light of the purpose of the clause and the insurance policy. They are therefore not lightly to be construed as invalidating cover on grounds unrelated to the loss."
This view represents a departure from the traditional approach to warranties in an insurance policy dating back to the 1916 decision in Lewis v Norwich Fire Insurance Limited, where the Appellate Division (as it then was) held that a warranty must be exactly complied with whether it is material to the risk or not, and that strict observance of its terms is a condition precedent to the incidence of liability.
Turning to the second ground, the court highlighted that what must be established is a want of due diligence on the part of the insured, the owner or the manager causing the loss. The court held that this does not depend on the conduct of the crew, but on the conduct of those responsible at a higher level of management in the company.
When applying this test to the facts of the case, the court was satisfied that the evidence showed that the vessel was properly crewed by Viking Fishing in accordance with the applicable regulations.
Viking Fishing's appeal thus succeeded and it was entitled to an indemnity under the marine hull policy.
Given that there are relatively few reported marine insurances cases in South Africa, this decision should serve as an important guide to owners and underwriters alike on the direction of the courts in deciding cases of this kind, particularly with regard to the adoption of an approach which favours fairness over strict compliance with warranties.
For further information on this topic please contact Jeremy Prain at Bowmans by telephone (+27 21 480 7800).
(1) Viking Inshore Fishing (Pty) Ltd v Mutual & Federal Insurance Co Ltd (41/2015)  ZASCA 21 (March 18 2016).
This article was published on the International Law Office website.