SOUTH AFRICAN LAW OF CARGO INSURANCESOUTH AFRICAN LAW OF CARGO INSURANCEAndrew Robinson1

INTRODUCTION

Scope and structure of the chapter14.1 This chapter focuses on those areas where South African law has developed differently from English law,2 and avoids dealing with general insurance principles that are not relevant to marine cargo3 insurance. The chapter relies heavily on four main fairly readily available sources, namely, the current marine insurance section in the insurance chapter in volume 12 of The Law of South Africa 4 ; the textbook developed from the LAWSA chapter entitled General Principles of Insurance Law 5 ; the marine insurance chapter in Gordon & Getz 6 ; and the marine insurance chapters in Professor John Hare’s book, Shipping Law and Admiralty Jurisdiction in South Africa.7

14.2 Few scholarly works ever achieve the accolade that they are “bedtime” reading, but a two-volume work8 by Professor Van Niekerk falls squarely into that category. The Development and Principles of Insurance Law in the Netherlands from 1500 to 1800 takes the reader on a serious adventure through the legal writings and legislation of the Netherlands during the golden era of the development of Roman-Dutch law. If anything, it reveals the fragmented and often haphazard way in which insurance law developed, bedevilled by issues of geographic and economic self-interest or the predominantly strong views of influential writers of the day.

14.3 The LAWSA chapter is currently being updated by the learned authors and their labours will hopefully result in a new edition of LAWSA and a further textbook on insurance principles in the very near future. This will fill a gap of almost 10 years when the only other generally available commentary is that contained in the two very useful chapters of Professor John Hare’s work referred to above.

14.4 Over the years, there have been constant calls for the development of South African legislation to deal with insurance contracts generally.9 This is because there is ongoing legislative and judicial confusion regarding the principles to be applied to issues of marine insurance. Writing before the publication of the LAWSA volume, and the work of Reinecke et al. and John Hare, Douglas Shaw QC, commenting on the effect of section 6(1)(b) of the Admiralty Jurisdiction Regulation Act,10 stated:

“Unfortunately, therefore, the South African law of marine insurance is ‘the Roman-Dutch law applicable to the Republic’11 … There is no satisfactory work on the law of marine insurance in South Africa and the sources are not such as are normally available to the practitioner, but it is to be hoped that the courts will recognize that marine insurance always has been a topic on which there has been a substantial degree of uniformity.”12

Sources of South African law

Roman-Dutch law

14.5 Lord Diplock has stated that:

“The contract of marine insurance is highly idiosyncratic; it involves concepts that are peculiar to itself such as sue and labour, subrogation, abandonment and constructive total loss, to give but a few examples. The general law of contract is able to throw but little light upon the rights and obligations under a policy of marine insurance in the multifarious contingencies that may occur while the contract is in force.”13

Mr Justice Viljoen commented on this statement, saying:

“Subrogation is a well-known concept in South African insurance law but the others referred to are completely foreign to our law and peculiar to English marine insurance law.”14

The South African law15 of marine insurance has its roots in the Roman-Dutch law,16 which forms part of the common law of South Africa. Until 1910, there was no unified South Africa. From 1652 to 1806, the Dutch colonised the Cape, whereafter the English took over governance, but did not displace Roman-Dutch law. Only in 1879, by the General Law Amendment Act, was the English law of marine insurance imported into the then named Cape Colony. However, the Act also stated that for any future English statute to apply in the Colony, it would have to be re-enacted in the Cape. An example of a statute that was not re-enacted is the 1906 Marine Insurance Act. Many Dutch settlers left the Cape Colony from the 1830s and established the two land-locked republics of the Orange Free State in 1854 and the Transvaal in 1852. On the east coast, the colony of Natal was settled from 1839 largely by the English and annexed to the Cape in 1844. In Natal and the Transvaal, the pre-1879 Roman-Dutch sources were applied. In 1902, the General Law Amendment of the Orange Free State made the law of the Cape Colony applicable there. This ordinance was only repealed in 1977, and this had the effect of unifying the law of the post-1910 provinces; however, as Professor Hare has noted:

“… it could surely not have had the effect of deleting from South Africa’s judicial precedent all marine insurance case authority decided in England, the Cape Colony and the Orange Free State in the 98 years they were subject to English law? At the very least, such authority must still be persuasive to a South African court.”17

It follows that unless specifically included in a policy, English law will not govern a policy of marine insurance. Furthermore, marine insurance was not a subject-matter over which the English High Court of Admiralty had any jurisdiction and, accordingly, section 6(1) of the Admiralty Jurisdiction Regulation Act will not apply English law to questions of marine insurance, though English case law, in practice, will have a persuasive influence on many marine cargo insurance issues.18 The South African courts, accordingly, will apply the Roman-Dutch law unless the parties have contractually selected some other regime in terms of section 6(5) of the Admiralty Jurisdiction Regulation Act. It is very common for South African policies to contain a term stating that the policy and any dispute arising in respect of that policy are to be governed by English law but with the dispute to be heard in South Africa. This reflects the very close connection that has existed between South

African underwriters and brokers and the Lloyd’s market, a relationship enshrined in legislation.19 This does not mean that South African legislation can be ignored, however, particularly with regard to domestic consumer protection legislation.20

14.6 As for the Roman-Dutch law of marine insurance, the view of many practitioners is that the sources and principles of the Roman-Dutch law of marine insurance are difficult to determine, are rooted too firmly in the past and are untested by our courts. This makes it difficult for practitioners to properly and accurately advise clients on the effect of the terms and conditions of marine insurance agreements. Whilst the history and development of the Roman-Dutch law of marine insurance is not without considerable interest and fascination,21 it has had little real impact on the practice of marine insurance in South Africa. For all practical purposes, underwriters and brokers will usually refer to either the Marine Insurance Act of 1906 or the decisions of various courts (not restricted to English courts) on the interpretation of any provision of the Institute Clauses.

Judicial precedent

14.7 It has been written that the doctrine of precedent “is probably the most significant connection between South African law and Anglo-American law and the most important divergence from the Roman-Dutch law as well as the other legal systems that grew out of the ius commune ”.22 The doctrine of precedent has been endorsed by the Constitutional Court, which has stated that it is a fundamental principle of justice that like cases should be determined alike to create legal certainty.23 In terms of this doctrine, the ratio decidendi (being a ruling made by a court on a question of law that is then applied to the accepted facts in order to decide a case) may, depending on the particular court’s status, have either no authority, persuasive authority or binding authority on other courts, depending upon the status of those other courts. Of course, even binding precedents can be ignored in certain circumstances where, for example, the need to develop the law justifies this. This is especially so now that the South African Constitution has empowered the courts to develop the common law. Precedents can only be established from judgments that are published and are, as such, accessible to the public. It follows that some lower courts’ decisions do not create any precedents at all. There are three main courts that will be affected by the principle of judicial precedent. These are, first, the Constitutional Court, which has a purely constitutional jurisdiction, and is bound by its own decisions, which will bind all other courts when considering constitutional issues. This court is unlikely to hear marine cargo insurance cases. Secondly, the Supreme Court of Appeal, which is absolutely bound by the decisions of the Constitutional Court, and is bound by its own decisions and those of the former Appellate Division. Decisions that predate the Constitution may not be binding where they do not reflect the values of the Constitution. Thirdly, the High Court, which has various divisions, some of which have appeal jurisdiction, from a single judge to a panel (usually three) of judges. These courts are absolutely bound by the decisions of the Constitutional Court and the Supreme Court of Appeal. However, they are not bound by decisions of high courts outside their division.

Statutory sources of law

14.8 There are two South African statutes that are immediately relevant to marine insurance: the Short-term Insurance Act24 and the Admiralty Jurisdiction Regulation Act.25 The Short-term Insurance Act deals mostly with the administration and regulation of the short-term insurance industry, and no mention is specifically made to marine insurance, although it clearly relates to such insurance by reference to a “transport policy”. However, it does contain two provisions that deal with the effect of any non-disclosure or misrepresentation, which differ considerably from similar provisions in the 1906 Marine Insurance Act. The Admiralty Jurisdiction Regulation Act specifically refers to marine insurance, and provides that any claim for, or arising out of, or relating to a contract of marine insurance is to be regarded as a maritime claim and any such claim must be brought before the relevant South African court exercising its admiralty jurisdiction.

The application of English lawThe practice: incorporation of English law

14.9 Most cargo policies issued by South African underwriters, or through South African brokers, will incorporate one or other of the Institute Cargo Clauses, including the clause that the insurance is subject to English law and practice.26 However, even where a policy and the Institute Clauses refer to English law and practice, this will not necessarily trump South African statutory provisions, especially where the provisions have been drafted so as to protect the assured.27 That said, there is a great deal that is common between English law and South African law and most South African marine insurance specialists are quite comfortable in applying English law when construing policies.

14.10 The respect for English law in marine insurance matters is such that for many years the Association of Marine Underwriters of South Africa and the Marine Law Association of South Africa have debated the provisions of new legislation based on a draft Marine Insurance Act. This draft28 in its current form is based very much on the 1906 Marine Insurance Act. Following the current work of the English Scottish Law Commission into issues of insurance law generally, interest in reviving this project has grown in recent times, and more work on a draft marine insurance contract bill (which may simply amend the Short-term Insurance Act) is expected, but there is no immediate prospect of an Act, or an amending Act being promulgated.

Will the South African courts uphold a choice of English law?

14.11 Somewhat controversially, the Admiralty Jurisdiction Regulation Act provides a “formula”29 to determine what law should be applied to any particular maritime claim. In essence, the relevant provision tries to draw a distinction between those claims that would have been dealt with by the English High Courts of Admiralty, and those claims that fell outside the embrace of those courts. Marine insurance fell outside the jurisdiction of the High Court of Admiralty and it therefore came as no surprise that the then Appellate Division in Incorporated General Insurances Ltd v. Shooter t/a Shooter’s Fisheries 30 held that the law applicable to marine insurance was Roman-Dutch law. It was, to some extent, a result of this decision that led most South African underwriters

and brokers, many of whom were steeped in the traditions of English law and practice, to amend their policies by making it clear that the entire policy was subject to English law (whilst reserving the right to litigate through the South African courts).

14.12 However, as the recent judgment of the Supreme Court of Appeal in The Mieke case31 has shown, even where a dispute under a policy (which in this case was a hull policy) which clearly stated that it is subject to English law, is litigated before a South African court, that court will be entitled to have reference to South African consumer protection legislation, such as that found in the Short-term Insurance Act. In this Act, for example, the question of material non-disclosure is dealt with in a way quite different from how it is being dealt with under English law, particularly in the Marine Insurance Act of 1906. Whilst this judgment is not without its difficulties, it is probably safe to say that, where the parties agree that the policy will be subjected to English law, the South African courts will apply English law as it would be applied had the matter been adjudicated upon in England, save for any “consumer protection” legislation.

Consumer protection14.13 The incorporation of a foreign law clause will not exempt the parties from certain domestic laws in the event that the policy is regarded as a short-term policy in terms of the Short-term Insurance Act.32 If the policy is regarded as a domestic policy, then the provisions of that Act will apply. Of particular importance will be the provisions within that Act relating, specifically, to the terms, or conditions, of short-term policies and to policyholder protection.33

14.14 The Short-term Insurance Act does not refer to “marine insurance” policies as such. However, the Act does refer to the broader notion of “transportation” insurance. The definition of “transportation policy”34 in the Act describes such a policy as involving risks relating to the conveyance of goods by air, space, land and water, or to the storage, treatment or handling of such goods. As most marine insurance policies cover goods on a warehouse-to-warehouse basis, this definition is certainly wide enough to cover all goods-in-transit insurance on the usual terms, such as the Institute Cargo Clauses. The definition in the Act also appears to be wide enough to cover the storage of goods for extended periods prior to or following transit as are commonly insured as extensions to marine cargo policies. This creates the interesting conundrum that whilst the Institute Cargo Clauses incorporate English law, the 1906 Marine Insurance Act would probably not regard land carriage or storage cover as marine insurance.35 It is certainly the practice in South Africa for brokers and underwriters to regard all transportation insurance, whether or not it has a marine element, as falling under “marine” and that transport insurance is brokered and underwritten as such.

14.15 In terms of the recently promulgated Consumer Protection Act,36 there is an obligation on the insurance industry to ensure that the Short-term Insurance Act is aligned to the consumer protection measures provided for in the Consumer Protection Act by October 2012. In light of this, it has been suggested that the only sensible way of doing this would be to amend the current edition of the Policyholder Protection

Rules.37 These rules are issued in terms of section 55 of the Short-Term Insurance Act and have the purpose of providing protection to a “policyholder”, who is defined as a natural person acting otherwise than solely for the purposes of the person’s own business.38 The rules do not affect companies or similar legal entities.

14.16 The Consumer Protection Act has created a legal framework governing the relationship between the suppliers of goods and services and the protected consumers, namely, small businesses with assets or an annual turnover of less than R2 million and all individuals. In the circumstances, and when it comes to the insurance of goods, the Consumer Protection Act is unlikely to have any significant impact on the vast number of marine insurance cargo policies issued in South Africa, but there will remain some policies that will be affected.

14.17 Bracher elegantly states the difficulty that insurers will face, as follows:

“The Consumer Protection Act requires every limitation on risk and liability, any assumption of risk by the consumer, any indemnity imposed on the consumer and any acknowledgment of a fact by the consumer to be drawn to the consumer’s attention clearly and in plain language with an explanation as to the nature and effect of the provisions. Seeing that insurance policies essentially deal with risks, liabilities and indemnities, the task of expanding the [Policyholder Protection Rules] is a challenging one.”

For example, rule 6.1 states that “the wording of every provision of the policy [must have] a reasonably precise ascertainable meaning”, whereas the plain language test in the Consumer Protection Act is quite different and has subjective elements. The rules also deal with various administrative issues regarding the relationship between brokers and underwriters, the termination of the policy, provisions that are void and the handling of and the time limits relevant to the handling of claims. In The Mieke decision,39 the Supreme Court of Appeal made it clear that it would apply a “consumer protection” approach when considering issues of marine insurance (and, no doubt, all other types of insurance too). The Policyholder Protection Rules may be varied when the insurance is subject to the Consumer Protection Act,40 which will apply to claims involving protected consumers or any consumers with limited bargaining power.

The position of Lloyd’s underwriters14.18 Lloyd’s underwriters are authorised to carry on business in South Africa.41 This authority has been established by legislation, currently the Short-term Insurance Act . Lloyd’s is obliged to appoint a South African representative who is permanently resident in South Africa.42 This representative is charged with ensuring that Lloyd’s complies with the relevant provisions of the Short-term Insurance Act.43 The representative is required to have its principal place of business in South Africa.44 A claim against a Lloyd’s underwriter can be brought out of any competent South African court.45 A marine insurance claim, “being any claim for arising out of or relating to marine insurance or any policy relating to marine insurance”,46 may be brought out of such a court in the exercise of its admiralty jurisdiction. A “transportation policy”, as referred to in the Short-term

Insurance Act, includes a contract providing insurance benefits for goods conveyed by water.47

14.19 In proceeding against Lloyd’s, the claimant may cite the Lloyd’s representative as the nominal defendant or respondent and any summons or application papers may be served on that representative.48 The Lloyd’s representative may similarly conduct proceedings as a nominal plaintiff or applicant on behalf of the particular underwriter. In either case, the Lloyd’s representative may be substituted by the true party at any time before judgment.49

14.20 Lloyd’s is obliged to provide security in a Lloyd’s South African Trust for the discharge of the Short-term Insurance Act obligations of Lloyd’s underwriters in South Africa. This means that in the unlikely event of a Lloyd’s underwriter not making payment of a judgment debt, the claimant can have recourse to the trust for satisfaction.50

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE14.21 In general terms, South African law and the Constitution recognise as a fundamental principle that parties are free to contract on such lawful terms as they agree upon. A contract of insurance is therefore concluded when the parties thereto are in actual or constructive agreement with its terms. There are no formal requirements at common law, nor are there any legislative requirements relevant to marine insurance. Nor is there any requirement that a formal, written policy document be provided or that the policy be notarised or registered - although many cargo policies will require that a transferrable certificate be issued reflecting that insurance cover is in place. This is particularly so in the commodity trades. Slips (being a temporary embodiment of the contractual terms pending the issue of a superseding policy) are rarely used in South Africa. A marine insurance policy need not be signed by the underwriter.

14.22 There is no legislative definition of a contract of insurance. LAWSA quotes the following definition from the judgment in Lake v. Reinsurance Corporation Ltd 51 :

“[A contract of insurance is a] contract between an insurer (or assurer) and an insured (or assured), whereby the insurer undertakes in return for payment of a price or premium to render to the insured a sum of money, or its equivalent, on the happening of a specified uncertain event in which the insured has some interest.”

14.23 In order to give effect to its purpose, a typical contract of marine insurance will contain the following express or tacit terms: first, that the insurer will indemnify the assured for its loss; secondly, that the assured will pay a premium; and thirdly, that the insurer’s obligation to indemnify is dependent on the occurrence of an uncertain or unplanned event. Furthermore, the cargo assured must also have an insurable interest in the cargo at the time of its loss - but this does not mean that the question of insurable interest is a term of the contract, even though the obligation of the insurer to indemnify the assured is often dependent on the assured having an insurable interest at the time of the loss.

14.24 Having an insurable interest is what separates insurance contracts from wagering contracts52 - although in South Africa at least, brokers and insurers issue policies with clauses that will allow a named assured to be indemnified even though at the time of the loss the insurable interest is clearly vested in some other party. These clauses are called various things from “ex-works clauses” to “honour clauses”, but the policy’s intention is clearly to provide cover where there is loss prior to the named assured having any interest in the goods in terms of a contract of sale. The cover is usually offered subject to the requirement that the “assured” first exhausts its legal remedies against the seller before claiming under the policy. Due to the “honourable” nature of the relevant term, insurers do not challenge any demand for indemnity, and such cases have not, and have little prospect of being, the subject of any judicial inspection. The general view is that they would, in any event, be unenforceable.

14.25 Apart from the above issues, for a contract of insurance to be concluded, there must, in general terms, be an offer made by the potential assured to the insurer (usually in the form of a proposal) that may lead to some negotiation and modification regarding the risks and exceptions and the period of insurance. Acceptance53 of the proposal by the insurer concludes the agreement. It is, of course, open to the parties to impose formalities that may determine the validity of the contract, for example, that the insurance agreement be reduced to writing.

Utmost good faith and good faithThe good faith requirement

14.26 In considering the cornerstones of contract, Wille states54 :

“At every stage of the contracting process, from the negotiations through to the performance of the obligations undertaken in the contract, the parties are required to behave in a manner consistent with good faith. As an ethical value or controlling principle founded upon community standards of fairness and decency, good faith underlies and informs the entire law of contract, shaping its content and finding concrete expression in its technical rules and doctrines.”

Its influence is indirect - good faith does not provide, by itself, a basis for striking down or refusing to enforce an agreement, or any of its provisions. Nor is it a term of every contract that the parties must perform their obligations in accordance with the dictates of fairness and good faith.

14.27 Prior to the decision in Bank of Lisbon and South Africa v. De Ornelas,55 Roman-Dutch law provided a remedy of the exception doli generalis, which allowed a prejudiced party relief where the other party to a contract had acted with dolus to the prejudice of the first party. The Bank of Lisbon case removed this remedy, but the obligation to exercise good faith remained. Quite what is meant by “good faith” in marine insurance contracts remains unclear. This is evidenced by some alarming developments in non-marine insurance, where claims supported by fabricated documents56 that were inflated by 10%57 have been allowed. However, in marine insurance, the concept of “good faith”

remains a prerequisite.58 As for the requirement of “utmost good faith”, whilst there exists case law and literature that classifies insurance contracts as contracts of utmost good faith, this notion was finally rejected in Mutual and Federal Insurance Co Ltd v. Municipality of Oudtshoorn.59 The then Appeal Court referred to the expression “utmost good faith” as “alien, vague [and] useless … [and] without any particular meaning in law”.

14.28 Hare60 suggests that it may be arguable that the Municipality of Oudtshoorn case can be distinguished in that it deals with non-marine insurance issues and that a court:

“…should be able to find, on balance, that the utmost good faith became part of South African law through the conduit of English law - but only in relation to the duty to disclose and misrepresentation. And because the bulk of South African marine insurance is underwritten on the London market, or is re-insured there, it would be preferable for South African law not to seek to diverge from English law, and the English standard of utmost good faith in relation to marine insurance.”

However, currently, the approach taken is that contracts of insurance, like all other types of contract, are simply contracts of good faith. The parties must therefore display good faith towards each other during the course of their negotiations prior to concluding the contract. Put simply, insurers make undertakings on the basis of the information provided by the assured, accepting, in good faith, that all pertinent information has been given, and that the information is true.

14.29 A party to an insurance contract who wishes to proceed on the basis of breach by the other party of the pre-contractual duty of good faith must satisfy all the requirements for misrepresentation.

14.30 In the insurance context, the need for the assured to disclose information has both historical and practical elements and may have much to do with past unequal bargaining positions. It has been suggested61 that the obligations on the assured have been extended well beyond what was originally required - but in the cargo insurance context, this cannot be the case where so much of the business is underwritten either on a declaration basis or at short notice.

14.31 As for the post-contractual or continuing duty of good faith, there is little clarity; in practice, the issue often arises where the assured brings a fraudulent claim. In South African Eagle Insurance Co Ltd v. KRS Investments CC,62Nugent JA stated, obiter, as follows:

“Perhaps an insured does have a duty - whether tacit or implied - to act in good faith towards the insurer for the duration of the contract. And perhaps the deliberate submission of a false claim is a breach of that duty entitling the insurer to terminate the policy. But if that is so then on ordinary principles of our law the insurer would be relieved of liability only from the time of termination, and the rights and obligations that had accrued before then would remain extant.”

The Short-term Insurance Act63 confuses the status of “good faith” further by including a section64 that states:

“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.”

It is not yet clear how the courts will interpret this section, as it seems to have been drafted extremely widely. However, it seems unlikely that the courts will ignore the principles of good faith and will not allow contracts concluded with the intent to commit fraud or allow a party to benefit from his or her own wrongdoing.

Non-disclosure and section 53 of the Short-term Insurance Act 1998

14.32 The duty to disclose information appears to rest on the shoulders of an assured at various times: when providing information requested in a proposal form produced by an insurer or its agent or broker; producing information that might fall outside of the questions posed outside of the proposal form but which may affect the risk; during the course of cover and the period of the running of the contract of insurance; at the time of renewing of the insurance. Additionally, the contract itself may require disclosure at various stages - including during the course of the cover and at the time when claims are submitted to the insurer, when duty does not operate retrospectively.

14.33 An assured bears a duty of disclosing to the insurer relevant information prior to the conclusion of any contract of insurance, as well as at the time of the renewal of the contract. It has been said that the pre-contractual duty to disclose is delictual and not contractual - in certain circumstances a breach of the duty to disclose being a commission of the delict of misrepresentation.65 Van Niekerk argues that the obligation does not arise ex lege as held in theOudtshoorn Municipality case,66 but that it derives from an underlying and generally applicable duty of good faith.67

14.34 In Bruwer v. Nova Risk Partners Ltd,68 all three types of disclosure clauses were relevant - a pre-contractual disclosure, a term in the contract requiring disclosure and a term requiring an “on-going” disclosure. The latter required the assured to disclose to the insurer “all facts that are material to the acceptance of the insurance or the premium that is charged”, failing which the insurer may, at its option, declare the policy void. The clause went on to say that the duty “applies also during the currency of the policy, any changes must be reported immediately”. The clause exhorted the assured to “disclose all material facts that may be of relevance to the [insurer]”. The insurer chose to focus on the breach of the contractual terms imposing a duty of disclosure on the assured and ignored the possible argument that the assured breached its delictual duty of disclosure. The court accordingly interpreted the terms of the contract regarding disclosure and applied the provisions of section 53(1)(a) and (b) of the Short-term Insurance Act, and the court was not obliged to consider the question of any delictual duty of disclosure.

14.35 Section 53(1) of the Short-term Insurance Act69 states as follows:

“53(1) Notwithstanding anything to the contrary in a short-term policy contained, whether entered into before or after the commencement of this Act,…-

(a) the policy shall not be invalidated; (b) the obligation of the short-term insurer thereunder shall not be excluded or

limited; and (c) the obligations of the policy holder shall not be increased,

on account of any representation made to the insurer which is not true, whether or not the representation has been warranted to be true, unless that representation 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.”

The words “at the time of its issue” make it clear that the provisions of section 53(1)(a) apply to the pre-contractual (and hence delictual)70 duty of disclosure. It simply is not clear whether the section can be extended to relate to contractual or delictual disclosure stante contractu.

14.36 In all probability, the question of materiality of any term seeking to apply a post-contractual duty will depend upon the wording of the particular term. With regard to materiality, section 53(1)(b) of the Short-term Insurance Act states:

“(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.”

14.37 In The Mieke decision,71 the court confirmed that there is a difference between the test for materiality as applied by the Short-term Insurance Act72 and that applied by section 18 of the Marine Insurance Act 1906. The central difference between the two tests is that, in terms of the Short-term Insurance Act, the test of materiality is based on what a reasonable prudent person would decide is relevant information to be disclosed, whereas the test under the Marine Insurance Act 1906 is what a “prudent insurer” would determine as material when fixing a premium or taking the risk.

14.38 As the Supreme Court of Appeal has made abundantly clear, the purpose of section 53 of the Short-Term Insurance Act was to favour the assured.73 Its main purpose was to reduce the effect that a breach of a warranty, by the misstatement of an immaterial or noncausative fact, has on the contract of insurance, or any claim relating thereto. The harshness of the effect of the warranty has been summed up in the obiter remarks of Schutz J, who said of this section (as it appeared in the 1943 Insurance Act) that its purpose was to “detoxify the warranty by removing its potential for abuse, without outlawing its legitimate use”.74

The remedy of avoidance

14.39 The insurer may declare a policy to be void from its inception if a material misrepresentation (i.e., giving of false information) or material non-disclosure (i.e., withholding of information) induced the insurer to enter into or renew the contract. Until the policy is declared void, it remains valid and enforceable. 14.40 The insurer bears the onus of proving that:

(a) the assured himself or someone for whose act the assured is responsible (e.g., a broker) made the misrepresentation/non-disclosure;

(b) the misrepresentation/non-disclosure related to a material fact of which the assured had or could reasonably have acquired knowledge;

(c) the misrepresentation/non-disclosure actually induced the insurer to enter into the contract or induced it to do so on terms or for a premium it would not otherwise have agreed to.

14.41 The test for materiality of the misrepresentation or the non-disclosure is set out in section 53 of the Short-term Insurance Act.75

Formalities, insurable interest and illegalityFormalities

14.42 In South Africa, it is not essential that a contract of marine cargo insurance be in writing or contained in a written policy; although, in practice, a policy will normally be issued, it is not necessary for the policy to be notarised or registered. Where necessary, a certificate of insurance will be issued that is transferrable. The validity and legality of insurance contracts is dealt with by section 54 of the Short-term Insurance Act.76

The Act states:

“54. Validity of contracts

1) 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.

2) If a person has entered into a short-term policy with a short-term insurer who was, in terms of this Act, prohibited from entering or not authorised to enter into the short-term policy, or with another person who is not a short-term insurer but who has in terms of a short-term policy undertaken an obligation as insurer, that person, by notice in writing to such short-term insurer or other person, or the Registrar by notice to such short-term insurer or other person and in the Gazette, may cancel the short-term policy, whereupon that person shall be deemed to be in the same legal position in respect of such short-term insurer or other person as if the policy had been cancelled by that person on account of a breach of contract by such short-term insurer or other person.

3) Any contract entered into before the commencement of this Act the entering into of which is contrary to this Act or which contains terms prohibited by this Act, shall not be void nor shall the performance of its terms be unlawful merely because of any such fact.

4) For the purposes of the validity of a short-term policy the payment of a premium under a short-term policy to a person authorised as contemplated in section 45, shall be deemed to be payment to the short-term insurer under that short-term policy.

”

Insurable interest

14.43 Roman-Dutch law regarded the principles of insurance from the perspective of the obligation of an insurer to indemnify an assured for its patrimonial loss.77 There was no doctrine of insurable interest. It appears that English law developed such a doctrine in order to distinguish wagering contracts from contracts of insurance.78 Notwithstanding this, it is generally the view that an insurable interest in the goods is a requirement in South Africa,79 although it has been said that the South African courts simply ask the question: was the contract a wager or not?80 If it was, then it is clear that Roman-Dutch law regarded wagers as being unenforceable on grounds of public policy.81 In practice, most South African insurers will have to be persuaded that the assured had an insurable interest before they will consider indemnifying the person claiming under the policy.

14.44 The origin of the “requirement” of insurable interest differs in the different provinces. In the Cape Province, which took over the relevant provisions of the English Gaming Act 1845, the requirement for an insurable interest lies in these statutory origins. In the provinces, where the law is based on Roman-Dutch law, the courts have accepted the view of the Roman-Dutch writers that all gaming or wagering contracts are unenforceable. In this way, an insurable interest is required throughout South Africa.

14.45 The significance of the object of insurance is that there can be no claim for compensation or satisfaction under a contract of insurance without there being an object insured. In Mostert v. Cape Town City Council,82 the court stated that a person cannot insure unless he has some insurable interest. In Pienaar v. Guardian National Insurance Co Ltd,83 the court held that an insurable interest must be shown to have existed at the time of the loss. If there was no such interest, no loss would have been suffered by the assured, and the assured would not be entitled to indemnification. This confirmed, in the context of indemnity insurance, the position taken by the court and Castellain v.Preston,84 where the court stated that an assured’s insurance interest is the object of the insurance and that only those who have an insurable interest can recover.

14.46 In marine cargo insurance, issues of insurable interest do arise from time to time, but these matters normally arise out of confusion regarding the terms of the contract of sale where the place of delivery, and the transfer of the risk of loss or damage in and to the goods, has either not been adequately determined, or the circumstances of the loss make it difficult to establish who had insurable interest at the time of the loss. All too often, parties to a contract of sale are ill-disciplined in the use of standard trade terms, such as the Incoterms of 1990, 2000 and 2010, with the terms of the sale contradicting the terms or conditions contained in the standard trade terms.

14.47 The leading case under South African law that attempts to provide a definition of an insurable interest is Littlejohn v. Norwich Union Fire Insurance Society,85 in which Wessels J held, with a brevity that the House of Lords might have emulated in the leading case of Lucena v. Craufurd,86 that:

“[t]he principle to be deduced from these cases appears to be this: If the insured can show that he stands to lose something of an appreciable commercial value by the destruction of the thing insured, then even though he has neither a jus in re nor a jus ad rem to the thing insured, his interest will be an insurable one.”

As in the Lucena decision, Wessels did not emphasise the fact that the interest must have a legal basis.

14.48 In Macaura v. Northern Assurance Co Ltd,87 the assured sold all of the timber on his estate to a company in which all of the shares were held by him. Prior to the company paying for the timber, the timber was destroyed by fire. The timber had been insured by Macaura himself rather than by the company which owned the timber at the time of the loss. The House of Lords held that the assured had no insurable interest in the timber despite the fact that he was the only person who was interested in the preservation of the timber and was the person who would receive the benefit of any profit and would carry the burden of any loss. In reaching its decision, the House of Lords reasoned that the destruction of the timber by fire was not the cause of the assured’s loss but the fact that the company had no other assets against which the assured could claim his purchase price. This rather technical approach was questioned in the South African context by De Villiers J in Phillips v. General Accident Insurance Co SA Ltd 88 and Steyn v. AA Onderlinge Assuransie Associasie Beperk.89 There is no judicial authority on the issue of insurable interest in a marine cargo insurance context in South Africa and, accordingly, we have to rely on the Phillips, Steyn and more recent decisions for general guidance as to the approach a South African court would take.

14.49 In the Phillips case, the facts trump fiction in almost every detail. The assured and his wife fell under the influence of a palm reader who persuaded Mrs Phillips to part with some jewellery so that it could be blessed at church to remove bad vibrations. Not surprisingly, the palm reader (and the jewellery) never returned and underwriters subsequently rejected Mr Phillips claim for an indemnity on the basis that he had no insurable interest in jewellery owned by his wife. The court held that the real test was not whether Mr Phillips had an insurable interest but:

“whether the contract, having regard to all the surrounding circumstances and especially the intention of the parties, amounts to a betting or wagering agreement. If there is any doubt, the benefit should, in my view, be given to the insured, having regard to the fact that normally the company has throughout the period of insurance accepted the insurance premiums and that such a defence is really a technical one.”

The court referred to Mr Phillips experiencing “a certain satisfaction” in seeing his wife wearing the jewellery and that he “felt under an obligation” to replace the jewellery. He accordingly had an insurable interest.

14.50 The court followed the same approach in the Steyn case,90 where the assured claimed an indemnity under a household policy in respect of a house which he occupied for free in terms of a settlement agreement with the provincial administration that owned the house. The underwriters rejected a claim on the basis that the assured’s right to stay in the house free of charge did not constitute an insurable interest as the provincial administration could evict him or demolish the house at any time.

14.51 The court held that the requirement of insurable interest is an English law requirement that did not apply in South Africa. This ignored prior authority that showed that an insurable interest was a requirement of Roman and Roman-Dutch law.

14.52 The Durban & Coast Local Division of the High Court took a conservative approach in Manderson v. Standard General Insurance Co Ltd 91 and held that the requirement of an insurable interest is based on considerations of public policy, which is evidenced by the law’s distaste for and refusal to recognise gambling contracts. In holding that an employer did not have an insurable interest in a car owned and driven by an employee during the course of the employer’s work, the court emphasised the fact that for somebody to have an insurable interest, they must stand to suffer a real loss as a result of the damage to the vehicle. It was not sufficient that they would lose business because the employee was unable to carry out his functions. For the employer to recover under the motor policy, the employer would have to suffer a monetary loss as a result of the diminution in value of the vehicle itself.

14.53 In Refrigerated Trucking v. Zive,92 the court took a much broader view. In finding that an employer had an insurable interest in an employee’s right to indemnity under a liability policy, the court held that:

“It seems then that … an insurable interest is an economic interest which relates to the risk which a person runs in respect of a thing which, if damaged or destroyed, will cause him to suffer an economic loss or, in respect of an event, which if it happens will likewise cause him to suffer an economic loss. It does not matter whether he personally has rights in respect of that article, or whether the event happens to him personally, or whether the rights of those of someone to whom he stands in such a relationship that … he will nevertheless be worse off if the object is damaged or destroyed, or the event happens.”

14.54 In Lynco Plant Hire and Sales v. Univem Versekerings Maakelaars,93 the court held that a member of a close corporation (a close corporation is a legal entity where the owner of the entity owns a “member interest”) was entitled to insure motor vehicles in his own name even though the motor vehicles were obtained by the corporate entity in terms of the lease agreements concluded with that entity. The court held that it was sufficient to show that the assured stood to lose something of appreciable commercial value and as the member was under a contractual duty to repay to the close corporation any insurance paid out in terms of the contract of insurance, the member had an insurable interest.

14.55 In Brightside Enterprises v. Zimnat Insurance Co,94 a van was owned by a director of the company but the company insured it. The court, in upholding Brightside’s claim for indemnification following a hijacking, held that if the assured derived a benefit or

advantage from the existence of a thing, that constituted sufficient insurable interest since prejudice or loss of the benefit or advantage were occasioned to the assured if the thing was lost, damaged or destroyed. The court went on to hold that, provided the contract was not a gambling agreement, prejudice to the assured alone was sufficient to found insurable interest. The judge made the comment that the notion of insurable interest is just one of the considerations in assessing whether or not the agreement was a wager.

14.56 In summary, the South African courts appear to be inclined to take an extremely broad approach as to whether or not someone has an insurable interest. Following the Littlejohn case,95 it is clear that if an assured stands to suffer a commercial loss, we assured has an insurable interest. Usually, someone will suffer a commercial loss only if there is a legal basis for him or her suffering a loss. The Phillips case ignored this requirement by holding that the husband’s moral or social obligation to replace his wife’s jewellery gave him an insurable interest.

Problem issues of insurable interest

14.57 Practically, in the marine insurance context, insurable interest problems present themselves in two fairly common circumstances.

14.58 The first and most often encountered is the regular problem of trying to identify who is on risk where goods are lost or damaged during transit. Obviously, this is determined by reference to the sales contract or chain of sales contracts, which do not always produce the result that the broker and assured expect it to. Clearly, the assured and its broker must ensure that they properly understand the terms of sale up and down the chain of contracts so that where there is a risk, that risk has been properly insured in the name of the correct party. Where the named assured is not on risk at the time of the loss, but underwriters nonetheless agree to pay out to that assured, then this cannot be regarded as an indemnification under the terms of the policy. As a result, the underwriters will not be subrogated to that assured’s rights of recourse as these rights are non-existent given that the assured had not suffered a loss.

14.59 The second issue is the so-called gentleman’s agreement clauses found in many policies. A clause of this nature provides that even if the assured is not on risk at the time of the loss, underwriters undertake to indemnify the assured. For example, a South African assured may hold an open marine policy for all its imports. An overseas supplier is constructing a power plant for that assured on the basis that risk in and to the components of the plant only pass to the South African assured once the plant is operational. A component of the power plant is damaged prior to installation and the South African assured lodges a claim for indemnity under this clause.

14.60 This clause is designed to cover the situation where the assured had no risk in and to the goods at the time of the loss but nonetheless requires the insurer to indemnify the assured for a loss as if the insurer was on risk. Although there is no South African judicial precedent directly in point, simply put, if the assured stands to lose nothing by the loss or destruction of the property, then the assured simply has no insurable interest and

that interest cannot be created, in law, by a clause of this nature. Roman-Dutch law has no difficulty with the concept of one party being able to contract for the benefit of a third party - the stipulatio alteri - and there should be no difficulty in recognising that a warehouseman should be in a position to contract for insurance not only for his own liability but also for the interests of the owners of the cargo. In practice, cargo logistics companies (such as freight forwarders, warehousemen and transport brokers) who are suitably licensed to do so, offer insurance cover to cargo interests on a fairly broad basis.96

14.61 Given the courts’ rather broad and haphazard approach to insurable interest, it is submitted that South Africa should follow the example of Australia97 and New Zealand and adopt suitable legislation to resolve the matter. Even if a definition of insurable interest receives some sort of legislative attention, it is extremely unlikely that the definition will be drafted so widely that it will deal with the practical issues of “ex-works clauses”, “gentlemen’s agreements” or “seller’s interest clauses”.

Insurance “lost or not lost”

14.62 This phrase is recognised as providing cover for goods that, unbeknown to the assured or the insurer, have already suffered loss or damage when the contract of insurance is concluded. The South African courts have approached the question of insurable interest where the insurance covers the cargo “lost or not lost”98 in much the same way as the English99 and the Australian courts.100 In the case of London & Lancashire Insurance Co Ltd v.Puzyna,101 an etching was insured for carriage and the assured only acquired an insurable interest during the course of transit. The position is analogous to that of a free on board (“FOB”) buyer, who has no insurable interest until the time when the goods are loaded aboard the vessel, and can only recover for loss of or damage to the goods prior to loading if the insurance is on a “lost or not lost” basis, and not under the current Institute Cargo Clauses. In thePuzyna matter, it was held that in South Africa, the words “lost or not lost” are effective, first, to cover a loss that has taken place (unknown to both parties) before the insurance has been arranged, and secondly, to cover the case where the insurable interest was only obtained by the assured after the loss had already occurred. In that case, Herbstein J said102 :

“If the etching had been destroyed prior to the commencement of the transit such loss would not have been recoverable under this policy for it would not have occurred within the limits of the policy.”

This approach is also consistent with the approach to transit adopted in the English authorities,103 that is to say, that an extended warehouse-to-warehouse clause does not entitle the assured to recover for a loss during a period within which he had no insurable interest unless the cargo is insured “lost or not lost”.

Illegality and public polic y

14.63 It is a general requirement of contract law that contracts be lawful. A contract is unlawful or illegal when it is prohibited by the common law or legislation.104 The common law considers that all contracts that are contrary to public policy or good morals are

illegal. The lawfulness or otherwise of a contract may relate to the conclusion of a contract, the performances in terms of the contract, the purpose of the contract and the execution of the contract.105 The unreasonableness of the contract, or the hardship that it may produce, is not relevant unless that consequence was to be regarded as against public policy. Generally, the power of a court to declare a contract contrary to public policy is exercised sparingly.106 There are, as yet, no South African decisions on the topical question of whether or not the payment of a ransom in piracy matters is unlawful. South African insurers are faced with this issue from time to time, mostly where cargo on board ships hijacked by pirates is released on the payment by owners (or their insurers) of a ransom with owners then declaring general average and, in due course, claiming a contribution from the cargo interests. The generally held view, based on the old authorities, current legislation and the public need for kidnap and ransom policies, is that the securing (and ultimately paying) of general average contributions (which include ransoms that are paid to pirates) following the release of cargo is not to be regarded as unlawful. Given that most cargoes are insured on the basis of the Institute Cargo Clauses, South African insurers and practitioners follow the judicial developments in England very closely.107

OPEN COVERS, POLICIES AND CERTIFICATES

Open covers, policies and certificates of insurancePolicies and clauses in use

14.64 In almost every instance, marine cargo insurance is underwritten on the terms contained in one or other of the well-known Institute Clauses. The most common clauses are the Institute Cargo Clauses (A), depending always upon the products in question or the type of cover required. The edition most commonly utilised is that issued in 1982. The 2009 edition of the Institute Cargo Clauses, whilst common, has not been universally accepted. Despite the standard form clauses stating that they are to be used only with “the new Marine Policy Form”, the Institute Clauses will usually be found in a bespoke policy where an express reference to the relevant Institute Clauses, and their incorporation into the policy, will be made.

14.65 Open marine covers are a common feature of the logistics market, (so long as the agents are licenced intermediaries) where cargo interests “tick the box” indicating that they require the forwarder or transporter to arrange “all risks” insurance on the cargo interest’s behalf. The cargo and its value are then declared to the insurer on a monthly basis.

14.66 Where required, insurance certificates are issued in a form that enables them to be negotiated, which is important for cost, insurance and freight (“CIF”) sales. Many policies will make it a requirement that the original insurance certificate will be surrendered, along with other claim documents, before the insurer is obliged to indemnify the assured. It is a feature of the South African insurance market that underwriters will

allow insurance agencies, and even brokers, to issue policies of insurance on behalf of the insurer.

Interpretation and construction of policies generally

14.67 In Van Zyl NO v. Kiln,108 Shutz JA commented on the interpretation of insurance policies as follows:

“The main principles of interpretation of the policy applicable in this case are to be found in Fedgen Insurance Ltd v Leyds 1995 (3) SA 33 (A) at 38B - E:

The ordinary rules relating to the interpretation of contracts must be applied in construing a policy of insurance. A court must therefore endeavour to ascertain the intention of the parties. Such intention is, in the first instance, to be gathered from the language used which, if clear, must be given effect to. This involves giving the words used their plain, ordinary and popular meaning unless the context indicates otherwise ( Scottish Union & National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458 at 464 - 5). Any provision which purports to place a limitation upon a clearly expressed obligation to indemnify must be restrictively interpreted ( Auto Protection Insurance Co Ltd v Hanmer-Strudwick 1964 (1) SA 349 (A) A at 354C - D); for it is the insurer’s duty to make clear what particular risks it wishes to exclude ( French Hairdressing Saloons Ltd v National Employers Mutual General Insurance Association Ltd1931 AD 60 at 65; Auto Protection Insurance Co Ltd v Hanmer-Strudwick (supra at 354D - E)). A policy normally evidences the contract and an insured’s obligation, and the extent to which an insurer’s liability is limited, must be plainly spelt out. In the event of a real ambiguity the contra proferentem rule, which requires a written document to be construed against the person who drew it up, would operate against Fedgen as drafter of the policy ( Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103 (A) at 108C).”

See also the dictum quoted by King J in Barnard v. Protea Assurance Co Ltd t/a Protea Assurance 109 :

“Now it is an accepted principle in interpreting insurance contracts that it is the duty of the insurer to make it clear what particular risks he wishes to exclude. The principle is stated by May in the following terms: ‘No rule in the interpretation of a policy is more fully established, or more imperative or controlling, than that which declares that, in all cases, it must be liberally construed in favour of the insured so as not to defeat without a plain necessity his claim to an indemnity which in making the insurance it was his object to secure’.”

King J proceeded110 :

“From this it would follow that if a term in a policy (‘term’ in the sense of designation) is capable of both a broader and narrower meaning it is that which is favourable to the insured, in other words to the upholding of the policy, which must be employed.”

WARRANTIES, EXCLUSIONS CONDITIONS AND OTHER TERMS

WarrantiesWarranties defined

14.68 In Roman-Dutch law, a distinction is drawn between the essential (or material or vital) terms (or stipulations) of a contract, on the one hand, and the non-essential (or non-material or subsidiary) terms (or stipulations) on the other.111 A breach of an essential term gives the innocent party the option of treating the whole contract as discharged, while the breach of a non-material or subsidiary term only entitles the innocent party to claim damages. The position compares with that under English law where, for example, in sale of goods cases, a condition is a fundamental term of the contract and a warranty a subsidiary term, whilst in insurance law a warranty is a fundamental term, and a condition may be a lesser term, or may be elevated to the status of a warranty if it takes the form of a condition precedent. In view of the confusing nature of the English terminology, the South African courts are encouraged to use the Roman-Dutch distinctions rather than those used in English law. Nevertheless, in marine insurance, with regard, for example, to the implied warranties as to seaworthiness, it is common practice to use the English term “warranty” because the law is based on the cases that preceded the English Marine Insurance Act 1906 where the term “warranty” was used. In those circumstances, a “warranty” will be treated, as it was in the English common law, and is under the Marine Insurance Act 1906, as a provision that must be strictly complied with. In Lewis Ltd v. Norwich Union Fire Insurance,112 the Chief Justice, Innes CJ stated that a warranty was a statement “upon the exact truth of which, or the exact performance of which, the validity of the contract depends”.

14.69 Hare suggests113 that in the marine insurance context, the meaning to be ascribed to a warranty under English and South African law is the same. Hare also cites two South African cases that held that English law applies to warranties in general insurance law.114

14.70 Hare115 points out that there are two types of warranty in marine insurance: the affirmative warranty and the promissory warranty. An affirmative warranty states clearly that a certain state of affairs exists at the time when the warranty is made. As the name suggests, a promissory warranty obliges the maker of the promise to fulfil the promise to do, or not do, something during the currency of the policy, or that a certain state of affairs will exist during the period of the policy.

14.71 As Hare116 comments, the distinction is important given the wording of section 53 of the Short-term Insurance Act. As we have seen,117 a policy will not be invalidated, nor will an insurer’s obligation be excluded or limited, on account of any representation made by the assured to the insurer which is not true, or where information is not disclosed, whether or not the representation or non-disclosure has been warranted to be true and correct, unless that representation or non-disclosure is likely to have materially affected the assessment of the relevant risk under the policy concerned at the time of its issue or at the time of any renewal or variation of that policy.

14.72 The representation or disclosure will be regarded as material if a reasonable, prudent person would consider that the information disclosed or not disclosed, should have been correctly disclosed to the insurer so that the insurer could form its own view as to the effect of such information on the assessment of the relevant risk. Hare118 refers to this as the “contextual objective test”.

14.73 There is some debate as to whether section 53 is referring to an affirmative warranty or to a promissory warranty, that is, are they both to be regarded as representations or do they only apply to affirmative warranties?119 The position remains unclear and Hare has suggested that a revision of section 53 is necessary. In his view, there is no rational reason for distinguishing in that section between promissory and affirmative warranties. The influence of English law remains.120

14.74 An insurer is entitled to waive any breach of a warranty. However, where there has been a breach of an affirmative warranty as provided for in section 53, then the insurer can repudiate the contract. As most affirmative warranties will be breached before cover incepts, the policy would, in fact, be void ab initio and the insurer is obliged to return any premium earned. Where there is the breach of a promissory warranty, the insurer is liable for any losses up to the date of the breach, and is entitled to retain any premium earned up until that date. By contrast, where there has been a misrepresentation, the insurer is entitled to cancel the contract, which is void ab initio by reason of the misrepresentation.

ExclusionsThe nature of exclusions

14.75 Reinecke121 notes that the old Roman-Dutch law policies did not refer to the nature of the perils insured against, but to the time and place when the peril occurred. The risks covered were very wide, and it was necessary to specifically exclude any perils not covered. Reinecke122 notes that certain perils or losses were ipso jure excluded. These included wear and tear123 and inherent vice. Defective or inadequate packing of cargo amounted to inherent vice.124 Heat, sweat and spontaneous combustion (or similar) cover is often specifically sought, and provided, for dry goods shipped in bulk.

14.76 The insurer will bear the onus of establishing that a particular loss or peril specifically excludes the insurer’s liability. Clauses that are inserted into insurance contracts for the purpose of exempting an insurer from liability for a loss, which, but for the exclusion provision, would have been covered, “are construed against the insurer with the utmost strictness because of the duty on the part of the insurer, in framing the policy, to exempt its liability in clear and unambiguous language”.125

14.77 The ordinary rule is that an assured must prove that his claim falls within the primary risk insured against, whilst the onus is on the insurer seeking to avoid liability to prove the exception.126

Causation

14.78 Few topics better illustrate the confusion that can arise out of the reception into South African law of English principles than causation. As Hare127 has put it:

“More perhaps than any other area of marine insurance law, the English law concept of causation which has been largely adopted into South African law of marine insurance is [an] anathema to civilian lawyers.”

A claim under a contract of insurance requires the assured to prove a causal link between the peril and the loss or occurrence as set out in the contract.

14.79 In South African law, two causal issues need to be investigated128 : the factual cause and the legal cause. In order to establish a claim, the assured must first establish a factual causal link, and if there is no factual causal link between the peril insured against and the actual loss or occurrence, then the event insured against has not occurred and the assured will have no claim.129 The test for determining factual causation is the “but for” or causa sine qua non test, which entails a process of elimination of causes, usually proceeding from the result backwards. If the assured establishes factual causation, it is then necessary to determine the insurer’s liability for the factual consequences, sometimes referred to as legal causation. For the insurer to be liable, there must be a sufficiently close link between the peril and the loss or occurrence for the peril to be the legal cause of the loss or occurrence.130

14.80 The test for establishing the extent of the insurer’s legal liability is the “proximate cause” test. The insurer will not be liable for any loss not proximately caused by a peril insured against. A proximate cause is a cause proximate in efficiency, not in time, and should be determined by applying common sense standards131 and seek to give effect to and not defeat the intentions of the parties.132

14.81 In the Incorporated General Insurers v Shooter t/a Shooter’s Fisheries 133 , the then Appellate Division was faced with a number of marine insurance issues, two of which were: which law should be applied to the contract of insurance and what was the proximate cause of the loss. Whilst this is a hull insurance matter, the approach of the court would probably have been the same had this been a case of goods lost. The fishing trawler Morning Star was insured in terms of two policies (hull and war risks, incorporating the Institute War and Strikes Clauses) on the then standard wording of the Lloyd’s SG policy. The trawler was detained in Mozambique by the authorities. The skipper and engineer were arrested and convicted by a lawfully constituted Mozambican tribunal, for unlawful fishing. They were fined R167,000, which had to be paid within 15 days. The fine was not paid and the Mozambican authorities sold the trawler. The arrest and impounding of the vessel was a peril insured against. The loss from the failure to pay a fine was not.

14.82 In a somewhat terse judgment, the majority of the Appeal Court followed the Blackshaw case,134 which had held that the interpretation of insurance clauses in a policy is, generally speaking, a question of law.135 That law was Roman-Dutch law applicable in South Africa by dint of the policies being domestic policies as defined in the

then applicable section 63(1) of the Insurance Act136 and the operation of section 06(1)(b) of the Admiralty Jurisdiction Regulation Act.137

14.83 The court of first instance held that the interception and arrest of the trawler and its continued detention by the Mozambican Government until its confiscation and sale by that Government was a single continuous process.138 In assessing the position, Galgut AJA held:

“No difficulty arises when one cause only has to be considered. The difficulty arises when there are two or more possible causes. In such a case the proximate or actual or effective cause (it matters not which term is used) must be ascertained, and that is a factual issue.”139

The judge then went on to hold:

“In my view the confiscation did not result from the arrest of the trawler, it resulted from the failure to pay the fine. That failure was therefore the proximate cause of the confiscation of the trawler. The fact that the [assured] was unable to pay the fine is irrelevant. The issue is not his ability to pay the fine. The issue is what caused the confiscation. That, as we have seen, was the fact that the fine was not paid. That was not a peril covered by the risk clause.”140

Given the decision in this case, Hare141 questions whether the first stage test of factual causation would be applied in marine insurance matters in South Africa. The Roman-Dutch law test was not argued fully in the Shooters Fisheries case as it appears that both counsel had conceded that in order to succeed, the assured “must show that the loss was proximately caused by the peril insured against”.142

14.84 Where a loss is caused by two perils operating simultaneously at the time of the loss, the one being wholly excluded and the other falling within the risk as described, the insurer is held not to be liable.143

Conditions144

14.85 In South African law, conditions determine obligations. They qualify the operation and consequences of the whole contract. They operate quite differently from the English law notion of “conditions precedent”. Indeed, it is the use in contracts subject to South African law of English contract terms, where “condition” and “warranty” have meanings different from those given them by South African law that has created considerable confusion of interpretation. InResisto Dairy (Pty) Ltd v. Auto Protection Insurance Co Ltd,145 the then Appeal Court made the point that the conditions in the contract in question were simply undertakings by the assured and, as such, were to be regarded as the terms of the contract. The words “condition precedent to any liability” indicated that the so-called conditions were material to the contract.146 Unfortunately, underwriters and brokers continue to use the phrase “condition precedent” (usually without providing for any clear consequence in the event of a breach of the condition precedent) no doubt under the influence of policies drafted by London brokers and insurers.

ALL RISKS

All risks defined14.86 Most marine cargo policies issued in South Africa will incorporate the “A” version of the relevant Institute Cargo Clauses, which provide cover for all risks (not certainties147 ) subject to the exceptions contained in those clauses. These exceptions are quite often amended in the main policy, either through the introduction of further exceptions or by removing or ameliorating the exceptions.

14.87 In the absence of the Institute Clauses, and depending on the wording used, Roman-Dutch law would regard certain perils or losses as always being excluded, such as wear and tear and inherent vice.148 The fact remains that there are very few South African cases that deal with the concept of “all risks” and given the local reliance on the Institute Cargo Clauses and policy forms based on English precedent, English marine insurance law and precedent on this topic, although no longer binding, will remain of great persuasive force.149 By way of just one of many possible examples, it is likely that the judgment of Lord Sumner in British and Foreign Marine Insurance v. Gaunt,150 where he defined all risks, will be followed.151

Burden of proof14.88 In the case of Bethlehem Export Co (Pty) Ltd v. Incorporated General Insurance,152 the South African courts considered the inter-relationship between the burden of proof under all risks cover and the exceptions, in particular, the exclusion of loss or damage caused by inherent vice. In this case, three consignments of allegedly fresh asparagus were shipped by air from Johannesburg to Frankfurt where they arrived in a discoloured and apparently deteriorated condition. The consignment was insured on all risks terms with an extension of the cover to include “all risks including deterioration in terms of the Institute Frozen Food Clauses”. As the consignment consisted of fresh asparagus, the assured relied on the basic all risks terms rather than deterioration under the Institute Frozen Food Clauses. It was contended that a fortuitous casualty, which could not, however, be identified, occurred during the flight. The assured advanced certain possible explanations as to how the deterioration could have been caused, for example, by a drastic change in temperature in the hold, or stowage next to a piece of machinery that had been exposed to the sun during the day, or by extended stops of the aircraft or a fault in the air conditioning system. However, Phillips AJ found that the assured had not discharged the onus of proof, and one of the main reasons for his decision was the strong evidence that the asparagus may not have been in good condition at the outset of the journey. In terms of the onus of proof, Phillips AJ held that:153

“The insured may discharge the onus of showing on the probabilities that the loss was caused by a casualty, i.e. an external and fortuitous event, by showing that (a) the goods were shipped sound (b) that they arrived damaged, and (c) that the damage is of such a kind as to raise a presumption of some external cause. Then the burden is on the

underwriter to prove that the loss in fact occurred in some way for which he is not liable. As to (c), it is essential for an insured who relies on a change in the condition of the goods to show that the change was not due to the natural behaviour of the subject matter.”

As there was a doubt about the condition of the asparagus at the commencement of transit and further doubt as to whether it arrived “damaged” or merely deteriorated in the natural way, and as, finally, the damage was not of such a kind as to raise a presumption of some fortuitous cause, the assured failed, in particular on grounds (b) and (c). In effect, the assured was obliged to prove a negative, namely, that the deterioration was not caused by inherent vice.154

Limitations and exclusions on all risks

Wilful misconduct14.89 Generally, losses insured against include the negligent and, arguably,155 grossly negligent actions of the assured or those for whom they are vicariously or otherwise liable. Intentional acts are excluded as they cannot be considered as risks, that is, such acts exclude the necessary accidental or fortuitous elements of risk. In practice, the concept of wilful misconduct will be introduced into most South African policies via one or other of the Institute Clauses (where loss or damage caused by wilful misconduct is excluded).156 In any event, a loss directly caused by misconduct of the assured would not be an indemnifiable loss as it would not be fortuitous and it would amount to a fraud on the insurers.

14.90 In Rouwkoop Caterers (Pty) Ltd v. Incorporated General Insurance Co Ltd,157 the court, whilst considering whether negligence on the part of an assured prevented the assured from recovering under a policy, held that it was a well-accepted principle of insurance that, depending upon the type of policy, negligence on the part of the assured is no bar to a recovery under the policy and that an assured’s duties extended no further “than to refrain from intentionally causing the happening of the risk”.158

14.91 There is an implied term in every policy precluding the liability of the insurer if the event insured against is deliberately caused by the assured or a third party acting within his privity and consent.159 If a policy contains a term that includes intentional conduct, then that term will be unenforceable as being contrary to public policy.160

14.92 What of illegal (which may or may not be deliberate) acts? In the Shooter’s Fisheries 161 case, the assured’s vessel was arrested and detained in Mozambique on the grounds that it had been fishing illegally. Friedman J, in the court a quo considered the case law on “public policy” and stated:

“Bearing in mind that public policy is a rather fluid concept which may vary according to time, to place and to facts and circumstances, it seems to me that the only principle to be deduced from the aforegoing is that, depending upon the nature of the crime and upon all other relevant facts and circumstances, it may be against public policy to permit a claim

under a policy of insurance where the accused has been guilty of either illegal or unlawful activities.”162

Having found the fact that the assured had been fishing illegally, the judge went on to note that:

“… the claim was not brought about by a deliberate act on the part of the plaintiff or by his wilful or even intentional misconduct. In addition, I am satisfied that even if assuming that the activities of the plaintiff … were illegal and that such illegality brought about the [loss], it would not be contrary to public policy to allow him to recover in this case.”163

As for intentional acts, it seems clear that, in the absence of an agreement to the contrary, a contract of insurance excludes from the risk the consequences of the assured’s own deliberate or intentional acts or omissions.

Ordinary wear and tear14.93 Certain losses were ipso jure excluded under Roman-Dutch law, and wear and tear was such a loss,164 not being a fortuity but something that in the ordinary course of events must happen. In The Wave Dancer,165 Scott JA in the minority judgment had occasion to consider the meaning of “wear and tear”, stating that:

“A loss caused by wear and tear … is one which is inevitable in the ordinary course of events. It arises in consequence of a part simply wearing out or by general debility brought about by use. Both in English law and Roman-Dutch law the insurer of a ship166 would not be liable for loss caused by ordinary wear and tear, unless the policy provided otherwise.”167

It is not unusual for second hand machinery to be imported into South Africa. The machinery must be declared as such, must undergo a pre-shipment inspection and the practice is to insure the cargo under the (slightly amended) Institute Cargo Clauses (B).168

Inherent vice: insufficiency of packing14.94 In Blackshaws (Pty) Ltd v. British Engine Insurance Co of SA Ltd & Another,169 a decision of the Cape Supreme Court, the exclusion of inherent vice was held to extend to insufficiency of packing, notwithstanding the doubts ofArnould on this issue.170 In this case, a printing machine was insured (on a warehouse-to-warehouse basis) in terms of a policy that indemnified the assured against “all risks of loss or damage to the subject-matter insured excluding loss damage or expense proximately caused by … inherent vice or nature of the subject matter insured”. The policy also included the 1963 edition of the Institute Cargo Clauses (All Risks) that specifically excluded inherent vice. The machine had been packed into containers and was insured for a voyage from Norway to Cape Town. On assembly, the machine had clearly been severely damaged in transit. The assured maintained that the machine was damaged by movement of various parts of the machine in the containers occasioned by reason of defective packing. No peril was specifically identified as being the cause of the damage. The insurers took an exception

to the claim as pleaded on the basis that the damage was caused by inherent vice, namely, the defective packing.171 In holding that the exception applied, Voss J said172 :

“In my opinion damage caused by defective packing does not arise due to an external cause but rather due to the nature of the insured object itself. Hence the basic principle remains, viz, that damage caused by defective packing is not recoverable.”

On appeal to the Court of Appeal173 (as it was then known), Trengrove JA adopted Scrutton’s definition of inherent vice174 where that author said “by ‘inherent vice’ is meant the unfitness of the goods to withstand the ordinary incidents of the voyage, given the degree of care which the shipowner is by contract to exercise in relation to the goods”. The learned judge also quoted numerous English writers and judicial precedents where defective packing was regarded as inherent vice. He concluded that he was satisfied that in this instance the defective packing of the machine constituted inherent vice in the subject-matter insured. As a result of this defect, the subject-matter was rendered “peculiarly susceptible to damage arising from internal causes”.175

14.95 As to inherent vice generally, the South African courts will consider as persuasive the decision of the English Supreme Court in Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU),176 where it was held that the exclusion of inherent vice would only apply where inherent vice was the sole cause of the loss.177

Delay and insolvency14.96 Under Roman-Dutch law, the contract of marine insurance covered perils of or incidental to the navigation of the sea, but the risks were described not so much by reference to the nature of the perils insured against, as with reference to the time and place of their occurrence. Cover was provided against any peril or fortuity occurring in connection with or during a sea voyage.178 As a result, Dutch policies specifically excluded certain perils. However, it does not seem as though loss caused by delay or insolvency would be ipso jure excluded under Roman-Dutch law. The fact remains that most modern policies specifically exclude loss, damage or expense caused by insolvency or delay, even where the delay is caused (or proximately caused under the 1982 edition of the Institute Cargo Clauses) by a risk insured against.

Unseaworthiness and unfitness14.97 The concept of seaworthiness and any general doctrine of a warranty of seaworthiness were unknown to Roman-Dutch law.179 There is an implied warranty of cargo worthiness in cargo policies (i.e., that the ship is reasonably fit to carry the goods to the destination contemplated in the policy).180 There is no implied warranty in a policy on goods that they, themselves, are seaworthy, but the insurer is not liable for loss caused by inherent vice.181 As most cargo policies include the terms contained in the Institute Clauses, the express terms of exclusion clauses 5.1 and 5.2 will more likely, than not, apply.182

WAR, STRIKES AND TERRORISM

The limitations on cover for war and strikes risksWar, civil war, revolution, rebellion, insurrection and civil commotion

14.98 It would appear that where insurance contracts exclude risks such as war, disturbance, riot and civil commotion, the approach in South African law is similar to that taken in English law.183

14.99 In Lindsay and Pirie v. General Accident Fire & Life Assurance Corporation Ltd,184 Soloman AJA made the following instructive comments when considering whether a state of affairs amounted to a civil commotion:

“…what is meant by a state of civil commotion: The term is used in association with the words riot, rebellion, insurrection, etc., and we must assume that each of these expressions was intended to apply to a different state of things, even though they may to some extent overlap and though it may not be possible accurately to define the limits of each. Now the collocation of ‘civil commotion’ with ‘riot’ and ‘rebellion’ would seem to indicate --- if indeed any inference can be drawn from that fact --- that there are certain features common to them all, and, however that may be, I do not think that we can go wrong if we say that ‘civil commotion’ was intended to mean something between ‘riot’ and ‘insurrection,’ something more than a mere riot but less than an actual insurrection. A riot, as understood by English law may be committed by as few as three persons, but it would, I think, be an abuse of language to apply the term civil commotion to such a disturbance. The word commotion, as was said by Lord Justice Buckley in the case of London and Manchester Plate Glass Company v Heath,185 ‘connects turbulence or tumult and, I think, violence and intention to commit violence.’ But the expression civil commotion in my opinion means something more than that, for it implies not only that there is a disturbance on a somewhat extensive scale amongst the citizens of the state but also that it is directed to a common purpose. It would be out of the question, for example, to describe a brawl or riot of a few persons, even though it might occasion tumult, as a civil commotion. The distinctions appears to me to be very much one of degree, and it is quite impossible to lay down any hard and fast rule on the subject, or to say when a disturbance has become sufficiently serious to be described as a ‘civil commotion.’ Each case must be judged on its merits, and it is for a Court of Justice to determine upon the facts of each case whether or not the condition of things established at the trial amounts to proof of civil commotion or not.”

TerrorismThe cover for terrorism

14.100 The South African Special Risk Insurance Association Limited (“SASRIA”) was created in 1979 out of the threat of politically motivated violence following the riots and civil commotions during 1976. SASRIA is now a limited company with the South African Government as the sole shareholder.186 In essence, this is a government reinsurance of risks that were being excluded in most policies by insurers. The scheme covers loss of or

damage to property within the Republic of South Africa. The risks included, inter alia, loss or damage to property related to or caused by any act calculated or directed to overthrow the government or any authority by force, fear, terrorism and violence; any act calculated to cause loss or damage in order to further any political gain; any riot, strike or political disorder, including civil commotion, labour disturbances or lock out; and any act of an authority in controlling, preventing or suppressing any of the aforementioned acts.187 Given the application of the Institute Strikes Clauses (Cargo), policies that have SASRIA cover would usually also include the relevant Institute Clauses, though terrorism cover is limited to goods in transit188 and the SASRIA cover would extend to goods in store where provided for.

DURATION OF THE INSURANCE

The Transit ClauseAttachment of risk: “ordinary course of transit”

14.101 In Fedsure General Insurance Ltd v. Carefree Investments (Pty) Ltd,189 a clothing manufacturer in Ladysmith insured a containerised consignment of fabric, whilst in transit from Korea to Durban. The goods were insured under the Institute Cargo Clauses 1/1/82, which provide that the cover continues “during the ordinary course of transit”. The cargo of fabric was left stored in a port warehouse prior to customs clearance and was stolen from this warehouse before being forwarded on to the assured’s warehouse in the city of Durban. It appeared from the evidence that the assured left the goods in the port warehouse for his own commercial convenience as he did not then have to pay duty and tax, it being “his wont to wait for a favourable cash flow position before proceeding to clear imported goods”.190 It was held that the goods were not in the ordinary course of transit at the time of the loss, Howie JA saying191 :

“… a delay or interruption which, objectively viewed, is not part of the usual and ordinary means of effecting transit, and which is occasioned by some collateral purpose, will disturb the ordinary course of transit. Accordingly, loss occurring within the period of such delay or interruption will not be covered by the policy ... the reason is not that the insurance has come to an end (for it remains in existence), nor that the transit has come to an end (for the journey is not yet finally over) but simply that the insurance pertains to the ordinary course of transit and what is outside the ambit of that course cannot, logically, be within the cover.”

In formulating the test, which we may call the “collateral purpose test”, the South African court cited both the English case of Pearson v. The Directors of the Commercial Union Assurance Co Ltd 192 and the South African case ofTension Overhead Electrical (Pty) Ltd v. National Employers General Insurance Co Ltd. 193 More recently, a similar approach was applied in England in Eurodale Manufacturing Ltd v. Ecclesiastical Insurance Office Plc,194 where goods were delivered to a warehouse for their onward transportation and it was held that their storage could not properly be said to be for some “collateral object or purpose”,195 and, in the circumstances, the storage fell within the specially agreed cover of the transit insurance applicable in that case.

Termination of risk; election to store

14.102 Clause 8.1.2 of the Institute Cargo Clauses 1/1/2009, so far as material, provides that the transit terminates: “On completion of unloading from the carrying vehicle or other conveyance in or at any other warehouse or place of storage, whether prior to or at the destination named in the contract of insurance, which the Assured or their employees elect to use either for storage other than in the ordinary course of transit or for allocation or distribution, … .”

The question of whether a warehouse is used for storage, other than in the ordinary course of transit, was considered by the South African courts in the Fedsure General Insurance case,196 the facts of which are given above.197

14.103 The goods were insured under the 1982 clauses, which included the election under clause 8.1.2 that terminates the insurance on delivery to any warehouse “which the Assured elects to use ... for storage other than in the ordinary course of transit”. The goods were stolen from a bonded warehouse in the port at Durban where the assured chose to leave the goods rather than clearing them to his own warehouse in the city. It was “his wont” to wait for a favourable cash flow position because clearance required payment of customs duty and VAT. At first instance, it was held that the assured did not have the necessary control over the goods to make a free election under clause 8.1.2. On appeal, this was doubted. Howie JA, with whom the other members of the South African Court of Appeal concurred, indicated that the election could be made before the assured had full control over the goods, saying198 :

“... it seems very much open to question whether, before the election referred to in [paragraph 8.1.2 of the Transit Clause] can be made, the insured must, as the learned Judge held, have paid the clearance dues and so have obtained control of the goods. There would appear to be no logical reason, when all one is doing in order to store goods is to leave them where they are, for the law to require that one first has to have control before one can use such venue for storage. There would also seem to be scant reason why the necessary election cannot precede the end of such storage and indeed precede the delivery into such storage. On the facts of this case there may well have been termination of the insurance under paragraph 8.1.2 but I express no final opinion on that issue.”

This analysis, though obiter, as the decision on the case turned on the “ordinary course of transit” under clause 8.1 as discussed above, is illuminating and helpful: it is not necessary, on this view, for the assured to have control199 of the goods, as the essence of the election is the decision to leave the goods in store rather than to take control and bring them forward in the ordinary course of transit. The election can take place at any time; however, if the election precedes the storage, it will only terminate the insurance under clause 8.1.2 of the Institute Cargo Clauses 1/1/2009 when unloading is completed.

Held covered, termination of carriage and change of voyage

Held covered and analogous provisions

14.104 Once the contract of insurance has been concluded, Roman-Dutch law did not recognise any implied term requiring the assured to disclose any circumstances that might affect the risk or the premium, even where the likelihood of loss occurring by a peril insured against is caused by the assured’s own conduct.200 It follows that there was no right of an insurer to terminate the agreement or suspend the cover.201

14.105 The insurer will not be liable, however, where the circumstances alter the risk so that the risk no longer complies with its description in the contract of insurance. Similarly, where the circumstances change the identity of the subject-matter of the insurance, then the insurer will not be liable in a case of loss.202

14.106 Changes of voyage and course are examples where Roman-Dutch law developed detailed principles in order to deal with circumstances that increased the risk beyond that contemplated in the insurance contract.203

Termination of Contract of Carriage Clause

14.107 In terms of Roman-Dutch law,204 policies, as a rule, provided cover “from shore to shore” - although exceptions were made for shipments from port to port. The goods were covered from the moment they were brought alongside the ship, or onto the quay, for the purposes of loading onto either the carrying vessel or lighters.

14.108 Cover would terminate when all the goods had been discharged safely and brought ashore at their destination. Unless there was a justifiable reason for delay, discharge must take place within a reasonable time after arrival. Cover would terminate if the goods were not discharged on arrival and the ship was sent to another destination.

Change of Voyage Clause

14.109 In general terms, an insurer will insure goods for a particular voyage. In the event that a ship prosecutes a different voyage, or does not follow the agreed or customary voyage, the insurer is normally no longer liable.205Roman-Dutch law drew no distinction between a change of voyage and a change of course.206 If an assured owner of goods, or its agents, instructed the master of the carrying ship to change an agreed voyage, or consented to such a change, the insurance contract would be regarded as void and the insurer would have no liability under the contract from the time of the change of the voyage or the actual deviation from a specific or customary route.207 The intention to change the voyage is not sufficient - the insurer will be liable for all losses prior to the actual change in voyage.208 The insurer will therefore escape liability if it shows either that there was a change of voyage, or that the change was due to the assured’s instructions or with his informed consent.209 A justifiable or insignificant change of voyage will not affect the validity of the insurance contract and the liability of the underwriter.210

14.110 Where there is a change of voyage or route not instructed by or consented to by the assured, then the validity of the contract of insurance and the liability of the insurer will remain unaffected.211 Under Roman-Dutch law, the cargo owner would have a right to

claim against the owner under the contract of affreightment and this right could be ceded to the underwriter who could seek to recover its loss against the owner212 under rights of subrogation.

14.111 The Roman-Dutch position does not seem to be dissimilar to that contained in section 44 of the Marine Insurance Act 1906 and the case law that followed.213

CLAIMS AND LOSSES

ClaimsLimitation of action

14.112 The basic time limit under South African law is three years from the date of the loss, in accordance with the Prescription Act.214 Where the contract is governed by a foreign law, such as, for example, where the Institute Cargo Clauses are incorporated and provide that English law and practice applies,215 the three-year time limit nevertheless applies to claims litigated or arbitrated in the South African courts, unless there is a specific, contrary limitation provision in the contract. As a general principle, the limitation period begins to run under the Act when the debt is due, which in insurance cases in respect of property, is taken to be the date of the loss event.216 Most policies contain time limits shorter than the three-year limit. The period may be interrupted by an express or tacit acknowledgment of liability by the insurer and, in that case, the three-year period runs afresh from that date. The parties are free under South African law to extend the period by agreement and the court will not, of its own accord, raise the statutory defence that must be relied upon by the party wishing to take the time bar point, normally the insurer. The time bar position is protected by service on the insurer of the relevant process commencing court or arbitration proceedings.

Proof of loss

14.113 The assured claiming under a contract of insurance must prove that the risk insured against has occurred.217 The “rules” regarding the onus of proof were set down some time ago in Eagle Star Insurance Co Ltd v. Willey 218and hold good today. These rules can be summarised as follows:

(1) The assured must prove such facts as bring him prima facie within the terms of the promise.

(2) If the promise is qualified by exceptions, then it is necessary to first establish whether the exception qualifies the insurer’s liability (in which case the assured bears the onus of proving, on a balance of probabilities, that the qualification did not apply, that is, that its claim fell within the limited description) or whether it was an exception to the insurer’s liability (in which case, and in the event that the assured establishes a prima facie case, the onus would be on the insurer to prove, on a balance of probabilities, that the exception applied).219

(3) In determining the nature of the exception or qualification, reference should be had to the contract as a whole.

Under South African law, to prove a case on the balance of probabilities requires the party to produce proof such as carries conviction to the reasonable mind.220

14.114 It is not contrary to public policy for the parties to choose to reverse the onus of proof in the contract of insurance.221

14.115 On occasions, it may be necessary for the assured to prove a negative. In this regard, see the discussion on the Bethlehem Export 222 case above,223 where the assured was obliged to prove that the goods, being fresh asparagus, and insured on “all risks” terms, had not deteriorated due to inherent vice.

Interest and costs

14.116 This is an interesting and as yet unsettled aspect of South African admiralty law. Two issues are relevant: the first is the rate of interest and the date from which interest will run, and the second is the currency in which a plaintiff can claim.

14.117 In terms of section 05(2)(f) of the Admiralty Jurisdiction Regulation Act,224

which applies to maritime claims, including claims for, arising out of or relating to marine insurance or any policy of marine insurance,225 a court may in the exercise of its admiralty jurisdiction “make such order as to interest, the rate of interest in respect of any sum awarded by it and the date from which interest is to accrue, whether before or after the commencement of the action, as to it appears just”.

14.118 As Hofmeyer226 comments, there is an apparent conflict between the provisions of the Admiralty Jurisdiction Regulation Act and another South African statute, the Prescribed Rate of Interest Act.227 The Prescribed Rate of Interest Act allows interest on unliquidated damages (this was not the case prior in terms of the common law or the Act prior to its amendment in 1997) at a current rate of 15.5% per annum running from a date to be determined in accordance with the provisions of that Act. This apparent conflict arises out of the judgment of The Sea Joy,228 where the court felt that it was obliged to apply the interest rate determined by the Prescribed Rate of Interest Act rather than rely on the wide-ranging discretion provided in section 05(2)(f) of the Admiralty Jurisdiction Regulation Act.

14.119 It is respectfully submitted that Hofmeyer is correct to state that the court erred - the discretion granted to the court exercising its admiralty jurisdiction is sufficient both to determine the rate of interest and the date from which interest is to run. In exercising its discretion, the court may wish to have reference to the provisions of the Prescribed Rate of Interest Act.

14.120 The current rate of interest is particularly high in a global sense - 15.5% represents a rate of interest almost three times (or more) that available elsewhere. In all probability, the South African courts will apply interest rates that are appropriate to the currency of the claims.

14.121 As for the date from which interest will run, the general principle in admiralty is that the innocent party should receive as complete an indemnification as possible and that interest should run from the date upon which the loss is suffered.229

14.122 In practice, most policies of marine cargo insurance do not have a term dealing with the question of interest. Interest is usually regarded as commencing from the date of demand for payment, or the date of summons and, in practice, insurers do not offer to pay interest from the date of the loss when indemnifying the assured.

14.123 Section 5(2)(g) of the Admiralty Jurisdiction Regulation Act provides that, subject to any law relating to exchange control, a court, exercising its admiralty jurisdiction, may order that payment be made in a foreign currency (i.e., other than South African Rands) “as in the circumstances of the case appears appropriate”. The court can also determine the date upon which any conversion of currency is to take place.

14.124 The general rule seems to be that where the claim is contractual, the creditor should be paid in the currency of the contract, whilst for claims based on negligence, the plaintiff should be paid in the currency that the loss was “felt”.230 Given the sometimes alarming fluctuation of exchange rates, it is not uncommon to find policies that specifically provide for the indemnification to be in a particular currency. The practice insofar as goods carried by sea are concerned is to convert at the rate applicable on the date of the bill of lading, being the date when, it is assumed, the goods were loaded on board the ship and the insurer went on risk.

14.125 It is the practice of the South African courts to order that the unsuccessful party pay the legal fees and expenses of the successful party in accordance with a tariff, unless the award is to pay “attorney and own client” costs, which is only done in exceptional circumstances and as an expression of the court’s displeasure at the conduct of a party or its legal representatives.

Good faith and fraudulent claims

14.126 In most instances, the policy itself will deal with the consequences of the assured making a fraudulent claim.

14.127 Van Niekerk notes231 that in Roman-Dutch law the position seems to have been that an assured could derive no benefit from his fraudulent claim. Consequently, the insurer is not liable for an unfounded claim or for the exaggerated part of a fraudulently inflated claim, but will, despite the fraud, remain liable for the genuine part of an exaggerated claim, as well as fully liable for a valid claim merely accompanied by fraudulent means. It follows that, absent a term of the contract to the contrary, an insurance fraud does not entitle the insurer either to avoid the contract as a whole or to avoid all liability for the claim in question, thus penalising the assured for his fraud. In the KRS Investments CC case,232 the Supreme Court of Appeal appeared to accept the notion that an assured may have a duty to act in good faith towards the insurer for the duration of the contract, and that the submission of a fraudulent claim may be in breach of that duty, entitling the insurer to terminate the contract. In terms of South African law, the insurer would be relieved of liability only from the time of termination, and the rights

and obligations that had accrued before then would remain extant. In the KRS Investments case, the assured had lodged a fraudulent claim for the loss of a motor vehicle. Before that claim was paid, the assured submitted a claim for the loss and damage by fire to its restaurant. This claim was otherwise valid. The insurer contended that one of the naturalia of the insurance contract - a term that is implied ex lege - is that an insurer against whom a fraudulent claim is made has an election to terminate the contract, and moreover, to do so with effect from the date that the fraudulent claim was made. In effect, the insurer argued that its right to terminate with retrospective effect from the date of the attempted fraud should be recognised. In the absence of any Roman-Dutch law on the point, the insurer argued the English law principles that recognised forfeiture remedies in the event of fraud. The court was not persuaded to import such a punitive rule given the “anti-penal” approach of Roman-Dutch law, the judge stating233 :

“…[the rule] purports to dispossess the insured of a perfectly valid claim, untainted by the fraud, that accrued contractually before the policy was terminated.”

In the event that the insurer wishes to avoid liability under the policy where fraud is alleged, the insurer must first prove that the misrepresentations alleged were made and thereafter that the misrepresentations were fraudulent in the sense of having been made knowingly and with the intention of obtaining a benefit under the policy.234

Total loss of cargo and abandonmentThe categorisation of losses: real and presumed loss

14.128 Roman-Dutch law recognised the following types of total loss: where the subject-matter of the insurance is completely destroyed, where the subject-matter is destroyed but the remains thereof retain a value and where the subject-matter insured exists, possibly undamaged, but the assured has been permanently deprived of it. Essentially, Roman-Dutch law recognised two types of loss (sometimes known as a “real” total loss): total loss and a presumed total loss.235 This is a distinction of convenience and relates not to the type of loss so much as when the assured is entitled to abandon the subject-matter by giving notice to the insurer.236

14.129 Examples of real total loss provided by the Roman-Dutch authorities include what is described in the Marine Insurance Act 1906 as actual total losses, such as: the total destruction of the goods; irreparable damage to the goods rendering them undeliverable in their damaged condition; where the assured is certainly and irretrievably deprived of possession of the goods and no reasonable hope exists of their recovery (such as where the goods themselves have been captured by Barbary pirates237 ); and where perishable goods have been detained or their carriage delayed due to loss of or damage to the carrying vessel.238

14.130 In the case of a real total loss, the assured can give notice of abandonment and notice of loss simultaneously. The assured need not wait until the goods have been ransomed (if captured) or recovered by legal process.239

14.131 Examples of a presumed total loss include: where goods have been damaged rendering them undeliverable in their damaged condition and the costs of restoring them and forwarding them to their destination would exceed their value on arrival; where the assured is deprived of possession of the goods but some hope remains of their recovery; where the cost or expense of recovering the goods will exceed their value when recovered.240 Where the loss is a presumed total loss, the rule was that the assured could not abandon the goods to the insurer immediately and claim indemnification, but had to wait for the expiry of a specified period of time after news of the loss had been received and the insurer had been notified. The specified time was dependent upon the length of the voyage, but these periods (6 months within Europe, 1 year beyond the western part of North Africa - Barbary and its notorious pirates) would probably no longer apply, and notice of abandonment could be given after the expiry of a reasonable period of time.241 In recent times, the hijacking of ships and cargo has become fairly common, and the approach taken by underwriters is that the cargo is not treated as a loss of any sort given the probability that the ship and cargo will be released in due course following ransom negotiations. The position would be different if the cargo was of a perishable or time-sensitive nature. There is, therefore, no separate concept of constructive total loss as understood in English law.242

Abandonment

14.132 Where the assured has suffered a total loss and has been appropriately indemnified by the insurer, the assured, following the principle of indemnity, cannot retain its ownership of the subject-matter insured.243 The assured is entitled, in certain circumstances, to elect, on notice, to abandon whatever is left of the subject-matter of the insurance to the insurer and to claim for a total loss. The insurer is then entitled to this remnant as abandonment - sometimes referred to as salvage - and becomes the owner thereof.244 It has been said that the Roman-Dutch authorities drew no distinction as such between an actual and a constructive total loss.245 The assured, before it can claim payment of a total loss under Roman-Dutch law, must, within the proper time, abandon the subject-matter of the insurance to the insurer; however, there is only one kind of total loss, and it is always necessary for the assured to give notice of abandonment, whether the loss be actual or appear to be “constructive”. The purpose of the notice of abandonment is to enable transfer of ownership from the assured to the insurer and it must therefore be unconditional and can only be made by or on behalf of the owner of the goods. To be effective, the notice must be accepted by the insurer. Once accepted, the insurer is bound to pay the full indemnity under the policy.246 The insurer may waive the obligation to give express notice of abandonment. Notice of abandonment should be given within a reasonable time, and, if an unreasonable time has elapsed, the assured may be liable to the insurer for any damages incurred as a consequence.247

14.133 The question as to whether English or Roman-Dutch principles should apply to the question of abandonment is, according to Hare, unsettled. He is of the view that the South African courts are at liberty to look at abandonment afresh. He states248 :

“For it to return to the ‘undeveloped and uncertain’ Roman-Dutch law of abandonment and notice of abandonment would however only serve to fuel the fires of existing law confusion in the law of abandonment in insurance. The court would take a bold and positive step if it were to conclude that the Roman-Dutch principles of abandonment and total loss have been superseded in South African law by the reception of the English law and its distinction between actual total loss and constructive total loss.”

Loss of the adventure14.134 The long-established principle in English law that, in the case of cargo insurance, the thing that is insured is not merely the cargo but also the arrival of the goods at the destination specified in the contract of carriage, has not received any comment from the principal South African commentators on marine insurance. In effect, the loss of the adventure entitles the assured to claim a constructive total loss where the cargo is undamaged and in the assured’s possession, but the voyage has been frustrated and the cargo has not reached its destination. It is not an issue that appears to have come before the South African courts, but the probability is that our courts would apply the principles relevant to a presumed total loss to the facts and the contractual terms. It would appear that there is no South African law dealing specifically with forwarding charges incurred to save the adventure. It may be noted that where such charges take the form of sue and labour, the concept of sue and labour was described in one case as “completely foreign to [South African] law and peculiar to English marine insurance law”.249

Partial loss: measure of indemnityValued and unvalued policies

14.135 Like the majority of Roman-Dutch policies,250 most South African policies are valued policies in that either they specify the value of the goods expressly, or the policy contains a Basis of Valuation Clause that provides a formula for calculating the agreed value, such as CIF plus a percentage to be agreed by the parties.

14.136 Roman-Dutch authors, applying the principle of indemnity, generally accepted that, despite a valuation in the policy, the insurer was not liable for more than an indemnity calculated with reference to the true value of the subject-matter insured. The true value was to be stated in the policy and the insurer was not liable in excess of that value. The insurer had the right to challenge any over-valuation and would be obliged to prove the true value.251

Cargo delivered damaged at destination: salvage losses

14.137 Roman-Dutch law and English law appear to be ad idem on the question of measuring the indemnity in the case of a partial loss, save that the Roman-Dutch authorities252 state that the net sound and damaged values (i.e., the price without the addition of freight and other expenses incurred and charges payable at the destination) are relevant in this regard, while under English law, subject to the policy conditions, the gross and damaged values are used as the basis for adjusting the loss. The same

principle applies where only part of the goods are damaged and where only part of the goods are totally lost and such loss is a partial loss.

Underinsurance

14.138 At one stage, Roman-Dutch law applied compulsory underinsurance in order to compel the assured to take care of the object at risk. These requirements were mostly ignored, and the current view is that, under Roman-Dutch law, the parties are free to under-insure.253 In such a case, the insurer is only liable for a rateable proportion of its loss.254

Recoverable expensesSue and labour

14.139 The concept of sue and labour was “completely foreign to [South African] law and peculiar to English marine insurance law”.255 However, it has been said256 that under Roman-Dutch law the assured has a duty to take reasonable measures to avert or mini-mise a loss to the subject-matter insured and the insurer has an obligation to compensate the assured accordingly. The insurer’s liability arises ex lege,257 but may be extended by express agreement.

Salvage

14.139.1 It would appear258 that salvage charges incurred by an insured would be recoverable from an insurer under Roman-Dutch law. Such charges must arise independent of any contract. It is not clear whether it made any difference whether the salvage charges were incurred in avoiding a peril or simply from “any cause except those excluded” in the contract of insurance.259 Contractually incurred salvage costs, for example, under Lloyd’s Open Form (“LOF”), would be recoverable if they were incurred as sue and labour in the assured’s discharge of his customary duty to avert or minimise any loss or damage.260

General average

14.140 Professor Van Niekerk provides a succinct definition of the Roman-Dutch concept of general average, stating that it was261 :

“… an extraordinary loss, damage or expense deliberately caused or incurred for the common safety and to save the interests involved in a common maritime adventure. A general average loss did not lie where it fell but was borne and contributed to by the owners of all the interests involved in proportion to the value of their interests; a general average loss was shared.”

14.141 It is beyond the scope of this chapter to discuss the development of general average in Roman-Dutch law - save to note, given the attention currently being given to piracy, that the deliberate sacrifice of cargo as a ransom to pirates, or the payment of a ransom, for the release of the ship or her cargo was recognised as a general average expenditure or loss. The obligation to contribute to the general average loss, damage or expense could be insured, even though, on the face of it, such loss etc arose from a

deliberate act and not a fortuity. But the Roman-Dutch law was clear that an insurer was liable if the general average act was necessitated by, and the adventure saved from, loss or damage by such a peril.262 It was clear that the insurer of an interest was liable to reimburse the assured owner for any contribution that the assured had to pay for a general average loss.263 The insurer’s liability was reduced by the contributions that the assured received from other interests.264

14.142 As regards both the general average loss and the obligation to contribute, the insurer’s obligations flowed from the operation of general principles of causation.265 The insurer’s liability was assumed without being expressly prescribed by Roman-Dutch law or provided for in Dutch policies.266

SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF CONTRIBUTION

SubrogationReception of doctrine into South African law

14.143 In general terms, once an assured has been indemnified in full in accordance with the terms of the policy, the insurer is entitled to proceed, under rights of subrogation, to recover the loss against liable third parties in the name of the assured. The doctrine of subrogation has been defined as follows:

“Subrogation as a doctrine of the insurance law embraces a set of rules providing for the reimbursement of an insurer which has indemnified its insured under a contract of indemnity insurance. The gist of the doctrine is that insurer’s personal right of recourse against its insured, in terms of which it is entitled to reimburse itself out of the proceeds of any claims that the insured may have against third parties in respect of the loss.”267

In Rand Mutual Assurance Co Ltd v RAF,268 the court reviewed the history of insurance law in South Africa. English insurance law had been introduced in the Cape Colony by the General Law Amendment Act 8 of 1879 and in the Orange Free State by Amendment Ordinance 5 of 1902.269 The Transvaal and Natal followed Roman-Dutch law, although the doctrine had been adopted by Transvaal courts.270 Subsequently, the Cape and Orange Free State laws were repealed by the Pre-Union Statute Revision Act 43 of 1977. The effect of this repeal was that, subject to statutory law, the court is not bound to follow English law and precedent.271

14.144 The general view is that the doctrine of subrogation was received into South African law from English law through the judgment in Ackerman v. Loubser.272 Despite this development, the Appeal Court had, in the earlier decision of Commercial Union Insurance Co of SA Ltd v. Lotter,273 held that:

“an insurer under a contract of indemnity insurance who has satisfied the claim of the insured is entitled to be placed in the insured’s position in respect of all rights and remedies against other parties which are vested in the insured in relation to the subject

matter of the insurance. This is by virtue of the doctrine of subrogation which is part of our common law.”

Harms ADP in the Rand Mutual case, explained that the court was giving effect to the three rules of the lex mercatoria, which are not limited to the English law of insurance. The rules are: that the wrongdoer is not entitled to benefit from the fact that a person wronged was insured; that the assured may not be enriched at the expense of the insurer by receiving both the insurance indemnity and damages from the wrongdoer; and that the insurer replaces the assured, for example, the assured is subrogated by the insurer, which entitles the insurer to claim the loss from the wrongdoer.274

14.145 In insurance matters, subrogation follows on indemnification without any further formal requirements. In marine insurance, notwithstanding the subrogation of rights by operation of law following indemnification, most underwriters will require the assured to complete a subrogation form that not only confirms the subrogation, but will also evidence an undertaking by the assured to provide every assistance to the underwriter both by way of providing whatever documents are needed, as well as by providing witnesses, in order to pursue any recovery against the third party. There is no standard subrogation form in circulation in the South African marine insurance market and some documents that purport to be “subrogation forms” either do not accurately reflect a subrogation (indeed they may reflect a cession or assignment of rights to the underwriter) alternatively they do not accurately reflect a proper indemnification in that they are no more than agreements of loss, or record an ex gratia settlement and, as such, do not evidence a subrogation. Furthermore, the requirements set out in some subrogation forms relevant to the ongoing obligations of the assured, often contain obligations that are nowhere to be found in the actual agreement of insurance or in common law. Generally speaking, a subrogation form should do no more than: (a) identify the underwriter; (b) identify the assured; (c) identify the policy and possibly claim number; (d) identify the goods insured; (e) identify, with a reasonable degree of accuracy, the date of the loss; (f) identify the amount in terms of which the assured has been indemnified; (g) accurately identify with sufficient detail the assured; and (h) confirm the subrogation of rights. Given the detail often found in these subrogation forms, it can be argued that they form a separate undertaking that stands apart from the insurance policy, unless, of course, the insurance policy requires that the assured, on indemnification, signs a subrogation form either in the underwriter’s “usual form” or in the form that may be attached to the policy.

14.146 Care must be taken to ensure that the subrogation form is completed by the correct party. In the event that the assured had an insurable interest in the goods, but held no “rights of recovery”, then any subrogation of rights and indemnification to the insurer would be meaningless. In certain circumstances, therefore, the rights that the underwriter requires to effect any recovery from a liable third party may need to be sourced from the party who has those rights. In those circumstances, the rights can either be transferred to the underwriter by way of a cession, or the underwriter can obtain an appropriate authority (against an indemnification for costs incurred) from the party

who does possess the necessary rights for the underwriter to affect a recovery. In each instance, the underwriter will have to consider whether or not the party in whose name the underwriter wishes to proceed in order to effect a recovery has the necessary title to sue.

14.147 For some time in Natal it was thought that it would be necessary for an assured to specifically plead the point that the assured had been indemnified by the underwriter. A full bench of the Natal court has recently held that this would not be necessary.275

Exercise of subrogation rights in practice

14.148 Under English common law, the insurer is required to sue in the name of the assured. In deciding upon the issue, Harms ADP in the Rand Mutual case held that there had been no previous instance in which the court had required the insurer to sue in the name of the assured. He concurred with leading authors who viewed the doctrine as a procedural device in the service of the indemnity principle. In finding that the rule is not consistent with South Africa’s constitutional values or law of procedure, he commented as follows276 :

“To require a party to litigate in the name of another appears to me to fly in the face of the requirement of transparency that underlines all litigation. The rule serves no public interest in modern times… It is formalistic and creates anomalies. It enables the insurer to litigate in the name of the insured without taking any risk as far as litigation costs are concerned. The supposed advantages, namely the insurance company may be able to retain its anonymity, is clearly not to the advantage of the wrongdoer and also probably not to that of the insured.”

Despite having adopted this view point, Harms ADP acknowledged that there was a prevailing practice amongst insurance companies to act on the basis that they have to litigate in the name of the assured and the court was reluctant to interfere with settled legal principles - communis error facit ius. Consequently, the court did not hold that the insurer must litigate in its own name and may not litigate in the name of the assured. What it ruled was that it was in order if the insurer elected to litigate in its own name in terms of the subrogation doctrine.277

14.149 Following this Supreme Court of Appeal judgment, the lower courts have been surprisingly distracted by a misunderstanding of the doctrine. The first of these decisions was the judgment of the Kwazulu-Natal High Court inNkosi v. Mbatha,278 which held that a subrogated claim must be proven and specifically pleaded. This contradicted an earlier decision of the same court, Ntlhabyane v. Black Panther Trucking (Pty) Ltd and Another,279 which held that there was neither a duty on the plaintiff to prove subrogation, nor to produce the policy of insurance.

14.150 In a separate matter and in an unreported case in a magistrate’s court, it was held that the assured must plead the involvement of the insurer in a lawsuit and dismissed the plaintiff’s action with costs for failing to do so. The facts of that matter were novel in that the plaintiff was the owner of the car but not the assured, which was a family trust. Usually, the plaintiff is both the owner of the insured car and the assured. On

appeal, while acknowledging that the matter before him did not expressly concern the doctrine, Patel DJP in Smith v. Banjo 280 commented as follows:

“[s]ubrogation is at best a collateral fact which is not capable of affording any reasonable presumption or inference as to the principal matter in dispute. The question of subrogation is res inter alios acta.”281

In following the judgment of the Ntlhabyane case,282 he found that the involvement of the assured was irrelevant and not necessary to be pleaded.

Excess or first loss clauses

14.151 The right of an assured to recover against a third party can be complex, and it is often the case that the assured incurs losses that are not indemnified by the insurer. Substantial excess terms may have been imposed under the contract, and the assured may have incurred damages (such as the loss of profit or other consequential damages) that the underwriter is not obliged to indemnify. On subrogation, however, the underwriter retains the contractual obligation283 to enforce the assured’s rights of recovery in full, subject to any agreement as to the costs of recovering the unindemnified portion.

14.152 In general terms, the underwriter is not entitled to recover more than it paid to the assured, including the costs of effecting any recovery.284 The position under South African law regarding indemnification and the application of any proceeds of recovery are complicated, but the principle to be applied is that the insurer should only be able to lay claim to any amount recovered from a third party once the assured has been indemnified in full.285

14.153 At all times, the rights of recovery remain completely vested in the assured; the right of subrogation gives the insurer a contractual right to enforce the assured’s rights on behalf of the insurer. Any settlement or judgment debt must be paid to the assured, who must then account to the insurer. This position can be, and almost always is, amended by agreement so that payment is made to the insurer, less any amounts due to the assured for claims - such as loss of profit - not covered by the terms of the insurance.

14.154 Only upon the cession, that is assignment, of the assured’s rights to the insurer, by agreement, can the insurer claim for its own benefit.286

Double insurance and contributionDouble insurance: when does it occur?

14.155 Double insurance exists where “the same interest is insured by or on behalf of the same insured against the same risk with two or more independent insurers”.287

Double insurance may result in over-insurance if the sums insured exceed what is required to secure a full indemnity.288 There is nothing to prevent an assured from insuring an interest more than once, unless this is prohibited by a term of the contract of insurance.289

14.156 In practice, most proposal forms will require the prospective assured to disclose whether or not other insurances exist. In the absence of such a request, the existence of any other insurance is not a material fact that the assured needs to disclose in the proposal.290 Insurers include such a clause in order to enable them to recover, in certain circumstances, a contribution from other insurers, and to prevent fraud.291

14.157 The assured may insure its risk with as many insurers as it chooses, but the assured may only recover from the insurers to the extent of its loss. Once the assured has been compensated in full, it has no further claim on the insurers. The assured may elect to recover from any one or more of the insurers up to the full amount of its loss, or it may claim a proportionate amount from each insurer - and if it does not succeed in full against any one insurer, it may recover the shortfall from the others.292

14.158 Insurance policies may well contain a term that, in the event of double insurance, the insurer will only be liable for its proportionate share of the loss or the insurer will not be liable at all.293 These clauses are regarded as valid, but if liability is excluded on account of double insurance and it appears that the other policy contains a similar clause, then the two clauses are considered to cancel each other.294 In each case, the wording of the particular clause will need to be considered in order to determine what effect it has.

14.159 As these clauses benefit the insurer, they will be construed contra proferentum and may, if unintelligible, be discarded.295

Contribution between insurers

14.160 In the event that an insurer has paid more than its rateable proportion of the loss, it is entitled to claim in its own name from the other insurers that they each contribute proportionally.296

1 . Director and Head of Transport, Norton Rose, South Africa.

2 . As discussed in Chapter 2 at para. 2.41, following the introduction of in 1983 of the Admiralty Jurisdiction Regulation Act 105 of 1983, marine insurance was regarded as one of the “new” admiralty jurisdictions and, as such, in terms of s. 6(1) of that Act, Roman-Dutch law would apply to marine insurance claims.

3 . In terms of Roman-Dutch law, cargo of almost any description could be insured, although certain cargoes had to be specified, such as weapons of war, gold and silver, precious stones and jewels. Initially, perishable goods had to be specified; however, as the law developed, the general reference to “goods and merchandise” would cover perishable goods. See Reinecke et al., General Principles of Insurance Law at para. 540.

4 . W. A. Joubert (ed.), The Law of South Africa, 2002, LexisNexis Butterworths, Durban, First Reissue.

5 . M. F. B. Reinecke, Schalk van der Merwe, J. P. van Niekerk and Peter Havenga, General Principles of Insurance Law, 2002, LexisNexis Butterworths, Durban.

6 . D. M. Davis (ed.), Gordon & Getz: The South African Law of Insurance, 4th edn, 1993, Juta Law, Cape Town. This work is not very current and is in desperate need of an update. Apart from the LAWSA volume and Reinecke et al.’s textbook, this is probably the most referred to textbook on insurance law generally.

7 . J. Hare, Shipping Law and Admiralty Jurisdiction in South Africa, 2nd edn, 2009, Juta Law, Cape Town, Chapters 18 and 19.

8 . J. P. Van Niekerk, The Development and Principles of Insurance Law in the Netherlands from 1500 to 1800, 1999, Hart, Oxford.

9 . See further, J. P. van Niekerk, “The reform of South African insurance law: A preliminary enquiry” (an inaugural address published in MBL, 1983, 88); C. Marnewick “The codification of marine insurance in South Africa” (an unpublished LLM thesis). See further J. P. Van Niekerk, “Choice of English law and practice in a ‘South African short-term policy’ of marine insurance: Jurisdiction and applicable law”, TSAR, 2010, 590. He comments in his critique of the a quodecision in Classic Sailing Adventures (Pty) Ltd v. Representative of Lloyd’s, 2010 (5) SA 90 (SCA), hereinafter referred to as The Mieke, that where the common law is to be developed, “a broad comparative approach should be followed rather than a[n] exclusive reliance on an English insurance law itself in the process of radical reform”. The South African Maritime Law Association in conjunction with the Association of Marine Underwriters of South Africa has recently taken up the issue again.

10 . Act 105 of 1983, as amended. Douglas Shaw QC is regarded as the “Father of the Admiralty Act”.

11 . That is, the Republic of South Africa.

12 . D. J. Shaw QC, Admiralty Jurisdiction and Practice in South Africa , 1987, Juta, Cape Town.

13 . Per Lord Diplock in Amin Rasheed Corp v. Kuwait Insurance [1984] AC 50 at 63C-D.

14 . Per Viljoen JA in Incorporated General Insurances Ltd v.Shooter t/a Shooter’s Fisheries , 1987 (1) SA 842 (A).

15 . South African law has many sources: the Constitution (from which all law derives its force), legislation, customary law and the common law. The common law is often referred to as the “non-enacted law” made up of Roman-Dutch, English and South African precedents.

16 . By Roman-Dutch law is meant the laws of the Province of Holland in the seventeenth and eighteenth centuries. Professor Hare, probably echoing the views of most practitioners, states that “The South African law of marine insurance today … should be tied neither to the purist Roman-Dutch ordinances and writings, nor to the English law. As a truly ‘South African common law’ it should be broad enough to draw upon the general principles of marine insurance, including but not limiting to those crystallized in the 1906 Marine Insurance Act, which was largely a restatement of the then common law of

marine insurance in England and (although to a lesser extent) on the continent”.Hare, op. cit. p. 829

17 . J. Hare, Shipping Law and Admiralty Jurisdiction in South Africa, at p. 827.

18 . Gordon & Getz at p. 393 fn. 140.

19 . The Insurance Act No. 27 of 1943 makes specific provision allowing Lloyd’s to operate in the South African market. Although repealed with effect from 1 January 1999, ss. 56 and 63 of the Short-term Insurance Act 53 of 1998 continues to recognise the importance of this market to South African insurance, with many marine underwriting agencies specifically writing risks in the Lloyd’s market.

20 . This was the view of the Supreme Court of Appeal in The Mieke, 2010 (5) SA 90 (SCA).

21 . See further, J. P. Van Niekerk, The Development of the Principles of Insurance Law in the Netherlands from 1500 to 1800, op. cit.

22 . F. Du Bois (ed.), Wille’s Principles of South African Law, 9th edn, 2007, Juta Law, Cape Town, at p. 76 and authorities quoted at fn. 66.

23 . Wille, op. cit. at p. 78 and authorities quoted at fns 74 to 77.

24 . No. 53 of 1998, as amended.

25 . No. 105 of 1983, as amended.

26 . ICC, cl. 19 reads, “This insurance is subject to English law and practice”.

27 . The Supreme Court of Appeal in The Mieke, 2010 (5) SA 90 (SCA) when considering a hull policy that incorporated an English law term, applied provisions of the South African Short-term Insurance Act relating to issues of non-disclosure and misrepresentation rather than relying upon the 1906 Marine Insurance Act.

28 . The draft is available at www.web.uct.ac.za/depts/shiplaw/marins.htm.

29 . Sections 6(1)-(5).

30 . 1987 (1) SA 842 (A).

31 . 2010 (5) SA 90 (SCA).

32 . No. 58 of 1998. The Act defines a “short-term policy” as including a transport policy.

33 . Section 51 refers to the voidness of certain provisions relating to short-term policies; s. 53 relates to misrepresentation and the failure to disclose material information; s. 54 relates to the validity of certain contracts; and s. 55 relates to the protection of individual policyholders.

34 . Section 1(1) “transport policy”.

35 . See Dunt, Marine Cargo Insurance, at paras 1.30 to 1.32.

36 . No. 68 of 2008.

37 . P. Bracher, “Insurance and the Consumer Protection Act”, an article that appeared in Cover magazine, June 2011 at p. 35.

38 . A “policyholder” is defined in rule 1 of the rules. The object of the rules is “to ensure that policies [where the policyholder is a natural person] are entered into and enforced in accordance with sound insurance principles and practice in the interests of the parties and the public interest”. The effective date of the current rules is 1 January 2011.

39 . Representative of Lloyd’s and Others v.Classic Sailing Adventures (Pty) Ltd (The Mieke) 2010 (5) SA 90 (SCA).

40 . Section 55(1) of the Short-Term Insurance Act No. 53 of 1998.

41 . Section 56(1) of the Short-Term Insurance Act. For the position under the Insurance Act 27 of 1943 (now repealed), see J. P. van Niekerk, “Marine insurance: All risks policies on goods”, MBL, 1982, 78 at p.79 fn. 11.

42 . Section 57(2) of the Short-term Insurance Act.

43 . Section 57(5) and (6).

44 . Section 57(7)(a).

45 . Section 59(1).

46 . Section 01(1)(u) of the Admiralty Jurisdiction Regulation Act No. 105 of 1983.

47 . Section 01(1) of the Short-term Insurance Act.

48 . Section 59(2) of the Short-term Insurance Act, see para. 2.40 et seq. above.

49 . Section 59(4).

50 . Section 61(a) of the Short-term Insurance Act. For more on the role of Lloyd’s in South Africa, see Reinecke et al., op. cit. at paras 322, 512 to 515 and 654 to 658.

51 . 1967 (3) SA 124 (W), LAWSA at para. 99 fn. 1.

52 . In the absence of a requirement that the assured have insurable interest, the contract will be regarded as a wager, and considered void.

53 . Acceptance may be express or tacit. Usually, acceptance is confirmed in writing and the insurer will provide the assured with a policy.

54 . Wille’s Principles of South African Law at p. 737 and authorities in fns 10 and 11.

55 . 1988 (3) SA 580 (A).

56 . Videtsky v. Liberty Life Insurance Association 1990 (1) SA 386 (W).

57 . Schoeman v. Constantia Insurance Co Ltd, SCA Case 01/2002, unreported.

58 . J. Hare at p. 870.

59 . 1985 (1) SA 419 (A).

60 . J. Hare, “Good faith, disclosure, misrepresentation and the omnipotent warranty: South African perspective” - a paper presented to the British Maritime Law Association, 2000 at www.web.uct.ac.za/depts/shiplaw/tulantxt.htm.

61 . LAWSA at para. 175.

62 . 2005 (2) SA 502 (SCA) at para. 8.

63 . Act 53 of 1998.

64 . Section 54.

65 . J. P. van Niekerk, “The insured’s duties of disclosure: Delictual and contractual”; before the conclusion and during the currency of the insurance contract: Bruwer v. Nova Risk Partners Ltd [2011] SA Merc LJ 135 at 135.

66 . 1985 (1) SA 419 (A).

67 . J. P. van Niekerk, op. cit. at 135.

68 . 2011 (1) SA 234 (GSJ).

69 . For the circumstances in which this Act applies to marine cargo insurance, see para. 14.14 above.

70 . J. P. Van Niekerk, op. cit. at 143.

71 . Representative of Lloyd’s and Others v. Classic Sailing Adventure (Pty) Ltd (The Mieke) 2010 (5) SA 90 (SCA).

72 . For the circumstances in which this Act applies to marine cargo insurance, see para. 14.14 above.

73 . In Bruwer v. Nova Risk Partners Ltd [2010] ZAGPJHC 96, the court confirmed that the aim behind s. 53 is to protect policyholders against claims rejection by insurers based on negligible or trivial non-disclosure. It confirmed that the test for materiality is of “a reasonable, prudent person”, i.e., would such a person consider that the information constituting the non-disclosure should have been disclosed so as to enable the insurer to form its own view concerning the effect of the information on the assessment of the risk or the premium charged.

74 . Clifford v. Commercial Union Insurance Co of South Africa Ltd, 1998 (4) SA 150 (SCA).

75 . For the circumstances in which this Act applies to marine insurance, see paras 14.14, 14.35 and 14.36 above.

76 . See para. 14.14 above, for the circumstances in which this Act applies to marine cargo insurance.

77 . Reinecke et al., op. cit. at para. 103.

78 . Gordon & Getz, op. cit. at p. 92.

79 . Gordon & Getz, op. cit. at p. 94.

80 . Hare, op. cit. at p. 862.

81 . Hare op. cit. at p. 861. Hare is of the view that the entire concept of insurable interest may well have outlived its usefulness - see his comments at p. 864.

82 . 2000 4 All SA 379 (SCA).

83 . [2002] 3 All SA 27 (C).

84 . [1883] 11 QBD 380 (CA).

85 . [1905] TH 374.

86 . [1808] 1 Taunt 325 (HL).

87 . [1925] AC 619.

88 . [1983] (4) SA 625 (W).

89 . 1985 (4) SA 7 (T).

90 . Supra.

91 . 1996 (3) SA 434 (D).

92 . 1996 (2) SA 361 (T).

93 . 2002 (5) SA 85 (T).

94 . 2003 (1) SA 318 (ZHC).

95 . [1905] TH 374.

96 . See, generally, Reinecke et al., at para. 37.

97 . For the position in Australia under the Insurance Contracts Act 1984, see para. 7.35 above.

98 . Roman-Dutch insurance referred to “on good or bad tidings” - Reinecke et al., op. cit. at para. 126 fn. 156.

99 . See para. 3.15 above.

100 . See para. 7.31 above.

101 . 1955 (3) SA 240.

102 . At p. 247.

103 . See para. 3.15 above.

104 . LAWSA, op. cit. at para. 149.

105 . LAWSA, op. cit. at para. 149; Nuclear Fuels Corporation of SA (Pty) Ltd v. Orda AG [1997] (1) All SA 11 (A).

106 . LAWSA op. cit. at para. 149; Sasfin (Pty) Ltd v. Beukus, 1989 (1) SA 1 (A).

107 . See, in particular, Masefield AG v. Amlin Corporate Member Ltd [2010] 1 Lloyd’s Rep. 509, [2011] 1 Lloyd’s Rep. 630 (CA) considered at paras. 3.94 and 3.98 above.

108 . 2003 (2) SA 440 (SCA).

109 . 1998 (3) SA 1063 (C) C at p. 1068 B-C.

110 . At p. 1068 D.

111 . Gordon & Getz, at p. 202.

112 . [1916] AD 509.

113 . Hare, op. cit. at p. 888 fn. 202.

114 . Ibid. The cases are Colonial Mutual Life Assurance Society Ltd v. de Bruyn [1911] CPD 103 at p. 126 and Morris v. Northern Assurance Co Ltd [1911] CPD 293 at 304.

115 . Hare, op. cit. at p. 889.

116 . Hare, op. cit. at p. 890.

117 . See para. 14.35 above.

118 . Hare, op. cit. at p. 890.

119 . For a summary of this debate, see Hare, op. cit. at p. 890 and the relevant footnotes; Gordon & Getz, op. cit. at p. 230 and p. 231, and the authorities referred to in the relevant footnotes; and Reinecke et al., op. cit. at para. 359.

120 . Hare, op. cit. at p. 891.

121 . Reinecke et al., op. cit. at para. 548.

122 . Reinecke et al., op. cit. at para. 551.

123 . The Wave Dancer, 1996 (4) SA 1167 (A).

124 . Blackshaws (Pty) Ltd v. Constantia Insurance Co Ltd, 1983 (1) SA 120 (A) at 128 to 129.

125 . Per Chetty J, Mutual and Federal Insurance Co Ltd v. Ingram and Others, 2009 (6) SA 53 (E).

126 . Walker v. Santam Ltd and Others, 2009 (6) SA 224 (SCA) at para. 16.

127 . Hare, op. cit. at p. 897.

128 . Hare, op. cit. at p. 898.

129 . Reinecke et al., op. cit. at para. 277; Hare, op. cit. at p. 898 to p. 899.

130 . Reinecke et al., op. cit. at para. 277.

131 . Gordon & Getz, op. cit. at 400. Hare, op. cit. at 899 quotes the case of Sikweyiya v. Aegis Insurance, 1995 (4) SA 143 (E) as being a case where the court applied a common sense approach to causation.

132 . Hare, op. cit. at p. 898.

133 . 1987 (1) SA 842 (SCA).

134 . 1983 (1) SA 120 (A) at 126F.

135 . Per Galgut AJA at p. 857.

136 . No. 27 of 1943. This Act has been repealed. The Short-Term Insurance Act provides that any claim against a Lloyd’s underwriter under a South African short-term insurance policy will be recognised by a South African court.

137 . No. 105 of 1983.

138 . The court a quo had also found that there was no obligation upon the assured to sue and labour (i.e., pay the fine) and this obligation could not be reimposed indirectly in the guise of a contention that the failure to pay the fine was the proximate cause of the loss.

139 . Galgut AJA at 863. The judge referred, with approval, to the comments made by Ivamy at 255 ( Marine Insurance 3rd edn); Arnould’s Law of Marine Insurance and Average, 16th edn, volume 2, at 773; and Gordon & Getz, op. cit. at 383.

140 . Galgut AJA at p. 862 to p. 863.

141 . Hare, op. cit. at p. 899.

142 . Galgut AJA at p. 862.

143 . Mutual and Federal Insurance Co Ltd v. Ingram and Others, 2009 (6) SA 53 (E) at para. 13. In this non-marine case, heard on appeal, the court preferred to rely on English precedent ( Wayne Tank and Pump Co Ltd v. The Employers’ Liability Assurance Corporation Ltd [1974] QB 57 (CA)) rather than Roman-Dutch law. See also Walker v. Santam Ltd and Others, 2009 (6) SA 224 (SCA) at para. 16.

144 . See generally, Reinecke et al., op. cit. at paras 254 to 260: Gordon & Getz at p. 202 to p. 204.

145 . 1963 (1) SA 632 (A).

146 . See also the authorities referred to by Gordon & Getz, p. 203 fn. 5 and the authorities referred to by Reinecke et al., op. cit. at para. 256, fns 84 and 85.

147 . British and Foreign Marine Insurance Co v. Gaunt [1921] 2 AC 41 (HL) and Soya GmbH Kommanditgesellschaft v. White [1982] 1 Lloyd’s Rep. 136 (CA).

148 . Reinecke et al., op. cit. at para. 551.

149 . See J. P. van Niekerk, “Marine insurance: All risks policies on goods”, MBL, 1982, 78.

150 . [1921] 2 AC 41 (HL) at p. 57.

151 . See para. 3.35 above.

152 . 1984 (3) SA 449 (W).

153 . At p. 453.

154 . Reinecke et al., op. cit. at para. 289.

155 . J. P. Van Niekerk, “Marine insurance: All risks policies on goods”, MBL 1982, 78 at p. 85, states that “wilful misconduct” includes both intentional and reckless conduct.

156 . ICC, cl. 4.1.

157 . 1977 (3) SA 941 (C).

158 . At p. 946 to p. 947.

159 . Gordon & Getz, op. cit. at 197.

160 . Reinecke et al., op. cit. at para. 284.

161 . 1984 (4) SA 269 (D). The matter went on appeal - 1987 (1) SA 842 (SCA) and the decision of the court a quo was overturned, but the comments made by Friedman J remain relevant.

162 . At p. 284.

163 . At p. 284.

164 . Reinecke et al., op. cit. at para. 551 and the references referred to in fn. 242.

165 . 1996 (4) SA 1167 (A).

166 . Or marine cargo, for that matter.

167 . At p. 1179.

168 . Not that this would affect the “ordinary wear and tear” exception as it appears in all three of the Institute Cargo Clauses.

169 . 1981 (4) SA 659 (C).

170 . Arnould’s Law of Marine Insurance and Average, 16th edn at para. 782, the current edition at that time, see now first supplement to the 17th edn at p. 141, where the editors consider this an “open question”.

171 . No explanation was offered, or evidence lead, as to the possible cause of the damage, i.e., heavy weather, as this was a hearing on the papers rather than a trial where evidence would be lead.

172 . At p. 661H.

173 . Blackshaws (Pty) Ltd v Constantia Insurance Company Ltd 1983 (1) SA 120 (A).

174 . Scrutton on Charterparties and Bills of Lading, 18th edn, 1974, Sweet & Maxwell, London, at p. 224.

175 . 1983 (1) SA 120 (A) at p. 129 to p. 130.

176 . [2011] 1 Lloyd’s Rep. 560.

177 . For a full discussion of the implications of the decision in this important English case, see para. 3.45 et seq. above.

178 . Reinecke et al., op. cit. at para. 548.

179 . Reinecke et al., op. cit. at para. 560.

180 . Gordon & Getz, at p. 391.

181 . Ibid.

182 . See para. 3.55 et seq. above.

183 . See the references cited by Reinecke et al., op. cit. at para. 273.

184 . [1914] AD 574 at p. 591.

185 . [1913] 3 KB 411 (CA).

186 . The Conversion of Sasria Act 134 of 1998. More information can be found at www.sasria.co.za.

187 . Section 01.

188 . See JCC 56, discussed at para. 3.68 above.

189 . [2001] 2 ZASCA 88.

190 . At para. 7.

191 . At para. 12.

192 . [1876] 1 AC 498 (HL).

193 . 1990 (4) SA 190 (W) at p. 196A-B.

194 . [2003] Lloyd's Rep IR 444. IR 444.

195 . At para. 27 also citing Pearson v. The Directors of the Commercial Union Assurance Co Ltd, above .

196 . [2001] 2 ZASCA 88.

197 . See para. 14.101 above.

198 . At para. 11.

199 . Compare the view of Ormiston J in Verna Trading Pty Ltd v. New India Assurance Co Ltd [1991] 1 VR 129 at p. 162 discussed in the Comparative Law chapter at paras 15.45 to 15.50 below.

200 . Gordon & Getz, op. cit. at p. 178.

201 . Reinecke et al., op. cit. at para. 556.

202 . Gordon & Getz, op. cit. at 178 and Reineke et al., at para. 276.

203 . See para. 14.109 below, Change of Voyage Clause.

204 . See Reinecke et al., op. cit. at para. 554.

205 . Reinecke et al., op. cit. at para. 557.

206 . Ibid.

207 . Ibid.

208 . Ibid.

209 . Ibid.

210 . Ibid.

211 . Ibid.

212 . Ibid.

213 . Dunt, Marine Cargo Insurance, at para. 12.12 et seq.

214 . No. 68 of 1969. See P. Bugden (ed.), Time Bar in Insurance and Reinsurance : An International Comparison, 2011, Clyde & Co, London (South African section by Patrick Bracher).

215 . ICC, cl. 19.

216 . This accords with English law, see para. 3.89 above.

217 . Griesel NO v. SA Myn en Algemene Assuransie Edms Bpk , 1952 (4) SA 473 (T).

218 . [1956] (1) SA 330 (A) following Munro, Brice & Co v. War Risks Association [1918] 2 KB 78.

219 . Gordon & Getz, at p. 178.

220 . Reinecke et al., op. cit. at para. 289 fn. 292.

221 . Reinecke et al., op. cit. at para. 289.

222 . 1984 (3) SA 449 (W).

223 . See para. 14.88 above.

224 . No. 105 of 1983 as amended.

225 . Section 01(1)(u).

226 . Hofmeyer, Admiralty Jurisdiction Law and Practice in South Africa 1st ed, at p. 135 and p. 136 and the various authorities cited.

227 . Act 55 of 1975, as amended.

228 . 1998 (1) SA 487 (C).

229 . Hofmeyer, op. cit. at 137.

230 . Hofmeyer, Admiralty Jurisdiction Law and Practice in South Africa at 135 and the authorities cited in fns 95 and 96.

231 . LAWSA, at para. 176.

232 . [2007] (1) All SA 566 (SCA).

233 . At para. 11. See also Springold Investments (Pty) Ltd v. Guardian National Insurance Co Ltd, 2009 (3) SA 235 (D), where the court considered whether palm oil had become contaminated by sabotage and whether there had been fraud on the part of the assured. Patel J reviewed the law relevant to fraud in para. 20 of the judgment. The decision was taken on appeal. In an as yet unreported decision, the court only considered the question of sabotage and the Supreme Court of Appeal found that the assured had not satisfied the court that there was any evidence of sabotage. No other issues were considered.

234 . Springold Investments (Pty) Ltd v. Guardian National Insurance Co Ltd, 2009 (3) SA 235 (D) at p. 26.

235 . Reinecke et al., op. cit. at para. 566.

236 . Ibid.

237 . Contrast the position regarding Somali pirates, see Masefield AG v. Amlin Corporate Member Ltd [2010] 1 Lloyd’s Rep. 509, [2011] 1 Lloyd’s Rep. 630 (CA).

238 . Ibid. and especially the authorities referred to in fns 424 to 431.

239 . Reinecke et al., op. cit. at para. 566 and fns 432 to 434.

240 . Reinecke et al., op. cit. at para. 566 and fns 435 to 439.

241 . Reinecke op. cit. at para. 566 and fns 441 and 442.

242 . Reinecke et al., op. cit. at para. 564.

243 . Reinecke et al., op. cit. at para. 563.

244 . See J. P. van Niekerk, The insurer’s right to salvage, related issues of ownership, and unrelated issues of salvage liens: Hollard Insurance Co Ltd v Wagenaar t/a Race Designs”, SA Merc LJ, 2011, 300 at p. 311.

245 . Gordon & Getz, at p. 406.

246 . Hare, op. cit. at para. 19-10.2.

247 . Reinecke et al., op. cit. at para. 565.

248 . Hare, op. cit. at para. 19-10.2 .

249 . Viljoen JA in his dissenting judgment in Incorporated General Insurances Ltd v. Shooter t/a Shooter’s Fisheries, 1987 (1) SA 842 (SCA) at p. 864.

250 . Reinecke, op. cit. at para. 570.

251 . Reinecke, op. cit. at para. 571.

252 . See the discussion on this topic in Reinecke et al., op. cit. at para. 572 and the various Roman-Dutch and English authorities cited in the relevant footnotes.

253 . Reinecke et al., op. cit. at para. 574.

254 . Ibid.

255 . Viljoen JA in his dissenting judgment in Incorporated General Insurances Ltd v. Shooter t/a Shooter’s Fisheries , 1987 (1) SA 842 (SCA) at p. 864.

256 . See the discussion in Reinecke et al., op. cit. at para. 575 and the various authorities referred to in the footnotes.

257 . Reinecke et al., op. cit. at para. 575 states that under English law the insurer’s liability only arises ex contractu.

258 . There is no easily accessible reference material on the issue of an insurer’s obligation to indemnify an assured for any amounts paid to salvors following the salvage of the insurer’s goods.

259 . See J. Dunt, op. cit. at para. 14.28.

260 . Reinecke et al., op. cit. at para. 575; J. P. van Niekerk, The Development of the Principles of Insurance Law in the Netherlands from 1500 to 1800, volume 2, 1997 p. 1055-1077.

261 . J. P. van Niekerk, The Development of the Principles of Insurance Law in the Netherlands from 1500 to 1800, volume 1, p. 63. See J. P. Van Niekerk, op. cit. at p. 67.

262 . J. P. van Niekerk, op. cit. at p. 78. Van Niekerk notes, at fn. 314, that the position was analogous to the principle that loss or damage caused, or expenses incurred, in averting or minimising loss or damage to the subject-matter insured was recoverable from the insurer as a loss or damage caused by that peril.

263 . J. P. Van Niekerk, op. cit. at p. 79.

264 . J. P. Van Niekerk, op. cit. at p. 78.

265 . J. P. Van Niekerk, op. cit. at p. 79.

266 . Ibid.

267 . 12 LAWSA (first reissue) para. 373 as referred to with approval by Patel JPD in Smith v. Banjo, 2011 (2) SA 518 (KZP) at 521 para. 11. LAWSA refer to Castellain v. Preston [1883] 11 QBD 380 (CA).

268 . For an overview of the subject of subrogation, see the judgment of Harms ADP in Rand Mutual Assurance Co Ltd v. Road Accident Fund [2008] ZASCA 114. Not only does this judgment succinctly trace the history of the reception (or otherwise) of the importation of the principles of subrogation into South African law, it also deals with the practical issue of whether the underwriter may proceed to recover any amount by which it has indemnified an assured in its own name, or not.

269 . The court in Ackerman v. Loubser [1918] OPD 31 undertook, unnecessarily in view of the presiding legislation at the time, to import the doctrine as part of insurance law into South Africa.

270 . Schoonwinkel v. Galatides, 1974 (4) SA 388 (T).

271 . Rand Mutual Assurance Co Ltd v. Road Accident Fund, 2008 (6) SA 511 (SCA) at p. 518 paras 12 to 17.

272 . [1918] OPD 31.

273 . 1999 (2) SA 147 (SCA) and with reference to Ackerman v. Loubser [1918] OPD 31.

274 . Rand Mutual,op. cit. at p. 519 at para. 17 with reference to and approval of the Supreme Court of Canada decision in Somersall v. Friedman [2002] (3) SCR 109, where the Court at para. 50 stated: “First, it is important to keep in mind the underlying objectives of the doctrine of subrogation, which are to ensure (i) that the assured receives no more and no less than a full indemnity, and (ii) that the loss falls on the person who is legally responsible for causing it. The doctrine of subrogation operates to ensure that the assured receives only a just indemnity and does not profit from the insurance. Consequently, if there is no danger of the assured being overcompensated and the tortfeasor has exhausted his or her capacity to compensate the assured, there is no reason to invoke subrogation. Similarly, if the assured enters into a limits agreement or otherwise abandons his or her claim against an impecunious tortfeasor, the assured has lost nothing by the inability to be subrogated.”

275 . Smith v. Banjo, 2011 (2) SA 518 (KZP).

276 . Harms DJP in Rand Mutual Assurance Co Ltd v. Road Accident Fund op. cit. at p. 521 para. 23. With respect, the comment regarding costs is not correct as, in practice, the insurer undertakes to indemnify the assured plaintiff against all costs incurred.

277 . Rand Mutual Insurance, op. cit. at p. 521 at para. 24.

278 . [2010] ZAKZPHC 197.

279 . [2009] ZAGPJHC 46.

280 . 2011 (2) SA 518 (KZP).

281 . At p. 521 para. 11.

282 . [2009] ZAGPJHC 46.

283 . See Reinecke et al., op. cit. para. 389.

284 . Yorkshire Insurance Co Ltd v. Nisbet Shipping Co Ltd [1961] 2 All ER 487.

285 . See, generally, Reinecke et al., op. cit. at paras 387 and 389.

286 . Reinecke et al., at para. 390.

287 . Reinecke et al., op. cit. at para. 516.

288 . Gordon & Getz, op. cit. at p. 287.

289 . Gordon & Getz, ibid. ; Reinecke et al., op. cit. at para. 516.

290 . Gordon & Getz, op. cit. at p. 287.

291 . Gordon & Getz, op. cit. at p. 288; Reinecke et al., op. cit. at para. 516.

292 . Reinecke et al., op. cit. at para. 516; Gordon & Getz, op. cit. at p. 289.

293 . Examples of such can be found in Reinecke et al., op. cit. at para. 516, fns 16 and 17.

294 . Reinecke et al., op. cit. at para. 519 and authorities cited in fn. 18 and Refrigerated Trucking v. Zive, 1996 (2) SA 361 (T) at 367.

295 . Reinecke et al., op. cit. at para. 519 and the authorities quoted at fn. 21.

296 . Reinecke et al., op. cit. at para. 519 and the authorities quoted at fn. 21. It is to be noted that these authorities come from English law. For South African authority, see Refrigerated Trucking v. Zive, 1996 (2) SA 361 (T). The judge in this case stated: “… the authorities referred to are persuasive and the result to which they come is fair”.

Table of Contents 

SOUTH AFRICAN LAW OF CARGO INSURANCE INTRODUCTIONo Scope and structure of the chaptero Sources of South African law Roman-Dutch law Judicial precedent Statutory sources of lawo The application of English law The practice: incorporation of English law Will the South African courts uphold a choice of English law?o Consumer protectiono The position of Lloyd’s underwriters

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCEo Utmost good faith and good faith The good faith requirement Non-disclosure and section 53 of the Short-term Insurance Act 1998 The remedy of avoidanceo Formalities, insurable interest and illegality Formalities Insurable interest Problem issues of insurable interest Insurance “lost or not lost” Illegality and public polic y OPEN COVERS, POLICIES AND CERTIFICATESo Open covers, policies and certificates of insurance Policies and clauses in use Interpretation and construction of policies generally WARRANTIES, EXCLUSIONS CONDITIONS AND OTHER TERMSo Warranties Warranties definedo Exclusions The nature of exclusions Causationo Conditions ALL RISKSo All risks definedo Burden of proof Limitations and exclusions on all riskso Wilful misconducto Ordinary wear and tearo Inherent vice: insufficiency of packingo Delay and insolvencyo Unseaworthiness and unfitness WAR, STRIKES AND TERRORISMo The limitations on cover for war and strikes risks War, civil war, revolution, rebellion, insurrection and civil commotiono Terrorism The cover for terrorism DURATION OF THE INSURANCEo The Transit Clause Attachment of risk: “ordinary course of transit” Termination of risk; election to storeo Held covered, termination of carriage and change of voyage Held covered and analogous provisions Termination of Contract of Carriage Clause Change of Voyage Clause CLAIMS AND LOSSESo Claims

Limitation of action Proof of loss Interest and costs Good faith and fraudulent claimso Total loss of cargo and abandonment The categorisation of losses: real and presumed loss Abandonmento Loss of the adventureo Partial loss: measure of indemnity Valued and unvalued policies Cargo delivered damaged at destination: salvage losses Underinsuranceo Recoverable expenses Sue and labour Salvage General average SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF CONTRIBUTIONo Subrogation Reception of doctrine into South African law Exercise of subrogation rights in practice Excess or first loss clauseso Double insurance and contribution Double insurance: when does it occur? Contribution between insurers