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VIKING FISHING V MUTUAL AND FEDERAL, ROUND TWO: SUPREME COURT OF APPEAL CONSIDERS THE MERCHANT SHIPPING ACT WARRANTY

By Jeremy Prain,Lana Stockton Thursday, May 12, 2016
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Viking Inshore Fishing (Pty) Ltd v Mutual and Federal Insurance Co Ltd (41/2015) [2016] ZASCA 21 (18 March 2016).

Many readers will recall the collision between the fishing trawler Lindsay and the bulk carrier Ouo do Brasil a few miles off the coast near Cape St Francis on 8 May 2005. The fishing trawler capsized and sank soon after the collision and fourteen crew members lost their lives in the tragedy which prompted a lengthy Court of Marine Enquiry into the incident.

The tragedy also resulted in litigation between the owners of the Lindsay (Viking Fishing) and their hull underwriters, Mutual & Federal, arising from the repudiation of the claim for the loss of the trawler.  

The most recent finding on the claim was handed down by the Supreme Court of Appeal (SCA) on 18 March 2016, which overturned the earlier decision of the Western Cape High Court in favour of the underwriters.

The appeal turned on two issues. The first was the proper application of the so-called “Merchant Shipping Act warranty” in the insurance policy. The other was whether the whether the loss of the Lindsay resulted from “want of due diligence” on the part of Viking Fishing.

The MSA warranty is a common feature of hull insurance policies written in the local market and the clause in the Lindsay policy read as follows:

“Warranted that the provisions of the South African Merchant Shipping Act and the regulations pertaining thereto shall be complied with at all times during the currency of this policy, provided that this warranty shall be effective only to the extent of those regulations which are promulgated for the safety and/or seaworthiness of the vessel(s). It is understood and agreed that this warranty shall in no way be construed to nullify the ‘inchmaree’ Clause, or any part thereof in the Institute Clauses attached to this Policy.”

The term “inchmaree” in the second sentence quoted above refers to events which extend insurance cover under the policy to situations beyond perils of the sea and include, for example, loss of or damage caused by negligence of the Master, Officers and Crew. Given that Viking Fishing’s claim was based on an “inchmaree” event, it argued that, on a plain reading of the insurance policy, the MSA warranty did not apply to such claims and that there had been no breach of the warranty. The Court agreed.   

In the circumstances, the Court found that it was not necessary to determine the legal effect of a breach of warranty, but it did express the following view on the nature of the warranty which may, in time to come, influence the Court’s approach in such cases:

“Such warranties are to be construed favourably towards the insured because of their impact upon the liability of the insurer. In other words they are to be given a practical and businesslike construction in the light of the purpose of the clause and the insurance policy. They are therefore not lightly to be construed as invalidating cover on grounds unrelated to the loss.”

This view represents a departure from the traditional approach to warranties in an insurance policy dating back to the 1916 decision in the case of Lewis v Norwich Fire Insurance Limited, where the Appellate Division (as it then was) held that a warranty must be exactly complied with whether it is material to the risk or not and that a strict observance of its terms is a condition precedent to the incidence of liability

Turning to the second ground, the court highlighted that what must be established is a want of due diligence on the part of the insured, the owner or the manager (i.e. Viking Fishing) causing the loss. That – so the Court held - does not depend on the conduct of the crew but on the conduct of those responsible at a higher level of management in the company.

When applying this test to the facts of the case, the Court was satisfied that the evidence showed that it was properly crewed by Viking Fishing in accordance with the applicable regulations.

It followed that Viking Fishing’s appeal succeeded and that it was entitled to an indemnity under the marine hull policy

Given that there are relatively few reported marine insurances cases in South Africa, this decision should serve as an important guide to owners and underwriters alike on the direction of our courts in deciding cases of this kind, particularly as regards the adoption of an approach which favours fairness over strict compliance with warranties.