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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Zeus Tradition Marine Ltd v Bell [2000] EWCA Civ 188 (13 June 2000)
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Cite as: [2000] EWCA Civ 188
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Case No: A3/1999/0495
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION COMMERCIAL COURT
(MR JUSTICE COLMAN)
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 13th June 2000
LORD JUSTICE PILL
LORD JUSTICE POTTER
and
SIR MURRAY STUART SMITH
- - - - - - - - - - - - - - - - - - - - -
ZEUS TRADITION MARINE LIMITED |
Appellant | |
- and - |
||
IAN
FRANCIS FRANK BELL |
Respondent |
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Stephen Ruttle QC (instructed by Messrs Sinclair Roche & Temperley, London, for the appellant)
Belinda Bucknall QC and John Russell Esq. (instructed by Hill Dickinson, London, for the respondent)
Judgment
As Approved by the Court
Crown Copyright ©
POTTER LJ:
INTRODUCTION
1. This is an appeal with the leave of the judge from a judgment of Colman J sitting in the Commercial Court delivered on 30th October 1998 dismissing the plaintiffs' claim against the defendant for an indemnity under a marine insurance policy. By subsequent order dated 16th April 1999 and sealed on 21st April 1999, he gave leave to the plaintiffs to appeal, confined to the proper construction of the survey condition included in the policy. He also gave leave to the defendant to cross-appeal. However, the defendant has not done so. The plaintiffs' claim arises out of a fire on 20th April 1993 on board the plaintiff's yacht "Zeus V" ("the yacht") when on a cruise off the island of Sikinos in the Aegean Sea. At the time the yacht was on a seven-day study cruise with twenty passengers aboard as well as her crew. All were rescued. However, the yacht was burned to the water line so as to become a total loss. The yacht had a wooden hull and had been built in 1958. It had been re-built and re-fitted during the period 1990-1992 in order to prepare her for use as a charter vessel for the cruise trade.
2. At the time, the yacht was insured under a Lloyds' policy entered into by the defendant who, as the active underwriter of Lloyds Syndicate 625 which was the leading underwriter of the insurance, is sued as representative of all other insurers. The risk was placed with the defendant on 22nd March 1993 by Lloyds brokers, Ian McCall & Co. Limited ("McCall"), by their representative Mr John Fraser. McCall's instructions were in turn received from Hellas Yacht Insurance ("Hellas"), Greek brokers whose office was in Piraeus and whose principal and owner was Mr Vassilakis who acted for the plaintiffs. The insurance was in terms evidenced by Certificate of Insurance No. M2359289 and was stated to be Hull & Machinery Insurance, value Drs 149,820,000. The Institute Yacht Clauses were also incorporated, as well as a condition which provided:
"Subject to survey including valuation by independent qualified surveyor prior to commencement of in commission period." ("The clause")
3. The yacht was surveyed on behalf of the defendant and it was agreed that the loss had been by reason of an insured peril. However, the claim was rejected by the underwriters against the following background. The plaintiffs had acquired the yacht in 1990 with a view to its being re-built. They obtained cover through McCall against builders' risks for a building period up to 31st March 1991, the works then being estimated to take six months. The cover was provided by a syndicate of which Mr Bell was not the leading underwriter. That insurance was renewed for a further period of twelve months from April 1st 1991 and again in 1992. The latter renewal was "subject to survey and to valuation prior to navigation". At that time it was mutually envisaged that during the 1992/93 cover there would be some period of time before the vessel went into commission. The yacht was subsequently brought into commission on 3rd May 1992 following a survey by SVL. However, the survey report was never sent to McCall who were not aware that the vessel was navigating during the currency of the insured period.
4. During the 1992/93 period of cover the vessel was surveyed by the Greek Ministry of Mercantile Marine ("MMM"), as it had been the year before. This was an annual requirement for Greek passenger carrying vessels. As the yacht was not entered with a classification society, as a cargo vessel would have been, this represented the only official and independent survey to which it was subjected. It consisted of a survey ashore and afloat. The former included the hull, engines and safety equipment and was carried out on 15th January 1993, followed by an engine survey at sea on 3rd March 1993. The judge accepted that the MMM survey:
"covered all aspects of the vessel's seaworthiness, including stability, and was most searching."
However, at the time of the placing of the risk in February/March 1993, the defendant was unaware that such survey had been carried out or, indeed, that the yacht was yet in commission.
5. On 27th March 1993, SVL conducted a survey afloat, following which they prepared and submitted to the plaintiffs a report dated 14th April 1993 described as a "Condition and Valuation Survey Report". The report consisted of ten pages. After the `Principal Particulars' and `General Description' had been set out it dealt in some detail with the condition of the yacht under headings relating to its various parts such as Hull, Decks, Navigating Room, Passenger Accommodation, Galley, Engine Room (in which the testing of the engines was included), Deck Fittings and Moving Equipment and Life Saving and Fire Fighting Equipment. So far as the inspection of the hull was concerned it found no defects, but made clear that the inspection was limited to the yacht whilst lying afloat and that the underwater parts had not been inspected. So far as those parts were concerned it recited the slipway survey and survey afloat of MMM on 15th January and 4th March 1993 respectively, exhibiting the Certificate of General Inspection issued by MMM on 5th March 1993 which set out the details of the yacht and the parts and equipment inspected which concluded:
"This certificate is issued following an inspection at the Port of Piraeus Marina Zeas on 3rd March 1993, which showed that the hull, engines and machinery, the telecommunication means, navigation lights and shapes and means of making sound signals and distress signals as well as the life saving appliances and fire-fighting equipment were on the date of inspection in satisfactory condition and in accordance with the Regulations. It will remain in force until 14th January 1994."
The SVL report stated that no outstanding recommendations existed against the yacht's seaworthiness and navigation.
6. Subject to the `underwater parts' qualification the survey report proceeded comprehensively through, and found no fault with, the various parts and equipment of the vessel. Under the final `Comments and Remarks', it stated that the examination had been made `always afloat' without making removals or opening up to expose parts originally concealed, or testing for tightness or trying out machinery, and without examination of underwater parts." It also made clear that no determination had been made and no opinion was expressed as to the yacht's `actual stability characteristics'. The conclusions were stated in the following terms:
"From the point of view of hull, except for the underwater parts which were not sighted, the yacht is in a satisfactory condition the passenger cabins and public rooms, decks and superstructures are in very good condition ...
Deck machinery, auxiliaries, navigating instruments, galley equipment, etc were found in order.
The engine room main and auxiliary machinery were noted to be in a satisfactory state.
As far as it could be ascertained from a general examination of the above yacht in ballast afloat it is the opinion of the Undersigned, as here above qualified, that the yacht and her equipment are in a satisfactory condition for the intended service, i.e. passenger cruise yacht and her estimated present day values are indicated above."
A copy of the survey report was despatched to McCall in London on 14th April 1993 by registered mail. However, it had not arrived by the date of the loss and was not seen by the underwriters until a copy was faxed to them on 23rd April 1993.
7. The plaintiff's claim under the insurance was rejected by the underwriters on three grounds:
(i) they had not been provided with the survey report on the vessel prior to the commencement of the in commission period; the vessel having already been in commission at the date of the inception of the insurance, continuing in commission thereafter;.
(ii) alternatively, if they were not entitled to be provided with a survey report prior to commencement of the in commission period, the SVL report subsequently provided was insufficiently comprehensive as it did not evidence a condition survey which confirmed the structure of the hull and main deck as sound and seaworthy, that work carried out in the engine room had been carried out to a safe standard and in a workmanlike manner, that the vessel's fire systems and apparatus were properly operational and that alterations to the vessel had not adversely affected its stability. It was said the surveyor ought to have investigated the vessel's underwater parts while she was slipped and to have conducted sea trials and an engine survey involving opening-up. The survey was no more than a superficial survey reporting on the general condition of the vessel for valuation purposes;
(iii) non-disclosure in relation to the vessel being put into commission
prior to the period of insurance.
THE JUDGE'S DECISION
8. So far as the underwriters' ground (iii) is concerned, suffice it to say on
this appeal that the judge found against the underwriters and there is no
cross-appeal in that respect.
9. So far as grounds (i) and (ii) were concerned, Miss Bucknall QC who appeared
for the defendant both here and below submitted that the clause constituted a
condition precedent to commencement of cover during the commission period and
that, as a matter of construction or implication to give business efficacy to
the contract, in order to satisfy the condition it was necessary for (1) the
vessel to be surveyed, (2) the surveyor to have prepared the report, (3) the
report to have been supplied to the underwriter and (4) the underwriter to have
accepted the report as satisfactory. Mr Ruttle QC, who appeared and appears
for the plaintiff, on the other hand, contended first that the clause was not a
condition precedent to cover at all. Based on submissions as to the previous
history of negotiations in earlier years, he submitted that its function was
merely to require a survey prior to the commencement of the in commission
period in order to substantiate the value of the vessel. Second, he submitted
that the condition was sufficiently complied with if, prior to the commencement
of the commission period, a survey had been carried out and the outcome was
satisfactory in the sense that the surveyor discovered no unseaworthiness or
lack of safety. The condition did not require that a report be submitted by
the assured to underwriters for their approval prior to commencement of the
commission period; the underwriters would be protected by the fact that, if and
when the plaintiff was made aware of adverse findings by the surveyor he would
be under a duty of good faith to inform the underwriters forthwith who would
then be in a position to require that the vessel be rendered safe and seaworthy
as a further condition of going on risk, alternatively to give thirty-days
notice of termination under Clause 20 of the Institute Yacht Clauses.
10. So far as the content of the survey report was concerned, Mr Ruttle
contended that the survey supplied fully complied with the purpose for which it
was intended, namely valuation, and that, if it was required to be a survey
which covered both condition and valuation, it was in any event appropriate for
that purpose. Miss Bucknall on the other hand argued that the survey was
inadequate because it did not consist of, or include, an out of water survey
for examination of the underwater parts and opening-up of the engines, sea
trials and an examination of stability.
11. At p.707 of his judgment, the judge identified the key issues relating to
the construction of the policy condition as follows.
"(a) What steps relating to the carrying out of a survey are required to be
taken by the assured prior to the vessel being brought into commission? In
particular, does the survey have to have been carried out, the report prepared
by the surveyor, delivered to the leading underwriter and approved by him, or
is it sufficient if the survey has been carried out although the report has not
(i) been prepared, or (ii) been received by the underwriter or (iii) been
approved by the underwriter, provided that the report by the surveyor is, when
prepared, one which would be satisfactory to a reasonable underwriter?
(b) What is the substance of the survey that has to be procured? In
particular, is it necessary that the surveyor should examine the vessel's
underwater parts, while she is shipped (sic), examine the engines after opening
up, observe the carrying out of sea trials and consider the impact of repairs
upon the vessel's stability and the operability of the fire safety
equipment?
(c) What is the effect on cover of non-compliance with requirements of the
condition?"
12. Having dealt with the background events prior to the placing of the risk,
which also involved insurance of another vessel the "Zeus II" from 1989 onwards
as well as "Zeus V" from 1990, and having dealt in detail with the placing of
the "Zeus V" in 1993, the judge turned to the question of the construction in a
passage of his judgment at p.712 headed "The Meaning and Effect of the Subject
condition" He said:
"There can, in my judgment, be no doubt as to the ordinary meaning of the words
"subject to" as they appear in the subject condition. The insurance at least
potentially covered two periods of operation of the vessel: first that covered
by "completion of refit" in the cruising range and second that following
completion of refit when she went into commission. The period of insurance
commenced on Apr. 1, 1993 and at that time underwriters would come on risk if
the vessel was still undergoing a refit, for there was no condition precedent
to the commencement of such cover. If however, the refit had by then been
completed and the vessel was brought into commission, underwriters would not be
at risk at all unless the requirements of the subject condition were complied
with. This is the ordinary and natural effect of the words used in a marine
policy. If there was an ambiguity about that point, I infer that the mutual
intention of the parties would have been to that effect ..... . Secondly, the
evidence of both expert witnesses, Mr Outhwaite for the plaintiff and Mr Day
for the defendants, was clearly that they considered that the market
understanding of a subject of this kind would be to the same effect, namely as
a pre-condition to the commencement or continuation of cover"
Having further reviewed the history, he stated:
"There can thus be no doubt that the preface words "subject to" create a
condition precedent to the continuance of cover after the commencement of the
commission period." (p.713)
Finally, having observed that in his view the words gave rise to no ambiguity,
he concluded that, on the evidence of the experts as well as Mr Bell:
"an experienced yacht underwriter could be expected to use "subject to" in this
context to connote a condition precedent to the continuance of cover and that
therefore is the meaning which it is to be inferred was mutually intended by Mr
Fraser and Mr Bell when this risk was written." (p.713)
13. With regard to issues (a) and (b), he stated that the problem with the
meaning of the subject to survey condition was to identify what was required to
satisfy it. As to issue (a), having referred to the arguments of the parties,
the judge stated:
"There can in my judgment, be no doubt that it is a requirement of the subject
condition that the survey must be carried out before the commencement of the in
commission period. Once the independent surveyor has completed the inspection
of the vessel for condition and valuation, it is also clearly necessary that he
should record his opinion in a report to be prepared as soon as practicable
after the inspection" (p.714)
He thus repeated his conclusion that the carrying out of the survey was a condition precedent to the commencement of in commission cover, at the same time rejecting the submission of Mr Ruttle that it was a survey for the purposes of valuation only. He also held that recording of the surveyor's opinion in a report was essential before the vessel came on risk. Thus he accepted Miss Bucknall's submissions (1) and (2) (see paragraph 9 above)
14. The judge went on to state that the opinion required was to the effect that
"the vessel was seaworthy and passenger-safe and free of recommendations in
this respect". He stated in this connection that the condition could plainly
not be satisfied by the carrying out of a survey which resulted in a report to
different effect:
"... for if that were the case, the mutual assumption on which the underwriters
must be taken to have accepted the risk, namely that the vessel would be
seaworthy and passenger-safe at the commencement of the in commission period
would not be correct. So it can safely be inferred that the mutual intention
was that the surveyor would confirm this assumption and that, if he did not,
the underwriters would not come on risk. In that event, the owners would have
to put right the defects and have the vessel re-surveyed for the purpose of
obtaining a report which confirmed the mutual assumption as to the condition of
the vessel." (p.714)
15. However, the judge rejected Miss Bucknall's submissions (3) and (4) to the
effect that, once the report had been prepared, in commission cover would not
commence until it had been supplied to the underwriter and accepted by him as
satisfactory. In that respect the experts on both sides were in agreement
that, had it been the intention that, before the underwriter came on risk, the
survey report was to be presented to him so that he could approve it, then
there would be an express provision to that effect and that it was an
impractical requirement that, after the completion of the refit, when the yacht
was ready to sail and the owner wished it to be working and earning money that,
following a satisfactory survey, a report would have to be produced and
supplied to underwriters for their consideration and approval before the vessel
could start earning. In this connection the judge held (at pp 714-5) that:
"... if the survey report must in any event confirm the seaworthiness and
passenger safety of the vessel, an additional requirement that it should be
approved by underwriters before the in commission period commenced would be
otiose and cannot have been mutually intended. ....... .
Once it is accepted that the condition precedent to continuation of cover is
complied with by a survey free of recommendations prior to commencement of the
in commission period and is not complied with if a survey discloses defects,
the question whether there would be a continuing duty .. to disclose to
underwriters a report which questioned the vessel's seaworthiness or passenger
safety does not arise, for in such circumstances if the assured brought the
vessel into commission, underwriters would automatically be off-risk."
16. Having reviewed the experts' evidence the Judge stated:
"Accordingly, I hold that it was a requirement of the subject condition that
before the commencement of the in commission period: (i) a survey of the vessel
should have been conducted for condition and value by an independent surveyor
and (ii) a condition survey should have been satisfactory in the sense that it
gave rise to no defects or recommendations in respect of seaworthiness or
passenger safety. Further, whereas it was not a precondition of the
continuance of cover that underwriters would be provided with a report and that
they should approve it, nevertheless the assured would have to provide the
underwriter with such a report for the purpose of evidencing compliance with
the subject condition. In practice, provision of the report to the underwriter
would normally occur within a reasonable time of the survey inspection and no
doubt the underwriter could call for its production forthwith, but, if such a
report were produced to him and it disclosed no defects, he could not then
treat himself as off-risk simply because of the delay beyond the commencement
of the commission period in providing it to him." (pp715-716)
17. The Judge then moved on to consider what kind of survey was required. He
noted the Defendant's case that the survey conducted was completely deficient,
being apparently no more than was necessary for valuation. It was based on the
argument that the condition required not merely a superficial survey of the
kind conducted by SVL, but specifically an out of water survey for examination
of the underwater parts and opening up the engines, sea trials and examination
of stability. The contrary argument advanced by Mr Ruttle for the Plaintiff
was that, if the underwriter had wanted a particular type of survey it was for
him to specify to that effect in the contract of insurance and, in this
respect, he contrasted earlier assurances written by the Defendant in respect
of other vessels in the Plaintiff's fleet where phrases such as "full survey"
and "subject to full out of water survey prior to policy inception" were
employed. Mr Ruttle also submitted that, in the absence of any express
specific requirement, the words should be construed against the underwriter
for whose benefit they were. The Judge observed:
"The words "subject to survey" were so non-specific that they are capable of
bearing a range of meanings relating to the nature of the survey required.
However, it is reasonably clear that it must have been the mutual intention
that any condition survey must have regard to the seaworthiness of the vessel
and to its passengers safety, both being directly material to the risks
insured. Key factors relating to seaworthiness would be the condition of the
wooden hull, the engines and steering gear. Stability would also be relevant."
(p.716)
18. The Judge referred to the rival evidence of the experts, who were not
agreed as to whether participants in the market would have used more specific
words if they had mutually intended a survey as comprehensive as that asserted
by the Defendant. Whereas Mr Day for the Defendant stated that he considered
that the express words used required an out of water survey Mr Outhwaite for
the Plaintiffs said that, given that the vessel had completed its refit and had
just four weeks previously been subjected to the MMM survey, he, as a prudent
underwriter, would have asked only for a survey which checked that all the
things which had been done to the vessel were satisfactory and did not affect
the vessel's safety or the hazards involved with the operation of the vessel.
He also made the point that once the refit had been completed one could not
start dismantling internal decorations and furnishings to investigate the
vessel's seaworthiness.
19. In approaching the question of what the clause required, the Judge
considered the appropriateness of the principle that, since the words used were
in the context of the other terms capable of bearing a broad range of meanings,
there were grounds for construing them as bearing the meaning in the range
least onerous to the Plaintiffs as the assured and against the underwriters for
whose benefit the term would necessarily operate and who had put it forward for
their own benefit. However, having referred to other authorities which have
suggested that this approach is not appropriate where the ambiguous wording is
contained in a slip tendered to the underwriter by the assured's broker, he
declined to apply the contra proferentem principle in coming to his conclusion
on construction. He stated his conclusion in this way at pp718-9:
"In my judgment the subject condition is not to be construed as
necessarily imposing on the assured the requirement that there should be
an out of the water survey or the opening up of machinery or sea trials or
stability tests after completion of the refit and before commencement of the in
commission period. Rather, the nature of the survey required on the proper
construction of the condition is one which is to be no more stringent than in
all the circumstances would reasonably be necessary to satisfy the underwriters
of the vessel's seaworthiness and safety. Only if it were inadequate for this
purpose would the underwriters be entitled to plead themselves as off risk once
the period of commission had started. For example, the vessel might have been
subjected to an out of the water survey many months prior to the commencement
of the in commission period but so long before the completion of the refit
that, unless it was once again inspected out of the water, its seaworthiness
might be in serious doubt. Alternatively, no such inspection might be needed
if there had been one a relatively short time previously to completion of the
refit and commencement of the in commission period. Or, following sea trials,
further alternations could have been made to it which might go to its steering
gear which ought therefore reasonably to be tested once again before it went
into commission. What was reasonably necessary in each case would depend on
all the circumstances, including the nature of the refit and the length of time
since the last out of the water survey, engine opening up or sea trials."
20. In the light of that construction, the Judge considered whether the
Plaintiffs had complied with the survey condition. In this connection he noted
that whereas the SVL report included some limited first-hand evidence of the
yacht's state of seaworthiness derived from the inspection of the surveyor, the
most significant contents in relation to seaworthiness were the references to
the findings of MMM when inspected ashore on 15th January 1993, some ten weeks
earlier. In this connection the Judge stated:
"It was the evidence of Mr Venetopoulos, which I accept, that the MMM survey
covered all aspects of the vessel's seaworthiness, including stability, and was
most searching. In the view of the fact that the last previous SVL survey of
the vessel ashore was on Nov. 6, 1991 and afloat on Apr. 16, 1992, was the
"survey" prior to the in commission period sufficiently comprehensive
reasonably to satisfy the underwriters of the vessel's seaworthiness and
passenger safety?" (p.720)
In that connection he summarised the expert evidence as follows:
"Mr Bell said that no yacht underwriter would have been satisfied that the SVL
survey was sufficient. Mr Day said that it was insufficient, mainly because it
did not include an out of the water inspection. Mr Outhwaite disagreed. He
stated that an underwriter would place reliance on the MMM survey just as he
would rely on a classification society survey if the vessel were entered in
such society. He would take into account the results of the survey and of the
afloat survey conducted by SVL. Having regard to the fact that the MMM survey
had been carried outshortly before completion of the refit it would not be
necessary for a further out of the water survey and further engine trials at
sea a few weeks later prior to the in commission period." (p.720)
21. The Judge stated that he did not doubt that any prudent underwriter would
have wanted a survey of the Yacht's underwater parts to be conducted before the
vessel re-entered commission. He said:
"Accordingly, the key question is whether, having regard to the vessel's having
just previously satisfied the 1993 MMM survey, the underwriters reasonably
required the same ground to be covered by a survey by another independent
surveyor or whether, as the Plaintiffs suggest on the basis of Mr Outhwaite's
evidence, it was sufficient for SVL to conduct a much more limited survey
afloat, a few weeks later, and to report that MMM survey had approved the
vessel's condition. (p.720)
On this point the Judge found in favour of the defendant. He said:
"In my judgment, the subject condition requires any condition survey and
valuation to be entirely conducted and results recorded by the same independent
qualified surveyor or surveying company and not partly by an anonymous
governmental survey in respect of some aspects of the vessels and partly by
another surveyor engaged by the assured in respect of other aspects of the
vessel. The fact that the SVL report refers to what was stated to be the
results of the MMM inspections ashore and afloat does not, in any ordinary
sense, amount to a survey report in respect of those results. It lists them as
a matter of record but not by way of approval by the SVL surveyor.
Furthermore, the MMM certificate is not expressed in the form of a detailed
survey report, but as a list of those parts of the vessel as to which the MMM
surveyors had to be satisfied. It also seems probable that, if the underwriter
wanted further information about the condition of any of those parts of their
vessel inspected only by MMM, he would not be able to have access to the
surveyor in the same way as if the sole qualified independent surveyor carried
out the inspection and produced his own single report." (p.720)
22. Finally, the judge referred to the apparently common understanding of the
parties concerned in the insurance of the Plaintiff's vessels in the past that
the vessels were required to be inspected out of the water by the independent
surveyor in addition to inspections conducted by MMM.
23. Accordingly, he concluded:
"that the survey conducted by SVL, notwithstanding its references in his report
to the MMM inspection, was insufficiently comprehensive to satisfy the
reasonable requirements of an underwriter for the purposes of the subject
condition ... . The underwriters were therefore not on risk at the time of the
loss."
He added:
"In arriving at this conclusion in spite of Mr Outhwaite's evidence, I formed
the opinion that his opinion does not give weight to the entitlement of the
underwriter, which is implicit in this condition, to a survey report evidencing
an inspection by the author of it of all those aspects of the vessel's
seaworthiness and safety as to which an independent assessment is reasonably
necessary together with a valuation of the vessel. His opinion does not give
effect to the sense of the express words of the subject condition."
Thus it is to be noted that the judge did not state that the MMM survey could
not be relied on because it had been effected too long before the date of the
SVL survey (c.f. the judge's view of the nature of the MMM survey and Mr
Outhwaite's evidence as quoted at paragraph 20 above which the judge did not
reject), or because it was in any respect inadequate so far as the underwater
parts and the question of stability were concerned. He simply indicated that
it could not be relied because it had not been carried out or formally endorsed
by the individual or company which was the author of the SVL report.
THE ISSUES IN THE APPEAL
24. Following his judgment, the Judge gave leave to appeal to the Plaintiffs
confined to the issues arising in relation to the proper construction of the
survey condition, excluding the question relating to the independence of the
surveyor which was raised by, and resolved against, the Defendant but to which
I have not troubled to refer. The sub-issues which have arisen and been argued
in this field may best be approached thus:
(1) Did the clause create a condition precedent to liability, or was it a mere
innnominate term?
(2) Did the provision merely require a valuation survey or did it require a
condition survey which included a valuation of the vessel?
(3) On its true construction, what kind of condition survey was required by the
provision and, in particular, was it one which required to be entirely
conducted and the results recorded by the same independent surveyor or
surveying company and excluded reliance upon a government survey conducted by
MMM.
ISSUE (1): CONDITION PRECEDENT
25. Mr Ruttle has argued that the clause was not a condition precedent to in
commission cover but an innominate term. The term appeared in the Certificate
of Insurance under the heading "Conditions", which, in the absence of an
express statement that the clause was a condition precedent, indicated that it
was no more than a general term of policy. He also relied on the decision in
Re Bradley v Essex and Suffolk Accident Indemnity Society [1912] 1 KB 415 (which the Judge distinguished) as authority indicating that, in the case
of what Mr Ruttle suggested was an ambiguity, the question whether or not the
term was a condition precedent should be resolved against the insurer. In my
view, these and certain other subsidiary arguments were doomed to failure.
First Mr Ruttle failed to make clear how, if the disputed provision was an
innominate term, it would operate. Second, in my view, the mere location of
the clause under the printed head "Conditions" is in no way determinative of
the status of the clause as a general term rather than a condition precedent.
Third, the submission was contrary to the view of the experts on both sides.
Fourth, he entirely failed to overcome the Judge's finding that:
"... an experienced yacht insurance broker dealing with an experienced yacht
underwriter could be expected to use "subject to" in this context to connote a
condition precedent to the continuance of cover ..."
Finally, the circumstances in which the provision came to be included in the
cover militated in favour of a condition precedent. This was an elderly craft
which had undergone a lengthy refit extending over a considerable period. She
was covered under the policy while the refit continued, but known to the
parties to be intended for commercial use when she eventually came into
commission, the plaintiff requiring cover for such use. It was also the
understanding on the part of the defendant, as the underwriter assessing the
risk, that the refit had still not been completed by the time that negotiations
for the period of cover commencing on 1st April 1993 were taking place.
Accordingly, this ground of appeal fails.
ISSUE (2): CONDITION AND/OR VALUATION SURVEY?
26. Mr Ruttle persisted on this appeal with his principal contention before the
Judge that the survey was intended to be a valuation and not a condition
survey. He accepted that more than a one-line valuation was required and that
it should be supported by a survey justifying the valuation by reference to the
condition of the vessel. However, he contended that the focus was primarily on
the valuation, the insurers having already rated the risk.
27. Whether or not the focus was primarily upon valuation, it does not seem to
me that the Judge's finding in this respect can be disturbed. Having reviewed
the evidence as to the negotiations in previous years, and, having concluded
that neither Mr Fraser nor the defendant, Mr Bell, knew prior to commencement
of the period of insurance on 1st April 1993 that the refit had definitely been
completed and the yacht was immediately ready to go into commission, the Judge
concluded:
"The 1993 Certificate operated in a manner which differed from the previous
years' contract in one respect, namely the absence of a requirement for the
justification of value if the vessel suffered a loss before a surveyor had
valued her. This could be because Mr Bell and Mr Fraser both assumed that the
survey would be conducted at latest soon after the commencement of the period
of insurance. Nevertheless, the words "survey including valuation" are
retained. As with the earlier years' contracts, they clearly show that the
survey was to cover the vessel's condition as well as its value and that such
survey was to be a pre-condition of the continuance of cover if the vessel went
into commission at the commencement of or during the period of the insurance."
(p.713)
It seems to me that, in the light of the wording of the relevant phrase
"survey including" valuation", as well as the factual matrix to which
the Judge properly had regard, such conclusion is unassailable. However, that
still leaves open the question as to the level of detail required by the survey
and, in particular, whether it required to be one carried out by a particular
surveyor or company.
ISSUE (3) THE KIND OF CONDITION SURVEY REQUIRED/RELIANCE ON THE MMM
SURVEY
28. The Judge, held that, for the condition precedent to be satisfied, "a
condition survey should have been satisfactory in the sense that it gave rise
to no defects or recommendations in respect of seaworthiness or passenger
safety". The SVL survey clearly satisfied such a condition. However, the
judge elaborated and supplemented that basic requirement by going on to hold
also that the nature of the survey was one which required to be "no more
stringent than in all the circumstances would reasonably be necessary to
satisfy the underwriters of the vessel's seaworthiness and safety" (p 718). In
this respect he expressly held that the condition did not necessarily
impose a requirement that there should be an out of water survey or the opening
up of machinery or sea trials or stability tests after completion of the refit
and before commencement of the in commission period. He contemplated that
whether or not such obligation was imposed was likely to depend on whether an
out of the water survey had taken place so long before the commencement of the
refit that, unless it were once again inspected out of water, the seaworthiness
might be in serious doubt, or whether there had been such survey "a relevantly
short time previously to completion of the refit and commencement of the in
commission period" (see paragraph 19 above). He also cited the example of
further alterations having been made following sea trials which might affect
the steering gear and thus require it to be tested again before it went into
commission. In this connection, he accepted that the out of water survey and
engine surveys carried out by MMM on 15th January and 14th March 1993
respectively covered all aspects of the vessel's seaworthiness, including
stability, and was most searching (see paragraph 20 above). In that context he
posed the key question, on the answer to which his decision finally turned,
namely whether, the vessel having "just previously satisfied the 1993 MMM
survey, the underwriters reasonably required the same ground to be covered by a
survey by another independent surveyor", or whether it was sufficient for SVL
to conduct its more limited survey afloat a few weeks later, reporting that the
MMM had surveyed and approved the Yacht's condition (see paragraph 21 above).
As Mr Ruttle submitted, a reading of the judgment up to that point suggests
that the Judge was poised to give the answer that, taken together, the two
surveys were a sufficient fulfilment of the condition. In fact, he held to the
contrary, stating as his pivotal reason that the clause required that any
condition survey and valuation should be entirely conducted and the results
recorded by the same surveyor or surveying company (see also paragraph
21 above).
29. Mr Ruttle has attacked that conclusion, taken on its own, on the basis that
it cannot be derived from the wording of the clause either on ordinary
principles of interpretation, or on the basis of the Judge's own earlier
finding that an earlier out of water survey might avoid the necessity for
anything more than a survey afloat, for the purpose of satisfying the clause.
As to the construction of the clause, Mr Ruttle submits that there is no reason
to suppose that the defendant intended to exclude the plaintiffs from relying
upon two survey reports going to different aspects of the yacht's performance
and passenger safety, provided that together they constituted a reasonably
satisfactory report. He tested this by submitting that there could be no
reason in logic or as a matter of practice to exclude the ability of the
plaintiffs' surveyor (whether as an individual or a company) to sub-contract
part of the survey in an area where he lacked expertise or was unable for some
reason to carry out that part of the survey himself. The word "survey" should
thus be interpreted as `survey or surveys' whether as a matter of commercial
good sense or on the basis that the singular includes the plural, save where
the context otherwise demands. If that is correct, then the issue becomes
whether the MMM survey, despite the judge's finding that it was a most
searching survey which covered all aspects of the yacht's seaworthiness,
including stability, is for some other reason to be excluded or disqualified
from the category of additional survey able to be relied on.
30. I accept Mr Ruttle's submission as I have summarised it in paragraph 29. I
also accept his submission that, in a case where uncertainty arises as to the
meaning or scope of a provision in an insurance policy designed to exclude or
diminish the liability of an insurer which would otherwise arise under the
terms of the policy, a contra proferentem approach is appropriate. As observed
by Staughton LJ in Youell -v- Bland Welch & Co Limited [1992] 2
Lloyd's Rep 127 at 134:
"There are two well established rules of construction, although one is perhaps
more often relied on with success than the other. The first is that, in case
of doubt, wording in a contract is to be construed against a party who seeks to
rely on it in order to diminish or exclude his basic obligation ... . The
second is that, again in case of doubt, wording is to be construed against the
party who proposed it for inclusion in the contract: it was up to him to make
it clear."
In most insurance cases, the rule is employed in its second form and against
the insurer. However, as it seems to me, both rules are applicable here to
support a common sense reading of the clause so as to permit the insured, in
appropriate circumstances, to rely upon inspections or findings of more than
one surveyor or company to satisfy the `subject to survey' provision.
Thereafter, however, the question of whether or not the content of a survey or
surveys relied on would reasonably be necessary to satisfy the underwriters of
the vessel's seaworthiness or safety is a matter to be determined on the
evidence and in all the circumstances of the case.
31. Miss Bucknall has been quite unable to persuade me that, in principle, the
clause is to be interpreted so as to exclude plural surveys covering different
aspects of the vessel's seaworthiness, safety and performance provided that,
taken together, they satisfy the reasonable requirements of the underwriters.
As to the question whether a governmental survey such as that conducted by MMM
is in principle capable of amounting to a survey on which the plaintiffs were
entitled to rely, either standing alone or as incorporated into a single report
as in this case, I again see no good reason to hold otherwise. All the clause
requires is that the survey should be independent. Nor did the judge (or more
significantly the witnesses) seek to criticise the quality of the MMM survey
which the judge found was `most searching' and which he contemplated could (if
sufficiently recent) preclude the necessity for a repeated inspection by the
reporting surveyor. Nor did he hold that the MMM survey was insufficiently
recent to be relied on.
32. I find myself unable to support the subsidiary reasons which the judge
advanced for his view that the clause required that the survey and valuation be
entirely conducted, and the results recorded, by the same surveyor, rather
than, in part, by a government inspector. In this connection I remind myself
that the question before the court is whether, in the circumstances, the report
was sufficient to satisfy a reasonable underwriter as to the seaworthiness and
passenger safety of the yacht for the purposes of the commencement of in
commission cover and not what might appear reasonable to an underwriter who
received and considered the report after the occurrence of the loss.
33. The first reason stated by the judge was that the SVL report did not amount
to a survey report covering or incorporating the results recorded by the MMM
because it listed them as a matter of record but not by way of approval by the
SVL surveyor. While it is true that the SVL surveyor did not expressly approve
the results of the MMM inspections, it seems to me quite plain that by
specifically referring to the MMM surveys and stating that no outstanding
recommendations existed against the yacht's seaworthiness for navigation,
accompanied by an exhibition of the certificate issued by the MMM in the terms
set out at paragraph 5 above, the SVL surveyor was adopting and incorporating
the MMM survey and inspection of the relevant parts of the vessel and the
statement of condition in the certificate as part of SVL's own survey report.
The judge's second reason was that the MMM certificate is not itself expressed
in the form of a survey report but rather as a list of those parts of the
vessel as to which the MMM surveyors were satisfied. I do not find this a
valid objection, given the form of the certificate and the judge's express
finding that the MMM survey covered all aspects of the vessel's seaworthiness,
including stability.
34. As to the judge's third reason, it may well be that, if the underwriter
wanted to ask for further information about the condition of any underwater
parts of the vessel inspected he would lack direct access to the surveyor
concerned in the same way as if a sole independent surveyor had carried out the
inspection and produced his own single report. However, he would not lack
access to the insured's representatives and the reporting surveyor who, if they
could not themselves provide or procure the answers, would leave the insured at
risk of lack of cover. In this connection, I note in any event that the
underwriters' rejection of cover was based upon their outright rejection of the
adequacy of the SVL survey and was not based upon the narrow point raised by
the judge.
35. The judge's fourth, and potentially more substantial, subsidiary reason was
that it was the common understanding or assumption of the parties that an MMM
inspection could not be relied on, because the parties did not appear to have
regarded it as relevant to compliance with previous survey requirements under
earlier certificates of insurance in respect of Zeus vessels. Mr Ruttle has
informed us, and Miss Bucknall has not gainsaid, that this was essentially the
judge's own point, no evidence or cross-examination of the witnesses having
been directed to it. It was based upon two incidents.
36. In November 1991, when the "Zeus V" was shipped for various works to be
carried out, Mr Venetopoulos, the President of the plaintiffs, took the
opportunity to have the vessel surveyed by SVL because he said he knew for the
purposes of the insurance it would have to be surveyed both ashore and afloat
and for purposes of valuation before she could navigate. The vessel was also
separately inspected in that month by MMM for the purposes of her annual
certificate (see p.709 of the judgment). In those circumstances, it seems that
the judge concluded that the duplication of inspection indicated the
understanding or assumption of Mr Venetopoulos that the MMM inspection could
not be relied on for insurance purposes. If so, Mr Ruttle submits (rightly in
my view) that was not a legitimate conclusion to draw from Mr Venetepoulos'
evidence at least without further exploration. On any view, a survey had to be
carried out for the purposes of insurance and valuation, and the occasion
presented an ideal opportunity for such inspection. At the time the SVL
inspection was arranged, the MMM survey had not yet taken place and its outcome
was not known. Mr Venetepoulos was never asked whether, if he had been unable
to arrange an out of water inspection, he would have felt entitled to rely on
the MMM inspection as part of, or a supplement to, a survey report by his own
surveyor.
37. The second incident related to "Zeus II" another vessel in the Zeus fleet
which, in 1989, was being re-built. The plaintiffs similarly required cover in
respect of builders' risks and thereafter in commission. The in commission
cover was "subject to full survey and valuation" upon which Mr Bell
insisted. On 1st June 1989, SVL produced a survey report, which Mr
Bell accepted as satisfactory, treating in commission cover as having incepted
(see pp 707-8 of the judgment). In that report, it was stated that the
inspection had been carried out ashore and afloat. It also made reference,
without more, to the fact that there had been an MMM inspection on the slipway
some five weeks earlier. The judge appears to have concluded from this that it
was accepted or appreciated by the parties that such an inspection could not be
relied upon as a relevant survey for the purposes of the clause in this case.
Again, I do not accept that reasoning. First, the obligation as stated in
respect of Zeus II required a "full" survey and Mr Bell had already rejected a
short "condition preliminary report", stating that a "full" survey was
required. This may well have affected the parties' view as to what was
necessary. Second, because the author of the full survey report had in fact
conducted an out of water survey for himself, he had no need to seek and did
not purport, to incorporate the MMM survey as part of his report for the
purposes of reporting on seaworthiness and passenger safety.
38. I would only add one further comment, in respect of the argument of Miss
Bucknall that it would be commercially unreasonable to hold that the clause
anticipated that an insurer could seek to rely upon the findings of a
governmental body carrying out the survey, not for the purposes of insurance,
but for some regulatory purpose. Her argument was that, if insurers did so,
should there have been some error in the survey, neither the insured, nor (more
importantly) the underwriters by way of subrogation, would have any recourse in
contract or negligence in respect of errors made. This was a sophisticated
argument not considered by the judge. More significantly, it was never raised,
or apparently even considered, by the underwriters themselves when repudiating
liability; nor was it an argument advanced or rehearsed with the defendant or
the experts. In those circumstances I am not prepared to regard it as a matter
which would have affected the thinking of a reasonable underwriter when
considering the merits of the SVL survey.
39. Since the judge predicated his conclusion (at p.721) that the survey by SVL
was insufficiently comprehensive to satisfy the reasonable requirements of the
underwriters for the purposes of the clause upon reasoning which I regard as
incorrect, that conclusion seems to me to be irremediably flawed and I would
allow the appeal on the issue of construction. It is not clear whether, had
the judge taken the right approach to construction, he would or would not have
decided that the survey was inadequate to satisfy a reasonable underwriter as
to seaworthiness or passenger safety. In her submissions to us, Miss Bucknall
raised a number of matters of detail which were not relied on by the judge as
demonstrating the inadequacy of the survey for the purpose of satisfying a
reasonable underwriter as to seaworthiness and passenger safety. However,
these were not made the subject of any cross-appeal or notice of additional
grounds upon which the judgment should be upheld, whatever the outcome on the
construction issues. In those circumstances I would wish to hear further
argument from the parties as to the appropriate form of order to be made
consequent upon the success of the appeal.
40. Subject to that observation, I would allow the appeal.
Sir Murray Stuart Smith I agree.
Lord Justice Pill: I agree. That conclusion does not involve
support for any general principle that the requirement for a "survey including
valuation by independent qualified surveyor" is normally satisfied by reliance
on a report of an official or public body. While it is intertwined with other
points, as to which I accept Potter LJ's analysis, I see force in the doubts
the judge expressed about "an anonymous governmental survey" and in one of the
reasons he gave for that doubt, namely that access to the surveyor would not be
possible in the same way as access to an independent surveyor. The likely
absence of recourse in contract or negligence in respect of errors made was
probably a factor the judge had in mind. Whether he did or not, it is in my
view a relevant factor when considering the effect of the contractual
requirement.
The question of reliance on a report by a public authority was considered in
the very different context of a house purchase in Sneesby v Goldings (a
firm) [1994] EGCS 201. A survey of a house which had been modernised with
a local authority improvement grant was commissioned. Hoffman LJ stated that,
in the circumstances of that case, that very little weight could be placed on
the improvement grant inspection.
On the facts of the present case, as explained by Potter LJ, and subject to
his observation in paragraph 39, I agree that the appeal should be allowed.
Order: Application Adjourned with new skeleton to be delivered on
15th September 2000.
(Order does not form part of approved judgment.)