England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM TORQUAY AND NEWTON
ABBOT COUNTY COURT
(HIS HONOUR JUDGE ROACH)

		Royal Courts of Justice Strand London WC2A 2LL Wednesday 31 October 2001

1. LORD PHILLIPS, MR: This is an appeal against the judgment delivered by His Honour Judge Roach in Exeter County Court on 28 February 2001. The issues that he had to resolve were issues of fact. His task was made no easier by the fact that eight years had elapsed since the events giving rise to the claim. Such delay is deplorable and demonstrates just how vital the procedural reforms introduced by Lord Woolf have been.
2. The facts in a nutshell are as follows. Mr Cuff, the respondent, owned a fishing boat called "Sarah Leanne". He insured it with the appellants, Commodore Marine Limited ("Commodore"), for £32,200 of which £1,200 was in relation to a life raft and personal effects shipped aboard her. In the proposal form he stated that her current market value was £35,000. The risks insured against included perils of the sea. On 3 April 1993 he found that she had sunk at her moorings in Brixham Harbour. He claimed under the policy for the anticipated cost of repairs on the ground that the sinking had been proximately caused by accidental damage to the hull.
3. Commodore repudiated liability on two grounds. The first was that they had lawfully avoided the policy for material non-disclosure contrary to section 18 of the Marine Insurance Act 1906 and for material misrepresentation contrary to section 20 of that Act. The alleged non-disclosure was that in September 1992 Mr Cuff had obtained a professional valuation of his vessel which estimated her value at between £22,500 and £25,000. The alleged misrepresentation was that the vessel had a value of £35,000 rather than the value placed upon her by the professional valuer.
4. The second ground was that Mr Cuff was unable to demonstrate that the sinking had been caused by a peril of the sea. Commodore contended that the proximate cause of the sinking was a protracted and progressive deterioration of the laminated hull which had rendered the vessel unseaworthy.
5. The judge rejected both defences. He held that the vessel had increased somewhat in value since the September 1992 valuation, and that such discrepancy as there was between the declared value and the actual value was not material. No more material was the outdated survey report for September 1992.
6. As to the cause of the loss, the judge held that Mr Cuff had established that the hull had been breached by perils of the seas in the form of grounding damage sustained some six weeks earlier, or damage caused when a piece of wreckage was brought up in the net and struck the underside of the vessel two days before she sank, or a combination of the two.
7. The judge gave judgment in the agreed sum of £17,756 together with interest of £10,410.16. Commodore attack his findings on both issues. I shall deal with each in turn.

NON-DISCLOSURE AND MISREPRESENTATION

Unchalleged Facts

8. The following facts are not in dispute. Mr Cuff bought the "Sarah Leanne", then named "KTST", from a Mr MacClean for £31,000 in February 1998. He paid Mr MacClean a further £4,000 for a fishing licence. Before buying the vessel Mr Cuff had it valued by a professional surveyor called Wilson, who commented:

"The hull is in first class condition throughout. Maintained in this condition will give many years of service.

Boat's value £40,000.

Value for insurance and replacement £45,000."

Mr Cuff insured the vessel with Sunderland Marine, through marine brokers called Jack Lawrence, for £45,000.

9. In 1991 Mr Cuff fitted to his vessel a new radar, a new hauler and a number of lesser items of equipment to a total cost of £6,500. In the middle of 1992 Mr Cuff's bank, which had a marine mortgage over the vessel, asked Mr Cuff to obtain a valuation of it. Mr Cuff instructed Mr Perrott of Richard Primrose Limited to carry out the valuation. Mr Perrott reported on 7 September 1992. He inspected the vessel afloat and valued her:

"....upon the premise that the hull, machinery and all equipment are in good sound and operational condition throughout".

Mr Perrott described the vessel and then gave the following valuation:

"This vessel is currently in commission and operating commercially as a stern trawler going to sea for day trips when the weather permits but no accurate indication of gross landings were available to assess the earning capacity or efficiency of the vessel.

In the writer's opinion, however, taking into account the size and type of this vessel together with the present uncertainty and depressed nature in the fishing industry, this vessel together with the gear and equipment as specified generally above should fetch a sum of between £22,500 to £25,000 on the open market today from a willing buyer provided a pressure stock licence matched to the vessel is transferred with the vessel to any purchaser which allows the vessel to fish commercially and based on the premise that the vessel is structurally and mechanically sound and operationally reliable and that no arbitrary or statutory regulations are introduced which hampers the vessel's mode of operation or restricts its earning capacity."

10. When Mr Cuff received a renewal notice for the insurance at the beginning of 1993, he asked his brokers, Jack Lawrence, to seek a cheaper quote. In turn, they instructed marine brokers called Radcliffe & Co Limited. They suggested Commodore. On 18 January 1993 Mr Cuff completed and signed a proposal form, the material parts of which read as follows:


 


VALUES T0 BE INSURED


 


ELECTRONIC/NAVIGATION EQUIPMNET ETC. BREAKDOWN OF VALUES TO BE INSURED:

A full breakdown of Electronic/Navigation equipment and person effects must be declared including values, serial numbers, owned or hired etc. otherwise a maximum of £100 per item will be allowed in the event of any claim.

CURRENT MARKET VALUES

Radar £900

Della Riav Mk 1 £900

Navstar £250

Sounder £600

VHF (2) £400

Auto Pilot £1,000

Total £4500

MACHINERY ON BOARD VESSEL

(ie Winches/Pot Haulers/Aux O/B Motors etc incl serial nos.)

North Sea Winch £1000

Munkebo Lift Hauler £5000

Total £6000

ENGINE(S) £6000

. . . .

CURRENT MARKET VALUE OF:

Hull & Machinery (other than outboard

motors) but including electronic and

navigation equipment £35000

Dinghy(s)/Tender(s) -

Life Raft(s) £1000

Outboard Motor(s) -

Personal Effects of Skipper and Crew £200

Catch (if required) -

Boxes (if required) -

Nets (if required) -

Fishing Equipment -

Total sum to be insured £36200

Date of purchase of Vessel Feb 87

Purchase Price of Vessel

On above date £35000

If price paid incl fishing licence

What is estimated value of licence

(not to be included in sums insured) £4000

State amount of work carried out

on Vessel since purchase £8000

. . . .


 


IMPORTANT – before signing the declaration below please ensure that all questions have been answered. You are reminded that you must disclose all material facts likely to influence the assessment or acceptance of the proposal. As failure to do so will render the insurance voidable. If there is any doubt whether facts might be considered material, they should be disclosed.

No insurance is in force until the proposal has been accepted by the Underwriters. The Underwriters also reserve the right to decline any proposal.

DECLARATION – I declare that to the best of my knowledge and belief the answers given by me are true and complete. All material facts have been disclosed and the sums insured represent the full current market value of the property to be insured.

. . . .


 


11. The proposal was accepted at a premium of 3.6 per cent of the sum assured. However the completed proposal form was considered by an employee of Commodore called Steve Clarke. He sent a fax transmission to Radcliffes which included the following:

"We would further advise that price paid £35,000 and clients noted to include fishing licence, of which is not to be included in TSA [total sum assured], as noted on proposal.

Therefore documents will be issued on TSA of £32,000."

12. On 24 March 1993 Radcliffes wrote to Mr Cuff explaining that the sum insured had been reduced from £36,200 to £32,200.

"This is because the fishing licence of £4,000 was included in the sum insured of £36,200 and should not have been. This was stated on the proposal and was not previously picked up. As you know, the fishing licence is not covered and they had quoted with this included in the figure.

In effect the sum insured is now reduced to a total of £32,200."

13. Mr Cuff made no objection to this. Whether or not he accepted that he had included the value of the licence in his valuation of the boat is not clear, though the inference is that he did. Mr Cuff did not disclose the fact of Mr Perrott's valuation to Commodore.

Evidence about the Valuations

14. Mr Cuff dealt in his witness statement with the basis upon which he valued the "Sarah Leanne" in the proposal form. He explained that he believed that his estimate was correct, ie at the top end of the range, bearing in mind the new equipment he had fitted and the good name of Freewood, the builders. He had seen a similar boat advertised for £50,000 and knew of two new buildings at a cost of £75,000. Furthermore, he understood that a new scheme was to be introduced that would allocate to his vessel a substantial quota of "fishing days" which led him to believe that his vessel had retained a value of £35,000 despite Mr Perrott's valuation.
15. In cross-examination he elaborated on his thinking. He had not thought to bring the professional valuation to the underwriters' attention because it had been made at the time when:

"...you didn't know how many days you would be allowed to go to sea to fish....

....

Well, would you buy something that you didn't know if you were going to get your money back on it?

....

.... after that, they issued the 'days at sea' quota, and then the boat value went back up - boat values went up a bit."

16. It was accepted by Miss Grundy for Commodore, both before the judge and before us, that Mr Cuff was an honest witness. It is not suggested that he deliberately set out to deceive Commodore.
17. Mr Perrott surveyed the "Sarah Leanne" on behalf of Commodore after the casualty. He was called to give evidence by them about the cause of the sinking. Mr Barnes, on behalf of Mr Cuff, cross-examined Mr Perrott at length about the value of the vessel. He accepted that there was room for a bit of error on either side of his bracket of £22,500 to £25,000 in that his figures were "a mean average". If Mr Cuff had managed to sell his vessel for £30,000 a week after his valuation, he would have been slightly surprised. His report reflected that "there was gross uncertainty and we were going through flux in the industry". He was asked about the effect on the value of the "Sarah Leanne" of a generous allocation of fishing days to Mr Cuff's licence. He replied that he had valued the boat and not the licence. He agreed, however, that if Mr Cuff was selling with the boat an attractive licence, this would tend to push up the value of the boat.
18. Mr Perrott was then asked about the basis on which owners insured fishing boats and pleasure boats. He agreed that it was normal to insure them for prices based upon what had been paid for them.
19. Asked about the value of "Sarah Leanne" in January 1993, he answered:

"The valuation scenario also takes into account the earning capacity of the boat and other things at the time, like, gross turnover's a figure we look at as what the earning capacity of a boat is and things like that. I think it's rather unfair just to ask me that question now ...

...and to backdate it to, to that period. I mean, some of the uncertainty was coming away and I think values were going up. Mr Cuff's was a small boat then, they weren't so popular and now those smaller boats have come back into more popularity now, and there are all sorts of factors I'm afraid."

The Law

20. Section 18 of the Marine Insurance Act 1906 provides:

"(1) Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which in the ordinary course of business, ought to be known by him. If the assured fails to make such disclosure the insurer may avoid the contract.

(2) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.

....

(4) Whether any particular circumstance, which is not disclosed, be material or not is, in each case, a question of fact.

(5) The term 'circumstance' includes any communication made to, or information received by, the assured."

Section 20 of the Act provides:

"(1) Every material representation made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If it be untrue the insurer may avoid the contract.

(2) A representation is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.

(3) A representation may be either a representation as to a matter of fact, or as to a matter of expectation or belief.

(4) A representation as to matter of fact is true, if it be substantially correct, that is to say, if the difference between what is represented and what is actually correct would not be considered material by a prudent insurer.

(5) A representation as to a matter of expectation or belief is true if it be made in good faith.

(6) A representation may be withdrawn or corrected before the contract is concluded.

(7) Whether a particular representation be material or not is, in each case, a question of fact."

Section 27 of the Act provides:

"(1) A policy may be either valued or unvalued.

(2) A valued policy is a policy which specifies the agreed value of the subject-matter insured.

(3) Subject to the provisions of this Act, and in the absence of fraud, the value fixed by the policy is, as between the insurer and assured, conclusive of the insurable value of the subject intended to be insured, whether the loss be total or partial."

21. The test of whether a circumstance or representation is material within the meaning of sections 18 and 20 of the Act, was considered by the House of Lords in Pan Atlantic Insurance v Pine Top Insurance [1994] 2 Lloyd's Rep 427. The debate centred on whether a material circumstance or representation had to be one which would have a decisive effect on the decision of an underwriter as to whether to write the risk or the premium to quote for it. Lord Mustill, who gave the leading speech, posed the question thus at page 434:

"....must it be shown that full and accurate disclosure would have led the prudent underwriter to a different decision on accepting or rating the risk; or is a lesser standard of impact on the mind of the prudent underwriter sufficient; and, if so, what is that lesser standard?"

22. Lord Mustill considered the relevant authorities at length and concluded that a lesser standard of impact than a decisive effect sufficed for the test of materiality. Lord Goff and Lord Slynn agreed, the latter without adding any reasoning of his own.
23. It is not easy to identify in the speeches of Lord Goff and Lord Mustill the lesser standard of materiality. It can be implied from the speech of Lord Goff that he considered that to be material the matter must be such as "would have an impact on the mind of the insurer when considering whether to accept the risk" (page 431).
24. Lord Mustill's conclusion is to be found at page 445 of his speech where he approved the view that:

".... the duty of disclosure extended to all matters which would have been taken into account by the underwriter when assessing the risk (ie the 'speculation') which he was consenting to pursue."

25. Neither definition of the test is easy to apply, but in practice this is seldom likely to be significant. This is because all members of the Committee in Pan Atlantic were agreed that there is a further implicit requirement that has to be satisfied before an insurer can avoid liability on the ground of non-disclosure or material misrepresentation. The underwriter must demonstrate that, had he known of the matter in question, he would not have written the risk at the premium agreed. In practice the attention of the court is likely to focus on whether this test is satisfied, although, in considering that question, the court will obviously reflect on the impact that the matter was likely to have on the mind of a reasonable underwriter.

Underwriting Evidence

26. The issue of whether non-disclosure or misrepresentation is material is one on which expert evidence of underwriting practice can properly be admitted. In the present case, District Judge Meredith, in the course of case management, directed that expert evidence of underwriting practice should be limited to a single expert jointly instructed by the parties. Commodore unsuccessfully appealed against this order, but took no steps towards agreeing a joint expert. In the event, the only underwriting evidence was that of Mr Sudworth, the underwriter who rated and accepted the risk on behalf of Commodore. He was no longer employed by Commodore at the time that he gave evidence.

In his witness statement dated 9 June 2000 he said:

"I confirm that I now regard, and would have regarded at the time, the differences in value between that contained in the Richard Primrose report and the quote and proposal forms as material; the value indicated by Mr Perrott was in the order of £22,500 and £25,000, including the vessel's licence. Mr Cuff put the licence value at £4,000 giving the value of the vessel at about £18,500 to £21,000. The value on the policy, however, was £32,000, more than 50% more.

I confirm that had I been aware of the disparity of value between that set out in the quote and proposal forms and that contained in the Richard Primrose report my assessment of the risk would have altered and in all probability I would have declined to offer any cover for the vessel.

I would further confirm that I consider the Richard Primrose valuation to be information material to the risk which I would have wanted to be disclosed to me."

27. Mr Sudworth was, in fact, mistaken in believing that Mr Perrott had included the licence value of £4,000 in the valuation.
28. At the start of his cross-examination Mr Sudworth accepted that he had no particular recollection of underwriting the risk on the "Sarah Leanne". Counsel put to him a number of propositions from the judgment in The Dora [1988] 1 Lloyd's Rep 69. He agreed that underwriters would normally expect an assured insuring a boat to put forward the value he subjectively believed the boat to have. He also accepted that it was commonplace for owners to put forward as the value the price that they had paid for the vessel, provided that they purchased it recently. He accepted that when Mr Cuff insured the "Sarah Leanne" he was content, given the purchase price, to insure her for £35,000, "provided that the assured considered that that was an appropriate sum ... providing that he did not have any knowledge of what the value is."
29. Mr Sudworth agreed that an excessive over-valuation was a cause for concern if it suggested that the owner might be happy to see his vessel lost. He was adamant, however, that the difference of £7,000 between Mr Perrott's upper figure of £25,000 and the insured value of £32,000 would have been of concern to him. For this reason, he would have wished to know of Mr Perrott's valuation. He said he always took a surveyor's valuation as being an indication of the market value at that time and, had he been aware of the valuation, he would certainly have asked questions. He would have insisted on writing a lower insured value at a higher rate of premium.

The Judge's Findings

30. Judge Roach recorded that the issue of non-disclosure was refined by both counsel to be whether there was plausible evidence that Commodore would have declined cover or offered materially different terms of insurance had they known of the 1992 valuation. He concluded that there was not. The essence of his reasoning appears from the following passage in his judgment:

"There is no evidence as to the craft's valuation as at the proposal date, in other words, January 1993. No evidence has been called by the defendants on this issue. The defendants rely on the September 1992 valuation and in my view that approach has flaws. The evidence on balance shows that with the uncertainties in the industry, the 1992 valuation was likely to be conservative but by the beginning of 1993 that uncertainty was lifting, and certainly the claimant had a basis for thinking that his large fish allocation was likely to favourably affect the craft's value.

I also bear in mind that the valuation report carried out by Mr Perrott was executed for bank overdraft or mortgage purposes. These purposes too would make it likely to be a conservative assessment of the boat's worth, because in that way, maximum security could be given to the proposed lender. So in these circumstances I am far from persuaded that the valuation difference between that which the claimant indicated in his proposal form and that revealed in the earlier valuation in September 1992 are so significant that they amount to the material non-disclosure. Looked at objectively, as the law requires me to do, notwithstanding Mr Sudworth's evidence, I take the view that even if the defendants had been aware of the 1992 valuation at the date of the proposal for insurance, I am not satisfied that the discrepancy would have been sufficient to alter the terms of the insurance of the offer or that it would have led them, as Mr Sudworth suggests, to decline the offer.

Submissions on Appeal

31. Miss Grundy, for Commodore, argued succinctly that there was no basis on which the judge could properly reject the evidence of Mr Sudworth, which was the only underwriting evidence adduced.

Conclusions

32. I start by considering whether Mr Cuff failed to comply with the requirements of section 20 of the Marine Insurance Act. The first question that arises is whether the statement of value made on the proposal form by the owner of a yacht or fishing vessel is a representation as to a matter of fact or a representation as to belief.
33. A ship valuation is no more than an estimate of the price that the vessel will obtain if sold on the open market. The reliability of the valuation will turn on the expertise of the valuer. Valuations made by owners are likely to be subjective and unreliable. They will often be based on the purchase price paid for the vessel.
34. As to the risk arising under a policy of marine insurance, the actual value of the vessel is irrelevant, save that, if it deviates too widely from the insured value, the assured may be tempted to cast away his vessel. It is commonplace for a ship to remain insured for the price paid for it, notwithstanding fluctuations in its market value. A bank that advances the purchase price on the security of a vessel will insist on this.
35. All these matters point to the conclusion that a discrepancy between the subjective valuation of the owner of the yacht or fishing vessel, and the value which would be placed upon the vessel by a professional valuer, would not normally be considered material by an underwriter. So far as Commodore were concerned, the requirement to provide details of the date of purchase, the purchase price and the amount of work carried out on the vessel since this purchase, seem designed to enable the underwriter to make a rough cross-check that the value put forward by the assured is not untoward.
36. These conclusions are confirmed by the evidence of Mr Sudworth. This made it plain that Commodore were not concerned about the accuracy of statements of value made by their assured, provided that they represented their honest belief. In effect, they treated such statements as representations as to belief rather than representations at to matters of fact.
37. On this basis there was no breach of section 20. If Mr Cuff's statements of value are treated as representation as to belief, they were true because they were honestly made. Although the point was not taken below, Miss Grundy was inclined to accept that Mr Cuff's statements of the value were to be treated as statements of belief. If however they are to be treated as representations made as to a matter of fact, any inaccuracy was not material in the absence of any intent to deceive.
38. The more critical issue is that which arises under section 18. Was the failure to disclose the fact that a professional valuer had valued the "Sarah Leanne" between £22,500 and £25,000 only four months before the proposal, a material non-disclosure that entitled underwriters to avoid the policy?
39. The judge not deal with the question of whether the fact of this valuation was material; ie whether it would have impacted on the mind of, or be taken into account by, a prudent underwriter. I consider Mr Sudworth's most significant answer to be:

"....had I been produced with that valuation of 22 and a half, and somebody is trying to insure it for 32, then I would certainly ask questions."

40. This statement I find convincing. A discrepancy of £10,000 or even £7,000 between a professional valuation and an assured's valuation only four months later at this scale of values, is something which might well impact on the mind of a prudent underwriter and lead him to ask questions. The vital question in this case, however, is whether, if questions had been asked and answered, the discrepancy would have led Mr Sudworth to decline the risk or to vary the terms of the cover?
41. It was on this question that the judge focused. He concluded that, despite Mr Sudworth's evidence, he was not satisfied that the discrepancy between the two values would have made any difference Was this finding open to the judge?
42. In my judgment it was. Mr Sudworth was being asked to consider an hypothetical question eight years after the event. At the time, it seems to me, his concern would have been to ascertain whether there was a reasonable explanation for the discrepancy between the earlier valuation of Mr Perrott and the value that Mr Cuff placed upon his boat. Fishing vessels are profit earning craft and their value must depend upon the profits that they are likely to earn. Mr Perrott accepted this and also that he did not have the relevant data. He agreed, however, that the prospect of a generous fishing quota would have enhanced the value of the "Sarah Leanne" to a degree, even putting the value of the licence to one side.
43. Mr Cuff was an honest witness. He had paid £36,000 for his vessel and £8,000 on it. He believed it to be worth more than the sum at which Mr Perrott had valued it when the market was in a state on uncertainty. If he had disclosed the earlier survey and Mr Sudworth had asked questions about the discrepancy, I can see no reason why he should not have accepted Mr Cuff's explanations and insured at his valuation. Certainly the judge was entitled to conclude that Commodore had failed to establish the defence of material non-disclosure under section 18 of the Marine Insurance Act.

LOSS BY PERILS OF THE SEAS

Unchallenged Facts

44. I have already referred to the purchase survey of Mr Wilson in 1998, who recorded that the hull was in first class condition throughout. After purchasing the vessel, Mr Cuff would beach her on a timber grid protruding from the harbour wall in order to coat her hull with anti-fouling paint. When this was done, only parts of the underside of the keel were visible. This was a practice which he carried out at six-monthly intervals.
45. In 1991 Mr Cuff decided to give his boat what he described as a "major refit". This involved lifting his vessel out of the water and placing it on chocks ashore with the keel clear of the ground. The work carried out included repainting the entire vessel. Photographs taken before and afterwards portray what, to the casual eye, appears to be a well found vessel.
46. The hull was constructed of GRP, commonly known as fibreglass. Deterioration of GRP can produce an effect termed "osmosis". At Totnes there was an Osmosis Centre which specialised in repairs to fibreglass. While his boat was out of the water, Mr Cuff asked a friend, who worked at the Osmosis Centre, to give the hull a quick look over. He examined the hull and found that there was no sign of osmosis.
47. When, in January 1993, Commodore agreed to insure the "Sarah Leanne", there was a breakdown in communication down the chain of brokers. This resulted in Mr Cuff being erroneously informed that it was a condition of cover that the vessel should be moored between trips in Brixham inner harbour. Mr Cuff had been accustomed to moor her alongside the wall in the Outer Harbour, where she remained always afloat. In the inner harbour she took the ground when the tide fell. This was unsatisfactory for a number of reasons; one was that the soft bottom was littered with debris. A glass fibre hull should not lie on such a bed for fear of damage. After a few weeks, during which representations were made to Commodore by the brokers, Commodore agreed that Mr Cuff could revert to mooring his vessel alongside the harbour wall. The spell of mooring in the inner harbour did not appear to have had any adverse consequences.
48. On Thursday April 1 1993 Mr Cuff was, with one crewman, taking in his net about 16 miles off Brixham. Conditions were robust with a force 7 blowing. They brought up in the net a section of metal wreckage about 15 feet long with protruding bolts, which struck the underside of the hull as it was being pulled home. Mr Cuff thought no more of this, but when entering the engine room after completing fishing, he found the water in the bilges an inch or two higher than normal. He pumped them out.
49. On Friday April 7 Mr Cuff dried out the boat on Brixham grid and inspected the hull for damage. He discovered a very small hole, the size of a nail hole, below the water line on the starboard side. He filled this with mastic and arranged for a GRP specialist to effect a permanent repair the following morning. The next morning, however, he found that the vessel had sunk at her moorings.
50. It is common ground that the small hole Mr Cuff discovered and filled with mastic was not the route by which water flooded the vessel and caused her to sink.

The Law and the Issues

51. The "Sarah Leanne" was insured under a time policy. Section 39 of The Marine Insurance Act makes the following provisions in relation to seaworthiness under such a policy:

"(4) A ship is deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured.

(5) In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure invention but where with the privity of the assured the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness."

These contrast with the provisions in subsection (1) in relation to the voyage policy:

"In a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured."

Section 55 of the Act provides:

"(1) Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.

(2) In particular-

(a) The insurer is not liable for any loss attributable to the wilful misconduct of the assured, but, unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against even though the loss would not have happened but for the misconduct or negligence of the master or crew;

....

(c) unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject-matter insured."

52. In the absence of any express provision Commodore would be liable for loss proximately caused by a peril of the seas even though such loss would not have occurred had the vessel been seaworthy. Thus, in Mountain v Whittle [1921] 1 AC 615, a houseboat insured under a time policy sank when under tow because the bow wave of the tug raised the water level above the defective seams in her hull. It was conceded that unseaworthiness did not, of itself, provide underwriters with a defence. Lord Birkenhead, LC, observed at page 618:

"It should be added to this short statement of the facts, that the Dorothy was found, and rightly found, to be unseaworthy on the ground that her seams above the water side were leaky and defective. But the policy was a time policy and therefore the unseaworthiness of the vessel of itself offered no defence to the claim. Nor was it contended that the defence under s 39, sub-s 5, of the Marine Insurance Act, 1906, was open to the appellant, as it could not be, and was not, shown that the respondent was aware of the vessel's unseaworthiness."

53. Where, however, a vessel founders as a result of the entry of seawater through a defective hull without the operation of any fortuitous cause, a loss by perils of the seas will not be established. Thus, where a cargo of opium was damaged as a result of ingress of water through a rotten hull, the Privy Council on appeal from Shanghai held in the case of E D Sassoon & Co v Western Assurance Co [1912] AC 561 at page 563:

"The learned judge held that the damage was not due to a sea peril at all, but was solely due to the weakness of the hulk, and he thereupon dismissed the action. Their Lordships are of opinion that the learned judge was right. There was no weather, nor any other fortuitous circumstance, contributing to the incursion of the water; the water merely gravitated by its own weight through the opening in the decayed wood and so damaged the opium. It would be an abuse of language to describe this is a loss due to perils of the sea."

54. The commonwealth policy on the "Sarah Leanne" included the following standard clause under the heading exclusions:

"Warranted that the Assured shall keep the vessel and all her equipment in a proper state of repair and seaworthiness and safeguard it from loss or damage."

55. The legal effect of this remarkable provision which, on its face, robs the cover of much of its value, was not explored at the trial, although it was raised on the pleadings. Commodore were content to base their defence on the provisions of the Marine Insurance Act and to put Mr Cuff to proof that his loss was attributable to perils of the seas. They are to be commended for not seeking to rely on that warranty.
56. By the time of the trial the issue of causation had crystallised into a relatively extreme position on each side. Mr Cuff's case was that the proximate cause of the ingress of water was damage to the keel sustained by grounding in the inner harbour augmented by damage to the hull caused by the impact of the wreckage which was hauled up in the net. Commodore's case was that the proximate cause of the ingress of water was longstanding and progressive delamination which manifested itself in areas of damage to the keel, and that there was no concurrent fortuity which could properly be classified as a peril of the sea.
57. It was thus common ground that there was damage to the keel of the "Sarah Leanne". The experts were also agreed that this represented the means of ingress of sea water into the hull of the vessel, although neither was able to identify the precise route it took. The issue of causation turned essentially on the cause of this damage. If it was grounding or impact damage, then a peril of the sea was made out. If it was breakdown of the lamination, then the loss was proximately caused by wear and tear rather than by perils of the sea. The onus of proof on this issue was on Mr Cuff.

Investigations into the Cause of the Casualty

58. On 9 April 1993 Mr Cuff made a statement about the casualty in the presence of Mr R H Davies, who was a loss adjustor acting for Commodore. This included the following passage about what he found after the sinking;

"The boat was hauled out and then I saw water issuing from the keel. I then realised problems were greater than initially considered. I thought the boat might have dried out on an obstruction. I have now examined the keel area with Jeff Mills, Petersham Coachworks and understand the damage is serious.

....

I can see that along the keel, in several places, repairs have been carried out previously and the whole structure needs thorough and proper adequate repair [at the] present time. I had no idea that the keel had been repaired before. I relied upon the survey carried out prior to purchase."

59. No contemporary report from Mr Davies was disclosed but in his witness statement made over seven years later he said:

"At Galmpton, I saw water issuing from areas of deterioration along the keel that was covered with fouling that betrayed the age of a problem that appeared delamination-related. Mr Cuff showed me a small hole in the bottom on the starboard side near the keel but there was no evidence of water issue from it. The condition of the keel was more serious as a problem that had developed over time rather than in consequence of a fortuitous event. When the craft had not been allowed to dry out it was unlikely to be a consequence of grounding."

60. Mr Davies did not fare well in cross-examination. He conceded that he had concluded that Mr Cuff was not being truthful about what he paid for, and on, the vessel. He accepted that those conclusions were unfounded. He also accepted that his expertise in assessing the causes of damage to vessels was limited. He recommended the appointment of an expert surveyor. That expert was Mr Perrott. He inspected the vessel on 22 April and reported in writing on 10 May 1993. The material parts of his report read as follows:

"Several areas along the integrally moulded keel are suffering from deep seated delamination of the bottom and side sections causing structural weakness in way and allowing water penetration into the interior of the hull. The laminate around these damaged areas appears to be suffering from 'leaching' characterised by a loss of resin from the laminate leaving the glass fibre mat exposed to attack by moisture resulting in degradation of the structure.

A local repair appears to have been carried out at some time past to the port side bottom corner of the keel approximately amidships over an area of some 8 inches (200 mm) by the application of a filler material. This filler noted loose with water ingress having penetrated into the underlying structure causing delamination in way.

....

Moisture readings were taken with a Sovereign Electronic Capacitance type Moisture Meter, which only gives a relative reading and these did indicate a generally higher reading over the underwater surface compared to the topsides but only the delaminated areas along the bottom and side sections of the keel showing saturation. It would appear, therefore, that the damage is confined to the keel section and the remains of the hull moulding is still serviceable."

61. On 22 June 1993 Commodore wrote declining liability on the ground that the damage fell within section 55(1)(c) of the Marine Insurance Act, and also that there had been a breach of the warranty that Mr Cuff would keep the vessel in a proper state of repair and seaworthiness. Some sections of Mr Perrott's report were quoted.
62. After some little delay Mr Cuff appointed his own surveyor, Mr Derek Hyde of Plymouth. He inspected the vessel where she lay ashore, and produced a written report dated 7 December 1993. The material parts of this report read as follows:

"At the forefoot filler, probably applied during build, used to fill the line of mould joint and to fair some slight misalignment had become detached and appearance looks worse than reality. Like other defects water had become absorbed. Bulk of damaged areas of damage were caused by chafe abrasion consistent with beaching. In those instances several layers of glass laminate had been penetrated, to put 'several' into context 1.5mm chopped strand glass when layed up will add less than 1mm to the laminate thickness. Because of the 'laminated' nature of grp as each layer is penetrated the edges of glass are exposed like the edges of plywood. Glass reinforcement which had not be completely and thoroughly impregnated with resin would be vulnerable to moisture absorption which can lead to local breakdown revealing the characteristics of delamination. On the port side corner of the keel was a previous repair which had become loose possibly associated with other damage.

Sketch shows the relative positions of the areas of damage. All of the areas of damage suggest that they had been caused by the vessel being beached on hard surfaces. They had not necessarily occurred during or as a result of the trawled up section of wreckage on 2 April 1993."

63. Mr Hyde went on to consider whether Mr Cuff had been in breach of his warranty to keep the vessel in good repair. He expressed the view that Mr Cuff had taken care of his vessel. He added:

"Had he known about the state of the keel he would doubtless have arranged for repairs to have been carried out. Mr Cuff apparently always used one of the grids on the South side of Brixham's inner harbour when beaching the vessel. Those grids have sections of timber square to the quay wall on which the keel would rest. Damage we recently inspected would have been mostly obscured, even when supported on those timbers, from normal sight except at the outer corners. When the vessel was beached on the afternoon of the 2nd April 1993 the damage to the keel was not evident to Mr Cuff despite his search had been sufficiently detailed that it revealed the small hole (about 6mm dia)."

64. Mr Hyde was subsequently asked to elaborate on his views about the damage to the keel. He did so in a report of 9 January 1995. He then expressed the view that it was possible to deduce how old the keel damage was from the fact that it was not coated with any marine growth. This led him to conclude:

"It is impossible to state how long it would take for algae to start adhering to the surface. Variables are influenced by temperature and hours of daylight. However, in our view, based upon it being spring, initial evidence of algae would be evident on the surface not coated with effective antifouling paint within two to three weeks. The absence of evidence of fouling in the damaged areas suggests that they had not occurred more than say three weeks prior to the sinkage incident. In our view keel damage which resulted in water ingress and sinkage was not the result of long term deterioration and neglect on the part of Mr Cuff."

65. Both experts gave oral evidence. When examined, Mr Hyde expressed the view that some of the keel damage might have resulted from the impact of the wreckage hauled up in the net. The sinking could be explained as a result of that damage opening up from pressure as the vessel settled on to the grid at Brixham on the falling tide. Mr Hyde was then asked about the significance of the lack of algae. He expressed the view that this showed that the damage was too recent to have occurred during the period that the vessel was being beached in the inner harbour about a month before. While he could not rule out this possibility, he thought that the damage had occurred very recently.
66. Mr Hyde was cross-examined at some length about his algae theory. It did not survive that cross-examination and was abandoned by Mr Cuff's counsel in his final submissions. He was then cross-examined about the nature of the damage itself. He said that the water got into the hull via the damage to the keel. It was not possible to say where it emerged on the inside of the hull.
67. Mr Hyde was asked about his suggestion that the impact of the piece of wreckage had caused the damage. He agreed that he would have expected to find a point of impact but did not do so. He also agreed that he could not account for all the keel damage. He was cross-examined at length about this damage, but would not accept that it was caused by long term deterioration of the lamination. He considered that the vessel must have sustained some additional damage as she settled on the grid on the low tide before she filled with water in order to explain the sinking.
68. Mr Perrott agreed with that observation. His explanation of the sinking appears from the following passage of his evidence:

"....there had to be a, a source of water ingress into the hull, and from inspection the only place that could have started on the outside was from the damaged, several damaged keel areas we saw. And it slowly worsened, and it found a ... the damage outside might not coincide with the position inside where the water came in. It can track through the delaminations and eventually find a, a source in. I have to agree with Mr Hyde, it must have been quite a sudden failure, a final failure to let the water come in so there was sufficient volume over a tide for it to fill and sink."

69. Mr Perrott did not consider that the impact of the piece of wreckage was likely to have been the cause of the ingress of water. So far as the areas of keel damage were concerned, he considered that these would have resulted from point loadings as the vessel sat on grids etc, but that the prime cause of the damage was that the keel had deteriorated and thus could not withstand the loading.
70. Mr Perrott was cross-examined at length about his view that there had been long-term deterioration. This would have started with some abrasion of the outer surface, but then developed over years rather than months, according to him. The dark areas of damage represented saturated glass fibre mats where the fabric had no structural strength. At one stage of his cross-examination, the following exchange took place:

"Q. Do we see anything anywhere in your report anything referring to these black areas as being characteristic of water saturation or long term deterioration?

A. I expect not directly, no.

Q. Can you refer to any literature that supports that proposition?

A. What, within the evidence?

Q. Trade literature or professional literature. Are you familiar with anything that supports this idea that these area[s] indicate long term deterioration?

A. No, only from experience of working with the material."

The Judge's Findings

71. Judge Roach's starting point was that there was no visible keel damage when the vessel was put on chocks for her refit in 1991. He then held that, had there been anything untoward to be seen, Mr Cuff would have seen it when he put his vessel on the grid to anti-foul her twice a year. This, and the fact that Mr Cuff noticed no increased ingress of water until two days before the sinking, led him to reject Mr Perrott's analysis. As to this, the judge held:

"Mr Perrott, I accept an honest witness, really was saying this to me. 'I produce no literature to show any effects of delamination and the ingress of water once resin has leached out of glass reinforced plastic but my experience tells me that this boat took on water on the night of the second or third of April because the hull had simply become permeable and the effects of time led it suddenly to sink.' As a matter of common sense, I do not think that is right. Mr Perrott's evidence is deficient because it is not supported by any literature and because it does not afford any common sense understanding of this accident as I see it to be."

As to the cause of the casualty, the judge's findings were as follows:

"Why did this craft go down so suddenly? There is no good explanation of that but by contrast there is a mechanism of the accident to be considered, which is not disputed as to the fact, in the striking of the metal wreckage against the hull whilst the fishing was taking place over the wreck on the 1 April 1993. So did that striking, on a balance of probability, cause this vessel to go down? I think it was a strong causative factor but it may not have been the only causative factor. In my judgment, the fact that this vessel was grounded in January for two or three weeks, through mistake, but not Mr Cuff's mistake, had an effect upon the hull which, together with the striking of the metal wreckage, caused her, in my judgment to sink.

Mr Perrott accepted that the grounding in Brixham harbour could have caused damage to the hull and could, though he did not accept it, have caused this vessel to sink. In my judgment, that is also a strong causative factor. I approach the case this way. I acknowledge that the combination of grounding and the striking of the metal object did not produce an obvious hole through which water could flow, but both, in my judgment, produced a situation where damage was caused to this hull through which water could flow, and did flow, and that the striking severely of the metal wreckage produced the sudden sinking which took place on the 2 April. It was the striking of the metal wreckage, in my judgment, which caused the sudden increase of water in the bilges which the claimant noticed and one can only understand that increase in water by looking at that mechanism of damage in that way.

Now, of course, in coming to the conclusion therefore that these features, the grounding in January, on what I accept is likely to have been debris, in the inner harbour of Brixham and the striking of the metal wreckage produced this fatal sinking for this vessel I have also to accept that I cannot say precisely what component produced the sinking other than it seems to me that both had a strong causative part to play in the sudden ingress of water."

SUBMISSIONS ON APPEAL

72. Miss Grundy started by attacking the judge's criticism that Mr Perrott's evidence was sufficient because it was not supported by any literature. I think there is some merit in that attack. Mr Perrott had not been asked to carry out a trawl of trade literature but was basing his evidence on his own experience.
73. Miss Grundy then submitted that the judge had, impermissibly, adopted a theory of causation of his own which was not supported by any evidence. The experts were both agreed that the impact from the wreckage that was brought up in the net could not have caused the damage to the keel, even though Mr Hyde thought it may have contributed to some of it. Neither expert attributed the damage to the grounding in the inner harbour. The only viable explanation of the damage was Mr Perrott's theory of prolonged progressive delamination.
74. Mr Barnes submitted that Mr Perrott's theory was not viable in that it could not be reconciled with Mr Cuff's evidence in a number of respects which I shall explore. First, however, I would refer to the expert evidence.
75. It had, from the outset, been Mr Hyde's opinion that the keel damage had been caused by being beached on hard surfaces. When giving evidence, he discounted the possibility that the beaching in question had occurred when the vessel was taking the ground in the inner harbour in January 1993, because the absence of algae on the damage indicated that it had occurred much more recently. His algae theory was discredited. Whilst this did nothing for his reputation was an objective expert, it did not invalidate his evidence that the damage was grounding damage. The issue between the experts was whether the damage was grounding damage or progressive disintegration of the structure.
76. In advancing the latter theory, Mr Perrott was adamant that the damage must have developed over years not months. The reason why the judge rejected Mr Perrott's theory was that he held that, if the damage had developed over years, Mr Cuff would have seen it, but he did not. Was that a conclusion the judge could properly reach?
77. Mr Cuff chocked up the vessel for her refit in 1991. On that occasion, and at six-monthly intervals thereafter, he coated her hull with anti-fouling paint. This involved, first, power washing the hull, then applying anti-fouling from only one foot from the hull. Mr Cuff said in evidence that had there been any significant damage, he would have noticed it at that stage. Was his evidence credible?
78. Mr Hyde, in his first survey report, remarked that when the vessel was on the grid, the damage would have been mostly obscured from normal sight, except at the outer corners. In his second report he said that, when beached on the grid, the areas of damage would not have been visible. I am not inclined to accept these statements at their face value. Mr Hyde's evidence demonstrated an anxiety to assist his client which was at odds with his objectivity.
79. I have carefully considered the photographs of the damage. I am left in no doubt that Mr Cuff could not have applied anti-fouling paint to the area of keel without becoming aware of some of this damage if it was then present. His failure to do so is not compatible with Mr Perrott's thesis that the damage was longstanding.
80. The matter does not end there. Mr Perrott's evidence was that progressive delamination would have led to progressive leakage in the hull, and that he would have expected Mr Cuff to notice this. Yet Mr Cuff noticed no increase of leakage until the final fishing voyage. Once again, Mr Cuff's evidence of his experience as throws doubt on Mr Perrott's theory as to the nature of the damage.
81. The most likely occasion on which the "Sarah Leanne" could have sustained bottom damage was the period during which she was taking the ground in the inner harbour in January. Mr Cuff was apprehensive about the risk of damage from debris that littered the harbour bottom. That period was after the last occasion on which Mr Cuff put his vessel on the grid to apply anti-fouling, so he would not have had occasion to notice the damage.
82. It is not for this court to form its own conclusions as to the cause of the casualty. Our task is to see whether the conclusions of fact of the trial judge were open to him. For the reasons I have given, I have concluded that it was open to him to find that a contributory cause of the ingress of water into the "Sarah Leanne" was grounding damage sustained in January 1993 and that this was a peril of the sea.
83. In the light of this conclusion, it does not matter whether or not the judge was justified in finding that the blow struck by the wreckage, when it was hauled up in the net, was a contributory cause. That conclusion was a natural one because of the temporal coincidence of this event and the increase in the rate of ingress of water into the bilges.
84. It seems to me that an alternative explanation is that the heavy weather resulted in stressing of the damaged area and the initiation of leakage. That, also, would be a peril of the sea.
85. The coup de grasse must have been, as the experts surmised, additional stress as the vessel, weighed down, perhaps, by some water in the hull as a result of earlier leakage, settled on the timbers of the grid at low water on 2 April. This was, however, in Mr Perrott's words "the last straw". The fate of the vessel was attributable to the earlier perils of the seas.
86. Miss Grundy's able submissions, both oral and in her lucid skeleton argument have not persuaded me that the judge was at fault.
87. Accordingly, I would dismiss this appeal.
88. LORD JUSTICE MUMMERY: I agree.
89. LORD JUSTICE TUCKEY: I also agree.

Order: Appeal dismissed. Respondent to have his costs to be the subject of detailed assessment. Order for assessment of his costs of appeal for public funding purposes.