An Investigation into the Warranty of Seaworthiness in Marine Insurance Act 1906 and Suggesting Reforms
LLM DissertationMarine Insurance Law
Northumbria University, School of Law.
An Investigation into the Warranty of Seaworthiness in Marine Insurance Act 1906 and Suggesting Reforms
By: Yaqoob Khan
Supervisor: Capt/Dr. Phil Anderson
Table of Contents
Undertaking
Dedication
Preface
Approach towards the dissertation
Justification of Approach
Chapter 1 Introduction
1 a) Aims and Objectives of the Dissertation
1 b) Definition of Warranty
1 b i) Characteristics of Warranties in Insurance Contract
1 b ii) Is the Marine Insurance warranty of Seaworthiness the same as the general warranties in Contract?
Chapter 2 the warranty of Seaworthiness: Defined
2 a) Brief History of the Warranty of the Seaworthiness
2b) Express and Implied Warranty of seaworthiness
2 c) Can the Warranty of Seaworthiness be waived off?
2 d) The meaning of seaworthiness
2 d i) Sea worthiness in Marine Insurance Act 1906 (MIA 1906)
2 d ii) Dictionary meaning of Seaworthiness
2 d iii) Meaning of Seaworthiness as per Common Law
a)First category, the rule in Dixon v Sadler (1839)
b)Second category, the Prudent Ship owner Criterion
c)The Comparison between “s39 (4) ordinary peril” and the “prudent ship owner” criteria
Chapter 3: The Nature Seaworthiness and the role played by technology
3 a) the Nature of Seaworthiness
3 b) What Degree of Seaworthiness will suffice for the Assured to fulfill his Liabilities? And if there are different Standards than what is the Relationship between them?
3b i) Absolute Duty
3b ii) the criteria of Reasonable Fitness
3 b iii) The Relationship between “absolute duty and “reasonable fitness”
3 c) the Extent of Seaworthiness
Chapter 4: Seaworthiness in Voyage Policies
4 a) the Marine Insurance Act 1906, 39 (1-3) Regulates the Seaworthiness in a Voyage Policy
4 b) Seaworthiness at the commencement of the voyage
4 c) the Rationale behind the Warranty in Voyage Policies
4 d) Portworthiness
4 e) What if the Voyage is completed in Stages?
Chapter 5: Time Policies Part 1: Seaworthiness and Time Policies
5a) Time Policy, a Bouncerball for the Marine Insurance World
5b) Marine Insurance Act 1906
5d) The Common Law Developments w.r.t Seaworthiness in Time Policies
5e)Defense for the ship owner under S39 (5)
5 e i) Privity of the Assured
5 e ii) The Rule of Attribution
Chapter 6: Time Policy Part II: a Critique
6a) Criticism against the Star Sea (2001)
6b) Dr. Anderson, P.’s s 39 (5) Privity Solution
6c) the necessary changes to s 39 (5)
Conclusion
Voyage policies
Time Policies
Reference List
Books
STATUTE BOOKS
ARTICLES
WEBSITES
Further Reference
BOOKS
Case List
UK Cases
Australian cases
American Cases
Undertaking
- The law in this dissertation is up to date till the 11th of Feb.
- I undertake that this is truly my own work, I have taken ideas from other Authors but I have acknowledged and referenced their work.
Signature. Date.
Dedication
In the name of Allah, the most Beneficent, the most Merciful.
- I dedicate this dissertation to my Uncle, a great person, Haji Akber Khan Nasar for his advice and support.
- I dedicate this work to my Parents and family due to whose prayers and constant support I have reached so far.
- I would also like to extend the appreciation to my program leader who gave me extension when ever they were needed.
Simone Schnitzer and Emmanuel Guinchard
- Above all I dedicate this dissertation to Capt/Dr. Phil Anderson and I am very thankful to him for supervising me during this dissertation.
Preface
Approach towards the dissertation
My approach towards the dissertation has been investigative and especially I have firstly explored the terms that define a seaworthy ship e.g. ordinary, perils etc. I have been very critical of certain provisions and since the act is a century old one I have largely focussed on its weak point to make a point for reform.
More than often I have put out a question before the reader, and then answered it later on. The reason to do this was that the approach for the specific topic becomes clear at the inception of it, so that my contention is clearly understood
The topic of warranty of seaworthiness is an ancient topic but very conceptual and complex, and I have done my best to clarify the issues.
Justification of Approach
I have often some times compared two areas of laws as this helps with making good analysis. Further some times I have used American cases to elucidate certain points. In the case of Wilburn Boat Co. V Fireman’s Fund Insurance Co. (1955) 348 US 310, it was held by the Federal Court that the US would follow the House of Lords Approach. Later the US did change its approach but that is quite lately, and earlier cases can still provide good elucidation.
In Voyage policies I have supported the ship owners since they are under the knife, and I think the law is far more tilted towards the underwriters to the extend that more than often the Academia feels that this area of law is unjust and should be reformed.
In time policies I have supported the underwriters as they are really weak in terms of burden of proving the knowledge of unseaworthiness of the assured. Here there have been scenarios where the underwriters have suffered injustice, and I have specifically concentrated a bit more on this area in order to make a good case for reform.
Chapter 1 Introduction
1 a) Aims and Objectives of the Dissertation
The Marine Insurance Act 1906 [Hereinafter mentioned as MIA 1906] is more than a century old. Over the years technology has contributed a lot to the marine industry so it is a possibility that the MIA 1906 has got out dated. My dissertation specifically focuses on the warranty of marine insurance; the most important warranty in the insurance contract. S 39 MIA regulates this area and this section was drafted more than century before by Sir McKenzie Chalmers. The aim of the dissertation is firstly clarify the meaning and concept of the term seaworthiness with respect to the way as envisaged by its Author and at the same time compare see whether the criteria still holds good and though I have done my level best to be conclusive but explaining the criteria required a slight descriptive approach. Once the concept is grasped clearly it is important that the role of the term is observed in voyage policies and time policies. Probably every old mechanism requires an update and I doubt that the century old law of the MIA still holds good! Finally I will look into the reforms wherever possible.
1 b) Definition of Warranty
S 33 (1) MIA 1906 defines a warranty as a promissory warranty, where by the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts. S 33 (2) states that a warranty can be either express or implied. Subsection (3) states, that a warranty is a condition that must be strictly complied with, whether it is material to the risk or not. In the case of any short comings in his obligation by the assured the insurer is automatically discharged from the liability as from the date of the breach of the warranty subject to the liabilities incurred before that date.
1 b i) Characteristics of Warranties in Insurance Contract
It has been stated that the common law on insurance originates from the decision of marine insurance cases.Therefore it is safe to state that the characteristics of the warranties in Marine Insurance are similar to that in Insurance Law. Rix LJ in the case of HIH Casualty and General Insurance Ltd. v New Hampshire Insurance Co. (2001) put forward a test in order to identify whether a particular term in the insurance policy is a warranty stating that,
“It is the question of construction, and the presence or absence of the word “Warranty” or “warranted” is not conclusive. One test is that whether it is a word that goes to the root of the transaction; a second, whether it is descriptive of or bears materially on the risk of the loss; and third, whether damages would be an unsatisfactory or inadequate remedy.”
Below are stated some of the features that marine warranties have;
- A promissory warranty does not have to be material to the risk;
- A promissory warranty has to be exactly complied with;
- Promissory warranty breach has no defense;
- There need not be a causal connection between the breach and loss in the breach of a promissory warranty;
- The insurer is automatically discharged from his liability after a promissory warranty is breached;
- The breach of a promissory warranty may be waived.
1 b ii) Is the Marine Insurance warranty of Seaworthiness the same as the general warranties in Contract?
To answer the question it is of utmost importance that the concept of warranties generally in Law of Contract and in Insurance Law be both explained briefly. Further it will make things more clear if the connection between the Marine Insurance Law and Insurance law be given.
The Concept of Warranty in Contract
The Law of contract divides all the terms that are present in any contract into two categories; conditions and warranties. Suffice to mention here that Dipplock LJ in Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd (1962) identified a third category of terms and called them Innominate terms[1].
A more vivid explanation of a warranty in the Law of Contract is provided by Denning LJ; as he was then and later became Lord Denning, in the case of Oscar Chess Ltd v Williams (1957) where he said that,
“I use the word “warranty” in its ordinary English meaning to denote a binding promise….that is the meaning which it has borne in English Law for three hundred years from the leading case of Chandelor v Lopus onwards. During the last hundred years, however, the lawyers have come to use the word “warranty” in another sense. They use it to denote a subsidiary term in the contract as distinct from a vital term which they call a “condition”. There is no harm in doing this, do long as they confine this technical use to a proper sphere, namely to distinguish between a vital term, the breach of which gives the right to treat the contract as to an end, and a subsidiary term which does not.”
Warranties thus here are not considered something that cannot entitle the innocent party to repudiate the contract, but something that will only allow for damages to be claimed. Although there is a distinction between the warranties and conditions, but in the case of Behn v Burgess (1863) warranties were used in the same sense as conditions that does throw the law in a fair bit of confusion as far as the distinction is concerned, but the apart from this authority the general approach of the court has been as stated above.
Soyer (2001, p.3) argues that the meaning of the word warranty has been confused in the Law of Contract because one party breaches the contract and the innocent party is precluded from repudiating the contract, though the injured party is still allowed to claim damages[my emphasis].
The Concept of warranty in Insurance Law
Insurance contracts[2] are special contracts that depend on the happening of certain events. In Carter v Boehm (1766) Lord Mansfield; the champion on marine insurance law, held that, Insurance is a contract upon speculation.
Merkin (1997, p.1) states that the law of insurance have developed significant principles that are different from the common law principles of contract. In Cehave v Bremer (1976) Roskill LJ stated that the Law of Insurance is a part of the general Law of Contract. Merkin (1997, p.9) further clarifies it by saying that the Contract of Insurance is a species of a special class called the contracts of utmost good faith. The Learned Author then states that special rules apply to non- disclosure and misrepresentation in the Insurance Law, which differ from the concept given in the general Law of Contract. A warranty in the Insurance Law is a fundamental term, in other words a condition, breach of which entitles the insurer to treat the contract as ended. Therefore in the Insurance Law conditions and warranties are often used interchangeably as per Smith LJ in Bernard v Faber (1893).
Warranties in Contract v Warranties in Insurance Law
Merkin (1997, p.9) states that the concept of warranty in the Insurance Law is a different to that of Law of Contract and other than the warranties there is no principle that in the Law of Insurance is at odds with the general Law of Contract. Bennett (2006, p.536) provides a reason for the different concept as warranties in Insurance Law actually defines the risk that is insured. In New Castle Fire Insurance Co. v Macmorran & Co. (1815) it was held that breach of a warranty renders the risk materially different from what the insurer agreed to cover.
It can be argued here that the reason for the different concept of warranty in Insurance law can largely be attributed to the fact that here the warranties are used to define the risk insured, these definitions are thus construed strictly; which is a resultant of the conservative nature of the marine industry, so any thing falling out of the gamut of the definition will render the warranty as breached.
Finally to answer the question that was asked in the beginning it will suffice to say that the two concepts of warranties are indeed different with the Law of Insurance doing the real justice to the term warranty.
Chapter 2 the warranty of Seaworthiness: Defined
This chapter firstly gives a historical background of the warranty of seaworthiness, and then defines an express and implied warranty. Finally in the end the chapter analyses rigorously the meaning of seaworthiness in context of marine insurance, highlighting the two thronged approach to it i.e. the test of “s 39 (4) ordinary peril”, and the “prudent ship owner criteria”.
2 a) Brief History of the Warranty of the Seaworthiness
The Marine Insurance Law regarding seaworthiness was developed to protect the interest of the different parties involved in a maritime adventure such as insurer and the shipowner. (Soyer 2006, pp.48-49) Provisions incorporating seaworthiness clauses appeared in charterparties and carriage of goods by sea contracts as back as the 5th century.
The laws at the time of the Eleanor Duchess of Guienne; called the laws of Oleron, contained several clauses for regulating the seaworthiness of a vessel[3].
Then there are the Laws of Wisbuy dating as back as the thirteenth century containing similar provisions as discussed above[4]. The Maritime code was known as
“Das Hogeste undas oldeste water Rechte Von Wisbuy” (Translated as The ancient and the supreme water laws of Wisbuy)
Article XXII of the Law of Wisbuy obliged the master and mariners to allow, the merchants to whom belonged the goods to inspect the cordages which were employed in hoisting the cargo in and out of the ship. In case the master would fail this duty the ship owner would be liable for the damages if the cargo would get lost in a disaster. Similarly article XXV stipulated that the number of crew must be sufficient for a particular marine adventure.
(As per 30 Fed Cas, 1203) Louis XIV in 1861 set up a comprehensive body of Marine Ordinances under the famous Minister of Finance; Colbert. Section 12 of the Marine Ordinances of Louis XIV that formed the foundation of the modern warranty of seaworthiness holds,
“However if merchant prove that the ship when put to sea was unfit for sailing, the master shall loose his freight, and pay the other damages and losses”
The most significant feature of this was that the merchant had a right of indemnity where he could prove the vessel being unfit for sailing, independent from any fault of negligence of the captain of the crew.Therefore till now it can be concluded safely that the roots of the warranty of seaworthiness lies in 1861 Marine Ordinance of Louis XIV.
The law on marine insurance as far as warranty of seaworthiness is concerned developed over a continuous period of 2,500 years. It developed as it was a pragmatic need of the shipping and maritime world and lately the nature of the warranty and its breach has been greatly influenced by the passing of the Merchant Shipping Act (International Safety Management (ISM CODE) Code) which enacts the ISM Code into the UK domestic Law. The effect of the dissertation related matters of the act will be discussed at lengths in the chapter 5 and 6.
2b) Express and Implied Warranty of seaworthiness
Express warranties are those that need be written into a contract of marine insurance and implied warranty on the other hand as the word states, need not be written but are implied by virtue of law. The warranty of seaworthiness in voyage policies is implied by virtue of s 39 (1) MIA 1906[5] and with respect to time policies the warranty need to be expressly included by the parties if they wish to do so as per s 39 (5) MIA 1906 with the exception where the ship is sent to the sea with the privity of the assured. The position of the law, as far as the warranty of seaworthiness in voyage (chapter 4) and time policies (chapter 5 and 6) are concerned are discussed later. Amongst these implied warranties in the Law of Marine Insurance the warranty of seaworthiness is the most important mentioned by the Parke B in Small v Gibson (1839)[Parson (1856, FN1, p.132)]