In Garnat Trading & Shipping (Singapore) Pte Ltd v Baominh Insurance Corporation  EWCA Civ 773, marine insurers were unsuccessful in an appeal against a first instance decision of Mr Justice Christopher Clarke. The first instance judge had rejected the insurer's defence to an insurance claim for the total loss or total constructive loss of a floating dock on the basis of non-disclosure and/or unseaworthiness (on which we reported here). The appellant's case required the Court to exercise its limited powers to disturb findings of fact made by the first instance judge. Having considered the evidence available to Christopher Clarke J, the Court of Appeal found he had been entitled to make the determinations he had made and rejected the appeal.
By way of recap, Garnat Trading & Shipping (Singapore) Pte Ltd ("Garnat") owned a floating dock that was to be towed from Vladivostok to Cai Mep Port in Vietnam. Garnat was insured for the tow by a hull policy (apparently governed by English law) with Baominh Insurance Corporation ("Baominh"), a company based in Vietnam and specialising in marine insurance risks.
During the course of a programme to ready the floating dock for the tow a Towage Plan was prepared that included limitations as to the force of wind and height of wave that the floating dock was certified to withstand. Following the completion of the work, the floating dock sailed on 23 June 2006.
On 9 July 2006, the floating dock had a close encounter with a typhoon and experienced wind and waves well in excess of the limitations specified in the Towage Plan. However, the floating dock escaped without significant damage. Subsequently, on 12 July 2006, the floating dock was caught by a near direct hit from a tropical storm. Again, the wind and waves were well in excess of the limitations specified in the Towage Plan, and on this occasion the floating dock sank.
First Instance Decision
It was Baominh's case that Garnat had failed to disclose the section of the Towage Plan detailing the maximum permissible wind speed and wave height for the tow, and that these were material facts relied upon by Baominh in entering into the marine insurance contract. It was accepted by all parties and the Court that, pursuant to section 18(1) of the Marine Insurance Act 1906 ("MIA") non-disclosure is the failure to communicate a material fact (that is a fact relevant to a hypothetical prudent insurer when assessing the risk) within the knowledge of the insured which the insurer has not the means of knowing or is not presumed to know. Compliance with that duty requires a fair and accurate presentation of the risk, such that a prudent insurer is able to form proper judgment, and does not require minute disclosure of every material circumstance.
Following a detailed review of the evidence, Christopher Clarke J accepted Garnat's argument that the Towage Plan and the technical information contained therein had, in fact, been disclosed to Baominh and that there had been a fair presentation of the risk. Whether Baominh had paid any attention to the information, as was incumbent on them, was a different question.
As a result of that finding of fact, it was unnecessary for Christopher Clarke J to provide a detailed analysis of other arguments put forward by Garnat, although his judgment is a useful recap of some important principles. In short:
- Pursuant to MIA section 18(3)(c), an insured is not required to disclose information waived by the insurer (including where an insurer receives information that would prompt a reasonably careful insurer to make further inquiries and fails to do so).
- Pursuant to MIA section 18(3)(d), absent inquiry, there is no duty to disclose facts that are superfluous by reason of an express or implied warranty covering the same ground.
- Even if there is non-disclosure of a material fact, an insurer must demonstrate that if disclosure had taken place, it would not have entered into the contract of insurance at all or at least not on the terms upon which it did enter into the contract (the requirement for an insurer to prove inducement).
The insurer's alternative argument was that, pursuant to MIA section 39(1) there was an implied warranty that the floating dock would be seaworthy for the purpose of the contemplated voyage and by section 39(4) a ship is deemed seaworthy if she is reasonably fit in all respects to encounter the ordinary perils of the voyage at the time of sailing on it. Baominh contended that the dock was unseaworthy at the time it sailed. There was no dispute as to the relevant legal principles. Christopher Clarke J analysed the factual evidence in detail and was assisted by expert evidence, before concluding that the floating dock was, in all respects, seaworthy at the commencement of the voyage.
Court of Appeal
As an appeal principally on the facts, the Court made clear that it would be very cautious in overturning findings made by a first instance judge. Further, under Civil Procedure Rule 52.11, an appeal court is limited to a review of the decision of the lower court and is not permitted to rehear the case. Insurers faced an additional difficulty in the present case as their appeal required the Court to find that a fax and email used in evidence by Garnat were fabrications manufactured to support its case (contrary to the findings of Christopher Clarke J).
The appeal was rejected with the Court unconvinced by the numerous reasons put forward by insurers as to why findings of fact should be overturned. In particular, the Court found that the judge had been entitled to conclude that the principal witness on behalf of Garnat had been an honest witness. Further, the Court emphasised the fact that serious allegations relating to the alleged fabrication of the fax were neither pleaded nor put to the relevant witness, who never had the opportunity to rebut the allegations. Thus the Court was clearly of the view that if Baominh had not had the courage of its convictions to advance the case on that basis at trial, it was unattractive for the points to be taken on appeal.
Both the first instance and appeal decisions are very much confined to their unusual facts. The lack of written records by underwriters of key meetings and discussions proved fatal to the case at first instance (in light of other evidence available), and an appeal on the facts will always be a difficult prospect, even leaving aside that the insurer's case required the court to find (an unpleaded) fraud on the part of Garnat. The case serves as a reminder to insurers of the importance of reviewing documents provided by a policyholder as part of the proposal process, asking appropriate questions, and recording important conversations in writing.