Mutual and Federal Insurance Company Ltd v Municipality of Oudtshoorn (240/82) [1984] ZASCA 129; [1985] 1 All SA 324 (A) (16 November 1984)

IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)

In the matter between:

MUTUAL AND FEDERAL INSURANCE COMPANY LTD Appellant

and

THE MUNICIPALITY OF OUDTSHOORN Respondent

Coram: MILLER, JOUBERT, CILLIE, VILJOEN, JJA, et GALGUT, AJA.

Date of Hearing: 30 August 1984 Date of Delivery: 16 November 1984

JUDGMENT

JOUBERT, JA :-

/The

2

The contract of insurance was unknown to Romanlaw. That is probably the reason why Voet in hisCommentarius ad Pandectas 22.2.3 contented himself,inter alia, with the following few observationsconcerning the contract of marine insurance :

quo id agitur, ut merces & alia assecurata

navigent periculo non domini, sed assecuratoris,

pro periculo suscepto pretium recipientis.

De hoc vero assecurationis contractu universa

hue transcribers, quae circa modum assecurationis,

personas assecurare valentes aut prohibitas, res

assecurandas vel assecurationem respuentes,

rerum assecurandarum aestimationem, conservationem,

impensas, cessionem seu abdicationem, periculum,

praemium assecurationis seu periculi pretium ac

solutionem ejus, observanda veniant, consultum

non censui.

/Videri

3

Videri ista possunt enarrata prolixe satis & accurate variarum regionum legibus superiori & hoc seculo conditis; ac in plerisque consensum, in paucis, iisque levioribus tantum, dissensum continenbibus, praecipue, edicto nautico Philippi Hisp. Regis anni 1563 cap.ult. & edicto peculiar! de assecurationibus anni 1570, lege municipali Medioburgensium anni 1600, Roterodamensium anni 1604, Amstelodamensium anni 1612 quae omnia simul juncta in vol. 1 placitor. Holl. à pag.820 ad pag. 876 ac tandem novissime, pariterque plenissime, edicto Ludovici XIV Galliarum Regis, anni 1681 in libello cui titulus, ordonnance de Louis XIV touchant la marine, livr. 3 tit.6. Quibus addendus Petri de Santerna Lusitani & Benevenuti Stracchae de assecurationibus liber.

(Horwood's translation : The effect of this contract is that the merchandise and other articles insured (assecurata) travel by sea at the risk not of their owner but of the insurer (assecurator) who receives a price for the risk which he undertakes.

/I

4

I have decided not to deal with the incidents of this contract of insurance under which would fall to be discussed the formation of the contract, the persons who can or cannot insure, the property which is or is not insurable, its valuation and preservation, the expenses incurred upon it, the cession or abandonment of such property, the risk, the premium for the insurance (that is the price of the risk) and the payment of such premium.

All these matters can be seen and are dealt with in sufficient detail and accuracy in the statutes of several countries passed in this and the last century : these laws for the most part coincide and differ only in few points and those unimportant ones. See the Maritime Edict of Philip, King of Spain, 1563, last chapter; the special Edict on Insurance of the year 1570; the Municipal Laws of Middelburg, 1600;of Rotterdam, 1604; and of Amsterdam, 1612 (Placita Hollandiae Vol 1 pp. 820-876); and latest and most detailed of all the Edict of Louis XIV, King of France, of 1681, in the book called Ordonnance of Louis XIV touchant la marine, Book 3, title 6. See also the book De Assecurationibus of Petrus de Santerna Lusitanus and Benevenutus Straccha.")

5

Voet's reference to the sources of the law of insurance in the Netherlands is by no means exhaustive. It is of great significance that he referred not only to the legislation of the Netherlands and France on marine insurance but also to the treatises of Petrus de Santerna and Benevenutus Straccha on the law of insurance as I shall presently demonstrate.

Marine insurance, the oldest form of insurance in its modern sense, traces its origin back to the medieval Law Merchant (Lex Mercatoria) as developed in the great trading centres and seaports of Italy and South Western Europe. Recent researches reveal that

/policies

6

policies of marine insurance were in use in Italytowards the end of the 14th century, as appears fromthe instructive article "Die ontstaan van versekeringgerig op winsbejag" by Schalk van der Merwe in 1977TSAR at pp. 227-234. Two outstanding treatises onthe law of insurance were published during the 16thcentury. The one is Petrus de Santerna's pioneeringtreatise De Assecurationibus et Sponsionibus (1554)which is also to be found in Tractatus Universi Juris

(also known as Tractatus Tractatuum), 1584, tomus 6

pars 1 folio 348 to 357. The other one is Benevenutus

Straccha's famous treatise De Assecurationibus which

has been included in Tractatus Universi Juris, tomus 6

pars 1 folio 357 to 377. These two treatises soon

/acquired

7

acquired international fame and authority throughout Western Europe. It is therefore not surprising that Voet 22.2.3 referred to these two treatises as sources of the Roman-Dutch law of insurance. Fortunately the library of this Court has a complete set of Tractatus Universi Juris, 1584, 24 volumes. Mention should also be made of the work of the 17th century Italian jurist Roccus, Tractatus de navibus et naulo item de Assecurationibus notabilia, which was translated into Dutch with notes and annotations by Feitema in 1737 as Merkwaardige Aanmerkingen vervat in twee Tractaten over Scheepen en Vrachtgoederen alsmede over Assurantie ofte Verzekeringen. The library of this Court has a copy of this translation. During the 17th century the

8

Italian and Spanish jurists adapted the principles of marine insurance to insurance of transport by land (Holdsworth, A History of English Law, vol 8, 2nd ed., p. 276 footnote 7) and even to life insurance (assecuratio vitae hominis). See Benevenutus Straccha, op. cit., folio 360, nr. 46, Ludovicus Molina, Disputationes de Contractibus (1601) disputatio 507 nr. 7 and Sigmundus Scaccia, Tractatus de Commerciis et Cambio, (1669), § 1 quaestio 7 pars 2 nr. 19 et § 3 Glossa 3 nr. 52. According to the French jurist Antonius Faber (1557-1624), Codex Fabrianus, lib.5 tit.7 def. 3, a dowry (dos)

could be insured. The jurists,, however, experienced difficulty in finding for the contract of insurance an

/appropriate

9

appropriate niche within the framework of the civillaw's traditional classification of contracts as anumerus clausus. Attempts were made to regard it asemptio et venditio, locatio et conductio, contractus

innominatus or contractus fideiussionis. See Sigmundus

Scaccia, op.cit., § 1 quaestio 1 nr 129. The generally

accepted view was that it was a species of the contract of

sale in terms of which the insurer was the seller, the

insured the purchaser, the risk or event insured against

the merx and the premium the pretium. According to

Roman-Dutch law,however, the contract of insurance is a

contract nominate. (Van der Keessel, Theses Selectae 711

and Praelectiones ad. Gr. 3.24.1, 2.).

10

The reception of the Italian Law Merchant,

including the law of insurance, occurred throughoutWestern Europe and England during the 16th century.

(Holdsworth, op.cit., vol 8, 2nd ed. p. 273-285).

In the Netherlands this reception more or less co=

incided with the reception of Roman law. The effectof this reception was according to Wessels, Historyof the Roman-Dutch Law, 1908, at p. 228-229 as follows:

"There was no uniform law of insurance, and eachmaritime nation or town made its own regulations. Spain,Portugal and Holland and the Hanseatic towns were the

first to elaborate a system of marine insurance, and it

seems to be universally acknowledged that Holland

contributed the most important share in the development

/of

11

of that branch of law throughout Europe." How was the Roman-Dutch law of insurance developed ? In the last chapter of his Ordonnantie, Statuyt ende Eeuwich Edict op 't faict van der Zeevaert, dated 30 October 1563, King Phillip II enacted for general application in the Netherlands his Ordonnantie op de Verseeckeringe oft Assurantie (I G. P.B. 821-829). This was followed by his enactment on 20 January 1570 of his Ordonnantie,Statuyt ende Policie op 't feyt van de Contracted van de Assurantien ende Verseeckeringen (1 G.P.B. 828-838) for general application in the Netherlands. Both ordinances dealt with marine insurance. Art. 32 of

/the

12

the Ordinance of 20 January 1570 contained the importantprohibition against life insurance. A similarprohibition against life insurance was contained inarticle 10 of Louis XlV's Ordinance of 1681. Inaddition local laws (keuren) concerning marine insurancewere made for Amsterdam, Rotterdam, Dordrecht andMiddelburg. They are enumerated in Van der Keessel'sPraelectiones ad Gr. 3.24. Wessels, op. cit., p 229

comments on them as follows : "These laws were constantlyamended and amplified during the seventeenth and eighteenth

centuries, and if we examine them we find that theycontain all the fundamental principles of maritime

insurance that are in vogue to-day in all the great

commercial countries of Europe." An important

/innovation

13

innovation during the 17th century was the establishmentof insurance tribunals (Kamer van Assurantie) inAmsterdam, Rotterdam, Dordrecht and Middelburg as courtsof first instance with jurisdiction over matters con=cerning insurance. The members of these tribunals wereexperts in insurance matters. There was an appealfrom their decisions to the Hof van Schout en Schepenenor directly to the Hof van Holland ( or the Hof van

Zeeland in the case of Middelburg). An appeal layfrom the Hof van Holland, or the Hof van Zeeland, tothe Hooge Raad. Decisions of the Hooge Raad on mattersof insurance are to be found in ObservationesTumultuariae ( 4 volumes) and ObservationesTumultuariae Novae (3 volumes).

14

The opinions of the Dutch jurists on insurance matters are included in the Hollandsche Consultatien and in Van den Berg's Nederlands Advysboek. I quote the following comprehensive survey of the Roman-Dutch authorities in The South African Maritime Law and Marine Insurance: Selected Topics, (1983) by Dillon and Van Niekerk (at p. 108-109);

"The Roman-Dutch authorities of the sixteenth, seventeenth and eighteenth centuries dealt extensively with insurance law. Indeed, at the end of the eighteenth century the insurance contract was, after contracts of sale and lease, the most prevalent type of contract. Because of the needs of their time, the Roman-Dutch jurists concerned themselves almost exclusively with marine insurance.

The more well-known Dutch writers of this period, most of whom our Courts have in the

/past

15

past consulted on matters relating to marine insurance, were Grotius, Van Leeuwen, Voet, Van Bynkershoek, Van der Keessel and Van der Linden. Others which may be mentioned are Verwer, Lybrechts, Schorer and Barels. The legislative measures as well as the Dutch theses dating from this period may still prove to be of valuable assistance in the study of the Roman-Dutch law of marine insurance.

It has been pointed out, furthermore, that our common law is not what is usually regarded, in the strict sense, as Roman-Dutch law (that is the law of the province of Holland or even of the Netherlands) as it had developed at the end of the eighteenth century, but rather a European ius commune of this period. This view, no doubt particularly true of the mercantile law in general, is confirmed by the fact that the Dutch jurists, when dealing with insurance law, made copious reference to the works of authors from other European" countries. There would in principle, therefore, not appear to be any obstacle in the way of consulting, as our courts have done in the past, the works of jurists such as Pothier,

/Emerigon

16

Emerigon, Straccha, Roccus, Santerna and others on the law of marine insurance."

Mention should also be made of the three works by Kersteman (1728-1793) viz. Academie der Jonge Practizyns, of Beredeneerde Consideratien over de Theorie ende Practycq in Zaaken van Rechtspleeging (1765), 18e hooftdeel, Hollandsch Rechtsgeleert Woordenboek s.v. Assurantie, and Aanhangsel tot het Hollandsch Rechtsgeleerd Woordenboek, vol.1, s.v. Assurantie. According to U. Huber (1636 -1694), Praelectiones ad D. 1.3.14 and H.R. 3.21.76 the province of Friesland, owing to the small volume of its maritime trade, did not develop its own law of marine insurance but whenever it became necessary recourse was

/had

17

had to the law as applied in the province of Holland and West-Friesland although the law of the latter province was not per se binding on Friesland.

The Hooge Raad through its decisions and theDutch jurists by means of their works collectively

succeeded in moulding the principles of marine insuranceas an integral part of Roman-Dutch law. By analogy withmarine insurance, other forms of indemnity insurancewere recognised by the Dutch jurists. Van der Keessel,Theses Selectae 716 (translated by Lorenz) describes

the extension of the law of marine insurance to other

forms of insurance thus:

"Although

18

"Although originally insurances related chiefly to things exposed to the dangers of navigation and transport; yet they have since been ex= tended to buildings also and other goods, which are liable to destruction by fire; and indeed to everything wherein anyone has an interest, provided it can be accurately defined in the contract."

See also his Praelectiones ad Gr. 3.24.4. Theprinciples of the Roman-Dutch law of marine insuranceare indeed capable of application, with adaptation ifnecessary, to other forms of insurance to meet therequirements of our modern society. It is acharacteristic of Roman-Dutch law as "a virile living

system of law, ever seeking, as every such system must,to adapt itself consistently with its inherent basic

principles to deal effectively with the increasing

/complexities

19

complexities of modern organised society". (dictum from the Privy Council judgment in pearl Assurance Co. v. Union Government, reported in 1934 AD 560 at p 563).

The General Law Amendment Act 8 of 1879 (C)introduced the English law, (as it then existed) con=carning fire, life and marine insurance into the Cape ofGood Hope Colony. The General Law Amendment Ordinance

5 of 1902 (0) incorporated "the law administered bythe Supreme Court of the Cape of Good Hope". This ineffect introduced the English law (as it existed in 1879)

concerning fire, life and marine insurance into theOrange Free State Colony. Both Act 8 of 1879 (C)

and Ordinance 5 of 1902 (0) were repealed by section

1 of the Pre-Union Statute Revision Act 43 of 1977 with

20

the result that the English law (as it existed in 1879) concerning fire, life and marine insurance is no longer binding authority in the Cape Province or in the Orange Free State Province. The Insurance Act 27 of 1943 is largely a regulatory measure containing a few substantive provisions which directly or indirectly affect the lawof insurance. Hence, the South African law of insurance

mainly is governed mainly by Roman-Dutch law as our common law.

I have already stated that the reception of the Italian Law Merchant, including the law of marine insurance, also occurred in England during the 16th century. At the end of the 16th century England was beginning to take her place among the great commercial countries of Europe.

/The .

21

The importance of marine insurance was increased by the

growth of England's foreign trade in the latter part of the 16th century. A Statute of 1601 (43 Elizabeth I c.12) established in London a special Court for the hearing of actions upon marine policies. This special Court, however, suffered from two grave defects. In the first place its jurisdiction was confined to insurance policies registered in the London Office of Insurances and did not extend to insurances made in other seaport towns. Secondly, it did not have exclusive jurisdiction in insurance cases. It waged a losing jurisdictional battle against the common law courts. Moreover, the London Office of Insurances

/disappeared

22

disappeared in the 17th century. During the 17th century the law of marine insurance was in a very back= ward state. Consult Holdsworth, op.cit., vol. 8 (2nd ed.) p.289-293. Nicolas Magens, a German merchant resident in London, wrote in German a work on marine insurance which was published in Hamburg in 1753. His own English translation thereof was published in London in 1755 under the title, An Essay on Insurance, explaining the Nature of the various kinds of Insurances practised by the different Commercial States of Europe and showing their Consistency or Inconsistency with Equity and the Public Good. In 1756 Lord Mansfield (1705-1793) was appointed Chief Justice of the Court of King's Bench and he continued

23

in office until his resignation in 1788. His dis=tinguished tenure of office was very important for thedevelopment of the common law. His permanent stampupon Anglo-American law lies in commercial law. Headopted the principles of the Italian Law Merchant,including the law of marine insurance, into the commonlaw and thus rendered the latter suitable for the greatcommercial expansion that was taking place. He succeededin making the international law of marine insurancean integral part of the common law. He was wellequipped for this task since he was learned in the civil

law and in foreign systems of law. (Holdsworth,Sources and Literature of English Law, 1928, p 218).That explains why he could often in his judgments refer

/to

24 to European works on marine insurance (Dillon and Van Niekerk, op.cit., p 109 footnote 45). It is obvious that both Roman-Dutch and English law of marine insurance stem from the same original sources. The reported decisions of the courts of law and equity became the main source of the English law of marine insurance. In 1774 the Life Assurance Act (14 Geo. 3 c.48) was passed. For purposes of this judgment it is not necessary to consider its provisions. Suffice it to say that towards the end of the 18th century marine insurance was still by far the most important form of insurance while life and fire insurance were also in vogue. In 1787 James Allan Park published his work on insurance, entitled A System of the Law of Marine

/Insurance ....

25

Insurance with three chapters on Bottomry, on Insurances on Lives and on Insurances against Fire. It was the first book written by an English lawyer on the law of insurance. The next important step was when the Marine Insurance Act 1906 (6 Edw. 7 c.41) was passed. It codified the existing principles of marine insurance as developed by the courts of law. Despite the fact that the courts of law apply principles of marine insurance to non-marine insurance there still remain important differences between them as can be ascertained from Raoul Colinvaux, The Law of Insurance, 4th ed at p 13-14.

Section 17 of the English Marine Insurance Act

1906 provides :

/"A

26

"A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided

by the other party."

(My underlining).The phrase "utmost good faith" is also known by itsLatin equivalent as uberrima fides. According tosection 17 a contract of marine insurance is a contractof utmost good faith or a contract uberrimae fidei.The origin of the phrase uberrima fides is doubtfulbut it would seem that it made its appearance in Englishcase law in 1850. See A.N. Oelofse's unpublisheddoctoral thesis Die Uberrima Fides - Leerstuk in dieVersekeringsreg, University of Stellenbosh (1983)

at p 2 and the authorities cited in footnote 5.

/Without

27

Without investigating our own law on this aspect our courts have under influence of English law attached to a contract of insurance the label uberrimae fidei e.g. Fine v. General Accident Fire & Life Assurance Corporation Ltd., 1915 AD 213 at p 218,Colonial Industries Ltd. v. Provincial Insurance Co. Ltd., 1922 AD 33 at p 40, Bodemer N.O. v. American Insurance Co., 1961 (2) SA 662 (A) at p 668, Pereira v. Marine and Trade Insurance Co. Ltd., 1975(4) SA 745 (A) at p 755 F. The Romans were familiar with bona fides and mala fides but they never knew uberrima fides as another category of good faith. I have been unable bo find any Roman-Dutch authority in support of the proposition that a

/contract

28

contract of marine insurance is a contract uberrimae

fidei. On the contrary, it is indisputably a contract

bonae fidei. Art 22 of the Ordinance of 20 January

1570 explicitly enacts :

"Ende alsoo dese Contracten van verseeckeringen oft asseurantien, gehouden ende geestimeert worden, voor Contracten van goeder trouwen, daar inne egeen frauds oft bedrock en behoorde te intervenieren

oft geschieden "

(My underlining).

See also Ludovicus Molina, op.cit.,disputatio 507 nr. 3,Perezius (1583-1672) ad Cod. 11.5.22, Van der Schelling's

(1691-1751) note 2 on Van Zurck's Codex Batavus s.v.assurantie § 23, Van der Keessel (1738-1816) Theses

Selectae 712 and Praelectiones ad Gr. 3.24.1 and 20,Van der Linden (1756-1835) 4.6.10. There

/is

29

is a duty on both insured and insurer to disclose to each other prior to conclusion of the contract of insurance every fact relative and material to the risk (periculum or risicum) or the assessment of the premium. This duty of disclosure relates to material facts of which the parties had actual knowledge or constructive knowledge prior to conclusion of the contract of insurance. Breach of this duty of disclosure amounts to mala fides or fraud, entitling the aggrieved party to avoid the contract of insurance. This duty of disclosure received very extensive treatment in the Roman-Dutch authorities. Consult Benevenutus Straccha, op.cit., folio 377, Glossa 26 nrs 2,4,5,6; Sigmundus Scaccia, op.cit.,

/§ 1

30

§1 quaestio 1 nrs. 132, 156 to 169, §1 quaestio 7 pars 2 ampl. 10 nrs. 17, 19 to 22; Roccus, op. cit., arts. 51, 78, 84; Ludovicus Molina, op. cit., disputable 507 nrs. 3 to 6; Perezius ad Cod. 11.5.23; Art. 11 of the Ordinance of 20 January 1570; Van Zurck, op.cit., nr 9; Schorer ad Gr. 3.24.6 nr. 15; Van der Keessel, Theses Selectae 722 to 724 and praelectiones ad Gr. 3.24.5 and 20; Van der Linden 4.6.4 nr. 3; 1 Hollandsche Consultatien c. 234; 2 Hollandsche Consultatien c. 322; 3 Hollandsche Consultatien c. 175; and numerous decisions of the Hooge Raad e.g. 2 Observationes Tumultuariae 1357, 1873; 3 Observationes Tumultuariae 2647, 4 Observationes Tumultuariae 3168, 3287 and

3 Observationes Tumultuariae Novae 1248. The

/duty

31

duty of disclosure is the correlative of a right ofdisclosure which is a legal principle of the lawof insurance. Wessels, Law of Contract in S.A.,2nd ed., vol. 1 para. 1039 makes the followingsignificant observation concerning the law of insurance:

"At the same time it must be understood that this partof our law is based upon principles well known to theCivil Law. It was by extending the principles of theAedilitian Edict and of the law of dolus malus that theEuropean jurists and judges have elaborated the law ofmarine and other insurances. At the root of theaedilitian actio redhibitoria lies the principle that a

contract of sale can be avoided if the subject matter

/contains . ...

32

contains a latent defect unknown to the purchaser, whichwould have affected his judgment in buying it had heknown of its existence." The duty of disclosure

is imposed ex lege. It is not based upon an impliedterm of the contract of insurance. Nor does it

flow from the requirement of bona fides. Oelofse,op. cit., at p 286 : "Blykbaar moet die goeie trou-gedagte bloot as 'n verskyningsvorm van die gewonebeginsels met betrekking tot bedrog gesien word."By our law all contracts are bonae fidei (LudovicusMolina, op. cit. disputatio 259 nr 4 : namque bona

fides in omnibus contractibus esse debet; Wessels,op.cit., paras. 1976, 1996; Tuckers Land and

Development Corporation (Pty) Ltd. v. Hovis,

/1980

33

1980 (1) SA 645 (A) at p 652 A). Yet the duty of disclosure is not common to all types of contract. It is restricted to those contracts, such as contracts of insurance, where it is required ex lege. Moreover, there is no magic in the expression uberrima fides. There are no degrees of good faith. It is entirely inconceivable that there could be a little, more or most (utmost) good faith. The distinction is between good faith or bad faith. There is no room for uberrima fides as a third category of faith in our law. Oelofse, op.cit., at p 2: "Streng gesproke kan daar nie grade van goeie of kwaaie trou wees nie. Iemand tree of te goeie trou òf te kwaaie trou op." Compare

/Spiro

34

Spiro, Uberrima Fides, in 1961 T.V.H.R.-H.R. p 196-202.

Uberrima fides is not a juristic term with a preciseconnotation. It cannot be used as a yardstick witha precise legal meaning. ROBERTS A.J. correctlyheld in Iscor Pension Fund v. Marine and Trade InsuranceC o. Ltd_. 1961 (1) SA 178 (T) at p 184 that "the claimthat uberrima fides is a necessary and inseparable

concomitant of insurance is misleading". In myopinion uberrima fides is an alien, vague, uselessexpression without any particular meaning in law. AsI have indicated, it cannot be used in our law for thepurpose of explaining the juristic basis of the duty todisclose a material fact before the conclusion of acontract of insurance. Our law of insurance has no

/need

35

need for uberrima fides and the time has come to jettison it.

Section 18 of the English Marine Insurance Act

"(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. (3) In the absence of inquiry the following circumstances need not be disclosed, namely

/(a)

36

(a) Any circumstance which diminishes the risk; (b) Any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know; (c) Any circumstance as to which information is waived by the insurer;

(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."

In order to determine the materiality of facts forpurposes of disclosure section 18(2) of the EnglishMarine Insurance Act 1906 adopted the prudent or reasonable

insurer test which- had been established in relation to

/marine

37

marine insurance as long ago as 1832 ( Elton v. Larkins, 5 Car. & P. 385). This test had become the dominant test of materiality in English case law by the end of the 19th century. See R.A. Hasson, The Doctrine of Uberrima Fides in Insurance Law - A Critical Evaluation, in vol. 32 (1969) Modern Law Review p. 615-637. According to this test the criterion is the objective judgment of an hypothetical prudent or reasonable insurer and not the subjective judgment of the insurer in a particular case. This test has been criticised as too harsh on an insured since it takes account only of facts material to the insurer. See the Journal of Business Law, March 1984,p 109.

/It

38

It is not surprising therefore that the prudent or

reasonable insured test made its appearance sporadically

in the field of non-marine insurance. This test ismore favourable to an insured since the standard of judg=ment is the objective judgment of a prudent or reasonable

insured and not the subjective judgment of the insured in

a particular case. In its report of 1957 the LawReform Committee in England recommended that "for thepurpose of any contract of insurance no fact should be

deemed material unless it would be considered material

by a reasonable insured". The Law Commission in its

report of 1980, according to Birds, Modern Insurance

Law, (1982) at p 102-103, urged "that while the test

39

of materiality remain broadly the same, questions expresslyasked being presumed to be material, the proposer shouldbe bound to disclose only those material facts which heknows or ought to know which a reasonable man in hisposition would disclose, having regard to the nature andextent of the insurance cover which is sought and thecircumstances in which it is sought". See also Oelofse,op. cit., p. 78-79. In Lambert v. Co-operative InsuranceSociety Ltd., (1975) 2 LLR 485 (CA), a case concerning allrisks insurance i.e. non-marine insurance, the Court ofAppeal held that the prudent or reasonable insurer test ofmateriality was applicable as a general rule of insurance

law to all forms of insurance. In the light of the

recommendations referred to above it is at this stage

/uncertain .

40

uncertain what the future holds for the prudent orreasonable insurer test of materiality in England.

Let us now turn to consider the test of materiality

in our law. In Fine v. The General Accident, Fire & LifeAssurance Corporation Ltd., 1915 AD 213 an appeal fromthe W.L.D. on a fire insurance policy came before thisCourt. Neither Act 8 of 1879 (C) nor Ordinance 5 of

1902 (0) was applicable. As regards the test of materialityand its application the approach by SOLOMON J.A. (at p 220-

221) was as follows : "And in Joel's case FLETCHER

MOULTON L.J., says: 'If a reasonable man would have

recognised that it was material to disclose the knowledge

in question, it is no excuse that you did not recognise

it to be so'. And that after all appears to be the true

/test

41

test, would a reasonable man consider that the factwas one material to be known by the insurer, or a fact

that in the words of LORD BLACKBURN 'might influence theunderwriter's opinion as to the risk he is incurring'.And if that be the test, can there be any doubt that

a reasonable man would consider the fact, that there hadbeen a cancellation of a previous contract, material,unless at the same time a satisfactory explanation hadbeen given of that, fact." (My underlining). Joel v.Law Union & Crown Insurance Co., (1908) 2 K.B. 863 (CA)

concerned a life insurance policy. It is significantthat SOLOMON J.A. applied the reasonable man test withoutreference to the prudent or reasonable insurer. Hedid not purport to apply the prudent or reasonable insurer

42

test of the English marine insurance law. InColonial Industries Ltd. v. Provincial Insurance Co.Ltd., 1922 AD 33 this Court heard an appeal front the C .P.D. on twopolicies of fire insurance. According to the provisionsof Act 8 of 1879 (C) the English law (as it existed in

1879) concerning fire insurance was applicable. Theapproach to the question of materiality by DE VILLIERS J.A.

(at p 42) was as follows: "The only question that remains

is: were the facts material ? To this there can be but

one answer, if we bear in mind that every fact is material

which would affect the minds of prudent and experienced

insurers in deciding whether they will accept the contract,

or when they accept it, in fixing the amount of premium to

be charged. Tate v. Hyslop, (1885, 15 Q.B.D. at p 368)."

43

The latter case dealt with marine insurance. DE VILLIERSJ.A. applied the prudent or reasonable insurer testof the English marine insurance law. In view of therepeal of Act 8 of 1879 by sec. 1 of Act 43 of 1977 the

judgment of DE VILLIERS J.A. on the materiality test isno longer binding on this Court. In Roome N.O. v.Southern Life Association of Africa, 1959(3) SA 638 (D &CLD) JANSEN J. (at p 641 F) had occasion to apply thereasonable man test to determine materiality. In

Fransba Vervoer (Edms) Bpk. v. Incorporated General

Insurances Ltd., 1976(4) SA 970 (W) McEWAN J. (atp 978) in effect applied a double test which is a

combination of the prudent or reasonable insurer test

as well as the prudent or reasonable insured test.

/What

44

What is the position in Roman-Dutch law ? I am unable to find any support in the Roman-Dutch law for either the prudent-or reasonable insurer test or the prudent or reasonable insured test. It is implicit in the Roman-Dutch authorities and also in accordance with the general principles of our law that the court applies the reasonableman test by deciding upon a consideration of the relevant factsof the particular case whether or not the undisclosed

information or facts are reasonably relative to the risk

or the assessment of the premiums. If the answer is

in the affirmative the undisclosed information or facts

are material. The court personifies the hypothetical

diligens paterfamilias i.e. the reasonable man or the

average prudent person. (Weber v. Santam Versekerings=

/maatskappy...

45

maatskappy Bpk., 1983 (1) SA 381 (A) at p 410H to 411D). The court does not in applying this test judge the issue of materiality from the point of view of a reasonable insurer. Nor is it judged from the point of view of a reasonable insured. The court judges it objectively from the point of view of the average prudent person or reasonable man. This reasonable man test is fair and just to both insurer and insured inasmuch as it does not give preference to one of them over the other. Both of them are treated on a par.

The facts of the present case are set out

fully in the judgment of my Brother MILLER. By a strange

quirk of fate the height of the pole with which the

light aircraft of Mr Noakes collided on the night of

/23 October

46

23 October 1971 was never measured prior to the conclusionof the contract of insurance. Nor was it measuredprior to the collision. The several complaints inwriting by Gillis on behalf of the Oudtshoorn Aero Club to

Schultz, the Town Clerk of the respondent municipality,

that the proximity of the high-tension overhead line to

runway 21 of the Oudtshoorn Aerodrome constituted a hazardto flying aircraft evidently achieved no more than the

placing of white markers on the pole for daytime flying.

In 1969 the respondent municipality appointed Schultz

manager of the Oudtshoorn Aerodrome. Until the end of

1969 the latter was normally used for daytime flying by

aircraft. A new development took place when night

flying was authorised during or about April 1970. ' In

/his

47

his letter, dated 14 April 1970, to the airport manager Gillis advised him to inform the Divisional Controller of Civil Aviation that a single electric flare path had been installed on runway 21 only and that "caution should be exercised on the approach for high tension wires". On 8 June 1970 Schultz in his capacity as airport manager duly conveyed by letter the recommendations of Gillis to the Divisional Controller of Civil Aviation.I am satisfied that when the respondent municipality negotiated the insurance policy with the appellant insurer during June 1970 the undisclosed information that the close proximity of the high tension overhead line to the Oudtshoorn Aerodrome constituted a hazard to night flying

/which

48

which necessitated the exercise of caution on approaching the flare path of runway 21 at night was reasonably relative to the risk or the assessment of the premiums. Such undisclosed information was therefore material. Our law requires an insured to have actual or constructive knowledge of the material information prior to the con= clusion of the contract of insurance, ( de Groot 3.24.5, Van der Linden 4.6.4 nr 3). Schultz in his capacity as chief executive and administrative officer (Town Clerk) of the respondent municipality at all relevant times prior to the conclusion of the contract of insurance had actual knowledge of the undisclosed information. It follows that the court a quo should have upheld the appellant's

/defence .....

49

defence of non-disclosure of material facts. The appeal succeeds. I agree with the orders proposed by my Brother MILLER.

C.P. JOUBERT. J.A.

CILLIé. JA )

VILJOEN JA )

Concur

GALGUT AJA )