kiwengwa strand hotel ltd vs royal insurance t ltd 2005 tzhccomd 6 25 february 2005

IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION) AT PAR ES SALAAM COMMERCIAL CASE NO. 68 OF 2003 KIWENGWA STRAND HOTEL LIMITED.............. PLAINTIFF VERSUS ROYAL INSURANCE (T) LIMITED......................... DEFENDANT Counsel: Dr. Tenga for Plaintiff Dr. Kapinga for Defendant JUDGMENT Dr. BWANA, J: Both parties to this suit are limited liability companies incorporated in Tanzania under the Companies Ordinance Cap 212. The plaintiff is engaged in hotel business and is the owner of a tourist village in Zanzibar called “Bravo Club”. The defendant deals in insurance business. The plaintiff’s claims against the defendant originate from a fire incident in the early morning hours of 23 January 2001 which gutted the central building of Bravo Club. The defendant was the insurer of the plaintiff. The latter had - on 8 May 2000 - taken two insurance policies: the Fire Insurance Policy No. TF 0097 and Consequential Loss Policy No. TLOP 0014 - Exhs. P1 (a) and P1 (b). Therefore when the central building was gutted with fire, the two policies were still valid. The properly had been insured for a sum of US $ 13,500,000 (the fire policy). The 1 consequential loss (or the Business Interruption policy, as is sometimes called) was for US $ 2,500,000. Following the fire damage,<e both parties sent their representatives in the form of loss adjustors and/or top management staff. A number of meetings were held on the scene of the fire-damaged property. Also assessments were carried out either separately or jointly by the two loss adjustors namely Dr. Mario Nigra (PW2) for the plaintiff and Raju Seth (DW3) for the defendant. There were also a number of correspondence between the parties. Meanwhile as the aforementioned steps were going on, the plaintiff decided to start reconstruction of the damaged part so that the hotel would be fully operational by the start of the tourist season - July 2001. Tenders were floated by the plaintiff. A company known as Zanzibar Aluminium was awarded and the construction work started in April. It was completed in July 2001. The whole tendering and reconstruction process seems to have complicated the matter. Again, it came to the attention of PW2 only in July that the Extensive clauses were excluded/deleted, that the policy did not cover them. That revelation put the parties further apart. PW2 had therefore, to prepare his proposed claims in two columns - one claim with extensive clauses and the other without. Following the ever widening gap between the parties, the defendant decided to repudiate the policies as shown by Exh P4, dated 17 March 2003, on the basis of false declarations. It was claimed in Exh P4 that the material damage claim as submitted by the plintif did not represent the amount of loss and/or damage as required by the fire insurance policy. Three months later, the plaintiff instituted this suit praying for the following reliefs:- 2 1. Judgment against the defendant for the equivalent (inTshs) of US$ 2,647,371/71 for the fire material damage claim. Another US$ 1,250,118/67 (its equivalent in Tshs) for the Consequential loss claim. 2. General damages for wrongful breach of contract. 3. Interest on the above sums. 4. Costs of this suit. The parties called a number of witnesses in support of their respective cases. On the part of the plaintiff, he called the following PWs - Claudio Marieschi - PW1 Mario Nigra - PW 2 Loredana Tavarner - PW3; and Tryphone Rutazamba - PW 4. On the part of the defendant, the following defence witnesses were called:- James G. Kariuki-dw 1 „ Archbold Nisbett -dw-2 Raju Bupendra Sheith - dw 3 David Spencer Russel -dw 4; and Erneus L. Rweyemamu - dw 5. The following ten issues were framed for the determination of this court. 1. Whether the insurance policy provided for extensive clauses. 2. Whether the insured building was completely destroyed together with all things therein. 3. Whether the plaintiff has breached the conditions of the policy. 4. Whether the plaintiff set up any tender for the rebuilding of the premises destroyed by fire, which was awarded to Zanzibar Aluminium and Construction Company Limited based on competency. 5. Whether the plaintiff has committed fraud by making false claims and declarations, which entitles the defendant to repudiate the claim under condition 13 of the fire insurance policy. 6. Whether the defendant was justified to object to the claims as lodged by the plaintiff. 7. Whether the defendant is entitled to repudiate the plaintiff’s claim under clause 13 of the fire insurance policy. 8. Whether there was wrongful delay. . 9. Whether the insurance covered for indemnity or reinstatement; and 10. To what reliefs are the parties entitled. I start with issue No. 1. There seems to be differing views as to whether the extensive clauses were included or not. According to the plaintiff’s evidence (PW 1 and PW4) it was the intention of the insured that the policy cover all risks, hence the extensive clauses to be included. It is further their interpretation that the word ALL appearing on the policy schedule Ex. P 1 (a) imply that all extensive clauses are incorporated. The defence case differs with the above views and rightly so. I have examined the relevant evidence on this subject and came to a considered view that extensive clauses were not included in the policy document. According to Exh P 1(a) - policy No.0097 - it is clearly shown in the schedule that all extensive clauses are deleted. Those words cannot be given a different interpretation. It is not what the plaintiff proposes to the insurer as to what should be included in the policy. Rather, it is what is agreed upon by the parties and they sign it to that effect is taken to be the 4 contents of the Agreement. Both sections 100 (1) and 101 of the Evidence Act, 1967 are very categorical on this aspect. The former states: ‘‘..When the terms of a contract... or of any other disposition of property, have been reduced to the form of a document....no evidence shall be given in proof of the terms of such contract...of such matter except the document itself..." (emphasis mine). Section 101 further states: ■ ‘‘When the terms of any such contract....reduced to the form of a document, have been proved according to section 100, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument....for the purpose of contradicting, varying, adding to or subtracting from its terms ’’..(emph asis mine). I have taken into account the views of PW4 that he believed “that extensive clauses apply despite the wording of the original policy document “. Such views are not correct. To that, the provisions of sections 100 and 101 (supra) give a definite answer. What PW4 believes to be supporting his views - i.e. Exh,P. 15 - is in so far as I see it - were proposals cum views from the plaintiff’s side to the defendant. These views were forwarded after the fire had gutted the hotel as shown in Ex D11 — minutes of a meeting between the parties hold on 11 and 12 March 2002. They were advanced at a time when the parties were at loggerheads as to whether extensive 5 clauses are included or deleted. Therefore Ex. P15 and D11 cannot be considered as supportive of PW2’s views. Which is why I believe, and as stated by PW2 in cross examination, eventually he had to prepare two columns (Ex.P3) because the parties could not agree as to whether the extensive clauses were included or deleted. Therefore Ex.P.1 (a), P3 and D11. considered together, I am left with no doubts that all the extensive clauses were deleted. CHITTY ON CONTRACTS (Vol.1 para 12 - 043, 28th Ed) clearly states: “ The task of ascertaining the intention of the parties must be approached objectively. The question is not what one or the other of the parties meant or understood by the words used, but the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the It situation in which they were at the time of the contract. The cardinal presumption is that the parties have Intended what they have in fact said, so that their Words must be construed as they stand. That is to Say, the meaning of the document or of a particular Part of it is to be sought in the document Itself........’’(emphasis mine). All the above considered, I am of the view that the insurance policy did not provide for extensive clauses. They were all deleted. The second issue does not need to detain us longer. From the evidence available it is clear that what was gutted by the fire are parts of the central building 6 comprising of the kitchen, administration offices, restaurant, discotheque, shops, amphitheater and shops. In brief, therefore, the insured building was partially destroyed. Parts such as the bungalows, rooms, swimming pool and other structures at the beach were not touched by the fire. As to the things therein, there is evidence that some of them were salvaged and stored elsewhere. Closely related to the foregoing is issue No.4 - whether the plaintiff set up any tender for the rebuilding of the burnt premises. The answer to this is in the affirmative. The evidence adduced clearly shows that Zanzibar Aluminium won the tender and was awarded the reconstruction. All in all there were three companies that bid for the worklt is important that I note in passing that throughout this period - i.e. between 23 January 2001 and 12 April 2001 when the plaintiff signed the reconstruction contract with Zanzibar Aluminium Ex. P.13 - the defendant had worked closely with Mazrui Building Contractors Ltd. The said company was one of the bidders (Ex. P8 (a) but lost. Therefore because Mazrui did not win the tender should not be taken to mean that the whole process of tendering was “fake” as Counsel for the defendant wants this court to believe. Zanzibar Aluminium had offered the lowest bid compared to those of Mazrui and Mzee Mwinyi, the third bidder. It should also be noted that there is no condition in the Agreements (Ex. P1 (a) and P1 (b) which requires or binds the plaintiff to inform or involve the defendant in the tendering process or the selection of the winner of the tender. It is equally important to note here that the substantive issue before me and as I see it, is not who won the tender for the reconstruction of the hotel and how he was appointed. I believe the main issue for determination is the quantum to be paid by the insurer to the insured. For, the contention between the parties is not whether or not the main building of the hotel was gutted down by fire. Rather, the issue is the extent of the damage and how it was quantified or estimated by the parties. In conclusion, it is my 7 view that the plaintiff set up a tender, which attracted three bidders and Zanzibar Aluminium won because it offered the lowest cost of reconstruction. In so determining I am mindful of the defendant’s claim that Zanzibar Aluminum was awarded the contract even before its incorporation. This issue should not detain us here, as I believe neither the plaintiff nor the defendant was aware of that fact at the time Zanzibar Aluminium was awarded the contract. Otherwise either party would have brought to the attention of the other of that fact bearing in mind the principle of good faith that governs insurance contracts. If the plaintiff acted in good faith in awarding the contract to Zanzibar Aluminium its legal status notwithstanding, that cannot be said now that it was incompetent to bid and carry out the reconstruction work. ■ . For convenience’s sake, I will now discuss issues No. 3, 5, 6 and 7 together. Prominent therein is the claim by the defendant that the plaintiff committed fraud by making false claims and declarations to the defendant. In so far as the issue of presentation of false claims by the plaintiff to the defendant is concerned, it is not controverted that in the course of time, the plaintiff (through PW2) submitted certain proposals of quantum to the defendant (through DW3 and others). This took place by way of correspondence between the two loss adjustors and during joint meetings in Zanzibar. However, it is my view that the real claims submitted to the defendant were those accompanied by a declaration on oath as required by condition No 11 (b) of Exh P1 (a). According to the evidence adduced, such claims were eventually handed over to the defendant in Zanzibar in January 2002. However some information contained therein was found out not to be correct (e.g. the size of the floor) and PW2 admitted that error, withdrew the claim, and after fresh measurements were taken of the said floor another claim (accompanied by a declaration on oath) was lodged in May 2002. 8 Again, it is shown by the defence case that on several occasions, PW2 presented different quantification for the loss suffered and the cost of reconstruction. The plaintiff’s case however, is that the different figures given at different meetings and correspondences were a result of negotiations, discussions and visits to the scene and the prevailing condition there at. Further, that such differing figures were not claims as no final claim had been lodged accompanied by a declaration on oath. I do concur with these views by the plaintiff. Now, suppose there were those differences and the alleged false allegations, can that be said to be fraud? My considered view is that it is not. Fraud is an untrue statement made in order to deceive or mislead another party.. According to Blacks' Law Dictionary (6‘b. Ed), legal fraud - •e “ consists of material representation......made with knowledge of its falsity and with intention that the other party rely thereon, resulting in reliance by that party to his detriment ‘‘(emphasis mine). So, in order to amount to fraud, the following features must be present - First, it must be made knowingly by the maker to be false. Second, it must intend to mislead the recipient to his detriment. In insurance claims, fraud would include (but not restricted to) inflating of claims knowing that it is not true, false statements by the insured to the insurer, etc. It is also a settled principle of law that proof of fraud in civil cases requires a much higher degree of probability than that which would be required in ordinary civil cases. This court has - on several occasions - stated so (see inter alia Com. Case 9 Nos. 46 of 2000; 63 of 2000 and 68 of 2000). In Hornal Vs Neuberger Products Ltd (1957) 1 Q B 247, 263, Lord Denning had this to say: "...a civil court, when considering a charge of fraud will naturally require for itself a higher degree of probability than that which it would require when asking if negligence is established. It does not adopt so high a degree as a criminal court, seen when considering a charge of a criminal nature; but still it does require a degree of probability which is commensurate with the occasion....’’(emphasis mine). Therefore a party alleging fraud must prove it to a higher standard of proof expected - higher than a mere balance of probability although not to the extent of proof beyond reasonable doubt. The key question here is - has the defence case complied with that basic requirement? My view is that it has not. I believe that the defendant’s basis for such a claim is clearly stated in the letter repudiating the claim (pursuant to condition 13 of Exh P1). That letter — Exh P4 - however does not state fraud as the basis for repudiation. For purposes of clarity, I reproduce the entire letter below:- 17 March 2003 Ref: SB/ctj Dear Mr Marieschi FIRE AND CONSEQUENTIAL LOSS CLAIMS FOLLOWING INCIDENT ON 23rd JANUARY 2001 at KI WE NG W A STRAND HOTEL T/A CLUB BRAVO 10 We have now received from Interstate Surveyors the Declarations under Oath in respect of your claims signed by you on 6 February 2003 to confirm firstly the Material Damage Claim under Policy No. TF 0097 submitted by your representative Mr. Mario Nigra of New Europrogetti, Torino, Italy as correct at US Dollars 2,647,371/71 and secondly, the Consequential loss claim under Policy No. TLOP 0014 also submitted by Mr. Mario Nigra as correct at US Dollars 1,250,118.67 based on the evaluation of claim documents submitted to our appointed Independent Loss Adjusters dated 26th October 2002 and 6th November 2002 respectively. The documented claims havfi been reviewed by the Adjusters and considered with all the previously presented papers, correspondence and discussions. The Adjusters have now advised us that it is now evident that not all reasonably requested documentation has been made available but from the information submitted with the letter dated 26th October 2002 it is apparent that the decision making process for the appointment of a Contractor to rebuild the Central Building was not in fact as advised to them in earlier correspondent. We are aware that you initially submitted competitive quotations for reconstruction from Mazrui Building Contractors Ltd, dated 17th February 2001 for T.sh.319, 835,311.00 plus VAT and Zanzibar Aluminium and Construction Company Ltd, dated 10th February 2001 for T.sh.234,978,527.00 plus VAT plus tiles at Tsh.85,564,500.00. Subsequently we were advised that a new tender process would be put in place and an un priced bill of Quantities was issued to 3 Contractors on 30th March 2001 and after your representatives evaluation of the tenders, you signed a Contract with Zanzibar Aluminium and construction Company Ltd, dated 12th April 2001 for T.sh.776,995,088.00 plus VAT, with immediate payment to be made of T.sh.311,000,000.00. You are no doubt aware that our Adjusters were given no opportunity to dispute or agree the revised tenders or confirm why the original quotations were unacceptable to you. Our Adjusters, once they were availed the new Contract details after the work had started found 11 significant discrepancies in measurements and you have now agreed that the Bill of quantities was incorrect and made a revised claim in the evaluation now under consideration. Despite the overcharge of over T.sh.100,000,000.00 you have apparently paid the full amount to three separate parties i.e. Zanzibar Aluminium, Walter Rigo and Drop of Zanzibar. Within the supporting documentation we have noted that you prepared internal paperwork on 15th March 2001 which demonstrates that on that date you had already appointed Zanzibar Aluminium and Construction Company Ltd, at T.sh.776,995,088.00 plus VAT and shortly thereafter commenced payment to Walter Rigo. A copy of this document is attached. From other documentation, it is clear that this figure was available to you even earlier. There is also no record of the contractual payment being made on 12 April 2001 of T.sh.311,000,000.00. It has come to our attention that despite the tender received in February 2001, Zanzibar Aluminium and Construction Co. Ltd, were not incorporated at that time, registration only being on 19th March 2001 with VAT registration being 11th May 2001. The Adjusters have also pointed out to us other discrepancies which support our now considered opinion that the Material Damage claim as submitted does not represent the amount of the loss or damage as required by Condition 11 of our Policy. We are therefore left with no alternative but to apply Condition 13 and repudiate the claim on the basis of a false declaration. It therefore follows that the Consequential Loss claim also falls away as the insuring clause in the policy states; “Provided that at the time of the happening of the Damage there shall be in force an Insurance covering the interest of the Insured in the property at the premises against such Damage and that payment shall have been made or liability admitted therefore under such insurance”. Yours faithfully 12 S. Bonney General Manager cc: Mr. Mario Nigra New Europrogeni s.r.I Via Leini 57/C-10155 ” Torino - Italy F & Insurance Brokers Dar es Salaam It is evident from the contents of that letter that the following reasons led to the repudiation of the claim:- 1. Ignoring Mazrui’s quotations in favour of Zanzibar Aluminium. 2. Awarding the tender to Zanzibar Aluminium while it was not incorporated yet. 3. Presenting quantified figures, which were incorrect, necessitating PW2 to withdraw them and submitfresh ones. All the three arguments do not establish fraud. In so far as point 1 is concerned, I have already stated above that the defendant had a close working relations with the Mazrui Company. It seems therefore that the defendant preferred Mazrui to any other bidder, to under take the reconstruction! As far as point 2 is concerned, that matter has already been discussed before and as such I see no need to repeat it. Also point 3 has been discussed. It is imperative to restate here - and it is not controverted that PW2 did admit the discrepancies discovered in the first claim (accompanied by declaration on oath). That is why he withdrew it and presented a fresh one, months-later, with a revised (lower) quantification. The said discrepancies, as stated earlier, concerned the size of the floor. It is on record that when this issue was brought to the attention of PW2 in a meeting in Zanzibar, he did admit that it was not him who measured the size of the floor and promised to do it. He did it and found out that the size was smaller than what he was given before. Because of that new factor, he withdrew the earlier claim and presented another some months later. 13 All these sequence of events cannot be said to be false presentations amounting for fraud. No. My reply to issue No.5 is therefore, in the negative. Therefore if the defendant’s decision to repudiate the claim is solely based on the issues discussed above (and I see no evidence pointing to other material points), then it is my view that it was not justified to object to the claims as lodged by the plaintiff. Issue No.6 is answered in the negative. Issue No.7 deals with the right to repudiate a claim invoking condition 13 of Exh P 1(a) (The Fire Insurance policy). Condition 13 allows the defendant to repudiate such a claim if it is fraudulent. I have already ruled hereinabove that there was no fraudulent declaration on the part of the plaintiff. Therefore the defendant was not entitled to repudiate the plaintiff’s claim as lodged. The next point for consideration is whether there was a wrongful delay (point No.8) and I should add, if so, by Which party. The sequence of events - from the date of the fire up to the filing of this suit - have been chronologically stated by the various witnesses. These include visits to the scene; correspondences between all the parties, particularly the loss adjustors (PW2 and Dw3) and several meetings. I consider all these events to have been necessary and reasonable, given the extent of the damage, the legal complications that followed and the quantification of the loss suffered. There were several disagreements as to the proposals advanced by one party and challenged by the other. Again I consider such events to be expected as negotiations were going on. I am aware that under condition 9 (claims notification) of the consequential loss policy [Exh P 1 (b)], the plaintiff was under obligation to give to the defendant notice of the fire within thirty days. According to the evidence on record, that condition was met and that is why by 24 January 2001 PW4 and DW3 14 visited the scene. DW 3 had been sent by the defendant. I presume that the defendant would have not sent DW 3 if the plaintiff had not given notice of the fire. As to why it took that much time between 23 January 2001 and the presentation of the claim (accompanied with a declaration on oath) - all the PWs and DWs have shown in their evidence the long road this matter took. I see nothing wrong with that, given the circumstances. Therefore to answer the point, there was no wrongful delay Issue No. 9 should be considered in the light of what is said when discussing issue No.1. That leads, to the considered view that the insurance was for an indemnity cover as the reinstatement value clause regarding the damaged property brings in the extensive clauses, which as discussed under No.1 above, have been deleted/excluded. Therefore the insurance cover was one for indemnity. The last point is what reliefs are the parties entitled. The plaintiff claims for the equivalent of US $ 2,647,371/71 for the fire material damage and another US $ 1,250,118/67 for the consequential loss claim. The defendant, on its part avers that since the fire insurance policy was repudiated under condition 13 of Exh P 1 (a), the plaintiff is not entitled to recover. Further, that since the plaintiff breached condition 9 «* and 10 of the Consequential loss policy (Exh P1 (6) by making false declarations, the plaintiff is not entitled to any money. I have already made a finding that the defendant’s repudiation of the fire insurance policy, pursuant to condition 13 of Exh P1 (a) was not proper. There was no fraud. As such, the plaintiff is entitled to some indemnification. The question is how much. Considering all the evidence available and bearing in mind that all the extensive clauses were deleted, further, in the absence of counter proposals by the defendant, the plaintiff is awarded the sum equivalent to US $ 2,206,272/45. That 15 sum is provided for in Exh P3. As to the Consequential Loss policy, the defendant relies on clauses 9 (failure to notify within thirty days) and 10 (fraud). I have already noted above that there was neither failure to give notice within the prescribed period nor fraud. Therefore in the absence of a counter offer, the plaintiff is awarded the equivalent of US $ 1,250,118/67.1 see no basis for a claim (by the plaintiff) for awarding general damages. In summary, I enter judgment in favour of the plaintiff, to the extent shown and make the following orders:- .. 1. The defendant to pay the plaintiff the equivalent in Tshs:- (a) US $ 2,206,272/45 for the fire insurance policy. (b) US $ 1,250,118/67 for the consequential Loss policy. 2. The above sums to carry an interest (in Tshs) of 7% per annum from 6 February 2003 to the date hereof. Another interest of 7% per annum from the date hereof till final payment. 3. Each party to bear its costs of this suit. It is accordingly ordered. Dr. 4,430 words 16