Agapitos and another v Agnew and Others

JurisdictionEngland & Wales
JudgeLord Justice Mance,Mr Justice Park,Lord Justice Brooke
Judgment Date06 March 2002
Neutral Citation[2002] EWCA Civ 247
Docket NumberCase No: A3/2001/2331/QBCMI
CourtCourt of Appeal (Civil Division)
Date06 March 2002
Between
Konstantinos Agapitos and Anor
Claimants/ Respondent
and
Ian Charles Agnew and Others
Defendants/Appellants

[2002] EWCA Civ 247

Before

Lord Justice Brooke

Lord Justice Mance and

Mr Justice Park

Case No: A3/2001/2331/QBCMI

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE QUEEN'S BENCH

DIVISION (TOULSON J.)

Andrew Popplewell QC & Claire Blanchard (instructed by Messrs Ince & Co) for the Appellants

Geraldine Andrews QC (instructed by Messrs Memery Crystal) for the Respondents

Lord Justice Mance

Introduction

1

It has been said that the more cases there are endorsing a particular proposition, the shakier it may be (cf Posner, The Problems of Jurisprudence, Harvard University Press, p.83). The waves of insurance litigation over the last 20 years have involved repeated examination of the scope and application of any post-contractual duty of good faith. The opacity of the relevant principles – whether originating in venerable but cryptically reasoned common law cases or enshrined, apparently immutably, in s.17 of the Marine Insurance Act 1906—is matched only by the stringency of the sanctions assigned. Not surprisingly, recent clarification of aspects of these principles has been influenced by this stringency, particularly in the context of s.17: see e.g. Manifest Shipping Co. Ltd. v. Uni-Polaris Shipping Co. Ltd. (The "Star Sea") [2001] 2 WLR 170, para. 6 per Lord Lord Clyde and paras. 51, 72 and 79 per Lord Hobhouse, with whom Lords Steyn and Hoffmann agreed at paras. 1 and 2; and K/S Merc-Scandia v. Certain Lloyd's Underwriters (The "Mercandian Continent") [2001] 2 Ll.R. 563

2

The older common law cases (particularly, Levy v. Baillie (1831) 7 Bing. 349, Goulstone v. Royal Insurance Co. (1858) 1 F & F 276 and Britton v. Royal Insurance Co. (1866) 4 F & F 905) stand for a rule of law, applicable even where there is no express clause in the policy, to the effect that an insured who has made a fraudulent claim forfeits any lesser claim which he could properly have made: see The "Star Sea" at para. 62, per Lord Hobhouse. It was unnecessary in The "Star Sea" to consider whether the whole policy is (at least if it is a marine policy) then also voidable, by application of or analogy with s.17: see paras. 64 to 67. Nor did that issue arise in either of the modern decisions to which Lord Hobhouse there referred— Orakpo v. Barclays Insurance Services [1995] LRLR 443, dicta in which Lord Hobhouse was careful not to endorse, and Galloway v. Guardian Royal Exhange (UK) Ltd. [1999] LRLR 209 (still more recently applied in this court in Direct Line Insurance plc v. Khan (11/10/01) [2001] EWCA Civ 1794).

3

S.17 provides:

"Insurance is uberrimae fidei

17 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."

4

The present appeal raises for consideration (a) whether and in what circumstances the common law rule of law and/or s.17 can apply in the event of use of fraudulent means or devices ("fraudulent devices" for short) to promote a claim, which claim may prove at trial to be in all other respects valid, (b) whether (if so) the application of that rule and section ceases with the commencement of litigation and (c) whether, in the light of the answers to these questions, the judge should have allowed the appellant insurers to amend their defence to assert (in short) that the respondents, during the course of the present litigation, maintained a case involving lying representations, as to the date when hot works commenced on the insured vessel.

The facts

5

The litigation arises from the loss of the passenger ferry "Aegeon" following a fire on 19 th February 1996. She belonged to Ioannis Agapitos. He issued proceedings on 27 th January 1997. Since his death on 15 th November 1999, the proceedings have been pursued by his son, Konstantinos Agapitos, as his successor in title.

6

The Aegeon was insured against hull and machinery port risks under a slip policy for six months at 9 th August 1995 "whilst laid up and undergoing general and cosmetic maintenance at Neo Molo Drapetsona, Greece". The conditions included "Wtd no hot work". After a spell spent at Eleusis, with insurers' permission, a further endorsement initialled on 12 th January 1996 noted that she was again moored at Neo Molo, and that "Refurbishment/maintenance works have recommenced and Hot Works on decks is due to commence soon". It further provided "Wtd LSA certificate and all recs. complied with prior commencement of hot work". A fax transmission dated 25 th January 1996 (shown, it appears, by the brokers to the leading underwriters on 26 th and 30 th January 1996) communicated the vessel's managers' advice "that as from yesterday 24.01.96 hot works are carried out on the above vessel".

7

The brokers responded on 26 th January 1996 that the (first) leading underwriter had noted the contents of the fax, but that "We would stress, however, that coverage of this vessel is warranted LSA certificate updated and all recommendations complied with prior to commencement of hot work. For the sake of good order please confirm that this has been carried out." On 29 th January 1996 the owner asked the Salvage Association "Pls appoint Mr Costouros in order to give us a new mooring approval plus L.S.A. certificate in Neo Molo Drapetsona". The Salvage Association instructed Mr Costouros. There followed some conversations between him and representatives of Mr Ioannis Agapitos, the contents of which are in issue. But it is common ground that Mr Costouros did not actually survey the vessel or issue any new certificate prior to the casualty on 19 th February 1996. On 30 th January 1996 the brokers informed owners that all leading underwriters had now seen the fax of 25 th January, and repeated their warning and request regarding the warranty. By a further endorsement on 6 th February 1996 underwriters agreed to extend cover for a further two months from 9 th February 1996 at pro rata additional premium, on terms "Wtd LSA cert updated". On 19 th February 1996 the fire occurred during hot works.

8

In their defence served on 21 st April 1997, underwriters alleged a number of breaches of warranty. That presently material related to alleged failure to obtain a Salvage Association certificate (a) prior to commencement of hot works as required by the endorsement of 12 th January 1996 and/or (b) on or shortly after 9 th February 1996 as allegedly required by the endorsement of 6 th February 1996. (Recently, underwriters have amended to assert that the endorsement of 6 th February 1996 warranted that such a certificate had already been obtained.) Underwriters asserted in support of (a) that hot works commenced by or from 16 th January 1996. By amendment dated 7 th November 2000, they have alleged, in the alternative, that these commenced by 24 th January 1996 or in the further alternative by 19 th February 1996. In his original reply of 13 th June 1997, the insured denied any breach of warranty, and alleged that hot works began on 12 th February 1996 and that, in so far as there was any warranty, the failure of the designated surveyor, Mr Costouros, to make himself available prior to the commencement of the hot works constituted a change of circumstance which excused non-compliance under s.34(1).

9

Underwriters sought in this light to resolve the proceedings by proposing preliminary issues, relying on the fax dated 25 th January 1996 to establish the date when hot works began. In evidence in reply on 24 th June 1998 the claimant alleged that an oxyacetylene tool had been used for a collateral purpose for a few hours on 24 th January 1996, but that this did not constitute "hot works" within the meaning of any of the endorsements. Shortly thereafter on 28 th August 1998 the reply was amended to plead this, to delete the s.34(1) defence and to assert that underwriters had waived or were estopped from relying on any warranty that a LSA certificate would be obtained, having regard to the fax of 25 th January 1996 and the endorsement of 6 th February 1996. On 22 nd November 2000 the reply was further amended to rely on the conversations between Mr Costouros and representatives of the claimant on or about 30 th January and/or 8 th February 1996, and to allege that during them Mr Costouros agreed to hot works starting without any survey of the vessel.

10

In disclosure in early 2001 the claimant disclosed sworn statements taken from two workmen immediately after the casualty, which attested that hot works of a substantial nature had been carried out from as early as 1 st February 1996. On 30 th July 2001 underwriters' solicitors wrote drawing attention to this, claiming inter alia to avoid the policy for fraud and inviting consent to amendments to their defence to plead such fraud. More specifically the proposed amendments assert that both Mr Ioannis Agapitos, from the service of the original reply on 13 th June 1997 until no doubt his death on 15 th November 1999, and Mr Konstantinos Agapitos, since he was granted permission to join as claimant on 14 th July 2000 or since the writ was amended to join him on 18 th October 2000, have knowingly, falsely and fraudulently mis-represented that no hot works were carried out prior to 12 th February 1996 and/or were in breach of their duty to act with utmost good faith, in the latter case entitling the asserted avoidance. In support of these pleas, underwriters propose to plead that "Both the claimant and his late father were closely involved in the refurbishment...

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