Post‐Contractual Good Faith – Change in Judicial Attitude?

AuthorH.Y. Yeo
Publication Date01 May 2003
Post-Contractual Good Faith
Change in Judicial Attitude?
H.Y. Yeo
That insurers have already honed the doctrine of pre-contractual uberrima fides to
a most formidable defence which has few peers in terms of harshness, is well
beyond dispute. The burning question now is whether the courts will allow
insurers further licence to similarly fashion an equally potent weapon for disputes
relating to post-contractual breach of good faith.
The focus on the post-contractual breach of an insurance contract appears to be
a relatively recent development embryonic when compared with its pre-
contractual counterpart. Actually, some earlier dicta
had already indicated that
the pre-contractual duty of disclosure ought to be viewed as merely one aspect of a
more multi-faceted uberrima fides doctrine and there should, by extrapolation,
exist a duty to act in utmost good faith throughout the entire duration of the
insurance contract.
This issue assumed increasing impetus during the last two
decades which saw a perturbing rise in the number of insurers
who resorted to
post-contractual breach of good faith as their defence against claims (including
those with fraud
allegations). However, it recently seemed to be beaten into
retreat after the precise delineation of its scope and application came to a head in
the landmark cases of The Star Sea
(House of Lords) and The Mercandian
(Court of Appeal). Close on their heels comes the appellate decision of
The Aegeon
which has added an interesting twist to the uberrima fides equation.
Associate Professor, Faculty of Law, National University of Singapore.
1 Eg, Boulton vHoulder Brothers & Co [1904] 1 KB 784, 791–792 (CA); see also remarks of Scrutton
LJ and Viscount Dunedin in [1925] KB 593, 609 (CA) and [1927] AC 139, 143–144 (HL),
respectively, of Glicksman vLancashire & General Assurance Co.
2 Marine Insurance Act 1906, s 17.
3 Eg, Black King Shipping Corp vMassie (The Litsion Pride) [1985] 1 Lloyd’s Rep 437; Continental
Illinois National Bank & Trust Co of Chicago and Zenofon Maritime SA vAlliance Assurance Co
Ltd (The Captain Panagos DP) [1986] 2 Lloyd’s Rep 470, affd [1989] 1 Lloyd’s Rep 33; Bank of
Nova Scotia vHellenic Mutual War Risks Association (Bermuda)Ltd (The Good Luck) [1989] 3 All
ER 628, reversed on other grounds in [1991] 3 All ER 1; Orakpo vBarclays Insurance Services Co
Ltd [1995] LRLR 443; Insurance Corp of The Channel Islands Ltd vMcHugh & Royal Hotel (No 1)
[1997] LRLR 94; Total Graphics Ltd vAGF Insurance Ltd [1997] 1 Lloyd’s Rep 599; and Galloway
vGuardian Royal Exchange (UK) Ltd [1999] Lloyd’s Rep IR 209 (CA).
4 It was previously thought that defences based on fraud were infrequent for insurance-claims cases
largely because of the difficult onus of proof as well as the fact that the law tolerates a certain
degree of exaggeration in claims as a measure of negotiation. However, the tide seems to be
changing of late: see R. Hodgin, ‘Fraud and Insurance Claim’ (1995) NLJ, vol 145, 136; M.A.
Clarke, The Law of Insurance Contracts (London: LLP, loose-leaf ed, 1999) at para 27-2B3;
Orakpo vBarclays Insurance Services Co Ltd,ibid 451; Nsubuga vCommercial Union [1998] 2
Lloyd’s Rep 682, 686; and Agapitos vAgnew (The Aegeon), n 7 below.
5Manifest Shipping Co Ltd vUni-Polaris Insurance Co Ltd (The Star Sea) [2001] 2 WLR 170.
6K/S Merc-Scandia XXXXII vLloyd’s Underwriters (The Mercandian Continent) [2001] EWCA
7Agapitos vAgnew (The Aegeon) [2002] EWCA Civ 247, [2002] 3 WLR 616.
rThe Modern Law Review Limited 2003 (MLR 66:3, May). Published by Blackwell Publishing Ltd.,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA. 425
These judgments also offer valuable insight into the shift in judicial approach as
regards the role of the court in tempering legal doctrines of controversial merit.
(a) Dilemma posed by section 17 of Marine Insurance Act 1906
The dilemma encountered when attempting to delimit the scope of section 17
stems from its terse assertion in the Marine Insurance Act that the contract of
insurance is one ‘ybased upon the utmost good faith’ as well as its one-size-fits-
all remedy that ‘yif the utmost good faith is not observed by either party, the
contract may be avoided by the other party’; with such beguiling simplicity, this
provision ‘yappears to be unlimited in its scope’.
In addition, it is immediately
apparent from the wording of section 17 that there is no mention of temporal
constraint. Since the duty of utmost good faith enjoins a very ‘ycomprehensive
degree of disclosure’
(with a low-threshold triggering point) prior to the
conclusion of the contract, the concern of interest in the present study is whether
the post-contractual duty ought to be equally wide in its ambit and as easily to be
triggered. Of even graver concern is whether post-contractual breach should
similarly attract the draconian remedy of retrospective avoidance.
(b) Hope kindled by The Star Sea
News of the challenge lodged against the Court of Appeal’s decision in The Star Sea
initially kindled hope that the case might offer the platform for the House of Lords to
shed some light on the uncertain scope of this relatively fledgling post-contractual
uberrima fides doctrine. The insurer had argued that the insured’s action of
withholding two expert reports on an earlier fire incident (considered prejudicial to
the insured) amounted to breach of utmost good faith.
Another point of contention
for this case was whether the ship had been sent out to sea in an unseaworthy state
(with the ship-owner’s privity) in breach of section 39(5) of the Marine Insurance Act.
Unfortunately, their Lordships’ decision ‘yhas disappointed many who
expected the clarification of all elusive points.’
Despite lamentations that ‘it is
perhaps a pity the House of Lords in The Star Sea were not prepared to condemn
absolutely any such expansion y
of the post-contractual duty, this case did
hold out some new hope for a policy shift on the future development of the
doctrine. Lord Hobhouse sought to reassure that ‘the courts have consistently set
their face against allowing the assured’s duty of good faith to be used by the
insurer as an instrument for enabling the insurer to act in bad faith y
judges should also ‘ybe prepared to examine the application of any such
principle to the particular class of situation to see what extent its application
would reflect principles of public policy or the overriding needs of justice.’
8The Star Sea, n 5 above, 174 at para 5, per Lord Clyde.
9ibid at para 6, per Lord Clyde.
10 As per s 17, n 2 above.
11 B. Soyer, ‘The Star Sea a Lode Star?’ [2001] LMCLQ 428, 445.
12 N. Hird, ‘The Star Sea the Continuing Saga of Utmost Good Faith’ [2001] JBL 311, 317.
13 The Star Sea, n 5 above, 189 at para 57, per Lord Hobhouse. Although the former part of the
statement may be questionable (judging from past judicial annals), it holds up much hope as a
future guiding principle.
14 ibid 191 at para 61, per Lord Hobhouse.
The Modern Law Review [Vol. 66
426 rThe Modern Law Review Limited 2003

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