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Case No: A3/2002/0051

Neutral Citation Number: [2002] EWCA Civ 1070


IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEENS BENCH DIVISION
COMMERCIAL COURT
The Hon. Mr Justice Aikens
Royal Courts of Justice
Strand,
London, WC2A 2LL

Tuesday 16th July 2002


Before :

LORD PHILLIPS OF WORTH MATRAVERS, MR


LORD JUSTICE MAY
and
LORD JUSTICE LAWS

---------------------
Between :
KIRIACOULIS LINES SA Respondent
/Claimant
- and -

(1) COMPAGNIE DASSURANCES MARITIME Appellants/


AERIENNES ET TERRESTRES (CAMAT) Defendants
(2) QBE INTERNATIONAL INSURANCE LIMITED

DEMETRA K
---------------------
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
---------------------
Mr Stephen Hofmeyr, QC and Mr Gavin Geary (instructed by Elborne Mitchell) for the Appellants
Mr Jeffrey Gruder, QC and Mr Philip Edey (instructed by Ince & Co) for the Respondent
---------------------
Judgment
As Approved by the Court
Crown Copyright

Lord Phillips MR :
This is the judgment of the Court.

Introduction

1. On 16 April 1997 a passenger vessel called DEMETRA K (the vessel) caught fire and

suffered extensive damage. At the time she was laid up in Piraeus awaiting sale. The

Respondents (the Owners) were the owners of the vessel. The Owners claim that they are

entitled to be indemnified against the loss that they have suffered under a policy of marine

insurance (the policy) underwritten by the two Appellants (the Insurers). The risks against

which that policy afforded cover included loss of or damage to the vessel caused by fire. On

26 October 2001 Aikens J. gave summary judgment in favour of the Owners in the sum of

$700,000 plus interest. This followed from a judgment given by him on 17 October 2001 in

which he decided three preliminary issues in favour of the Owners. The Insurers now appeal

against his decision on one of those issues.

2. It is the Insurers case that the fire which damaged the vessel was started deliberately, although

not by the Owners. The Owners deny this allegation, but for the purpose of the preliminary

issues it has been assumed to be correct. One of the preliminary issues raised the question of

whether, on true construction of the policy, the Insurers were liable. Aikens J. held that they

were, and they do not challenge this decision. They contend, however, that the wording of the

policy did not reflect the prior agreement between those who negotiated the cover on behalf of

the parties as to its scope. These were the underwriter Mr Mitchell and the Owners placing

broker, Mr Lee.

3. The Insurers contend that Mr Mitchell and Mr Lee had agreed that there should be excluded

from the cover loss or damage by acts of vandalism and/or sabotage and/or malicious

mischief. They contend that, by error, the wording of the policy did not give effect to this

common intention and the policy should be rectified so as to incorporate the exclusion. Aikens
J. found that the case for rectification was not made out. It is this finding which forms the

subject of this appeal.

Background facts

4. The following background facts found by Aikens J. are not in dispute.

5. The vessel was a passenger cruiser, which had been used for cruises around the Mediterranean

Sea. Her owners Greek insurance brokers were Mediterranean Insurances Limited. They

employed London brokers to place the risks in both 1995 and 1996. The London brokers were

TL Dallas (London) Limited. The senior broker at Dallas was Mr David Mason. He it was

who placed the risks in 1995. He was also involved in the initial negotiations for placing the

risks in 1996, but was absent during the final negotiations, when another broker, Mr Paul Lee,

took his place. Hull and Machinery cover was provided in 1995 and 1996 by the two Insurers.

Their business was written through an underwriting agency called Union Maritime

Underwriting Agency Limited. Mr Richard Mitchell was the marine underwriter at Union

Maritime in 1995 and 1996. He wrote the Hull and Machinery policies on the vessel in both

years.

6. During the winter of 1995/1996 the vessel was laid-up. There was a warranty in the 1995

policy that she should have a night-watchman on board.

7. At the time of the renewal of the Hull and Machinery cover the vessel was no longer

operational. She was laid-up at Piraeus awaiting sale. She no longer had a night-watchman on

board. She was moored next to a Greek ex-Naval vessel that was being used as a floating

museum.

The 1995 Policy

8. On 22 September 1995 a Hull and Machinery Policy was written by the Insurers for 12

months, commencing as from 8 September 1995. On 27 September 1995, there was a request
from Mediterranean Insurances Limited on behalf of the Owners that the policy should include

War Risks and also the risk of loss or damage by acts of vandalism and/or sabotage and/or

malicious mischief. Those additional risks were agreed by Mr Mitchell on behalf of the

Insurers on 3 October 1995.

9. Before the amendment of 3 October to cover additional risks, the policy provided, insofar as

material, as follows:

Type Hull and Machinery Insurance

Form MAR 91 (Slip Policy)

Assured Kiriacoulis Line

Vessel Demetra K

Period 12 months at 9 September 1995

Interest Hull, Machinery, Materials, Gear Equipment etc.


and everything connected therewith valued in all
at US$700,000.

Sum insured 100% of value and amounts

Trading Greek Waters or held covered at a rate to be


agreed.

Conditions Institute Time Clauses Hulls, (Clause 280 dated


1/10/83)

..

Free of claims for Partial Loss of or Damage to


the Subject Matter insured unless caused by Fire,
Lightning, Explosion, Grounding, Stranding or
Damage Received in collision with Ship Vessel or
object.

Including Protection & Indemnity coverage as per


Institute Port Risk Clauses to limit US$ 7000,000
any one accident or occurrence..

Warranted owners existing skipper onboard


vessel at all times when navigating.

Warranted premium paid within 45 days of


attachment date, and within 30 days of due dates.
Warranted vessel is laid up from November 95 to
April 96 alongside with permanent
nightwatchman.

10. Information She is laid up between November and April (inclusive) with a

permanent watchman.The Institute Time Clauses Hulls, which were

incorporated in the policy provide cover against the following, among other,

perils:

6 PERILS

6.1 This insurance covers loss or damage to the subject-matter


insured caused by

6.1.1. perils of the seas rivers lakes or other navigable waters

6.1.2 fire, explosion

6.1.3 violent theft by persons from outside the Vessel

6.1.4 jettison

6.1.5 piracy

6.1.6 breakdown of or accident to nuclear installations or


reactors

6.1.7 contacts with aircraft or similar objects, or objects falling


therefrom, land conveyance, dock or harbour equipment
or installation

6.1.8 earthquake volcanic eruption or lightning.

6.2 This insurance covers loss of or damage to the subject-matter


insured caused by

6.2.1 accidents in loading discharging or shifting cargo or fuel

6.2.2 bursting of boilers breakage of shafts or any laden defect


in the machinery or hull

6.2.3 negligence of Master Officers Crew or Pilots

6.2.4 negligence of repairs or charterers provided such


repairers or charterers are not an Assured, Owners or
Managers

6.2.5 barratry of Master Officers or Crew.

Provided such loss or damage has not resulted from want of due
diligence by the Assured, Owners or Managers.
11. The final clauses of the ITC make provision for exclusions. They are introduced by the

following statement

The following clauses shall be paramount and shall override anything


contained in this insurance inconsistent therewith.

12. They include the following:

23 WAR EXCLUSION

In no case shall this insurance cover loss damage liability or


expense caused by

23.1 war civil war revolution rebellion insurrection, or civil strife


arising therefrom, or any hostile act by or against a belligerent
power

23.2 capture seizure arrest restraint or detainment (barratry and piracy


excepted), and the consequences thereof or any attempt threat

23.3 derelict mines torpedoes bombs or other derelict weapons of war.

25 MALICIOUS ACTS EXCLUSION

In no case shall this insurance cover loss damage liability or


expense arising from

25.1 the detonation of an explosive

25.2 any weapon of war

and caused by any person acting maliciously or from a political motive.

13. The amendment of 3 October added the following, among other, clauses:

It is hereby noted and agreed that with effect from inception coverage
hereon is extended to include War and Strikes etc. risks as per the
following clauses:

Institute War and Strikes Clauses Hulls Time (Clause 281 dated
1/10/83).

Including risks of loss or damage by acts of vandalism and/or


sabotage and/or malicious mischief.

We shall refer to this clause as the 3 October addendum.

14. The Institute War and Strikes Clauses Hulls Time provide cover against the following perils:
1.1 war civil war revolution rebellion insurrection, or civil
strife arising therefrom, or any hostile act by or against a
belligerent power

1.2 capture seizure arrest restraint or detainment, and the


consequences thereof or any attempt threat

1.3 derelict mines torpedoes bombs or other derelict weapons


of war

1.4 strikes, locked-out workmen, or persons taking part in


labour disturbances, riots or civil commotions

1.5 any terrorist or any person acting maliciously or from a


political motive

1.6 confiscation or expropriation.

15. This cover is, however, subject to exclusions, which include:

4.2 loss damage liability or expense covered by the institute


time clauses-hulls 1/10/83

The 1996 Policy

16. The 1996 Policy was, so far as material, on the same terms as the 1995 Policy, subject to one

important difference. The provisions of the 3 October addendum, which were incorporated in

the slip as originally drafted, were struck out.

Concurrent causes and exclusions

17. A policy of marine insurance will not normally insure against a casualty regardless of how the

casualty occurs. A policy will normally, by reference to standard clauses, provide cover

against loss or damage resulting from specified causes and also exclude liability for loss or

damage resulting from specified causes. Such causes are of different varieties. Some describe

the physical event which directly inflicts the damage, such as fire, explosion or a peril of the

seas. Others describe types of human intervention which may bring about the physical event

which directly inflicts the damage. Thus negligence of repairers may result in a fire which

damages a vessel, so that the damage is caused by two concurrent causes under the ITC. Civil
strife may result in a terrorist causing an explosion which damages a ship, thereby combining

three concurrent causes in bringing about a casualty.

18. Where a policy provides cover against one of two or more concurrent causes of a casualty, a

claim will lie under the policy provided that there is no relevant exclusion. Where, however, a

policy contains an express exclusion of cover in respect of loss resulting from a specified

cause, underwriters will be under no liability in respect of a loss resulting from that cause,

notwithstanding the fact that there may have been a concurrent cause of the loss which falls

within the cover.

The effect of an exception is to save the insurer from liability for a loss
which but for the exception would be covered. The effect of the cover is
not to impose on the insurer liability for something which is within the
exception

per Cairns LJ in Wayne Tank Co v Employers Liability Ltd [1974] 1 QB 57 at p.69.

19. We turn to apply these principles to the facts of this case, assuming that the fire on the vessel

was started deliberately. Under the 1995 policy, as it was before the October 3 amendment, the

loss would have been covered. The damage to the vessel was caused by fire and it thus fell

within the cover expressly afforded by clause 6.1.2 of the ITC. The fire was caused by a

malicious act, which was a concurrent cause of the damage. This did not affect the cover, for

the malicious act exclusion in Clause 25 applied only to damage caused by the detonation of an

explosive or any weapon of war.

20. Thus the addition of the October 3 addendum was not necessary in order to cover the loss

which occurred. Its effect was to extend the cover by removing the exclusions in Clauses 23 to

26 of the ITC and conferring cover against loss or damage caused by war risks and by

vandalism, sabotage and malicious mischief, whether or not such loss or damage would

otherwise have fallen within the scope of the cover.


21. It follows that the deletion of the October 3 addendum in the 1996 policy did not remove cover

in respect of a fire that was started deliberately, for that cover was not dependent upon the

existence of the addendum. Had there been added to the 1996 policy a clause which expressly

excluded war risks and risks of loss or damage by acts of vandalism and/or sabotage and/or

malicious mischief, cover in respect of damage caused by a fire started maliciously would have

been excluded. It is the Insurers case that such exclusion had been agreed between Mr

Mitchell and Mr Lee and that the policy should be rectified to bring it into accord with that

agreement.

The requirements for rectification

22. Before turning to consider the evidence relied upon by the Insurers in support of their case for

rectification, it is important to identify precisely what it is that they have to establish to make

good that case. The Insurers must show (i) that it was the intention of both Mr Mitchell and

Mr Lee that the policy should exclude liability for loss or damage caused by vandalism,

sabotage or malicious mischief at the time that they drew up the policy and (ii) that they gave

outward expression of this common intent in a manner which made it plain, applying an

objective test, that this was what they wished to achieve by the policy. In American Airlines v

Hope [1974] 2 Lloyds Rep 301 at p.307, Lord Diplock stated, in the context of a claim to

rectify a policy of aviation insurance:

Rectification is a remedy which is available where parties to a contract,


intending to reproduce in a more formal document the terms of an
agreement upon which they are already ad idem, use in that document
words which are inapt to record the true agreement reached between
them. The formal document may then be rectified so as to conform with
the true agreement which it was intended to reproduce, and enforced in
its rectified form.

23. The antecedent agreement need not amount to a binding contract but there must be a common

accord as to what the parties mutual rights and obligations are to be, to which they fail to give

effect in their subsequent written contract see the detailed analysis of the authorities by the

Court of Appeal in Joscelyne v Nissen [1970] 2 QB 86.


24. Where the parties have recorded their agreement in a written contract, convincing evidence is

necessary to discharge the burden of proving that they made a common mistake in so doing,

albeit that the standard of proof is the civil standard.

But as the alleged common intention ex hypothesi contradicts the


written instrument, convincing proof is required in order to counteract
the cogent evidence of the parties intention displayed by the instrument
itself.

(Per Brightman LJ in Thomas Bates & Sons Ltd v Wyndhams (Lingerie) Ltd [1981] 1 WLR

505 at 521, and see per Buckley LJ at p.514)

The vital issue

25. It is the Insurers case that, before the slip was amended and scratched by Mr Mitchell, he and

Mr Lee specifically agreed that not merely war risks but all liability for loss or damage caused

by vandalism sabotage and malicious mischief should be excluded from the cover that the

Insurers were about to write. Owners accept that there was discussion between Mr Mitchell

and Mr Lee about the scope of the cover. It is their case, however, that the discussion was by

reference to the terms of the draft slip policy that Mr Lee had brought with him to the meeting

and that what was agreed was that the 3 October addendum should be excluded, that is to say

deleted, from the terms of that policy. Thus it is their case that the slip policy accorded

precisely with what had been agreed between Mr Mitchell and Mr Lee. Alternatively, they

contend that the evidence does not clearly demonstrate that this was not the case.

26. The starting point of the Insurers case is that there was a change of circumstances between

1995 and 1996 which led to a change of attitude on their part to the acceptance of the risk. In

1995 the vessel was still operational, being laid up only in the winter. By 1996 the lay-up had

become permanent, pending the sale of the vessel. In 1995 there had been a permanent

watchman aboard the vessel when laid up. When the risk was placed in 1996 the security

position was not clear. All of these matters increased the risk of vandalism, sabotage and
malicious mischief. Furthermore the Insurers did not normally write port risks it had been

exceptional in 1995 to cover the vessel during lay up in the winter.

27. It was the practice and policy of the Insurers to reinsure war and vandalism/sabotage/malicious

damage risks. In 1995 they had a facility to do so and reinsured these risks. They had no such

facility in 1996.

28. It is the Insurers case that, for all these reasons, they were not merely unwilling to write the

additional risks that had been imposed in 1995 by the 3 October addendum, they were only

prepared to write the cover if not merely war risks but all risks from vandalism, sabotage or

malicious damage were excluded from the cover that would otherwise be afforded under the

standard ITC. It is their case that such exclusion was expressly agreed between Mr Mitchell

and Mr Lee and that these two fell into error by failing to record this agreement in the written

policy.

The approach of the Judge

29. In summarising the issue as to whether there was an antecedent agreement between Mr Lee

and Mr Mitchell that conflicted with the terms of the policy, Aikens J. said (paragraph 35)

Mr Geary [counsel for Insurers] accepted, ultimately, that upon


analysis, there are only two possible conclusions as to the common
intention of the parties at the meeting on 9 September. The first was,
that the risks deleted, should not be covered by the 1996 Hull and
Machinery Policy. The second was, that there should be a specific
policy exclusion in relation to the risks that were struck-out. He
submitted that it was clear that there was a common continuing intention
of the second kind. He submitted that this conclusion can be drawn in
particular from the following.

30. After considering the evidence Aikens J concluded (paragraphs 43,44):

I am not satisfied that Mr Lee and Mr Mitchell had the common


continuing intention to add an exclusion clause to the slip.

For good measure I conclude that there was no outward expression of


such an accord, even if I had found that there was a common continuing
intention.
31. Mr Hofmeyr QC, who led for the Insurers before us, criticised the approach of the Judge. He

submitted that the Judge erroneously proceeded on the basis that rectification could only be

ordered if there was an antecedent agreement to insert an exclusion clause into the policy. This

was too rigid an approach. The Judge should first have found the gist of the words of the oral

agreement concluded between Mr Mitchell and Mr Lee, then construed that oral agreement

and finally considered whether the subsequent slip policy did or did not accord with the oral

agreement.

32. We agree with Mr Hofmeyr that the Judge appears to have proceeded on the premise that the

discussion between Mr Lee and Mr Mitchell focussed on the specific clauses that should be

included in the slip policy and that he does not consider whether there was discussion in more

general terms as to the extent of the cover to be provided by the Insurers. Equally, however,

Mr Hofmeyrs submissions assume that there was a concluded oral agreement between Mr Lee

and Mr Mitchell as to the scope of cover in general terms rather than by express reference to

the clauses that should or should not be incorporated into the slip policy. While it seems to us

possible, indeed we would say inherently probable, that discussion between Mr Lee and Mr

Mitchell would have focussed on the terms of the slip policy, one cannot preclude the

possibility that there was an anterior oral agreement as to the terms of the cover in more

general terms. Our enquiry must answer the question of which is the true position.

Contemporary evidence

33. We are concerned with considering whether, and in what terms, an oral agreement was

concluded over 5 years ago. In approaching this task, particular weight must be attached to

any contemporary, or near contemporary, evidence of what was said. Mr Lee went to place the

cover with Mr Mitchell on 9 September 1996. He took with him a draft slip which had on it all

the terms of the 1995 policy, including the 3 October addendum. On the same day, after his

meeting with Mr Mitchell, he sent a facsimile message to Mediterranean Insurances. This


stated that the Insurers had agreed to renew cover on the vessel while laid up, but wanted

clarification on the position of the watchman. The message continued:

Uwr. agreed to renew even though he does not normally write port risks
but Uwr. did not want to include war risks. This is because he does not
write war and would have to re-insure out.

With this placing being for a vessel for sale this would make his
workings very messy if risk cancelled due to vessel sold.

Accordingly we will seek separate war placing (Pls. confirm if war


required due vessel laid-up.)

34. Mediterranean Insurances replied on the following day that no war risks were needed but that

malicious acts or terrorist acts should be included. Mr Lee responded on 11 September that

the Insurers were unable to include damage by vandalism, sabotage or malicious mischief.

35. In the event Mr Lee placed separate war risk cover under a policy that included cover against

loss or damage caused by acts of vandalism and/or sabotage and/or malicious mischief. This

cover was, however, subject to the Institute War and Strikes Clauses, Hulls-Time (1/10/83),

clause 4.2 of which excludes cover afforded by ITC.

36. On 19 September Mr Lee sent to Mediterranean Insurances a cover note which precisely

reproduced the terms of the slip policy.

37. After the casualty, Mr Lee produced a number of memoranda recording what had occurred at

his meeting with Mr Mitchell. The only one to have survived, and it is not apparently the most

detailed, is dated 30/4/98 and records:

Order was received to renew and I was asked to obtain Union


Maritimes agreement.

On presenting slip to underwriter, Richard Mitchell, Uwr stated that


although war coverage was included in the previous years placing Uwr.
was unable to include this year due to their 1) R/I did not cover war and
2) they had to buy separate protection last yr.

Accordingly I took the wording from the slip (applicable to war) and
obtained terms from our war facility Uwrs.
I informed Union Maritime Uwr we had placed war coverage elsewhere
and accordingly the Uwr deleted (crossed out) the applicable
conditions.

38. We make the following observations on these documents. They are entirely consistent with the

Owners case that the discussion between Mr Lee and Mr Mitchell related solely to the 3

October addendum and that what they agreed was that this should be deleted from the policy

and placed with other insurers. The reason given for this was that the Insurers faced problems

in relation to reinsuring war risks. There is no suggestion that, because of a change in the

nature of the risk, the Insurers were no longer prepared to provide cover on terms of the ITC,

insofar as these included an element of exposure to loss or damage caused by malicious acts.

39. There is no contemporary evidence from the Insurers in relation to the meeting on 9 September

1996. The first relevant document from them post-dates the casualty. This is a message faxed

to T.L.Dallas on 14 January 1998, which stated:

As we believe you are aware, it is not usually our policy to insure port
risks. The 1995 slip contained a warranty Warranted vessel is laid up
from November 1995 to April 1996 alongside with permanent night
watchman. In view of this warranty we were prepared to include in the
cover including risk of loss or damage by acts of vandalism and/or
sabotage and/or malicious mischief for that year. When you presented
the slip for 1996 it contained no warranty with regard to a night
watchman being on board even though the vessel was to be permanently
laid up. We advised you that we were not interested in insuring the
vessel for 1996 but after some discussion with you and only provided it
was agreed that we would not cover the vessel for, inter alia, risk of loss
or damage from acts of vandalism and/or sabotage and/or malicious
mischief we ultimately agreed to renew the policy.

40. We observe that this message is ambiguous. The phrase we would not cover is capable of

indicating a refusal to extend the cover to embrace the risks in question, or a requirement that

the cover should be subject to an exclusion in respect of such risks. We also observe that the

message makes no mention of the problem with reinsuring war risks.

41. We find that the contemporary, or more nearly contemporary evidence, while in no way

conclusive, supports the Owners case.


Witness statements

42. The evidence of both Mr Lee and Mr Mitchell was adduced by the Insurers. Mr Lees witness

statement was dated 20 December 2000 and that of Mr Mitchell 29 December 2000. No

challenge was made of the honesty of either witness and the Judge expressly found that each

was an honest witness. Nor was the accuracy of either witness statement directly challenged in

cross-examination. Despite this, any court must necessarily have reservations about the

reliability of statements purporting to give details of a conversation held about 5 years earlier.

Furthermore, witness statements today are not simply taken down verbatim in the witness own

words. They are prepared with the assistance of lawyers which tends to de-personalise the

statement and make it more difficult for the court to assess its weight. We believe that it would

have been likely to assist the Judges task had he required each witness to give his evidence in

chief in relation to the vital meeting orally in his own words.

43. The following are the material paragraphs of Mr Lees statement:

5. I remember that I was asked to finalise this business because the


usual placing brokers were not available in the office that week.
Accordingly, on their behalf I took the slip into Richard Mitchell of
Union Maritime on 9 September 1996 in order to arrange cover. I have
seen the hull and machinery insurance slip for the period `12 months at 8
September 1996 (the hull slip) and confirm that the hull slip is a true
copy of the slip that I presented to Richard Mitchell.

6. I recall that Richard Mitchell advised he was concerned with the


watch keeping arrangements since the vessel would not be operating
during the period of cover. Richard Mitchell and I discussed the watch
arrangements for the lay up period and I remember that she was to be
moored near to a naval vessel. I note that the information section of the
hull slip includes a handwritten note in confirmation of this
arrangement, which states: moored next to naval vessel 2 full time
watchmen [onboard].

7. Richard Mitchell also advised that Union Maritime had a


problem with the slip as his reinsurers would not allow Union Maritime
to write war risks. I saw no problem with this as I had a book of war
risk business which I placed mainly on behalf of USA clients. I
considered that I could quite easily place the war risks for the
DEMETRA K under this facility. The terms upon which I placed cover
under this facility also included cover in respect of loss or damage by
acts of vandalism and/or sabotage and/or malicious mischief and thus
both exclusions from the hull policy, requested by Richard Mitchell,
could be covered under this facility.

8. I advised Richard Mitchell that I agreed to the exclusion of war


risks, including malicious mischief, from the hull policy. Richard
Mitchell then removed the war risks cover from the slip by striking
through the relevant conditions with a pencil. I confirm that it was
Richard Mitchells stated intention that none of the conditions struck out
should be covered under the hull policy.

9. I then prepared a draft war slip which I presented to Cotesworth,


the leader on my war risks facility, in order that he could assess the
cover rate. I believe I would probably have taken this in on 10
September 1996, the day following my meeting with Richard Mitchell.

10. I have seen a copy of the war risks slip for the period 12 months
at 8 September 1996 (the war slip), which I would have had
typewritten up in the office of Dallas after having obtained from
underwriters the rate to be inserted in the slip. This was signed and
dated by Cotesworth on 11 September 1996. I recall that the war slip
used virtually identical wording as those removed from the hull slip and
I remember this was because it was my intention that those risks should
be transferred to the war policy.

44. We observe that this statement suggests that the discussion between Mr Lee and Mr Mitchell

focussed on the terms of the slip. The first sentence of paragraph 8, while ambiguous, uses the

word exclusion in a context which more naturally suggests removal from the policy

document. The second sentence of that paragraph, while ambiguous, could well be intended to

mean that Mr Mitchell stated that the conditions that were being struck out should constitute

exclusions from the policy. The form of the sentence is, however, one that robs it of clarity.

45. Overall, we consider that Mr Lees witness statement supports the conclusion that the

discussion between Mr Lee and Mr Mitchell related to the clauses that should, and should not

be incorporated in the slip policy. Certainly it does not clearly spell out an antecedent

agreement that there should be excluded from the cover afforded by the ITC cover in respect of

loss or damage caused by vandalism, sabotage or malicious mischief.

46. The material part of Mr Mitchells statement reads as follows:

When the renewal slip was brought into Union Maritimes office by
Paul Lee of Dallas I reiterated my concerns regarding the lay-up
arrangements and advised that I would only cover the hull whilst laid up
if loss or damage by acts of vandalism and/or sabotage and/or malicious
damage as well as war risks were all specifically excluded. Paul Lee
agreed to exclude these risks and I granted cover on this basis. I crossed
out the conditions relating to the inclusion of war and strikes etc risks
and relating to risk of loss or damage by acts of vandalism and/or
sabotage and/or malicious mischief. Paul Lee agreed to the striking
through since this accorded with our oral agreement to exclude such
risks.

Accordingly, whilst I am now aware that the slip still included the
standard Institute Clauses in full, it was my specific intention to exclude
risks of loss or damage by acts of vandalism and/or sabotage and/or
malicious mischief. I have no doubt that at the time of agreeing the
policy both myself and Paul Lee understood and agreed that such risks
were specifically excluded from the policy.

In fact I recall stressing to Paul Lee the need to obtain cover for the
excluded risks on a war risk policy elsewhere. I cannot recall the first
occasion when David Mason subsequently confirmed that Dallas had
taken out a war risk policy elsewhere, but I can recall that Dallas
advised me that such a policy in fact existed. I have now seen a copy of
that policy and note that the slip includes cover for risks of loss or
damage by acts or vandalism and/or sabotage and/or malicious mischief.
This confirms that Dallas did indeed place cover for this risk elsewhere,
as I had suggested.

47. We observe that, but for the repeated statement that it was agreed that war risks and risks of

loss or damage by acts of vandalism and/or sabotage and/or malicious damage should be

specifically excluded, this statement would be ambiguous. The addition of the adverb does,

however, undoubtedly carry the suggestion that it was agreed that the policy should be subject

to an express exclusion of the risks in question. We view with scepticism, however, the idea

that Mr Mitchell could have recalled using the word specifically. Nor does the use of that

word accord with his observation that striking through the 3 October addendum accorded with

our oral agreement to exclude such risks. Overall, however, his statement supports the

Insurers case.

The oral evidence

48. Aikens J. gave seven reasons for finding that the Insurers case as to what was orally agreed on

9 September 1996 was not made out by the oral evidence of Mr Lee and Mr Mitchell. Mr

Hofmeyr criticised some of these reasons as involving a legalistic approach which it was
unrealistic to apply to commercial men. We agree with him that little significance can be

attached to the fact that Mr Lee and Mr Mitchell gave no thought to cover against barratry a

peril of little moment in relation to an unmanned vessel and that the existence on the

Insurers case - of a possible gap in the cover afforded by the ITC hull and machinery policy

and the war risks policy, is not a matter which would necessarily have been appreciated by

them. However, the important reason for the Judges decision was the one that he put at the

forefront:

First, there is the evidence of Mr Lee and Mr Mitchell about what was
said at the meeting on 9 September 1996. There was no hint of a
common continuing intention to add a specific policy exclusion. It is
true that both witnesses talked about, Excluding certain risks. But the
word Exclude, in the context of the draft slip presented by Mr Lee to
Mr Mitchell, was and is ambiguous. It can mean that the particular risks
identified will not be included. Alternatively, it can mean that the
particular risks will be specifically excluded from the scope of the cover
that would otherwise remain after the deletions have been made. In my
judgment, based on the evidence I have heard, the discussions of Mr Lee
and Mr Mitchell proceeded on the basis of the first of these two
meanings. In my judgment, it did not occur to them that what was
needed was a positive, specific exclusion clause that limited the scope of
the remaining cover of the H&M policy, in particular, the perils covered
by Clause 6.

49. Mr Hofmeyr attacked this finding. He submitted that both witnesses made it quite plain in

their oral evidence that they had agreed that all risks of loss or damage caused by vandalism,

sabotage or malicious mischief would be excluded from the cover. For the Owners, Mr Gruder

QC submitted that the Judges conclusion as to the effect of the oral evidence was correct.

References by each witness to exclusion of risks were, in the context of a draft slip policy that

expressly included those risks, ambiguous. It was impossible to spell out any clear accord that

went beyond agreement that the Insurers would not continue to write the risks covered by the 3

October addendum, which would be deleted from the policy.

50. The comments that we have made about the unreliability of witness statements in relation to an

oral conversation made 5 years after the event apply also to oral testimony. The Judges

assessment was made a day after he finished hearing the evidence with the benefit of the
impression made by the witnesses, but without the benefit of a transcript of their evidence. We

are in the reverse position, but are not persuaded that this gives us an advantage. Counsel for

each of the parties has been able to cherry-pick passages of the evidence that supports his case.

We will content ourselves with a few examples.

Evidence favouring the Owners

51. Mr Lee:

Q. Did you ever discuss with Mr Mitchell on 9th the position in


relation to a deliberately started fire?

A. No.

Q. All you discussed was that he wanted to delete the clauses which
appear on page 15 and which you put a line through?

A. Yes

Q. You were asked by Mr Edey, and suggested that there was a


difference between, when talking about risks included in cover,
there is a difference between things which are not included and
are excluded. Could you explain to us that difference?

A. It is, I have to say, a grey area: if something is not mentioned,


whether that deems it to be included. I have always worked on
the basis that if it is not mentioned then it is not covered and
therefore it is excluded.

Q. What was agreed was that although war cover was included in
the previous year it was not to be included this year?

A. Yes.

Q. That accurately reflects what you understand the agreement with


Mr Mitchell to have been?

A. Uh huh.

52. Mr Mitchell:

A. Well, it had been put in, added in, and I thought there is a reason
for adding in vandalism and all malicious damage, and I dont
want to find myself paying that claim.
Q. So what you thought was that you did not want to find yourself
paying in respect of those risks which had been added by this
endorsement?

A. Yes.

A. There was no way that we would be prepared to present a war


claim to our hull excess loss underwriters.

Q. So you were worried that if they were not covered elsewhere


then you might end up in that situation?

A. We could end up in that situation.

Q. Did you discuss that worry with Mr Lee on 9th?

A. I am not sure whether I discussed it with Mr Lee on 9th. I just


told Mr Lee on 9th that this cover from Union Maritime would
only be if those perils were struck out. By that I intended
excluded.

53. After detailed consideration in the course of cross-examination Mr Mitchell agreed that the

cover note, which reproduced the wording of the slip, reflected his discussion and his

agreement with Mr Lee.

In favour of the Insurers

54. Mr Lee:

Q. What we are asking here is, is that not all he attempted: not to
write these risks; not to provide the cover set out here. That is
what he wanted?

A. Yes, the intention was to exclude these risks here as set out.

Q. Let me be sure that I have understood you: I say that his


intention was not to write these risks, not to provide the cover
provided by these four paragraphs in 1996; do you agree with
that?

A. I am -- you are saying it is different for me to answer that by


saying that his intention was to exclude those coverages?

Q. You have understood exactly the difference.

A. The intention was to exclude them. It has to be.

.
Q. What was your agreement with Mr Mitchell in relation to the
risks which are struck out at the top of page 11?

A. The intention was to exclude them.

Q. Was that a discussion you had?

A. Yes, yes

Mr Mitchell:

Q. Did you consider that you were excluding risks which would
normally be covered by the ITC word?

A. I considered you mean by striking this out.

Q. Exactly?

A. That I was excluding vandalism and malicious damage.

Q. Did you express that intention to Mr Lee?

A. Yes.

Q. So what was your agreement with Mr Lee?

A. My agreement with Mr Lee was that those risks would be placed


separately.

Q. What was the effect upon your cover given by the 1996 policy by
the agreement you made with Mr Lee?

A. What did I think was the effect on him?

Q. Yes.

A. I thought the effect was that there could be no cover on the hull
policy of vandalism and malicious damage, war risks.

Conclusions

55. We have found the task of analysing the evidence difficult, and this reflects the paucity of

contemporary evidence and the passage of time before statements were taken and oral evidence

given. Mr Lee and Mr Mitchell plainly agreed that the 3 October addendum should be deleted

from the slip policy. We do not believe that either of them gave precise consideration to the

effect of this deletion. It may be that Mr Mitchell assumed that it would relieve the Insurers

from all risk arising from vandalism, sabotage and malicious mischief. It may be that Mr Lee
had a similar belief. If they both shared that belief this would not suffice to establish a claim

for rectification of the policy. To establish such a claim the Insurers have to prove

convincingly that both Mr Lee and Mr Mitchell orally agreed that the cover to be granted

would exclude any loss flowing from the perils in question. The evidence that we have

reviewed does not constitute such proof. On balance we are inclined to think all that was

agreed was that the cover added by the 3 October addendum would no longer be provided and

that this clause would be deleted from the policy. At all events, the Insurers have failed to

make out a case that there was an antecedent agreement that conflicted with the terms of the

slip policy.

56. For these reasons, we have concluded that Aikens J reached the correct decision and that this

appeal must be dismissed.

57. Order:

1. Appeal dismissed.

2. Appellant to pay respondents costs of the appeal summarily assessed in the sum of

34,379.

58. (Order does not form part of the approved judgment)