Erosion of good faith

Erosion of good faith

CALLS have been made for legislation to amend Section 17 of the Marine Insurance Act of 1906 to help clarify the principles of utmost good faith under which marine insurance claims are settled. At a recent seminar, held by the UK Association of Average Adjusters, Tim Madge, the association's chairman, said, "The cardinal principal of utmost good faith between the assured and underwriters in marine insurance contracts was established as long ago as 1766, but recent law cases suggest this duty is being eroded."

According to John Dunt, partner of London-based Clyde & Co, recent court cases have interpreted Section 17 of the Act more narrowly, to the extent that this section "is no more", at least in relation to hull and machinery claims. "The problem is that this narrower approach by the courts to the pre-contractual phase of the duty of utmost good faith has spilled over into the post-contractual period so that the courts have now begun eroding the continuing duty of good faith in the claims process," he added.

A possible solution lies in the most recent judgement by Lord Justice Mance in the case of Agapitos v Agnew, arising from the loss of the Aegeon in 1996, which introduces the concept of 'fraudulent devices'. While this could point the way forward, for the time being at least, it may be little more than a stop-gap solution.

Dunt urged drafters to look at the proposals put forward by the Australian Law Reform Commission to amend the Australian equivalent of Section 17 (Section 23) as a guide to future legislation. As Derek Luxford, partner at Phillips Fox, explained, these proposals recommend that the law be amended so that there is a requirement in marine insurance contracts that each party acts towards the other party with the utmost good faith.

The proposed Australian legislation does not impose the so-called draconian remedy of avoidance of the whole contract of insurance which has been the cause of recent problems in England. As Luxford explained, instead, it requires that the duties of utmost good faith should extend for the life of the relationship between the parties to the contract of marine insurance, except in relation to any claim or other aspect of that relationship which is subject to litigation between the parties. Under the Australian proposals, the duties of utmost good faith cease when one party begins litigation against the other, but only in relation to the claim or other aspect of the relationship which is subject to the litigation.
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Draft divides lawyers

MORE than 25 maritime lawyers recently gathered at Southampton in the UK to discuss the Preliminary Draft Instrument on the Carriage of Goods by Sea. The draft, which originated in work carried out by the CMI, is currently the subject of intensive work within UNCITRAL. The Institute of Maritime Law, University of Southampton, brought the lawyers together to debate the impact of the instrument on maritime law, and specifically the responsibility of shipowners for goods carried on their vessels.

A number of issues were discussed, including the question of whether the carrier owes the cargo owner a duty to use a seaworthy ship, the issue of whether it is the carrier or the cargo owner who bears the responsibility for and the risk of loading and stowing the cargo, and what type of documentation must the carrier give the cargo owner proving what has been loaded and in what condition?

The draft instrument also covers a number of areas not traditionally included in sea-transport liability regimes. For example, for the first time, an attempt has been made to cover contracts of carriage recorded through electronic means rather than paper bills of lading. It also attempts to regulate the means by which the shipper's rights of control over the goods, and its contract with the carrier, are passed to the buyer of the goods. Also under discussion was whether the instrument should be applied to charter parties and other types of carriage contracts beyond bills of lading, and whether the carrier should be allowed to exclude its liability for negligence in navigation.

Throughout the discussions it became clear that opinions remained divided over the role of such an instrument. While there were those who felt that more evidence was needed to support the introduction of changes affecting well-accepted regimes such as the Hague-Visby Rules, others felt that the changes did not go far enough, particularly in the area of multimodal transport.

The Institute of Maritime Law expects that, as the Preliminary Draft Instrument makes its way through UNCITRAL, it will cause much controversy within the shipping industry. It is unlikely to be disappointed.
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