by Andrew Clark


A SA perspective

Andrew Clark
The high incidence of pirate attacks in and around the Gulf of Aden has seen the movement of vessels via South African ports as a favourable alternative, not without legal debate as to our preparedness

This increase in trade and tonnage raises an interesting debate on the legal and commercial preparedness of the South African marine insurance industry for the potential hijacking of a vessel, insured under and governed by South African law.
The debate is thus whether or not, under a marine insurance policy, the payment of ransom is legal and can give rise to a claim for a general average contribution, payable by hull and machinery insurers or cargo insurers, where the vessel or the cargo has been lost or damaged due to an attack by pirates.

Narrowed down, this debate raises two questions: Will the insured be liable to pay a general average contribution where a ransom payment is made? Secondly, where the first question is answered in the affirmative, is the insurer liable for that general average contribution where the payment of ransom may be deemed unlawful?
The issue of piracy and the payment of ransom, insurance coverage and general average has been settled under English law; and in terms of the Court of Appeal decision in the case of the MT Bunga Melati Dua, the payment of ransom is not considered contrary to public policy. Understandably, most vessels are underwritten by syndicates at Lloyd’s of London and the insurance policies are therefore subject to English law.

In South Africa, insurance contracts – including marine insurance contracts – are governed by the Short-term Insurance Act (STIA). To the extent that this act does not apply, Roman Dutch law applies and English law as at 1983 applies for persuasive value.

The law in South Africa is clear on the criminalisation of piracy and the payment of ransom. Insuring against the risk of paying ransom may be deemed contrary to public policy or illegal, unless – and in accordance with section 54 of the STIA – the insured can justify the purpose for insuring against the risk. In this latter event, the insurance policy will be valid. 

Furthermore, where the conduct giving rise to a general average act is prohibited by law, a general average contribution cannot be claimed under the insurance policy. However, where the loss or damage results from the occurrence of another valid insured peril such as theft, such loss will be covered by the policy. 

In conclusion, it seems that under a marine insurance policy governed by South African law, an insured may not claim a general average contribution from the insurers in respect of a ransom payment, unless it is found to be justified under section 54 of the STIA and public policy. 

This issue has not yet been tested under South African law, but for the South African marine insurance industry, a case that pronounces on this issue will be greatly anticipated.

Andrew Clark
Partner: Cox Yeats Attorneys

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