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REPUBLIC OF SOUTH AFRICA
CASE NO. 302/96
IN THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
In the matter between
J ID CLIFFORD    APPELLANT
AND
COMMERCIAL UNION INSURANCE COMPANY
OF SOUTH AFRICA LIMITED  RESPONDENT
BEFORE: VAN HEERDEN DCJ, NIENABER, HOWIE, MARAIS
AND SCHUTZ JJA
HEARD:   4 MAY 1998
DELIVERED: 22 MAY 1998
JUDGMENT
SCHUTZ JA:
3 The car had been manufactured prior to July 1991, in which month it was
imported into South Africa from the UK as a new car by a motor dealer RDM
Vehicles (Pty) Ltd trading as Executive Cars. The latter sold it to one
Krottenberger, the Austrian Consul-General, who took delivery together with
the bill of entry and a transfer form signed by Executive Cars as transferor. The
name of the transferee was left blank. This brace of documents was thereafter
treated as if a bearer instrument, to be handed from holder to holder -
betokening title and empowering registration in the hands of the last holder.
Krottenberger did not register the car in his name, as the law required. The
reason for delaying registration after this and subsequent transactions was to
obtain as late a registration date and as late a number plate as possible, matters
which were considered to dictate the "model" and therefore the value of the car.
Early in 1992 Krottenberger and one Wilshire exchanged their 500 SL's,
both "out of the box", and that is how Wilshire acquired Krottenberger's car.

4 Together with it he received the bill of entry and the transfer form, the latter still
in blank. He also "borrowed" trade plates from a company in Krottenberger's
group of companies, Weisemberg Investments (Pty) Ltd, a motor dealer. He
was authorized to use them by Weisemberg's director, notwithstanding that that
company had no interest in the car. Trade plates are intended to be used by
motor dealers in the course of their legitimate activities, not as a means of
allowing others to evade the registration and licensing requirements of the law.
Not that the car was driven around much during Wilshire's tenure. He was an
accountant and had acquired it, as also its predecessor for which it had been
exchanged, as an investment. These cars were in short supply and he hoped that
they would appreciate in value. In order that the new condition should be
maintained, the car was occasionally driven round the block and little more.
The mileage (of this right hand drive vehicle calibrated in Imperial measure)
was very low when he took delivery from Krottenberger, and it remained so.

5 In September or October 1992 Wilshire sold the car to one Ramsay for
R650 000 and delivered it together with the bill of entry, the still uncompleted
transfer form and the "borrowed " trade plates. Due to Ramsay's lack of garage
space it remained in Wilshire's garage. As Ramsay also had bought it as an
investment, it was driven infrequently to keep the mileage low.
Late in 1993 the market for valuables had weakened due to pre-election
nervousness and Ramsay, having decided to liquidate the car at a loss,
commissioned Wilshire to sell it for R500 000. Anything he would obtain in
addition he could keep as commission. At this point Clifford enters the history.
Wilshire knew her socially. The availability of the car was mentioned. He did
not disclose that Ramsay was the owner and acted as if he himself was.
Clifford bought the car for R530 000, by means of trading in a Mercedes Benz
450 SL at an agreed value of R130 000, the rest to be paid in cash. On 24
November 1993 the trade-in vehicle was handed to Wilshire who at the same

6 time delivered the 500 SL. Together with it came the bill of entry, the transfer
form and the trade plates. Clifford was not made aware of the full history of the
car, but from what was handed over it was apparent that the car had not been
registered, that the number plates consisted of a trade plate on the back window
shelf and another in the boot and that the bill of entry (if one examined it)
showed that the car had been imported in July 1991. Clifford saw nothing
untoward in all this. Her father had been in the motor trade and from him she
had learned that the model was dictated by the date of first registration. The
stage was now set for the proposal form that has given rise to this case. The
cash balance was paid. On 13 January 1994 the car was registered as a new car
in Clifford's name. In the meantime she had driven it, using the one trade plate
on the window shelf.
Already on 30 November 1993 the Commercial Union's proposal form
had been signed by Clifford's common law husband, Kotze. Acting with her

7 authority he was the one who gave the requested information and effected the
insurance. The proposal form included the usual type of warranty, in this case
to the effect that all statements and particulars were true, correct and complete,
and contained all information known to the proposer affecting the risk to be
insured, and that the proposal form would be the basis of the contract and would
be incorporated in it.
Four statements in the proposal deserve mention. The first was that the
"year of manufacture" was 1993. In the light of the history, this was incorrect.
The car was manufactured by July 1991 at latest. The second was that the
"registered letters and numbers" were AGP 434 T. These are the particulars that
appeared on the trade plates already referred to. They do not constitute a
registration number. The third was the positive answer given to the question
"Is [the car] registered in your name?" This was also an incorrect answer. The
fourth was the positive answer to the question "are you the owner of the car?"

The fact that incorrect answers were given did not in itself justify
repudiation, even though their correctness had been warranted. Since 1969
s 63 (3) of the Insurance Act 27 of 1943 has provided:
What occasions comment about this decision and its successor Theron

10 v AA Life Assurance Association Ltd [1995] ZASCA 61; 1995 (4) SA 361 (A) at 376 E-F,is that s
63 (3) was interpreted as imposing a subjective test. Concepts of
reasonableness were held not to enter the picture (Qilingele at 74 F). One
looks at the particular insurer (usually in his manifestation as the particular
underwriter) and seeks to determine as a fact how he would probably have
reacted had he known the truth. General considerations affecting assessment
of the risk are not relevant in themselves, only possibly relevant in determining
how the particular underwriter would have behaved (at 75 D-E). This
subjective test stands in stark contrast to the objective test of the reasonable
man laid down in Mutual and Federal Insurance Co Ltd v Oudtshoorn
Municipality 1985 (1) SA 419 (A) at 435 G-I as applying to the weighing of the
materiality of a non-disclosure. This contrast was recognized in Qilingele, but
the distinction between the tests was justified on the basis of the Oudtshoorn
Municipality case being concerned with common law non-disclosure, whereas

12 interpretation does not give effect to the purpose or import of the subsection;
nor does it differentiate clearly the concepts of materiality and inducement. At
common law an insurer relying upon being misled must prove both things. He
must prove, in the first place, materiality. This is, of course, also an aspect of
wrongfulness in a delictual setting. The standard is an objective one, that of the
average prudent person or reasonable man: the Oudtshoorn case at 435 H-I.
The test is not, however, whether in the reasonable man's view the evaluation
of the risk is affected by the falsity, but whether a reasonable man would
consider that that particular information should have been disclosed to the
insurer, so that the latter could form his own view as to its effect: President
Versekeringsmaatskappy Bpk v Trust Bank van Africa Bpk en 'n Ander 1989 (1)
SA 208 (A) at 216 F-G. The second thing that the insurer must prove is
inducement, in other words causation, also in a delictual context.
Notwithstanding that the word materiality has been used (or misused) in some

decisions to convey inducement, the two concepts are distinct and must not be
Long ago insurers discovered a way of lightening the load of this double onus. The method used was to exact a warranty from the prospective insured,

14 in which he warranted the truth and materiality of his representations and
assented to their inclusion as essential terms of the policy. The effect of this
was that all the insurer had to prove was the incorrectness of the insured's
statement. That done, there was a breach of warranty, giving the insurer a
contractual right to repudiate liability. Once the insured had warranted that the
answers to questions in the proposal form would be the basis of the insurance
contract there was no question of materiality left, because the parties had
contracted that there should be materiality in the questions and answers; Jordan
v New Zealand Insurane Co Ltd 1968 (2) 238 (E) at 241 E-F. The use of a
warranty therefore obviated the need for the insurer to show that the
misstatement was material and that the misstatement induced it to take on the
risk in the terms which it did. The effect in law was to allow trivialities to be
promoted to materialities - to allow an insurer to exploit even a trivial
misstatement by the insured which in fact had no bearing on the assessment of

15 the risk or in inducing the issuing of the policy on the terms on which it was
issued and escape liability as if it had been a material misstatement which did
in fact induce the issuing of the policy on those terms. The potential for abuse
was obvious and unscrupulous insurers took advantage of the opportunity.
It was against this background that s 63 (3) was enacted in 1969. To my
mind its purpose was simply to detoxify the warranty by removing its potential
for abuse, without outlawing its legitimate use. In other words, materiality
would regain its true meaning and that meaning would be protected from being
stifled by contract. On the other hand, the warranty would not be deprived of
all value. Where a misstatement was indeed material the deeming effect of the
contract ("the proposal form shall form the basis of the contract") would relieve
the insurer of having to prove inducement. However, what the Qilingele
decision does is to conflate the concepts of materiality and inducement. It treats
the materiality mentioned in the subsection as relating to the significance that

the particular underwriter would have attached to the difference between the
17 mentioned, of two forms of misleading, one by silence and one by statement,
that once were as one, being separated and subjected to inconsistent tests. This
is exemplified by the majority decision in Theron v AA Life Assurance
Association Ltd [1995] ZASCA 61; 1995 (4) SA 361 (A), where the divergent tests in Qilingele
were adopted and both applied (at 376 E-F and 377 D-J). In addition, what was
before a matter for objective determination, something which the reasonable
man and particularly the reasonable prospective insured might not have found
it difficult to weigh, becomes a credibility issue relating to something of which
the prospective insured could never have known, namely, the subjective
approach of the particular insurer to questions of materiality. In other words,
the question now becomes, is the underwriter being truthful when he describes
what the peculiar vagaries are which govern the decisions of himself or his
company? There would have to be substantial reasons for concluding that the
law was changed so drastically in so subtle and inconspicuous a manner. Are

18 there such reasons?
Qilingele finds them in the text of s 63 (3). On one thing I would agree
with Kriegler AJA, and that is that the subsection is no model of clarity. I
would agree also on another, that the Afrikaans text leans more towards his
interpretation than does the English. (For what that matters the English text was
signed). For the rest I disagree with his interpretation. He places particular
emphasis on the reference to "the assessment of the risk under the said policy"
as showing, if not very obviously, that the materiality relates to the assessment
of the particular risk in the specific policy under consideration (at 75 B-C). The
emphasised words are, in my view, used for a far more obvious purpose entirely
consistent with the traditional common law test of materiality; they recognize
that what is material to the assessment of risk attaching to one kind of policy (e
g life insurance ) is not necessarily material to the assessment of risk attaching
to another kind of policy (e g fire insurance). There is little, if any, justification

for reading the emphasised words as if they were intended, not to achieve that
insured's position but brings with it a benefit for the insurer which the common
21 have insured it had he known the truth, because blue cars are unlucky. Unless
some way can be found, which I cannot immediately perceive, to avoid the
remedial s,63 (3) leading to such a result, it seems to me that his repudiation
would have to stand.
To return to the facts, the Commercial Union employee who approved
the grant of cover was Mr Morton, who has since died. He was a careful and
experienced underwriter. In his place Commercial Union called Mr Oates, an
underwriter employed by Hollandia Reinsurance Company and a Mr Fermor,
one of its own underwriters. Broadly speaking they gave evidence as to what
they thought Morton had thought and done and as to how he would have reacted
had he known the whole truth as opposed to what it is supposed he did or did
not know. Their views are of assistance in some respects but are by no means
decisive of the case. The same may be said of Mrs Lourens, a one-time
underwriter called on behalf of Clifford. The three of them cannot replace

Morton.
I shall deal first with the probable consequences of the incorrect
statement of the year of manufacture as 1993, instead of 1991 or earlier. Mr
Lazarus, for Clifford, accepted that Morton took the statement in the proposal
form at face value (i e inducement had been proved). The argument was that the
misstatement was not material. I shall mention its potential materiality in a
general way later. More specifically, there is a special "new for old" clause in
the insurance contract, extension clause 3, which I think is decisive. It reads:
stolen and not recovered or
(b)      damaged to the extent that the cost of repairs exceeds 70% of its list price plus taxes when new
Clifford's claim was based on this clause and she alleged and proved the

The reasons for Mr Lazarus's ultimate abandonment of clause 3 are clear

24 enough. He accepted that Mr Morton believed he was insuring a new car in the
particular sense of one manufactured in the year in which cover was granted,
1993. That year was reflected in the schedule to the policy, so that the cost of
the new car which Commercial Union had to pay in replacement of the 500 SL
in the event of its being stolen, was that of a 1993 model, subject to the
maximum of R636 000. The whole attractiveness of clause 3 is that it is not
concerned with the value of the insured car, a value likely to take a sharp drop
immediately after it ceases to be brand new, but with the cost of a new car of the
same model. On the evidence, the value of a new 1993 model was greater than
that of a new 1991 model. Thus it does not avail Clifford to argue, as at one
stage her counsel did, that R530 000 was not an overstatement of the value of
the 1991 car in question. That was not the value in issue, even if it be accepted
that the correct figure was R530 000. Nor does it avail her to argue that
Clifford would not have claimed more than the value of a 1991 model. A

25
reasonable underwriter would not have left such a matter to the insured's
propriety whilst committing his employer to compensate on the basis of a 1993
model. Whichever test of materiality one adopts, objective or subjective, it is
clear that had Morton known the true facts he would not have issued a policy
reflecting the car as a 1993 model.
Mr Lazarus's only basis for contending that extension clause 3 has no
relevance was the construction which he sought to place on it. The "first
registration" referred to in the clause actually meant "when it should first have
been registered". This, it was common cause, was in 1991, whereas the car was
in fact first registered on 13 January 1994. This construction involves a reading
of the clause for which no justification is to be found. Moreover, I think that
the construction is contrary to the sense and purpose of the clause. Take the
case of a person who buys a new car but asks the dealer to keep it unused on his
shop floor for 9 months, during which time the buyer intends to be overseas.

27 because in the years following the first, when the car itself may after, say its
theft, have disappeared without trace, the ordinary indemnity, based on its
current market value, would have been likely to have been increased by the
misstatement as to the year of manufacture. Again I do not think that a
reasonable underwriter would have exposed his employer to a later model in the
policy, leaving it to the good faith of the insured to claim on the actual model
of earlier date. However, as there is a "new for old" clause, it is unnecessary
to enquire further what conclusion would have been reached had it been absent.
Various further grounds were argued on Commercial Union's behalf as
justifying repudiation. I do not propose discussing them, because of the
conclusion adverse to the success of Clifford's appeal that I have reached
without reference to them.
The appeal is dismissed with costs.     

THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case No: 302/96 In the matter between
J D CLIFFORD     Appellant
and
COMMERCIAL UNION INSURANCE COMPANY       Respondent
CORAM: Van Heerden DCJ, Nienaber, Howie, Marais et Schutz JJA DATE HEARD: 4 MAY 1998 DELIVERED: 22 MAY 1998
JUDGMENT
2 Marais JA:
I have had the benefit of reading the judgment of my brother Schutz. But for
one reservation, I agree with it. It is this. Whatever else clause 3 may be able
to accommodate, I hesitate to conclude that it can fairly be said to
accommodate a car with a history as remarkable as this. I am therefore
reluctant to concur in the view that the clause was applicable to this car.
However, even if it was not, I think that the very fact that controversy could
arise as to whether or not it was applicable in the peculiar circumstances of
the case made it necessary for the insurer to be given reasonably accurate
information regarding the year of manufacture of the car. The first
registration of the car had taken place almost three years after the date of
manufacture and only after it had passed through the hands of three previous
owners. That is a most unusual situation which, if known to an insurer

3 invited to go on risk, would at least have prompted further enquiries. The
incorrectness of the information given to the insurer was, in my view, "of
such a nature as to be likely to have materially affected the assessment of the
risk under the policy --------". Correct information might well have resulted
in a reluctance to insure the vehicle at all, but assuming that a decision to do
so was not entirely out of the question, the likelihood is that further enquiries
would have been made and that after the garnering of further information, the
policy would not have been issued without deleting clause 3, and without
correcting the year of manufacture. To have left the clause in the policy
would have exposed the insurer to a potential claim under the clause in
circumstances in which the insurer would not have been prepared to confer
the enhanced cover it provides. Indeed, that was precisely the claim with
which it was later faced and which was pursued in litigation until ultimately
abandoned in this court. Whatever test of materiality be applied, I consider

4 that it was satisfied both for this reason and for the further reason suggested
in the penultimate paragraph of Schutz JA's judgment.
R M MARAIS JUDGE OF APPEAL
HOWIE JA: I agree

In the matter between:
JD CLIFFORD      Appellant
and
COMMERCIAL UNION INSURANCE COMPANY Respondent OF SOUTH AFRICA LIMITED
CORAM:   VAN HEERDEN DCJ, NIENABER, HOWIE,
MARAIS AND SCHUTZ JJA
HEARD :  4 MAY 1998
DELIVERED : 22 MAY 1998
JUDGMENT
2 NIENABER JA :
According to counsel for the appellant extension clause 3, the "new for old"

3 clause quoted in my brother's judgment, is a standard clause in the policy. It is
also a conditional one. If the conditions were fulfilled the clause would apply.
The one condition, that the car should not have been driven for more than 30 000
kilometres when stolen, had been fulfilled. The other condition material to this
appeal was that the car should have been stolen and not recovered "within one
year of its first registration". The car was registered for the first time with the
registration authorities on 13 January 1994. On 30 January 1994 it was stolen
after which it was not recovered. If "first registration" in the clause is taken at
face value to mean its first registration with the appropriate licencing authorities,
the clause would accordingly apply. In that event the Commercial Union would
be liable in terms of the policy for the payment of the R636 000. That was indeed
the argument advanced in the court a quo and developed in the appellant's heads
of argument before this court. On that basis, however, the appeal was doomed to
failure. The reason is that the sum of R636 000 which would have been payable

4 if extension clause 3 were applicable, was well in excess of the market value of the
vehicle. It was manufactured in 1991 and the evidence was that the 1993 model
was significantly more valuable than the 1991 model. In respect of a car
manufactured in 1993 and which had been registered before the date of the
proposal form (when part of the period of the twelve months referred to in
extension clause 3 would already have elapsed), the risk assumed by the company
in terms of that clause would have been of the kind the clause was designed to
cover. In respect of a car manufactured in 1991 which was yet to be registered, it
was not. The misrepresentations contained in the proposal form, both as to the
year of manufacture and as to the registration of the car, therefore affected the
basis of the Commercial Union's indemnity and its exposure to the risk that it
might be liable in terms of extension clause 3 for an increased sum (compared to
market value) and for a longer period (compared to an earlier registration). And
if the exposure to the risk was increased, it obviously would have affected the

5 assessment thereof for the purpose of s 63(2) of the Act. If the truth had been told

I accordingly concur in the order proposed by Schutz JA.

6 VAN HEERDEN DCJ concur
P M NIENABER JUDGE OF APPEAL

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