[Lloyd's Shipping Law Library] Michael Davey, Oliver Caplin, James Davey - Miller's Marine War Risks (2020, Informa Law from Routledge) - libgen.li

M I LLER’S M A R I N E WA R R ISK S LL OY D’S SH I PPI NG L AW LI BR A RY Series Editors: Hatty Sumption and Clare Ambrose The Law of Ship Mortgages Second Edition David Osborne, Graeme Bowtle and Charles Buss Admiralty Jurisdiction and Practice Fifth Edition Nigel Meeson and John A. Kimbell Berlingieri on Arrest of Ships, Volumes I and II A Commentary on the 1952 Arrest Convention and A Commentary on the 1999 Arrest Convention Sixth Edition Francesco Berlingieri General Average Law and Practice Third Edition F.D. Rose The Law of Tug and Tow and Offshore Contracts Fourth Edition Simon Rainey Merchant Shipping Legislation Third Edition Aengus R.M. Fogarty EU Shipping Law Third Edition Vincent Power CMR Contracts for the International Carriage of Goods by Road Fourth Edition Andrew Messent and David A. Glass The Law of Shipbuilding Contracts Fifth Edition Simon Curtis, Ian Gaunt and William Cecil London Maritime Arbitration Fourth Edition Clare Ambrose, Karen Maxwell and Michael Collett Miller’s Marine War Risks Fourth Edition Michael Davey, James Davey and Oliver Caplin The York-Antwerp Rules The Principles and Practice of General Average Adjustment Fourth Edition N. Geoffrey Hudson and Michael D. Harvey For more information about this series, please visit: www.routledge.com/Lloyds-Shipping-Law-Library/book-series/LSLL M I LLER’S M A R I N E WA R R ISK S FOU RT H EDI T ION M IC H A EL DAV EY Of Gray’s Inn, One of Her Majesty’s Counsel JA M ES DAV EY Professor, University of Southampton OLI V ER CA PLI N Of Middle Temple, Barrister Fourth edition published 2020 by Informa Law from Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Informa Law from Routledge 52 Vanderbilt Avenue, New York, NY 10017 Informa Law from Routledge is an imprint of the Taylor & Francis Group, an informa business © 2020 Michael Davey, James Davey and Oliver Caplin The right of Michael Davey, James Davey and Oliver Caplin to be identified as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. First edition published by Informa Professional 1990 Third edition published by Informa Professional 2005 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Caplin, Oliver, author. | Miller, Michael D. (Writer on marine insurance), author. | Davey, James (Law teacher), author. | Davey, Michael (Lawyer), author. Title: Miller’s marine war risks / by Oliver Caplin, James Davey, Michael Davey. Other titles: Marine war risks Description: Fourth edition. | Abingdon, Oxon ; New York, NY : Routledge, 2020. | Series: Lloyd’s shipping law library | Includes bibliographical references and index. Identifiers: LCCN 2019056959 (print) | LCCN 2019056960 (ebook) | ISBN 9780415317566 (hardback) | ISBN 9781315229584 (ebook) Subjects: LCSH: Marine insurance—Great Britain—War risks. | Marine insurance—Law and legislation—Great Britain. Classification: LCC KD1847 .M54 2020 (print) | LCC KD1847 (ebook) | DDC 346.41/08622—dc23 LC record available at https://lccn.loc.gov/2019056959 LC ebook record available at https://lccn.loc.gov/2019056960 ISBN: 978-0-415-31756-6 (hbk) ISBN: 978-1-315-22958-4 (ebk) Typeset in Times New Roman by Swales & Willis, Exeter, Devon, UK CON T E N TS Foreword by Sir Bernard Rix Preface to the Fourth Edition Acknowledgments Table of cases Table of legislation xv xvii xviii xix xxxiv CHAPTER 1 THE HISTORY OF THE WAR RISKS POLICY 1 CHAPTER 2 THE UNDERWRITERS 10 CHAPTER 3 THE PREMIUMS 13 CHAPTER 4 CANCELLATION AND AUTOMATIC TERMINATION OF COVER CLAUSE 21 CHAPTER 5 THE INSURED PERILS: AN OVERVIEW 30 CHAPTER 6 WAR 34 CHAPTER 7 CIVIL WAR 45 CHAPTER 8 REVOLUTION, REBELLION, INSURRECTION … 53 CHAPTER 9 … OR CIVIL STRIFE ARISING THEREFROM … 65 CHAPTER 10 … OR ANY HOSTILE ACT BY OR AGAINST A BELLIGERENT POWER 66 CHAPTER 11 CAPTURE 70 CHAPTER 12 SEIZURE 91 CHAPTER 13 ARREST, RESTRAINT, DETAINMENT … 105 CHAPTER 14 … AND THE CONSEQUENCES THEREOF OR ANY ATTEMPT THEREAT 115 v Contents CHAPTER 15 DERELICT MINES, TORPEDOES, BOMBS AND WEAPONS OF WAR 118 CHAPTER 16 STRIKERS, LOCKED-OUT WORKMEN OR PERSONS TAKING PART IN LABOUR DISTURBANCES, RIOTS OR CIVIL COMMOTIONS 123 CHAPTER 17 RIOTS, CIVIL COMMOTIONS 130 CHAPTER 18 ANY TERRORIST … 143 CHAPTER 19 … OR ANY PERSON ACTING MALICIOUSLY OR FROM A POLITICAL MOTIVE 153 CHAPTER 20 PIRACY 164 CHAPTER 21 CONFISCATION AND EXPROPRIATION 179 CHAPTER 22 SUE AND LABOUR 180 CHAPTER 23 EXCLUSIONS 187 CHAPTER 24 WAR RISKS AND MARINE INSURANCE LEGISLATION 196 CHAPTER 25 TOTAL LOSS AND NOTICE OF ABANDONMENT 223 CHAPTER 26 HELD COVERED 232 CHAPTER 27 WILFUL MISCONDUCT AND FRAUDULENT CLAIMS 241 CHAPTER 28 THE PROXIMATE CAUSE 251 CHAPTER 29 CARGO WAR AND STRIKES CLAUSES 264 CHAPTER 30 CONTAINERS 269 CHAPTER 31 WAR RISK INSURANCE IN TIME OF WAR 270 Index 290 vi DETA I LED CON T E N TS Foreword by Sir Bernard Rix Preface to the Fourth Edition Acknowledgments Table of cases Table of legislation xv xvii xviii xix xxxiv CHAPTER 1 THE HISTORY OF THE WAR RISKS POLICY The S.G. Form The MAR Form The development of war risks insurance, and the f.c. & s Clause The work of Alan Jackson and his Committee: the end of the S.G. Form and the advent of the MAR and revised Institute Time Clauses 1 1 2 3 8 CHAPTER 2 THE UNDERWRITERS The London market The Mutual Associations 10 10 11 CHAPTER 3 THE PREMIUMS Background to premiums Additional war risk premiums and their calculation Who pays the AWRP? Time-charter cases The voyage charter cases The BIMCO CONWARTIME and VOYWAR 2013 Clauses 13 13 14 16 16 19 19 CHAPTER 4 CANCELLATION AND AUTOMATIC TERMINATION OF COVER CLAUSE 21 Cancellation on seven days’ notice 22 Hostile detonation of any nuclear weapon of war 23 Ships and freight 23 Containers23 Cargo stored afloat 24 Cargo—War Clauses (general cargo), War Clauses (Special Cargo) and Additional Expenses 24 vii DETA I LED Contents Cargo—strikes25 Outbreak of war between the Five Permanent Members of the Security Council 26 Requisition27 The Mutual Associations 28 The Combined Group of War Risks Clubs 28 UK War Risks 29 The Hellenic War Risks Club 29 CHAPTER 5 THE INSURED PERILS: AN OVERVIEW “Insured perils” versus “risks covered” Approach to the interpretation of the insured perils The role of criminal and public international law when interpreting the insured perils Future conflicts—cyber warfare? 30 30 31 CHAPTER 6 WAR The definition of “war” The Pesquerias Case The facts The casualties The courts’ decisions World War II The Korean War The Falklands War The First Gulf War Period 1: 2 August 1990 to 16 January 1991 Period 2: 16 January to end-February 1991 Period 3: March 1991 to February 2003 Conflict in Kosovo The 9/11 attacks Key principles derived from the case law 34 34 37 37 37 38 38 39 39 41 41 41 41 42 43 44 CHAPTER 7 CIVIL WAR Spinney’s (1948) Ltd. and Others v. Royal Insurance The facts Was there a civil war within the meaning of the peril? 45 45 45 51 32 33 CHAPTER 8 REVOLUTION, REBELLION, INSURRECTION … 53 Must the proximate cause of a casualty be proven to fall within one of these specified insured perils in order for cover to be engaged?53 Revolution, rebellion and insurrection defined 54 “Military or usurped power”: the forerunners of “revolution, rebellion, insurrection”55 Revolution, rebellion, insurrection in the War Risks Policy 58 Conclusions 63 viii DETA I LED Contents CHAPTER 9 … OR CIVIL STRIFE ARISING THEREFROM … 65 CHAPTER 10 … OR ANY HOSTILE ACT BY OR AGAINST A BELLIGERENT POWER 66 CHAPTER 11 CAPTURE Origin of the capture and seizure perils Capture, etc.: Hull, Freight and Cargo Clauses Capture, etc.: Hull Clauses Capture, etc.: Freight Clauses Capture, etc.: Cargo Clauses Differences between “capture” and “seizure” The meaning of “capture” Illustrative cases: the insured peril Unlikelihood of recovery Apprehension of capture Prize and search cases 70 70 71 71 71 71 72 72 74 80 82 87 CHAPTER 12 SEIZURE Meaning of “seizure” Illustrative cases describing the insured peril The presence of force Public or private ends Seizure of the ship by those on board Seizure of the cargo by those on board 91 91 93 98 100 101 103 CHAPTER 13 ARREST, RESTRAINT, DETAINMENT … 105 General105 Arrest105 Restraint 106 Detainment107 Cases illustrating the insured peril 108 Force109 The frustration Clause 111 Mutual War Risks Associations—practice 113 The Bamburi decision 113 The 12-month Clause 114 CHAPTER 14 … AND THE CONSEQUENCES THEREOF OR ANY ATTEMPT THEREAT 115 CHAPTER 15 DERELICT MINES, TORPEDOES, BOMBS AND WEAPONS OF WAR 118 Generally118 Ships and freight 120 Containers121 Cargo122 ix DETA I LED Contents CHAPTER 16 STRIKERS, LOCKED-OUT WORKMEN OR PERSONS TAKING PART IN LABOUR DISTURBANCES, RIOTS OR CIVIL COMMOTIONS 123 The “strikes risk” Clause 123 “Strikers”124 “Locked-out workmen” 127 “Persons taking part in labour disturbances” 128 Examples of “labour disturbances” 128 CHAPTER 17 RIOTS, CIVIL COMMOTIONS 130 “Riot”130 Riot as a public order offence 132 Riot as an insured peril 133 The Riot (Damages) Act 1886 and the Riot Compensation Act 2016 134 “Civil commotion” 136 Riot, civil commotion in other common law jurisdictions 139 Summary141 CHAPTER 18 ANY TERRORIST … Maritime terrorism: incidences and litigation Judicial approaches to interpreting terrorism as a contractual term The definition of terrorism in marine insurance policies Statutory definitions of terrorism The judicial interpretation of “terrorism” in insurance-related litigation The insured perils under Aii: the relationship between the 9/11 attacks and the subsequent US government warnings Did 9/11 amount to “acts of war” or “armed conflict” within the seventh paragraph of perils under cover Ai? Prior claims related to terrorism 143 143 143 144 145 146 149 150 151 CHAPTER 19 … OR ANY PERSON ACTING MALICIOUSLY OR FROM A POLITICAL MOTIVE 153 Malice and maliciously 153 Malice as “targeted” or “wanton” vandalism 154 The “targeted malice” test 154 The “wider” test developed by Colman J. 155 The test in The B Atlantic 156 Malicious damage: specific intent and non-marine insurance cases158 Conclusions on malicious conduct 160 Malicious acts: proof of complicity 160 Malicious damage and related perils 160 Examples from beyond the litigated cases 161 Political motive 162 x DETA I LED Contents CHAPTER 20 PIRACY 164 Piracy as an insured peril: Hull & Machinery cover 164 Piracy as an insured peril: cargo cover 164 Piracy: the limits of the peril 165 Piracy: incidences 165 Piracy: definitional issues 166 Piracy and location: high seas/territorial waters 168 Piracy and method: theft/attempted theft/ransom 168 Piracy and strangers: crew/passengers 171 Piracy and seizure for political motive 172 Anti-piracy measures and marine insurance 173 Piracy: nature and timing of loss by piratical seizure 173 Actual total loss in marine insurance 174 Piratical capture and loss 175 Capture and recovery 175 Examples of losses by piracy from outside the litigated cases 176 Summary177 CHAPTER 21 CONFISCATION AND EXPROPRIATION 179 CHAPTER 22 SUE AND LABOUR 180 Introduction180 Commencement and duration of sue and labour 182 Effect of failure to sue and labour 183 Extraordinary expenses 184 Salvage and general average 185 Illegality 186 CHAPTER 23 EXCLUSIONS General approach to construction Requisition (Clause 4.1.3) Pre-emption (Clause 4.1.3) Exclusion for capture, etc., by the “home” government (Clause 4.1.4) Exclusion for quarantine regulations, customs or trading regulations (Clause 4.1.5) Exclusion for “the operation of ordinary judicial process” (Clause 4.1.6) Exclusion for “failure to provide security or to pay any fine or penalty or any financial cause” (Clause 4.1.6) 187 187 188 190 190 CHAPTER 24 WAR RISKS AND MARINE INSURANCE LEGISLATION The Marine Insurance Act 1906: construction and effect on the common law Interpretation of the 1906 Act as a codifying statute The Insurance Act 2015: construction and effect on the common law Contracting out under the Marine Insurance Act 1906 and the Insurance Act 2015 196 xi 190 193 194 196 197 199 199 DETA I LED Con ten ts Utmost good faith, non-disclosure, misrepresentation and fair presentation of the risk under the MIA 1906 and IA 2015 Misrepresentation and non-disclosure under the MIA 1906 Non-disclosure under the MIA 1906 The modern application of section 18 MIA 1906 The broker’s duty of pre-contractual disclosure under section 19 MIA 1906 Misrepresentation under section 20 MIA 1906 Misrepresentation and non-disclosure (“fair presentation of the risk”) under the IA 2015 Warranties and risk management clauses Navigation limits: the current contractual provisions Navigation limits as promissory warranties Promissory warranties and the MIA 1906 Risk management clauses under the MIA 1906 Insurance warranties and risk management clauses under the IA 2015 200 201 201 204 205 205 208 212 212 215 216 219 220 CHAPTER 25 TOTAL LOSS AND NOTICE OF ABANDONMENT 223 Actual and constructive total losses 223 Election for a constructive total loss 225 Abandonment226 Consequences of rejection of notice of abandonment 228 Restoration229 Time for giving notice of abandonment 229 The 12-month Clause 230 Cases where notice of abandonment is not necessary 231 Missing ships 231 CHAPTER 26 HELD COVERED The “family” of held covered clauses “Simple” held covered clauses Held covered clauses, notice and the doctrine of utmost good faith Simple held covered clauses: conclusions Complex held covered clauses Complex clauses: prior notice The doctrine of utmost good faith 232 232 233 235 235 236 238 239 CHAPTER 27 WILFUL MISCONDUCT AND FRAUDULENT CLAIMS Proof of wilful misconduct and scuttling Wilful misconduct in war risks insurance Wilful misconduct as a contractual exclusion or public policy rule Wilful misconduct: deliberate actions, gross negligence and recklessness Forfeiture rule in war risks insurance The limits of “fraudulent claims” for the purposes of forfeiture 241 241 242 243 244 246 247 xii DETA I LED Contents The forfeiture remedy at common law The forfeiture remedy under the Insurance Act 2015 The continuing duty of utmost good faith in war risks insurance Cumulative effect 249 249 250 250 CHAPTER 28 THE PROXIMATE CAUSE Proximate cause generally Several things happen more or less at once Leyland Shipping Company Limited v. Norwich Union Fire Insurance Society Ltd. A casualty happens but its cause cannot be established Conclusion on proximate cause 251 252 254 CHAPTER 29 CARGO WAR AND STRIKES CLAUSES Introductory Institute War Clauses (Cargo) Institute Strikes Clauses (Cargo) Exclusion Clauses Duration—War Clauses Duration—Strikes Clauses Duration—notices Minimising losses and waiver Reasonable despatch 264 264 264 264 264 265 266 267 267 267 CHAPTER 30 CONTAINERS 269 255 256 262 CHAPTER 31 WAR RISK INSURANCE IN TIME OF WAR 270 The reinsurance agreement 275 The reinsurance: Clauses 1 to 3 276 The reinsured ships: Clauses 4 to 5 276 Insured values: Clauses 6 to 8 276 Conversion into sterling: Clauses 9 to 11 277 The reinsurance premiums: Clauses 12 to 14 277 General premium notices: Clause 15 277 Special premium notices: Clause 16 277 Consultation: Clause 17 277 Settlement of claims: Clauses 18 to 21 278 Disputes: Clause 31 278 Commencement and termination: Clauses 33 to 35 278 The NATO war risks insurance scheme 280 Introductory280 First stage—1970 to 1982 281 Second stage—1982 to 1992 284 The policy 284 xiii DETA I LED Contents Methods of underwriting 285 Structure285 The improved valuation scheme 286 The improved basic principles 286 The South Atlantic War 1982—the Gulf War 1991 287 Index 290 xiv FOR EWOR D Sir Bernard Rix It is a pleasure to write a foreword for this excellent work, now in its Fourth Edition, which has the virtues of a fascinating subject-matter concisely covered. The original author, the late Michael Miller, has now been accorded the accolade of having his name inserted in the title of the book, while its present editors come with the experience of legal practice and academe. The book is therefore the product of underwriting, forensic and academic insight. The core and particular strength of the book are the chapters in which individual perils and concepts of the modern Institute War Clauses are separately analysed, with the benefit of illustrative jurisprudence. More general elements of marine insurance, such as constructive total loss, proximate cause, sue and labour, and the reforms of the Insurance Act 2015, are covered in a helpful way, but always with the focus on the particular problems of war risks. Since the last edition in 2005 there have been a number of important new decisions, several of them in the Supreme Court. The doctrine of fraudulent claims has been considered in Versloot Dredging BV v. HDI Gerling Industrie Versicherung AG [2016] UKSC 45. The doctrine of proximate clause has been considered in The B Atlantic [2018] UKSC 26. The doctrine of constructive total loss has been considered in The Renos [2019] UKSC 29. There have also been a number of decisions on individual perils. A short stroll among such cases, as in Pictures from an Exhibition, reminds us of how this area of the law cannot be beaten for its strange and wonderful tableaux. In Egypt, a vessel was arrested by court proceedings in respect of a judgment debt for unpaid port dues owed by entirely different owners with which the respondent vessel and her owner had no connection. The question was whether the resultant losses were excluded as arising out of “ordinary judicial process”. The English commercial court held that they were not. It was not a case of ordinary judicial process, but of “extortion”, aided by judicial forgery. The court “was acting piratically” (The Silva [2011] EWHC 181 (Comm)). Off the coast of Somalia, pirates seized a vessel, and a ransom was promptly extracted, almost as a matter of business. Was the vessel and her cargo an actual total loss immediately on her seizure, so that recovery was a matter for the underwriters rather than the claimant, especially as the payment of ransom was so undesirable that it could not be taken into account as a means of recovery? No, said the court of appeal: undesirable as the payment of ransom might be (the court referred to “morally muddied waters”), there had been no irretrievable loss at the time of piratical seizure (Masefield AG v. Amlin Corporate Member Ltd [2011] EWCA Civ 24). xv Foreword In Venezuela, divers discovered cocaine strapped to the vessel’s hull ten metres below the waterline. Members of the crew, including the master, were convicted of smuggling. The vessel was detained for six months and her owner abandoned her and claimed for a constructive total loss caused by “person[s] acting maliciously”. The Supreme Court held that drug smugglers, who hoped after all to evade detection, had not been acting maliciously towards the vessel or her owner. In any event, even if they had been, the claim was excluded by being equally caused by the exclusion of “infringement of customs … regulations” (The B Atlantic [2018] UKSC 26). Off Yemen, during a voyage from Ukraine to China, pirates boarded the vessel and set off an improvised explosive incendiary device, which started a fire leading to the loss of the vessel. However, it was all part of a “scuttling” plot by owners, a charade of piratical fakery. After the owners’ claim was struck out for dishonesty in connection with the disclosure of documents, the mortgagee bank pursued the claim for itself. Could it prove loss by capture, seizure or their consequences, or persons acting maliciously, or piracy? No, said the commercial court. There was no such peril involved as a proximate cause, only the wilful misconduct of the assured (The Brillante Virtuoso [2019] EWHC 2599 (Comm)). Stories such as these will continue to illuminate the jurisprudence of War Risks. And this book will continue to assist those professionally involved in the consequences of such stories. I wish it all good fortune. January 2020 xvi PR EFACE TO T H E FOU RT H EDI T ION The Fourth Edition of this work is the first to be entitled Miller’s Marine War Risks, in tribute to the late Michael Miller. The work was his creation from the First Edition in 1990, and he was solely responsible for the Second and Third Editions. His writing style is distinctive, reflecting both his passion for the subject-matter and his belief that exposition of the law is best told as an unfolding story, both in individual cases and over time. The current authors could not hope to imitate his style with any degree of success, and we have not sought to do so. Whilst we have endeavoured to retain, where possible, Michael’s personal insights, our style is necessarily more analytical. It is our hope that the blend will prove of use to practitioners whilst preserving some of the distinctive nature of the original work. There have been many recent developments in the law of marine war risk insurance. Cover for malicious and political acts has received recent attention from the Supreme Court in The B Atlantic [2018] 2 Lloyd’s Rep. 1 and in the recent trial of The Brilliante Virtuoso [2019] EWHC 2599 (Comm). The scope of exclusions from cover, in particular customs infringement and ordinary judicial process, continues to receive attention, in The B Atlantic and The Silva [2011] 2 Lloyd’s Rep. 141. This edition also includes a treatment of some entirely new, but important topics. The Insurance Act 2015 brings significant reform of the law relating to the presentation of risks and as to warranties. These new statutory provisions replace a number of well-established principles in the Marine Insurance Act 1906 for contracts made after 12 August 2016. The 2015 Act has the stated intention of rebalancing the remedies available to insurers for breach of these key duties, and is of genuine significance for modern war risks policies. Detailed consideration is now also given to the rules relating to deliberate and reckless conduct by the insured, as recently developed by the Supreme Court in The DC Merwestone [2016] 2 Lloyd’s Rep. 198. and at first instance in The Brilliante Virtuoso [2019] EWHC 2599 (Comm). Michael Davey, James Davey, Oliver Caplin May 2020 xvii ACK NOW LEDGM E N TS The authors would like to thank Lyall Hickson from The UK Club for lending his expert experience to the updating of Chapter 2. They would also like to thank their editors at Informa for their seemingly endless patience whilst waiting for the manuscript. In addition, JD would like to thank Amanda, Elizabeth and Charlotte, and his parents. MD would like to thank Christina and Alex, and his parents. OC would like to thank Susannah and Zachary for putting up with all the late nights and lost Sundays, and his parents for setting him on the right track. xviii TA BLE OF CASES Ace European Group Ltd and Others v. Chartis Insurance [2012] Lloyd’s Rep. IR 603; [2013] Lloyd’s Rep. IR 485�� 28.7, 28.48 ACE European Group v. Standard Life Assurance [2013] Lloyd’s Rep. IR 415�� 22.15 Aegeon, The; Agapitos v. Agnew [2002] 2 Lloyd’s Rep. 42�� 27.26 Agapitos v. Agnew (The Aegeon) [2002] 2 Lloyd’s Rep. 42�� 27.26 Ageas Insurance Ltd v. Stoodley [2019] Lloyd’s Rep. IR 1��24.2 Aioi Nissay Dowa Insurance Co Ltd v. Heraldglen Ltd [2013] 1 C.L.C. 440; [2013] Lloyd’s Rep. I.R. 281�� 18.15 Aitchison v. Lohre (1879) 4 App Cas. 755�� 22.16 Aliza Glacial, The; Handelsbanken ASA v. Dandridge [2002] 2 Lloyd’s Rep. 421�� 11.6, 22.12, 23.2, 23.17, 23.23, 23.26 American Insurance Company v. Dunham 2 Wend. N.Y. 463��12.15, 12.17 Andersen v. Marten [1907] 2 K.B. 248�� 11.9, 11.12, 11.36–11.37 Andreas Lemos, The; Athens Maritime Enterprises Corporation v. Hellenic Mutual War Risks Association (Bermuda) Ltd. [1982] 2 Lloyd’s Rep. 483�� 6.9, 17.9, 20.10, 20.11, 20.14, 20.15, 20.16 Anita, The; Panamanian Oriental SS Corporation v. Wright [1970] 2 Lloyd’s Rep. 365; [1970] 2 Lloyd’s Rep. 371; [1971] 2 Lloyd’s Rep. 487, 491; [1971] 1 W.L.R. 882�� 1.20, 12.6, 13.8, 19.37, 20.1, 21.2, 23.2, 23.11, 23.15, 23.16, 23.19, 23.21, 25.19 Antaios, The; Marine Transport Overseas GmbH v. Unitramp and Others [1981] 2 Lloyd’s Rep. 284��3.20 Apex, The; Phoenix Shipping Company v. Apex Shipping Corporation [1982] 2 Lloyd’s Rep. 407...3.24 Arcangelo v. Thompson (1811) 1 Camp. 620��12.15, 12.18, 12.22 Arnold v. Britton [2015] AC 1619��5.5 Astrovlanis Compania Naviera SA v. Linard (The Gold Sky) [1972] 1 Lloyd’s Rep. 331, 333–334; 2 Lloyd’s Rep. 582��22.11, 27.5 Athel Line Limited v. Liverpool & London War Risks Insurance Association Limited [1946] KB 117�� 28.12 Athens Maritime Enterprises Corporation v. Hellenic Mutual War Risks Association (Bermuda) Ltd. [1982] 2 Lloyd’s Rep. 483 (The Andreas Lemos)�� 6.9, 17.9, 20.10, 20.11, 20.14, 20.15, 20.16 xix TA BLE OF CASES Athos, The; Telfair Shipping Corporation v. Athos Shipping Company S.A. [1981] 2 Lloyd’s Rep. 74�� 3.19 Atlantic Maritime Co Inc v. Gibbon [1954] 1 Q.B. 88��13.27 Atlantic Mutual Insurance v. The King [1919] 1 K.B. 309�� 10.4 Atlantik Confidence, The; Kairos Shipping and another v. Enka 7 Co. LLC and others, [2016] 2 Lloyd’s Reports 525�� 27.4 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2012] 1 Lloyd’s Rep. 629; [2015] I Lloyd’s Rep. 117; [2016] Lloyd’s IR 565 (CA); [2016] 2 Lloyd’s Rep. 351; [2017] 1 W.L.R. 1303; [2018] 2 Lloyd’s Rep. 1; [2018] 2 WLR 1671 (SC); [2019] A.C. 136��5.1, 8.4, 8.5, 19.18, 19.20, 19.24, 19.25, 19.26, 19.28, 19.34, 19.36, 19.38, 21.2, 22.9, 22.10, 22.13, 22.16, 23.2, 23.11, 23.13, 23.14, 23.15, 23.16, 23.23, 23.26, 25.10, 28.10, 28.11, 28.13 Aubert v. Gray (1862) 3 B. & S. 169�� 13.11–13.12 Axa Corporate Solutions SA v. National Westminster Bank [2010] 2 CLC 149�� 18.16 AXA General Insurance Ltd v. Gottlieb [2005] Lloyd’s Rep. I.R. 369�� 27.24, 27.32 AXA v. Arab Insurance Group [2016] Lloyd’s Rep. IR 1; [2017] Lloyd’s Rep. IR 216��24.23, 24.26 B Atlantic, The; Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd [2012] 1 Lloyd’s Rep. 629; [2015] I Lloyd’s Rep. 117; [2016] Lloyd’s IR 565 (CA); [2016] 2 Lloyd’s Rep. 351; [2017] 1 W.L.R. 1303; [2018] 2 Lloyd’s Rep. 1; [2018] 2 WLR 1671 (SC); [2019] A.C. 136�� 5.1, 8.4, 8.5, 11.3, 18.10, 19.4–19.6, 19.18, 19.20, 19.24, 19.25, 19.26, 19.28, 19.34, 19.36, 19.38, 21.2, 22.9, 22.10, 22.13, 22.16, 23.2, 23.11, 23.13, 23.14, 23.15, 23.16, 23.23, 23.26, 25.10, 28.10, 28.11, 28.13 Bainbridge v. Neilson (1808) 10 East 329�� 11.26, 11.30, 25.10, 25.12, 26.17 Bamburi, The; Owners of the Bamburi v. Compton [1982] 1 Lloyd’s Rep. 312�� 12.4, 12.27, 13.3, 13.7, 13.13–13.14, 13.29–13.30, 25.6 Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd. (The Good Luck) [1988] 1 Lloyd’s Rep. 514; [1989] 2 Lloyd’s Rep. 239 (C.A.); [1991] 2 Lloyd’s Rep. 191 (H.L.); [1992] 1 AC 233�� 24.54, 24.55, 24.62, 24.64 Banque Monetaca and Carystuiaki and Others v. Motor Union Insurance Company Ltd. (1923) 14 Ll.L. Rep. 48��12.23, 20.27 Bayview Motors Ltd. v. Mitsui Marine [2003] 1 Lloyd’s Rep. 131; [2003] 1 Lloyd’s Rep. 652�� 12.2, 12.3, 12.5, 12.7 Bayview Motors Ltd. v. Mitsui Marine and Fire Insurance Co. Ltd [2003] 1 Lloyd’s Rep. 131,��28.23 Becker Gray & Co. Ltd. v. London Assurance Corporation [1918] A.C. 101�� 11.47, 11.53, 11.57 Bedfordshire Police Authority v. Constable [2009] Lloyd’s Rep. IR 39; [2009] Lloyd’s Rep. IR 607��17.11, 17.15 Berens v. Rucker (1761) 1 Blackstone W. 313��11.14 Beresford v. Royal Insurance Co Ltd [1938] AC 586, 595�� 27.9 Berger v. Pollock [1973] 2 Lloyd’s Rep. 442��24.21 Bernisse, The [1920] 5 Ll.L. Rep. 359; [1920] P. 1; [1921] A.C. 458��11.64–11.65 xx TA BLE OF CASES Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald Massie (The Litsion Pride) [1985] 1 Lloyd’s Rep. 437�� 3.15, 24.55, 26.11, 26.12–26.17, 26.20, 26.23, 27.25, 27.34, 29.22 Blane Steamships Ltd v. Minister of Transport [1951] 2 K.B. 965�� 25.16 Bloomfield v. Springfield Hosiery Finishing Co Ltd [1972] 1 WLR 386�� 16.9 Board of Trade v. Hain Steamshp Company Ltd. [1929] A.C. 535��6.20 Boggan (1923) 16 Ll.L.Rep. 64�� 17.27 Bombay and Persia Steam Navigation Company v. The Shipping Controller (1921) 7 Ll.L.Rep. 226��23.6 Booth v. Gair (1863) 15 C.B. (N.S.) 291��22.7 Braconbush, The; United Scottish Insurance Company Ltd. v. British Fishing Vessels Mutual War Risks Association Ltd. (1945) 78 Ll.L.Rep. 70�� 28.41, 28.44 Bradley v. H. Newsom Sons & Co. [1919] A.C. 16�� 25.14 Bradshawe v. Burton (1597) 79 E.R. 1227��8.9 Brillante Virtuoso, The; Suez Fortune Investments Ltd v. Talbot Underwriting Ltd [2015] 1 Lloyd’s Rep. 651; [2019] EWHC 2599 (Comm)��19.26, 20.18, 20.19, 20.31, 22.8, 22.10, 24.55, 26.18, 27.4, 27.6 Britain Steamship Co. v. The King (The Petersham) (1919) 2 K.B. 670; (1920) 3 Ll.L.Rep. 163, 205; (1920) 4 Ll.L.Rep. 245; [1921] 1 A.C. 99�� 10.9, 11.12 British & Foreign Marine Insurance Co Ltd v. Gaunt [1921] 2 A.C. 41�� 22.11 British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650��11.13, 11.47, 12.3 Brotherston v. Barber (1816) 5 Mau. & Sel. 418�� 11.29 Brotherton v. Aseguradora Colseguros SA [2003] Lloyd’s Rep. I.R. 746��24.35 Brown v. Smith (1813) 1 Dow 349 (1813) 3 E.R. 725��20.24 Brownsville Holdings Ltd v. Adamjee Insurance Co (The Milasan) [2000] 2 Lloyd’s Reports 458�� 27.4 Bulchow Vaughan and Co. v. Compania Minera (1916) 32 T.L.R. 404��13.31–13.32 Bunga Melati Dua, The, Masefield AG v. Amlin Corporate Member Ltd [2010] 1 Lloyd’s Rep. 509; [2011] 1 Lloyd’s Rep. 630; [2011] 1 W.L.R. 2�� 11.40, 20.17, 20.32, 20.38, 22.11, 22.20, 25.3, 25.5 Burma Oil Company (Burma Trading) Ltd v. Lord Advocate [1965] A.C. 75��23.3 Butler v. Wildman (1820) 3 B. & Ald. 398�� 11.57, 11.60, 14.6 C A Blackwell (Contractors) Ltd v. Gerling Allegemeine Versicherungs AG [2008] Lloyd’s Rep. IR 529�� 27.9 Cameron v. HM Advocate [1971] JC 50; [1971] SLT 333�� 20.14, 20.25 Capricorn, The; Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance Plc [1995] 1 Lloyd’s Rep. 622��25.23 Captain Panagos DP, The; Continental Illinois National Bank & Trust Co. of Chicago and Xenofon Maritime SA v. Alliance Assurance Co. Ltd. [1989] 1 Lloyd’s Rep. 33�� 27.5 Captain Stefanos, The; Osmium Shipping Corp v. Cargill International SA [2012] 2 Lloyd’s Rep. 46 �� 20.17 Carter v. Boehm (1766) 3 Burr 1905, 978 ER 1162�� 24.18 xxi TA BLE OF CASES Castrique v. Imrie (1870) L.R. 4 H.L. 414�� 23.11 Cendor MOPU, The [2011] 1 Lloyd’s Rep. 560 (SC)��28.9, 28.10, 28.13 Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance Plc (The Capricorn) [1995] 1 Lloyd’s Rep. 622��25.23 Clothing Management Technology Ltd v Beazley Solutions [2012] Lloyd’s Rep. IR 329�� 17.5 CMA CGM SA v. Beteiligung (The Northern Pioneer) [2003] 2 Lloyd’s Rep. 212��6.33 Cologan v. The Governor and Company of London Assurance (1816) 5 Mau. & S. 447�� 11.32 Compania Maritima of Barcelona v. Wishart (1918) 14 Asp. M.L.C. 298; (1918) 23 Com. Cas. 264��28.32, 28.42 Compania Maritima San Basilio SA v. The Oceanus Mutual Underwriting Association (Bermuda) Ltd, 9The Eurysthenes) [1976] 2 Lloyd’s Rep. 171��24.6 Compania Naviera Martiartu v. The Royal Exchange Assurance Corporation [1923] 1 K.B. 651��28.34 Connex South Eastern Ltd v. National Union of Rail Maritime and Transport Workers [1999] IRLR 249��16.1, 16.8 Continental Illinois National Bank & Trust Co. of Chicago and Xenofon Maritime SA v. Alliance Assurance Co. Ltd. (The Captain Panagos DP) [1989] 1 Lloyd’s Rep. 33�� 27.5 Conway v. Gray (1809) 10 East 536�� 13.11 Cooper v. The General Fire & Life Assurance Corporation Ltd. (1922) 12 Ll.L. Rep. 514; (1922) 13 Ll.L.Rep. 219�� 17.27, 17.33 Cory & Sons v. Burr (1881) 8 Q.B.D 313 (1882) 8 App. Cas. 393; (1882) 9 Q.B.D. 463; (1883) 8 App. Cas. 393�� 11.2, 11.10, 11.13, 11.14, 12.1, 12.2, 12.7, 12.15, 12.16, 12.17, 12.18, 12.19, 12.20, 12.21, 12.22, 13.3, 19.38, 21.2, 28.18 Cosco Bulk Carrier Co Ltd v. Team-Up Owning Co Ltd (The Saldanha) [2011] 1 Lloyd’s Rep. 187�� 20.17 Costain-Blankevoort (U.K.) Dredging Co. Ltd. v. Davenport (The Nassau Bay) [1979] 1 Lloyd’s Rep. 395��14.2, 15.5, 15.7 Court Line Ltd. v. The King (1945) 78 Ll.L.Rep. 390�� 25.15 Court Line v. Dant and Russell (1939) 44 Com. Cas. 345; (1939) 64 Ll.L.Rep. 212; (1939) 161 L.T. 35��12.9 Coxwold, The; Yorkshire Dale Steamship Co. Ltd. v. Minister of War Transport [1900] 2 Q.B. 339; [1942] A.C. 691; (1942) 73 Ll.L.Rep. 1; [1970] 2 Lloyd’s Rep. 365�� 1.19, 6.1, 11.2 Crew Widgery & Co. v. Great Western Steamship Company (1887) W.N. 161�� 23.18 Crudesky, The; Great Elephant Corporation v Trafigura Beheer BV [2012] 2 Lloyd’s Rep. 503��3.26 Crystal, The [1894] A.C. 508, 519�� 25.16 CTI v. Oceanus [1984] 1 Lloyd’s Rep. 476��24.21 Curtis & Sons v. Matthew [1919] 1 K.B. 425�� 6.17, 7.1, 8.19 Czarnikow v. Leslie & Anderson (1941) 70 LL. Rep. 319�� 13.4 Dawson’s Field (1972)��20.39 xxii TA BLE OF CASES DC Merwestone, The; Versloot Dredging BV v. HDI Gerling Industrie Versicherung AG [2016] 2 Lloyd’s Rep. 198; [2017] A.C. 1�� 26.13, 26.21, 27.22, 27.23, 27.26, 27.27, 27.31 De Hahn v. Hartley (1786) 1 Term Rep. 343; 99 ER 1130�� 24.76 Dean v. Hornby (1854) 3 E. & B. 180; 118 ER 1108�� 12.2, 20.35, 20.36, 25.3 Demetra K, The; Kiriacoulis Lines SA v. Compagnie d’Assurances Maritimes Aeriennes et Terrestres (CAMAT), [2002] 2 Lloyd’s Rep. 581��18.23 Discaria, The; Islamic Republic of Iran Shipping Lines v. P. & O. Bulk Shipping [1985] 2 Lloyd’s Rep. 489, 493��3.22 Dobson v General Accident Fire & Life Ass Corpn [1990] 1 QB 274�� 17.5 Doelwyk, The; Ruys v. Royal Exchange Assurance Corporation [1897] 2 Q.B. 135�� 11.34, 11.41, 25.10, 26.17 Dora, The; Inversiones Manria SA v. Sphere Drake Insurance Co Malvern Insurance Co and Niagara Fire Insurance Co, [1989] 1 Lloyd’s Rep. 69��24.35 Douglas, The (1882) 7.P.D. 151�� 25.16 Driefontein Consolidated Gold Mines Ltd. v. Janson [1900] 2 QB 339�� 6.5, 13.2 Drinkwter v. The Corporation of the London Assurance (1767) 2 WIls. K.B. 363�� 8.11, 8.15, 8.19 Economides v. Commercial Union [1998] QB 587�� 24.29, 24.30, 24.43 Eide UK Ltd v. Lowndes Lambert Group Ltd [1999] QB 199��24.8 El Champion, El Challenger, and El General; Pacific Navigation Corporation of Monrovia v. Islamic Republic of Iran Shipping Lines [1985] 2 Lloyd’s Rep. 275�� 3.21 Elena G, The [2001] 2 Lloyd’s Rep. 378��24.20 Eleni P, The; Eleni Shipping Ltd v. Transgrain Shipping BV, [2019] 2 Lloyd’s Rep. 265�� 20.17 Eleni Shipping Ltd v. Transgrain Shipping BV (The Eleni P) [2019] 2 Lloyd’s Rep. 265�� 20.17 Elfie A Issaias v. Marine Insurance Co Ltd (1923) 15 Ll L Rep. 186�� 19.35 Empresa Cubana de Fletes v. Kissavos Shipping Company S.A. (The Agathon) (No. 2) [1984] 2 Lloyd’s Rep. 183��3.23 European Group Ltd and Others v. Chartis Insurance [2012] Lloyd’s Rep. IR 603��28.45 Eurysthenes, The; Compania Maritima San Basilio SA v. The Oceanus Mutual Underwriting Association (Bermuda) Ltd, [1976] 2 Lloyd’s Rep. 171��24.6 F.A. Tamplin Steamship Company v. Anglo-Mexican Petroleum Products Co Ltd [1916] 2 A.C. 397�� 13.4 Field v. Receiver of Metropolitan Police [1907] 2 K.B. 853, 860�� 17.2 Finlay v. The Liverpool and Great Western Steamship Company (1870) 22 L.T. 251�� 23.18 Flota Merchante Dominicana C. Por. A, Owner of the “Santo Domingo” v. American Manufacturers Mutual Insurance Company [1970] A.M.C. Vol II, 1687��23.5 Forestal Land, Timber & Railways Company v. Rickards (The Minden) (1940) 67 L1.L.Rep. 484; (1940) 68 Ll.L.Rep. 45 (C.A.); (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 (H.L.)�� 11.11, 11.46, 11.56, 12.44, 13.23, 25.6, 25.10 Forsikringsaktieselskapet Vesta v. Butcher [1989] AC 852��24.53 xxiii TA BLE OF CASES Forster v. Christie (1809) 11 East 205�� 13.4, 13.8 France Fenwick and Company Limited v. The King [1927] 1 K.B. 458��23.6 Galloway v. Guardian Royal Exchange (UK) Ltd [1999] Lloyd’s Rep. IR 209�� 27.24 Galoo Ltd v. Bright Grahame Murray [1994] 1 WLR 1360�� 28.12 Geipel v. Smith (1871-72) L.R. 7 Q.B. 404�� 13.3, 13.4 Girl Pat, The; Marstrand Fishing Co Ltd v. Beer (1936) 56 Ll L Rep. 163, 170��20.24 Gold Sky, The; Astrovlanis Compania Naviera SA v. Linard [1972] 1 Lloyd’s Rep. 331, 333–334; 2 Lloyd’s Rep. 582��22.11, 27.5 The Good Luck; Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd. [1988] 1 Lloyd’s Rep. 514; [1989] 2 Lloyd’s Rep. 239 (C.A.); [1991] 2 Lloyd’s Rep. 191 (H.L.); [1992] 1 AC 233�� 24.54, 24.55, 24.62, 24.64 Gordon v. Rimmington (1807) 1 Camp. 123�� 11.60 Goss v. Withers (1758) 2 Burr. 683; (1758) 2 Keny 325��11.14, 11.15, 11.16, 11.17, 11.19, 11.33 Great Elephant Corporation v Trafigura Beheer BV (The “Crudesky”) [2012] 2 Lloyd’s Rep. 503��3.26 Great Indian Peninsular Railway Company v. Saunders (1862) 2 B. & S. 266��22.7 Grecia Express, The; Strive Shipping Corp v. Hellenic Mutual War Risks Assocn (Bermuda) Ltd [2002] 2 Lloyd’s Rep. 88; [2003] 1 CLC 40��19.2, 19.11, 19.14, 19.34, 19.35, 22.12, 24.36 Green v. British India Steam Navigation Co., British India Steam Navigation Co. v. Liverpool & London War Risks Association (The Matiana) (1920) 3 L1.L.Rep. 205; (1920) 4 Ll.L.Rep. 245; [1921] 1 A.C.99�� 10.9 Green v. Brown (1743) 2 Strange 1199��1.9, 25.24, 28.27, 28.37 Green v. Elmslie (1784) QB 57��28.14, 28.17 Greene v. Pacific Murual Life Insurance Company (1864) 91 Mass. (9 Allen) 217�� 12.5, 12.39, 12.42 Greenock Steamship Co . Maritime Ins Co, Ltd [1903] 1 KB 367; [1903] KB 657��26.4, 26.5 Grell-Taurel Ltd v. Caribbean Home Insurance Company Ltd [2002] Lloyd’s Rep. IR 655��8.34, 8.37, 8.38, 17.34 Grunwick Processing Laboratories Ltd v. ACAS [1978] AC 655�� 16.11 Gunvor SA v Crugas Yemen Ltd [2018] EWHC 2061 (Comm)��3.27 Hadkinson v. Robinson (1803) 3 Bos. & Pul. 388��11.47, 11.48, 11.50, 11.55, 11.57, 13.8 Hahn v. Corbett (1824) 2 Bing. 205�� 11.39, 28.16, 28.17 Hai Hsuan, The [1957] 1 Lloyd’s Rep. 428; [1958] 1 Lloyd’s Rep.351�� 12.5, 12.41 Hamilton v. Mendes (1761) 2 Burr. 683; (1761) 2 Burr. 1198; (1761) 2 Burr. 1199��11.16, 11.21, 11.22, 11.23, 25.10, 25.11, 26.17 Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421��11.6, 22.12, 23.2, 23.17, 23.23, 23.26 Hartford (1924) 295 F. 663�� 17.33 Havelock v. Hancill (1783) 3 Term Rep. 277; (1783) 3 Term Rep. 377��12.15, 12.16, 12.17, 13.3 Highlands Insurance Co v. Continental Insurance Co [1987] 1 Lloyd’s Rep. 109�� 24.31 xxiv TA BLE OF CASES HIH Casualty & General Ins Ltd v. AXA Corporate Solutions [2003] Lloyd’s Rep. I.R. 1��24.67 HIH Insurance & General Insurance Ltd v. Chase Manhattan Bank [2003] Lloyd’s Rep. IR 230��24.22, 24.27 Home Insurance Company of New York v. Davila 212 F. (2d) 731 (1952)��8.25, 8.27, 8.29, 8.31 Hood v. West End Motor Car Packing Company[1917] 2 K.B. 38�� 26.6, 26.17 Houstman v. Thornton (1816) Holt N.P. 242��25.9 Ide v. ATB Sales Ltd [2008] EWCA Civ 424�� 28.7, 28.48 IF P & C Insurance Ltd (Publ) v. Silversea Cruises Ltd, The Silver Cloud [2004] Lloyd’s IR 696�� 6.41, 18.2, 18.18 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400; [1992] Lloyd’s Rep. 566�� 11.6, 13.1, 13.3, 13.7, 13.8–13.10, 23.12, 23.16, 23.25, 25.23 In re Etherington and the Lancashire and Yorkshire Accident Insurance Co [1909] 1 KB 591�� 28.10 Incorporated General Insurances Ltd v. A.R. Shooter t/a Shooter’s Fisheries (The Morning Star) [1987] 1 Lloyd’s Rep. 401�� 21.2 Integrated Container Service Inc v. British Traders Insurance Co Ltd [1981] 2 Lloyd’s Rep. 460; [1984] 1 Lloyd’s Rep. 154��22.3, 22.8, 30.2 International Dairy Engineering Company of Asia v. American Home Assurance Company [1971] A.M.C. 1001�� 10.11 Inversiones Manria SA v. Sphere Drake Insurance Co Malvern Insurance Co and Niagara Fire Insurance Co, The Dora [1989] 1 Lloyd’s Rep. 69��24.35 Ionides v. Pender (1873-74) LR 9 QB 531��24.7 Ionides v. The Universal Marine Insurance Co. (1863) 14 C.B. (N.S.) 259�� 1.10, 14.2, 14.3 Irvine v. Hine [1950] KB 55; [1950] KB 555, 568�� 24.6, 25.6 Islamic Republic of Iran Shipping Lines v. P. & O. Bulk Shipping (The Discaria) [1985] 2 Lloyd’s Rep. 489, 493��3.22 Islamic Republic of Iran Shipping Lines v. Zannis Compania Naviera S.A. (The Tzelepi) [1991] 2 Lloyd’s Rep. 265��3.25 Isothel, The; Wood v. Associated National Insurance Company Ltd.,[1985] 1 Qd R 297�� 27.14 J. Vermaas Scheepvaartbedrijf N.V. v. Association Technique de L’Importation Charbonniere (The Laga) [1966] 1 Lloyd’s Rep. 582�� 16.6, 16.7 John Cory & Sons v. Burr (1883) 8 App Cas 393�� 8.5, 28.13 Johnston & Co v. Hogg (1883) 10 Q.B.D. 432�� 12.2, 12.13, 12.14, 13.2 Jones v. Schmoll (1785) 1 Term Rep. 130��12.9 Kacianoff v. China Traders Insurance Co. Ltd. [1914] 3 K.B. 1121�� 11.51, 11.55 Kairos Shipping and another v. Enka 7 Co. LLC and others, The Atlantik Confidence [2016] 2 Lloyd’s Reports 525�� 27.4 Kaltenbach v. Mackenzie (1878) 3 C.P.D. 467�� 25.4, 25.8 Kausar v. Eagle Star Insurance Co Ltd [2000] Lloyd’s Rep. IR 154, 157��24.26 xxv TA BLE OF CASES Kawasaki Kisen Kabushiki Kaisha v. Bantham Steamship Co. Ltd. (No. 2) [1939] 2 K.B. 544; [1939] 63 Ll.L.Rep. 155�� 5.8, 6.7, 8.7, 18.2 Kelly v. Norwich Union Fire Ins Society Ltd [1990] 1 W.L.R. 139��28.8 Kidston v. The Empire Marine Insurance Company (1867) L.R. 2 C.P. 357�� 22.5, 22.7 Kilduff v. Tower Insurance [2018] Lloyd’s Rep. IR 621; [2018] NZHC 704��24.51 Kiriacoulis Lines SA v. Compagnie d’Assurances Maritimes Aeriennes et Terrestres (CAMAT), The Demetra K [2002] 2 Lloyd’s Rep. 581��18.23 Kleinwort v. Shepard (1859) 1 El. & El. 447; (1859) 28 L.J.Q.B. 147��12.2, 12.6, 12.37, 12.39 Sunport Shipping Ltd. v. Tryg-Baltica International UK Ltd. (The Kleovoulas of Rhodes) [2003] 1 Lloyd’s Rep. 138��13.35, 23.2, 23.16 Kler Knitwear Ltd v. Lombard General Insurance Co Ltd [2000] Lloyd’s Rep. IR 47�� 24.75 Kulukundis v. Norwich Union Fire Insurance Society Ltd (1936) Ll.L. Rep. 55; [1937] 1 K.B. 1��25.23 Kuwait Airways Corp. v. Kuwait Insurance Co. SAK [1996] 1 Lloyd’s Rep. 664, 687; [1997] 2 Lloyd’s Rep. 687 (C.A.); [1999] 1 Lloyd’s Rep. 803��5.3, 8.39, 11.12, 12.2, 12.24, 12.26, 20.34, 20.39, 22.1, 22.9, 23.3 Laga, The; J. Vermaas Scheepvaartbedrijf N.V. v. Association Technique de L’Importation Charbonniere [1966] 1 Lloyd’s Rep. 582�� 16.6, 16.7 Langdale v. Mason (1780) 1 Bennett’s Fire Insurance Cases 16��8.14, 8.23, 8.39, 17.21, 17.23, 17.26, 17.28 Levy v. Assicurazione Generali (1940) 67 Ll.L.Rep. 174; (1940) A.C. 791�� 17.23 Leyland Shipping Co. v. Norwich Union Fire Insurance Society [1918] A.C. 350��14.2, 28.9, 28.19–28.25 Liberian Insurance Agency Inc. v. Mosse [1977] 2 Lloyd’s Rep. 560�� 26.7, 26.11, 26.18 Lindsay Pirie v. The General Accident Fire & Life Assurance Corporation Limited [1014] S.A.R. (App.D) 574�� 17.30 Linelevel Ltd v. Powszechny Zaklad Ubezpieczen SA (the Nore Challenger) [2005] 2 Lloyd’s Rep. 534��22.7 Litsion Pride, The; Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald Massie [1985] 1 Lloyd’s Rep. 437�� 3.15, 24.55, 26.11, 26.12–26.17, 26.20, 26.23, 27.25, 27.34, 29.22 Liverpool and London War Risks Association Limited v. Ocean Steamship Co. Limited [1948] A.C. 243��14.2 Livie v. Janson (1810) 12 East 648�� 12.15, 28.15, 28.17 Lohre v. Aitchikson (1878) 3 QBD 558��22.8 London & Lancashire Fire Insurance Co. v. Bolands [1924] AC 836�� 17.6 London and Manchester Plate Class Company Limited v. Heath [1913] 3 KB 411�� 17.24 Longchamp, The; Mitsui & Co Ltd v. Beteiligungsgesellschaft LPG Tahkerflotte mbH & Co KG [2018] 1 Lloyd’s Rep. 1�� 20.17 Lozano v. Janson (1859) 2 E. & E. 160�� 26.17 Lubbock v. Rowcroft (1803) 5 Esp. 50��11.50, 11.57, 13.4, 13.8 Mandarin Star, The; Nishina Trading Co. Ltd. v. Chiyoda Fire & Marine Insurance Co. Ltd. (The Mandarin Star) [1969] 1 Lloyd’s Rep. 293; [1969] 2 Q.B. 449��11.1, 12.46, 16.3, 19.7, 19.13, 19.39 xxvi TA BLE OF CASES Manifest Shipping v. Uni-Polaris, The Star Sea [2003] 1 AC 469�� 26.20, 27.22, 27.34 Mann v Lexington Ins Co [2001] Lloyd’s Rep. IR 179�� 17.36 Maria, The (1799) 1 C. Rob. 340��12.29 Marine Transport Overseas GmbH v. Unitramp and Others (The Antaios) [1981] 2 Lloyd’s Rep. 284��3.20 Marstrand Fishing Co Ltd v. Beer (The Girl Pat) (1936) 56 Ll L Rep. 163, 170��20.24 Martiartu case��28.47 Masefield AG v. Amlin Corporate Member Ltd (The Bunga Melati Dua) [2010] 1 Lloyd’s Rep. 509; [2011] 1 Lloyd’s Rep. 630; [2011] 1 W.L.R. 2�� 11.40, 20.17, 20.32, 20.38, 22.11, 22.20, 25.3, 25.5 Matiana, The; Green v. British India Steam Navigation Co., British India Steam Navigation Co. v. Liverpool & London War Risks Association (1920) 3 L1.L. Rep. 205; (1920) 4 Ll.L.Rep. 245; [1921] 1 A.C.99 (H.L.)�� 10.9 Mauran v. Insurance Co, 6 Wall. 1 (1867) (Supreme Court of the United States)�� 11.13 McGregor v. Prudential [1998] 1 Lloyd’s Rep. 112�� 27.4 McKeever v. Northernreef Ins Co SA [2019] 5 WLUK 444�� 19.24, 19.26 Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Silva) [2011] 2 Lloyd’s Rep. 141; [2011] 2 Lloyd’s Rep. 470�� 22.12, 23.2, 23.20, 23.26 Michael, The; Piermay Shipping Co SA v. Chester [1979] 1 Lloyd’s Rep. 55�� 27.10 Michalos v. Prudential Insurance (The Zinovia) [1984] 2 Lloyd’s Rep. 264, 273�� 27.4 Middows v. Robertson (The Wangoni) (1940) 67 Ll.L.Rep. 484; (1940) 68 Ll.L. Rep. 45; (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50�� 11.11, 11.46, 11.56, 13.23 Milasan, The; Brownsville Holdings Ltd v. Adamjee Insurance Co, [2000] 2 Lloyd’s Reports 458�� 27.4 Miller v. The Law Accident Insurance Co. [1902] 2 K.B. 694 [1903] 1 K.B. 712; [1904] A.C. 359��...................................3.15–3.16, 11.4, 11.13, 12.2, 12.27, 13.3, 13.5, 13.6, 13.7, 13.8, 13.19, 23.18 Minden, The; Forestal Land, Timber & Railways Company v. Rickards (1940) 67 L1.L.Rep. 484; (1940) 68 Ll.L.Rep. 45 (C.A.); (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 (H.L.)�� 11.11, 11.46, 11.56, 12.44, 13.23, 25.6, 25.10 Miss Jay Jay, The [1987] 1 Lloyd’s Rep. 32�� 28.13 Mitrovich Bros. & Co. v. Merchants Marine Insurance Company Ltd. (1922) 12 Ll.L. Rep. 451; (1923) 14 Ll.L.Rep. 25��28.39 Mitsui & Co Ltd v. Beteiligungsgesellschaft LPG Tankerflotte mbH & Co KG, The Longchamp [2018] 1 Lloyd’s Rep. 1�� 20.17 Mitsui Sumitomo Ins Co v. The Mayor’s Office [2014] Lloyd’s Rep. 20; [2014] Lloyd’s Rep. 612�� 17.6, 17.16, 17.18, 17.19 Morning Star, The; Incorporated General Insurances Ltd v. A.R. Shooter t/a Shooter’s Fisheries [1987] 1 Lloyd’s Rep. 401�� 21.2 Mozambique case��8.39 Munro Brice & Co. v. F.W. Marten [1918] 2 K.B. 78; [1920] KB 24; (1920) 2 Ll.L. Rep. 2�� 25.24, 28.30, 28.33 Munro Brice & Co. v. The Crown (1920) 2 Ll.L.Rep. 2�� 28.30, 28.33, 28.42 Munro Brice & Co. v. War Risks Association Limited and Others [1918] 2 K.B. 78��1.30, 28.28 xxvii TA BLE OF CASES Nassau Bay, The; Costain-Blankevoort (U.K.) Dredging Co. Ltd. v. Davenport [1979] 1 Lloyd’s Rep. 395��14.2, 15.5, 15.7 National Oil Company of Zimbabwe (Private) Ltd. and Others v. Sturge [1991] 2 Lloyd’s Rep. 28; [1991] 2 Lloyd’s Rep. 281��6.9, 7.3, 7.12, 8.29 National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep. 582�� 22.11 Navigators Insurance Co Ltd v. Atlasnavios-Navegacao Lda (formerly BnaviosNavegacao Lda) (The B Atlantic) [2012] 1 Lloyd’s Rep. 629; [2015] I Lloyd’s Rep. 117; [2016] Lloyd’s IR 565 (CA); [2016] 2 Lloyd’s Rep. 351; [2017] 1 W.L.R. 1303; [2018] 2 Lloyd’s Rep. 1; [2018] 2 WLR 1671 (SC); [2019] A.C. 136�� 5.1, 8.4, 8.5, 11.3, 18.10, 19.4–19.6, 19.18, 19.20, 19.24, 19.25, 19.26, 19.28, 19.34, 19.36, 19.38, 21.2, 22.9, 22.10, 22.13, 22.16, 23.2, 23.11, 23.13, 23.14, 23.15, 23.16, 23.23, 23.26, 25.10, 28.10, 28.11, 28.13 Naylor v. Palmer (1853) 8 Ex. 739 (1854) 10 Ex. 382��12.6, 12.36 Naylor v. Taylor (1829) 9 B. & C. 718�� 11.30 Nederlands American Steamship Co. v. H.M. Procurator-General (The Sommelsdijk) [1925] 22 Ll.L.Rep. 358; [1925] 23 Ll.L.Rep. 119; [1926] 1 K.B. 84; (1925) 22 Ll.L.Rep. 358; (1925) 23 Ll.L.Rep. 119��11.63, 11.66, 11.70 Nesbitt v Lushington (1792) 4 Term Rep. 783�� 12.33, 12.35 Netherlands Insurance Co. Est. 1845 Ltd v. Ljungberg & Co A.B. [1986] 2 Lloyd’s Rep. 19, Privy Council��22.3 New Horizon, The; Tramp Shipping Corporation v. Greenwich Marine Inc. [1975] 2 Lloyd’s Rep. 314��16.8 NGN Ltd v. SOGAT’82 [1987] I.C.R. 181�� 16.12 Nishina Trading Co. Ltd. v. Chiyoda Fire & Marine Insurance Co. Ltd. (The Mandarin Star) [1969] 1 Lloyd’s Rep. 293; [1969] 2 Q.B. 449��11.1, 12.46, 16.3, 19.7, 19.13, 19.39 Noble Resources Ltd v. Greenwood (The Vasso) [1993] 2 Lloyd’s Rep. 309�� 22.2, 22.11, 29.20 Norris v. London Fire & Emergency Planning Authority [2013] ICR 819��16.1, 16.8 North Star Shipping Ltd v. Sphere Drake Ins Plc (The North Star) [2006] 2 Lloyd’s Rep. 183; [2006] 1 CLC 606 �� 19.2, 19.16, 24.15, 24.16, 24.32, 24.37 Northern Pioneer, The; CMA CGM SA v. Beteiligung [2003] 2 Lloyd’s Rep. 212��6.33 Oceanic SN Co v. Evans (1934) 40 Com. Cas. 108�� 5.16 Oinoussian Virtue, The; Schiffahrtsagentur Hamburg Middle East Line GmbH v. Virtue Shipping Corporation (No. 2) [1981] 2 Lloyd’s Rep. 300��3.20 Olivera v. Union Insurance Company (1818) 16 U.S. (Wheat.) 183, US Supreme Court ��13.5 Orakpo v. Barclays Insurance Services Co Ltd [1995] LRLR 443, 451�� 27.24 Orient Insurance Company v. Adams 123 U.S. 67 (1887)�� 27.13 Osmium Shipping Corp v. Cargill International SA (The Captain Stefanos) [2012] 2 Lloyd’s Rep. 46 �� 20.17 Overseas Commodities Limited v. Style [1958] 1 Lloyd’s Rep. 546�� 26.10 Owners of the Bamburi v. Compton (The Bamburi) [1982] 1 Lloyd’s Rep. 312�� 12.4, 12.27, 13.3, 13.7, 13.13–13.14, 13.29–13.30, 25.6 P Samuel & Co Ltd v. Dumas [1924] AC 431, 467�� 19.38 xxviii TA BLE OF CASES Pacific Basin IHX Ltd v. Bulkhandling Handymax AS (The Triton Lar) [2012] 1 Lloyd’s Rep. 151�� 20.17 Pacific Navigation Corporation of Monrovia v. Islamic Republic of Iran Shipping Lines (The “EL CHAMPION,” “EL CHALLENGER” and “EL GENERAL”) [1985] 2 Lloyd’s Rep. 275�� 3.21 Pan American World Airways Inc v. The Aetna Casualty & Surety Co. [1974] 1 Lloyd’s Rep. 207; [1975] 2 Lloyd’s Rep. 77��1.20, 1.29, 8.2, 8.3, 8.16, 8.27–8.28, 10.13, 16.2, 17.9, 17.31, 17.32, 17.33 Pan Atlantic Ins Co Ltd v. Pine Top Ins Co Ltd [1995] 1 AC 501�� 24.7, 24.10, 24.21, 24.23 Panamanian Oriental SS Corporation v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365; [1970] 2 Lloyd’s Rep. 371; [1971] 2 Lloyd’s Rep. 487, 491; [1971] 1 W.L.R. 882��1.20, 12.6, 13.8, 19.37, 20.1, 21.2, 23.2, 23.11, 23.15, 23.16, 23.19, 23.21, 25.19 Papadimitriou v. Henderson (1939) 64 LlLL Rep. 345�� 27.19 Patterson v. Ritchie (1815) 4 Mau. & Sel. 393�� 11.28 PCW Syndicates v. PCW Reinsurers [1996] 1 Lloyd’s Rep. 241, 253�� 24.19 Peracomo Inc v. Telus Communications Co. (The Realice) [2014] 2 Lloyd’s Rep. 315�� 27.16, 27.35 Pesquerias y Secaderos de Bacalao de Espana S.A. v. Beer [1949] 1 All E.R. 845; (1945–1946) 79 Ll.L. Rep. 417; (1946–1947) 80 Ll.L.Rep. 318; (1948–1949) 82 Ll.L.Rep. 501��5.5, 6.4, 6.12, 7.1–7.2, 8.5, 25.19 Petersham, The; Britain S.S. Co. v. Rex (1920) 3 Ll.L.Rep. 163, 205; (1920) 4 Ll.L.Rep. 245; [1921] 1 A.C. 99�� 10.9 Petros M. Nomikos Ltd. v. Robertson (1939) 64 Ll.L.Rep. 45��25.6 Phoenix Shipping Company v. Apex Shipping Corporation (The Apex) [1982] 2 Lloyd’s Rep. 407��3.24 Piermay Shipping Co SA v. Chester (The Michael) [1979] 1 Lloyd’s Rep. 55�� 27.10 Pink v. Fleming (1890) 25 QBD 396��28.9 Polurrian Steamship Co. Ltd. v. Young [1915] 1 K.B. 922��12.6, 22.9, 25.6, 25.10 Polzeath, The [1916] P. 117��31.10 Popi M, The; Rhesa Shipping Co. S.A. v. Herbert David Edmunds and Others [1985] 1 W.L.R. 948; [1985] 2 All E.R. 712 (H.L.); [1985] 2 Lloyd’s Rep. 1��28.7, 28.38, 28.45, 28.46 Porter v. Zurich Insurance [2010] Lloyd’s Rep. IR 373�� 19.28 Powell v. Hyde (1855) 5 E. & B. 607��11.14, 12.10, 12.11 Qdime Ltd v. Bath Building (Swindon) Management Company Ltd [2014] 3 EGLR 18; [2014] UIUT 0261 (LC)�� 18.14 R v. Dawson (1696) St Tr 5�� 20.14 R. v. Gordon (1781) 21 St. Tr. 485��8.9 R v. Gul [2013] UKSC 64�� 18.9 R v. Lewis [2014] 2 Cr App R (S) 27�� 17.8 R. v. Messenger (1668) 84 E.R. 1087��8.9 R. v. W (N) [2010] 1 WLR 1426��17.13, 17.15 Rainy Sky SA v. Kookmin Bank [2011] 1 WLR 2900��5.5 Rankin v. Potter (1873) 2 Asp. 65; (1873) L.R. 6 H.L. 83��25.23 xxix TA BLE OF CASES Re George v. The Goldsmiths and General Burglary Insurance Association Ltd. [1899] 1 QB 595�� 5.7 Re Piracy Jure Gentium [1934] AC 586�� 20.16, 20.20 Realice, The; Peracomo Inc v. Telus Communications Co. [2014] 2 Lloyd’s Rep. 315�� 27.16, 27.35 Rendall v. Combined Ins Co of America [2006] Lloyd’s Rep. IR 732��24.30 Renos, The; Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (2019) UKSC 29�� 22.18, 25.5, 25.6, 25.8, 25.10 Republic of Bolivia v. Indemnity Mutual Marine Insurance Co. Ltd. [1909] 1 K.B. 785 ��5.8, 6.9, 12.23, 20.10, 20.13, 20.15, 20.19, 20.30, 20.43 Reynolds v. Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep. 440, 460��24.34 Rhesa Shipping Co. S.A. v. Fenton Insurance Co. Ltd [1985] 1 W.L.R. 948; [1985] 2 All E.R. 712 (H.L.); [1985] 2 Lloyd’s Rep. 1��28.38 Rhesa Shipping Co. S.A. v. Herbert David Edmunds and Others (The Popi M) [1985] 1 W.L.R. 948; [1985] 2 All E.R. 712; [1985] 2 Lloyd’s Rep. 1��28.7, 28.38, 28.45, 28.46 Rickards v. Forestal Land Co Ltd [1942] A.C. 50�� 22.9, 25.6, 25.10, 26.17 Robertson v. Petros M. Nomikos Ltd [1939] A.C. 371��25.8 Robinson Gold Mining Company & Others v. Alliance Insurance Company [1901] 2 K.B. 919; [1902] 2 K.B. 489; [1904] A.C. 359�� 11.13, 12.2, 12.27, 12.28, 13.15, 31.3 Rodocanachi v. Elliott (1872-73) L.R. 8 C.P. 649; (1873-74) L.R. 9 C.P. 518�� 11.13, 11.31, 11.34, 11.41, 13.2, 13.3, 13.4, 13.5 Rogers v. Whitaker [1917] KB 942; [1917] 1 K.B. 942�� 8.18, 8.24 Rohl v. Parr (1796) 1 Esp. 445; (1796) The Times, 10 March��12.9 Rotch v. Edie (1795) 6 T.R. 413��13.8, 13.13 Roura & Forgas v. Townend [1919] 1 K.B. 189�� 25.13 Roux v. Salvador (1836) 3 Bing NC 266�� 25.3, 25.9 Royal Boskalis Westminster NV v. Mountain [1997] LRLR 523; [1999] QB 674�� 22.1, 22.5, 22.7, 22.8, 22.14, 22.15, 22.17, 22.19, 25.6 Russian Bank for Foreign Trade v. Excess Insurance Co Ltd [1918] 2 KB 123; [1919] 1 KB 39��23.3 Ruys v. Royal Exchange Assurance Corporation (The Doelwyk) [1897] 2 Q.B. 135�� 11.34, 11.41, 25.10, 26.17 Saldanha, The; Cosco Bulk Carrier Co Ltd v. Team-Up Owning Co Ltd [2011] 1 Lloyd’s Rep. 187�� 20.17 Salem, The; Shell International Petroleum Co. Ltd. v. Caryl Antony Vaughan Gibbs [1981] 2 Lloyd’s Rep. 316, 328; [1982] 1 Lloyd’s Rep. 369; [1982] QB 946, 986; [1983] 1 Lloyd’s Rep. 342; [1983] 2 A.C. 375��11.1, 11.11, 12.5, 12.43–12.45, 17.9, 19.7, 19.9, 19.13, 19.25, 20.15 Samuel v. Dumas [1924] AC 431, 445–446�� 27.8 Sanday v. British & Foreign Marine Insurance Co. [1915] 2 K.B. 781; [1916] 1 A.C. 650��1.17, 11.53, 11.55, 12.8, 13.20, 13.22, 13.23, 23.19 Schiffahrtsagentur Hamburg Middle East Line GmbH v. Virtue Shipping Corporation (The Oinoussian Virtue) (No. 2) [1981] 2 Lloyd’s Rep. 300��3.20 Scott v. Copenhagen Reinsurance Co UK Ltd [2003] Lloyd’s Rep. 696��20.39 xxx TA BLE OF CASES Seavision Investments S.A. v. Norman Thomas Evenett and Others (The Tiburon) [1990] 2 Lloyd’s Rep. 418��3.25 Seeberg v. Russian Wood Agency Ltd (1934) 40 Ll.L. Rep. 146, 16.7 Shell International Petroleum Co. Ltd. v. Caryl Antony Vaughan Gibbs (The Salem) [1981] 2 Lloyd’s Rep. 316, 328; [1982] 1 Lloyd’s Rep. 369; [1982] QB 946, 986; [1983] 1 Lloyd’s Rep. 342; [1983] 2 A.C. 375��11.1, 11.11, 12.5, 12.43–12.45, 17.9, 19.7, 19.9, 19.13, 19.25, 20.15 Shepherd v. Henderson (1881) 7 App. Ca. 49�� 26.17 Silva, The, Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd [2011] 2 Lloyd’s Rep. 141; [2011] 2 Lloyd’s Rep. 470�� 22.12, 23.2, 23.20, 23.26 Silver Cloud, The; IF P & C Insurance Ltd (Publ) v. Silversea Cruises Ltd,[2004] Lloyd’s IR 696�� 6.41, 18.2, 18.18 Smith v. Land & House Property Corporation (1884) 28 ChD 7��24.29 Smith v. MV “Ross Revenge” [2017] 2 Lloyd’s Rep. 288�� 25.16 Societe Belge des Betons S.A. v. London and Lancashire Insurance Co. Ltd. [1938] 2 All E.R. 305; [1938] 60 Ll.L. Rep. 225; [1938] 158 L.T. 352�� 12.34, 25.6 Sommelsdijk, The; Nederlands American Steamship Co. v. H.M. Procurator-General, [1925] 22 Ll.L.Rep. 358; [1925] 23 Ll.L.Rep. 119; [1926] 1 K.B. 84; (1925) 22 Ll.L.Rep. 358; (1925) 23 Ll.L.Rep. 119��11.63, 11.66, 11.70 Southern Rock Insurance Co Ltd v. Hafeez [2017] CSOH 127; [2018] Lloyd’s Rep. IR 207��24.2 Spinney’s (1948) Ltd. and Others v. Royal Insurance [1980] 1 Lloyd’s Rep. 406��1.29, 5.5, 6.4, 7.4–7.12, 7.13, 7.15, 8.2, 8.8, 8.18, 8.20, 8.21, 8.22, 8.31, 8.33, 8.36, 9.1, 9.3, 17.23, 17.28, 17.36, 18.2, 18.26 St. Paul’s Fire & Marine Insurance Co. v. Morice (1906) 11 Com Cas. 153�� 13.19 Star Sea, The; Manifest Shipping v. Uni-Polaris, [2003] 1 AC 469�� 26.20, 27.22, 27.34 State of the Netherlands v. Youell [1998] 1 Lloyd’s Rep. 236�� 22.11 State Trading Corporation of India v. M. Golodetz Ltd [1989] 2 Lloyd’s Rep. 277, 287�� 24.61 Stringer v. English & Scottish Marine Insurance Co Ltd (1869) LR 4 QB 676��20.38 Strive Shipping Corp v. Hellenic Mutual War Risks Assocn (Bermuda) Ltd (The Grecia Express) [2002] 2 Lloyd’s Rep. 88; [2003] 1 CLC 40��19.2, 19.11, 19.14, 19.34, 19.35, 22.12, 24.36 Suart v. Merchants’ Mar Ins Co Ltd (1898) 3 Com Cas. 312�� 25.16 Suez Fortune Investments Ltd v. Talbot Underwriting Ltd (The Brillante Virtusos) [2015] 1 Lloyd’s Rep. 651; [2019] EWHC 2599 (Comm)��19.26, 20.18, 20.19, 20.31, 22.8, 22.10, 24.55, 26.18, 27.4, 27.6 Sunport Shipping Ltd. v. Tryg-Baltica International UK Ltd. (The Kleovoulas of Rhodes) [2003] 1 Lloyd’s Rep. 138��13.35, 23.2, 23.16 Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) (2019) UKSC 29�� 22.18, 25.5, 25.6, 25.8, 25.10 T M Noten BV v. Harding [1990] 2 Lloyd’s Rep. 283�� 28.12 Tappoo Holdings Ltd v. Stuchbery [2006] FJSC 1; [2008] Lloyd’s Rep. IR 34,��8.37, 17.35 Tektrol Ltd v. International Insurance Co of Hannover Ltd [2005] 2 CLC 339�� 19.2, 19.30, 19.32, 19.34, 19.41 xxxi TA BLE OF CASES Telfair Shipping Corporation v. Athos Shipping Company S.A. (The Athos) [1981] 2 Lloyd’s Rep. 74�� 3.19 Thames & Mersey Marine Ins Co Ltd v. HT Van Laun & Co [1917] K.B. 48, 51��26.6 Thomas Cook Group Ltd v Air Malta Co Ltd [1997] 2 Lloyd’s Rep. 399, 408�� 27.18 Thompson v. Hopper (1856) 6 El & Bl 937, 119 ER 1113�� 27.8 Tiburon, The; Seavision Investments S.A. v. Norman Thomas Evenett and Others [1990] 2 Lloyd’s Rep. 418��3.25 Touteng v. Hubbard (1802) 3 Bos. & Pul. 291��12.8 Tramp Shipping Corporation v. Greenwich Marine Inc. (The New Horizon) [1975] 2 Lloyd’s Rep. 314��16.8 Trinder, Anderson & Co v. Thames & Mersey Mar Ins Co [1898] 2 QBD 114�� 27.8 Triton Lark, The; Pacific Basin IHX Ltd v. Bulkhandling Handymax AS [2012] 1 Lloyd’s Rep. 151�� 20.17 Tzelepi, The, Islamic Republic of Iran Shipping Lines v. Zannis Compania Naviera S.A. [1991] 2 Lloyd’s Rep. 265��3.25 United Scottish Insurance Company Ltd. v. British Fishing Vessels Mutual War Risks Association Ltd. (The Braconbush) (1945) 78 Ll.L.Rep. 70�� 28.41, 28.44 Utopia, The [1893] A.C. 492, 498�� 25.16 Vandervell v. IRC [1966] Ch. 261�� 25.16 Vasso, The, Noble Resources Ltd v. Greenwood [1993] 2 Lloyd’s Rep. 309�� 22.2, 22.11, 29.20 Versloot Dredging BV v. HDI Gerling Industrie Versicherung AG (The DC Merwestone) [2016] 2 Lloyd’s Rep. 198; [2017] A.C. 1�� 26.13, 26.21, 27.22, 27.23, 27.26, 27.27, 27.31 Wangoni, The, Middows v. Robertson (1940) 67 Ll.L.Rep. 484; (1940) 68 Ll.L.Rep. 45 (C.A.); (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 (H.L.)�� 11.11, 11.46, 11.56, 13.23 Wayne Tank and Pump Co Ltd v. Employers Liability Assurance Corpn Ltd [1974] QB 57�� 19.38, 28.13 WD Fairway, The (no. 3) [2009] 2 Lloyd’s Rep. 420; [2009] 2 Lloyd’s Rep. 191��25.4 Wilcocks and Others v. Union Insurance (1810) 2 Binn. 574�� 11.72 Williams Bros. Hull Ltd. v. Naamlooze Vernootschap W.H. Berghuys Kolen-handel (1915) 21 Com. Cas. 253�� 16.6 Wondrous, The; Ikerigi Compania Naviera S.A. v. Palmer [1991] 1 Lloyd’s Rep. 400; [1992] Lloyd’s Rep. 566�� 11.6, 13.1, 13.3, 13.7, 13.8–13.10, 23.12, 23.16, 23.25, 25.23 Wood v. Associated National Insurance Company Ltd. (The Isothel) [1985] 1 Qd R 297�� 27.14 Wood v. Capita Insurance Services Ltd [2017] AC 1173��5.5 World Magnate Shipping Ltd. v. Rederi A/B Soya [1975] 2 Lloyd’s Rep. 498�� 3.18 W.W. Howard, Bros. & Co. v. Kann (1940) 67 Ll.L. Rep. 484; (1940) 68 Ll.L.Rep. 45 (C.A.); (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 (H.L.)�� 11.11, 11.46, 11.56, 13.23 Yarls’ Wood Immigration Ltd v. Bedfordshire Police Authority [2009] 1 All ER 886 (QBD); [2010] QB 698��17.15 Yero Carras (Owners) v. London and Scottish Assurance Corporation Ltd. (The Yero Carras) (1935) 53 Ll.L.Rep. 131��25.23 xxxii TA BLE OF CASES Yorkshire Dale Steamship Co. Ltd. v. Minister of War Transport (The Coxwold) [1900] 2 Q.B. 339; [1942] A.C. 691; (1942) 73 Ll.L.Rep. 1; [1970] 2 Lloyd’s Rep. 365�� 1.19, 6.1, 11.2 Young v. Royal & Sun Alliance [2019] CSOH 32��24.2 Young v. Tower Insurance [2016] NZHC 2956; [2017] Lloyd’s Rep. IR 605��24.51 Zamora, The, [1916] 2 A.C. 77��23.9 Zinovia, The, Michalos v. Prudential Insurance, [1984] 2 Lloyd’s Rep. 264, 273�� 27.4 xxxiii TA BLE OF LEGISLAT ION UNITED KINGDOM Arbitration Act 1996, s. 69�� 6.33 Civil Contingencies Act 2004, Part 2 s. 20 and 22(3)(b)�� 23.5 Consumer Insurance (Disclosure & Representations) Act 2012 (CIDRA)�� 24.2, 24.39 s. 1, 24.12 Counter-Terrorism & Border Security Act 2019 s. 21, 18.11 Indemnity Act 1920�� 11.66, 11.67, 31.7 Insurance Act (IA) 2015�� 24.2, 24.12, 24.14, 24.15–24.16, 24.17, 24.18, 24.19, 24.21, 24.24, 24.39, 24.40, 24.55, 24.69, 24.73–24.83, 27.21 s. 3�� 24.40 (1), 24.41 (3), 24.41 (b), 24.42 (4), 24.44, 24.45 (a), 24.46 (5), 24.44, 24.45 (b),(c),(d), 24.48 (e), 24.45 s. 4 (2), 24.46 (3), 24.46 (6), 24.47 (7), 24.47 ss. 4–6�� 24.40 s. 5�� 24.48 (3) 24.48 s. 7�� 24.40 (3), 24.10 s. 8�� 24.40, 24.50 (1), 24.10, 24.49 ss. 9–11��24.73 s. 10�� 24.22, 24.77, 24.79 (1), 24.74 (2), 24.74, 24.75 (3), 24.75 (5), 24.76, 24.77 (6), 24.76 (7), 24.74 s, 11�� 24.76, 24.78, 24.79, 24.80, 24.81, 24.82, 24.83 (3), 24.79, 24.82 s. 12�� 27.33 (1) (a), 27.33 (b), 27.33 (c), 27.33 (2),(3),(4), 27.33 s. 13��27.34 s. 14�� 24.51 (1), 26.22 ss. 16–17�� 24.12, 24.52, 24.77 s. 17(2)��24.13 s. 33��24.71 (1), 24.70 Malicious Damage Act 1861, s. 58�� 19.15 Marine and Aviation Insurance (War Risks) Act 1952��31.8 s. (1)��31.9, 31.21 s. 10�� 31.10 xxxiv TA BLE OF LEGISLAT ION (1), 31.12, 31.18 (2), 31.10 Marine Insurance Act (MIA) 1906��1.7, 22.8, 24.2–24.3, 24.4–24.5, 24.9–24.11, 24.15–24.16, 24.18, 24.19–24.22, 24.38, 24.40, 24.45, 24.47, 24.52, 24.53, 24.54, 24.58–24.72, 26.4 schedule 1 Rule 8��17.4 Rule 10�� 13.1, 17.4 s. 17�� 24.40, 24.51, 26.11, 26.19, 26.22, 27.34 ss. 18–20�� 24.40 s. 18�� 24.17, 24.23–24.26, 24.36, 24.42, 24.45, 26.23 (1), 24.19, 24.21, 24.24 (2), 24.7, 24.10, 24.21, 24.44, 24.49 (3), 24.22, 24.44 (a), 24.22 (b), 24.22 (c), 24.22, 24.24 (d), 24.22 (4), 24.20 s. 19�� 24.27 s. 20�� 24.17, 24.28–24.54, 24.43 (5), 24.28, 24.29, 24.30 s. 33 (1), 24.58 (2), 24.58 (3), 24.58, 24.59, 24.74 s. 34 (2), 24.59 (3), 24.59, 24.67 s. 39(5)�� 24.6 s. 53�� 24.8 (2), 24.8 ss. 55–78��25.1 s. 55 (1), 28.6 (2)(a), 27.5, 27.7, 27.8, 27.12, 27.13, 27.15 s. 56(1)�� 25.2 s. 57 (1), 25.3 (i),(ii),(iii), 25.3 (2), 25.4 s. 58�� 25.24 s. 60��24.6, 25.7 (1), 25.5, 25.10 (2), 25.6 (i), 11.42, 11.44, 26.19 s. 62(7)�� 25.23 s. 63(1)�� 25.4 s. 64(2)�� 22.2 s. 65(2)��22.17 s. 66�� 22.4 s. 78 (1), 22.5 (4), 22.5, 22.6, 22.11, 22.20 s. 79(1)�� 25.9 s. 87�� 24.8 (2), 22.6 s. 91(2)��24.6, 24.7 Marine Insurance Bill 1894�� 24.3 Merchant Shipping Act 1995 s. 1�� 23.3 s. 224��22.18 schedule 11��22.18 Misrepresentation Act 1967 s. 2(2)��24.28, 24.31 Public Order Act 1986��5.6, 17.13, 17.19, 17.20, 17.37 s. 1�� 17.3, 17.8, 17.36 s. 2��17.3 s. 10��17.3 (2), 17.4 Reinsurance (Acts of Terrorism) Act 1993��18.7 s. 2�� 18.11 (2), 18.14 Riot Act 1714��8.12 Riot (Damages) Act 1886��17.7, 17.11, 17.12, 17.13, 17.14, 17.15, 17.16, 17.18 Riot Compensation Act 2016�� 17.11, 17.19 Terrorism Act 2000�� 18.17 s. 1��18.7 (1)(b), 18.8 (2), 18.8 (3), 18.8 (4), 18.9 (5), 18.7 xxxv TA BLE OF LEGISLAT ION Theft Act 1968 s. 8��20.15 Treason Act 1351�� 8.9 AUSTRALIA Insurance Contracts Act 1984��24.37 Marine Insurance Act 1909 (Commonwealth)\ s. 61(2)(a)��27.15 CONVENTIONS Convention on Limitation of Liability for Maritime Claims 1976, Article 4�� 27.16 Salvage Convention 1989��22.18 Article 13��22.18 Article 14��22.18 United Nations Convention on the Law of the Sea (UNCLOS) Article 101��20.14 Articles 100–107�� 20.5 xxxvi CH A PT ER 1 The history of the war risks policy 1.1 Whilst this new Fourth Edition of the book has been heavily updated in many places, we (the authors) could not better the masterly recapitulation of the history of the War Risk Policy penned by Michael Miller, and nor would we wish to. What follows below, therefore, subject to only the smallest of amendments, is the text from the Third Edition. The S.G. Form 1.2 The picturesque and archaically worded S.G. Form1 which was used by the London market up to 1983, had its origins in the bond or document by which seventeenth-century merchants and shipowners (in those days there was rarely the distinction that now exists between them), meeting together in Lloyd’s Coffee House, bound themselves one to another to make good any loss which any of them might suffer. This, in the course of time, emerged as a policy whereby one or several of them took all the risks in consideration of a premium. The S.G. Form was not a planned document and never during the whole of its long life did it acquire this characteristic. Risks and exceptions were added on an ad hoc basis as the demands of the insured shipowners, the practices of the market, and the decisions of the courts indicated were necessary. It was issued with the relevant clauses attached, usually by no more than a paperclip. For instance, an agreement to insure hulls or freight against marine risks would have required the attachment to the S.G. Form of the Institute Time Clauses, Hulls or Freight and an agreement to insure a ship against war risks, the attachment of the Institute War and Strikes Clauses. 1.3 Insured risks, exceptions and limitations were dotted about in the S.G. Form itself and in the attachments and often required experience and persistence to find them. Agreements varying the terms of the policy, whether made at the time that the Agreement to insure was made or subsequently, were evidenced by endorsement slips which were stuck on with paste. Sometimes clauses bore the puzzling words stamped on them with a rubber stamp “deleted”. The policy itself, particularly when compared with a conveyance of real property or a mortgage of a ship, had an untidy and unworkmanlike appearance. It was drawn up by the brokers who placed the risk, and was then checked and signed by the Lloyd’s Policy Signing Office from the broker’s slip, hardly a paragon of neatness and order in itself. This recorded each underwriter’s agreement to provide the insurance and his 1 Ships/Goods Form. 1 T he history of the war risks policy agreed proportion or percentage. The slip, being the only document that the u nderwriter ever signed to bind himself to the risk, is the evidence of the actual agreement to give insurance and the policy, when it came to be prepared, reflected its terms. When an underwriter has signed a slip, the brokers use the expression that he has “scratched” it, an expression which is more descriptive of the slip’s appearance than many would care to agree. 1.4 That said, it must be appreciated that the pre-eminence of the London market in marine insurance is founded on the S.G. Form. If an individual insured shipowner did not understand what insurance it provided, there were plenty of average adjusters, brokers, solicitors and counsel to help him. If he had to go to law, he found judges on the benches of the High Court and the Appellate courts who were well acquainted with its terms, and who could give judgment based on their own profound knowledge obtained from their own experience whilst practising at the Bar and from case law, going back to the start of the eighteenth century. It did not require the wisdom of some secret, closed and remote society to unlock its secrets. Untidy and unworkmanlike in appearance the policy may have been, but it proved on many occasions how flexible it could be, and by its changes, even though on an ad hoc and unplanned basis, how well it could respond and adapt to changing requirements. The MAR Form 1.5 Much to the disgust of those who had grown accustomed to its ways and to the despair of the nostalgic, the S.G. Form was swept away in 1983 to be replaced by the new form of Lloyd’s Marine Policy (in the case of the Institute of London Underwriters, the Companies Marine Policy) known as the MAR Form. It is the first policy for marine risks ever issued by the London market as a comprehensively planned document. No doubt over the years changes will be made to it, but there is a great difference to changing a document which has been planned as a whole from changing one which grew on an ad hoc basis. No doubt some measure of untidiness will remain because endorsements will still have to be added and the relevant clauses attached so that the paperclip and the paste will retain their essential use. 1.6 An examination of the MAR Form will, however, reveal how systematic it is. It begins with a declaration that in consideration of the payment of the agreed premium, insurance is provided against “loss, damage, liability or expense”—surely a most comprehensive definition—and makes it clear that each underwriter’s liability is confined to his agreed proportion. There follows a page devoted to the individual description of the subject matter insured and the agreed (insured) value with a space for the endorsements and another page to identify the underwriters who have accepted the risk and the proportions of the risk they have agreed to accept. Most importantly of all, and essential if the MAR Form is to be used for all marine insurances, be they hull and machinery, freight, cargo or war risks, or whatever variation the insurance is to assume, attached clauses, in our case the Institute War and Strikes Clauses, contain the insured risks, or perils, set out in a comprehensive list with the exclusions and other conditions also printed in their respective places in an easy-to-read format. No doubt questions will arise on some of the terms which are used and litigation will ensue, but it would be wrong not to pay tribute to Mr. Alan Jackson and to his Committee whose members laboured long and hard to produce some readable and comprehensive documents in which clarity is the main objective 2 T he history of the war risks policy and which, in themselves, do much to assist the London market to retain the pre-eminence that it has already won for itself. Some criticisms of the drafting will follow, but they will be made with the recognition of the sound nature of the Committee’s work. 1.7 We cannot, however, dismiss the S.G. Form from our consideration. Much of the London market’s practice grew up on its basis and the huge body of existing case law judicially defined its terms. The Marine Insurance Act 1906, which codified the law existing at that date with only minor alterations, was founded on the S.G. Form which is set out in a schedule to the Act itself. During its life of some 80 years, the Act has given rise to many legal decisions. Moreover the MAR Form, whilst it does introduce some welcomed clarifications, does not set out to make substantial alterations to the marine insurance hitherto provided by the London market. The development of war risks insurance, and the f.c. & s. Clause 1.8 It is difficult for anyone now living to remember that the very firm and concise distinction between marine and war risks which is so well known to us today has existed only since 1898. Before that date the distinction, whilst it had existed to a greater or lesser degree for many years, was nothing like so clear and the degree to which it did exist at any particular moment is best appreciated from the history of the f.c. & s. Clause which follows.2 The reader will find it helpful to compare the date of the case they are studying with this history. 1.9 From the start of the use of the S.G. Form in the seventeenth century, marine and war risks were insured by the same policy. No fewer than 12 (some would say more) of the perils we would today describe as war risks were insured by the same policy which also insured such marine risks as “perils of the seas”. Underwriters sometimes wished to exclude war risks and an early example of this is The Charming Peggy.3 In 1739 there was even greater tension than usual in the relations between the United Kingdom and France, so “capture and seizure” were excluded from the perils insured by the policy. Wars in the eighteenth and nineteenth centuries were fought on the seas as much as they were on the land and made the enemy’s seaborne trade an especial target. Even though Britannia ruled the waves, the powerful and omnipresent Royal Navy was never able to obviate entirely the depredations of skilled, determined and resourceful enemy seafarers. The Seven Years’ War, the American War of Independence, the 1812 War and the Napoleonic Wars emphasised that there was a real distinction to be made between marine and war risks, and a variety of exclusions were then added to the policies by endorsement as the chapters on war, capture and seizure will show. 1.10 A particularly favoured exclusion, which seems to have been directed at excepting risks to ships in European ports which may have been affected by Napoleon’s Continental system read: “Free of capture and seizure in the ship’s port of discharge.” This has a familiar ring and can be said to have been the beginnings of the f.c. & s. Clause as it later appeared. The perils thus excepted could be insured by underwriters willing to write war risks. They seem to have found the business very profitable, although several were ruined by the disaster in 1780, when only eight British ships out of a convoy of 63 escaped capture. 2 Free of Capture and Seizure Clause. 3 Green v. Brown (1743) 2 Strange 1199. See paragraph 30.68. 3 T he history of the war risks policy By the time of the Ionides case4 the f.c. & s. Clause in common use read: “Warranted free from capture, seizure and detention, and all the consequences thereof, or any attempt thereat, and free from all consequences of hostilities, riots, or commotions.” 1.11 In 1883, the underwriting community of the United Kingdom assembled at Lloyd’s wanted “warlike operations” added to this list. The Royal Navy had the year before bombarded Alexandria; apparently there was no state of war, and it was merely aiding a friendly State to put down a rebellion. In 1889 the Clause is recorded as reading: “Warranted free from capture, seizure and detention, the consequences thereof, or of any attempt thereat, unless arising from piracy or barratry, and from all consequences of hostilities or warlike operations, whether before or after declaration of war.” In 1893 there was a further amendment to add the “consequences of riots and civil commotions”, which had appeared in a slightly different form in the 1863 version, to “hostilities and warlike operations”. This gave rise to much opposition, so that the 1898 version omitted them. 1.12 During the 1890s, war risks came to be viewed with some disfavour by the London market, and this led to pressure for changes for an organised and uniform method to be used by the entire market. 1.13 The ancients who lived at the time told us this was a golden age of peace and plenty. The history books tell us a very different story. This was a time of great tension between the United States of America and the United Kingdom which could have led to a war, and of a crisis between the United Kingdom and France over the Fashoda incident which very nearly did. Both the United States and France possessed powerful navies, which, even if numerically inferior to the Royal Navy of the time, could have caused enormous damage to the United Kingdom’s maritime commerce. 1.14 The Imperial German Navy was, at the time, of little consequence, but, as Robert K. Massie’s interesting book Dreadnought shows, the Kaiser had ambitions to build a large and powerful fleet, and it could be anticipated that he would succeed in doing so. The memory of the 1812 war in particular, when the infant United States Navy had wreaked havoc in spite of all that the mighty Royal Navy could do to prevent it, was still green. In 1895 the London Assurance Company wrote to the Committee of Lloyd’s suggesting that there should be separation of marine and war risks perils, and that the latter should be i nsured by a separate policy. This should have its own rating which would be separate from the rating of the Marine Policy. It is not known why the Committee returned a chilling answer that it was not in a position to dictate to the Lloyd’s underwriters how they should conduct their business, but the companies were not then looked upon with much favour by the Lloyd’s underwriters. A suggestion of this nature from such a source may not have been welcome. 1.15 There was soon to be a change of heart. In addition to Dreadnought, there is Thomas Pakenham’s equally interesting The Scramble for Africa which also describes in vivid detail the tense relations that existed between Great Britain, France, Germany, Russia, and to a lesser extent only, the United States of America. On 15 June 1898, a General Meeting of Lloyd’s decided that marine risks and war risks would be insured by separate policies. In 1899, spurred on no doubt by the tense situation caused by the Fashoda incident in the previous September, it was further resolved that all marine policies should 4 Ionides v. The Universal Marine Insurance Co. (1863) 14 C.B. (N.S.) 259. 4 T he history of the war risks policy include an f.c. & s. Clause excluding war risk perils unless otherwise specifically agreed. The companies followed suit. From this date onwards, it has been the practice of the London market (an expression which in this book will include both the Lloyd’s underwriters and the companies) to insure marine risks and war risks under separate policies. This is still the practice today, even though the f.c. & s. Clause is no longer used. The important point is that in 1898, the totally different nature of marine and war risks was recognised to the extent that, from thenceforth, they had to be separately insured. 1.16 It is easy to be critical of the method chosen in 1898 to effect this division between marine and war risks. It must be borne in mind that the draftsmen, whose job it was to give effect to the decision, did not have the experience that we have today with two World Wars, the Spanish Civil War, the Sino-Japanese War, the Iran/Iraq War and numerous small but dangerous wars since the Second World War, all of which have had a considerable impact upon merchant shipping. To a great extent, they were bound by precedent to the forms of exclusion which were used in the eighteenth and nineteenth centuries. They were particularly concerned not to exclude unwittingly existing cover which an error in drafting might have done and thus, unintentionally, have deprived the Assured of cover which he previously enjoyed. The 1898 f.c. & s. Clause which was to be so used read as follows: “Warranted nevertheless free of capture, seizure and detention, and of the consequences thereof, or any attempt thereat, piracy excepted, and also from all consequence of hostilities or warlike operations, whether before or after the declaration of war.” (“Nevertheless” is recorded by some writers but not by others. Its effect in any case appears negligible.) 1.17 In 1901 a further attempt was made to exclude from the Marine Policy “riots and civil commotions”. Although on this occasion the opposition was not quite so forceful as it had been in 1893, it was still powerful enough to compel abandonment of the attempt. The clause was still in the same form on the outbreak of war in 1914 with only minor changes; there was now a comma after “seizure” and the attempt provision now read: “or of any attempt thereat”. The Sanday case,5 however, drew attention to the proper character of “restraint” as a war risk. In 1916 the f.c. & s. Clause was again altered to: “Warranted free of capture, seizure, arrest, restraint, or detainment, and the consequences thereof or of any attempt thereat, piracy excepted, and also from all consequences of hostilities or warlike operations whether before or after the declaration of war.” 1.18 In a 1921 case, this clause is quoted with some differences; there were commas after “thereof” and “warlike operations”, and “piracy excepted” was in brackets (in some versions it already was). These differences could have had an important consequence in the interpretation of the clause. It appears, however, that there was no case where these differences became important so there is no point in discussing them here. The troubles of the world between the wars led to further redefinitions of marine and war risks so that in 1937 the 1916 version was changed to: Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt thereat; also from the consequences of hostilities or warlike operations, whether there be a declaration of war or not, civil war, revolution, rebellion, insurrection or civil strike arising therefrom, or piracy. 5 Sanday v. British & Foreign Marine Insurance Co. [1915] 2 K.B. 781. 5 T he history of the war risks policy 1.19 The Coxwold decision of the House of Lords was not received with any enthusiasm by the London market. The underwriters saw it as obfuscating the clear distinction between marine and war risks for which they had striven. Mr. William NcNair K.C. (later McNair J.) was instructed to draft the 1943 version. It read: Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt thereat; also from the consequences of hostilities or warlike operations, whether there be a declaration of war or not; but this warranty shall not exclude collision, contact with any fixed or floating object (other than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature of the voyage or service which the vessel concerned or, in the case of a collision, any other vessel involved therein, is performing) by a hostile act by or against a belligerent power; and for the purpose of this warranty “power” includes any authority maintaining naval, military or air forces in association with a power. Further warranted free from the consequences of civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or piracy. 1.20 This is a very tangled clause, but again precedent prevented any thought of the “clean sweep” which would have made more easily comprehensible the London market’s wish that marine and war risks perils should be separate from each other. Even so, the draftsmen of all these clauses did achieve their object, to insure war risks under insurance which was separate from that which covered the marine risks and did so in such a way that no insurance cover which had previously been given was inadvertently excluded. The two policies complemented one another by a process which has been referred to as “dovetailing”. On the other hand, a slightly ludicrous situation arose because the Marine Policy stated in its main body that it insured a risk, for instance pirates, and then excluded that risk by the f.c. & s. Clause so that it was insured by another policy, the War Risk Policy. This method of doing things drew some adverse comments from the judges whose views were expressed with some asperity in 1970 by Mr. Justice Mocatta. In Panamanian Oriental SS Corporation v. Wright (The Anita)6 his Lordship said: It is probably too late to make any effective plea that the traditional method of insuring against ordinary marine risks and what are usually called war risks should be radically overhauled. The present method, certainly as regards war risk insurance, is tortuous and complex in the extreme. It cannot be beyond the wit of underwriters and those who advise them in this age of law reform to devise more straightforward and easily comprehended terms of cover. However, the form taken by the war risk cover here, since Clause 1 of the Institute Clauses only covers the risks excluded from the S.G. Form by the f.c. & s. Clause, requires one to see what cover is given by the S.G. Form on the facts, which would then be excluded from it by the f.c. & s. Clause, for it is only in respect of such exclusions that the plaintiffs can recover under the present [War Risks] Policy. 1.21 His Lordship was protesting at the mental gyrations which this process involved. When dealing with a claim under a risk which was imported into the War Risk Policy by the f.c. & s. Clause, the court was first of all obliged to consider whether the risk was insured by the Marine Policy and, if it was, whether it was then excluded from that policy by the f.c. & s. Clause. Only if both questions could be answered in the affirmative was the 6 [1970] 2 Lloyd’s Rep. 365 at p. 371. 6 T he history of the war risks policy court able to move to the primary duty which an action on the War Risk Policy imposed upon it, namely that of deciding whether the loss arose from a risk insured by that policy. Surely the wit of the underwriters and their legal advisers was equal to the task of finding a less labyrinthine way of providing insurance? 1.22 If that was not enough, criticism appeared from another source, the United Nations Conference on Trade and Development (UNCTAD) which reported very comprehensively on the world’s marine insurance methods for both ships and cargo on 20 November 1978. Much of this report was, and still is, regarded as very controversial, suggesting as it does some very simplistic solutions to very complex situations which, if adopted, would themselves introduce further complications and do little or nothing to resolve the problems which it identifies. There can, however, be no disagreement with what it has to say about the method of insuring war risks in its paragraph 123: The very concept of granting an insurance cover and excluding it in the same document (the S.G. Form), and then excluding it again in attached clauses, which override the first document in any case, and then granting it again (either in another document or as an additional attachment) by reinstating the original exclusion, is so complicated and contorted that the uninitiated is confused by the very procedure of insurance without even considering the complicated draftsmanship. The very complexity of the subject matter calls for the most simple and straightforward procedures. 1.23 This method simply confused those who had no expert knowledge or advice available to them; where there should be complete clarity, there was organised chaos and confusion. A suggested improvement is set out in paragraph 191(4). Whilst the suggestion that there should be all risks coverage with specific exceptions is probably impracticable, the general tenor of the “suggested improvement” can only be regarded as sound: The antiquated Lloyd’s S.G. Form should be revised and updated. Specifically, the perils clause should be revised to be comprehensible in modern day context as well as to eliminate war risks terminology. Furthermore, the perils clause should be combined with other appropriate institute clauses so that the designated risks appear in one unified risks clause. Consideration should be given to altering the method of granting insurance coverage from the enumeration of perils method to an all risks grant of coverage minus specific exceptions. Consideration should also be given to facilitate the method of granting war risks insurance. All these reforms are designated to make the insurance coverage easier to understand and to interpret, particularly in view of its international use. 1.24 This was not the end of the problems of the War Risk Policy written on the S.G. Form, and there were others which Mocatta J. had no reason to touch upon, although UNCTAD, being under no similar restraints, did. It did for instance make a particularly scathing attack upon “warlike operations” as being imprecise. In addition to the insured perils imported from the Marine Policy into the War Risk Policy by the f.c. & s. Clause were a number of insured perils which were specifically insured as follows: Loss or damage to the property hereby insured caused by: (a) Hostilities, warlike operations, civil war, revolution, rebellion, insurrection, or civil strife arising therefrom; (b) Mines, torpedoes, bombs or other engines of war; loss of or damage to the property hereby insured caused by strikers, locked out workmen, or persons taking 7 T he history of the war risks policy part in labour disturbances, riots or civil commotions; destruction of or damage to the property hereby insured caused by persons acting maliciously. 1.25 This caused some duplication, never a desirable feature of any insurance policy, with the insured perils imported into the War Risk Policy by the f.c. & s. Clause even if it enlarged upon some of them. There was also the puzzling result of the wholesale incorporation of the Institute Time Clauses from the Marine Policy. Most of these dealt with the methods of claims adjustment, and the situations which could arise from total losses and with sister ships, but one, Clause 7, was the “Inchmaree” Clause which could properly be described as an insured perils clause, or a clause which provided insurance cover. The exact result of its inclusion in this way appears not to have been subject to judicial review. Finally, there was the clause which resulted from the attachment of a limpet mine to the Granwood in 1964 whilst the ship was in Miami. It was possibly attached by Cuban exiles, although this was never certain. Because of this uncertainty, the marine underwriters were persuaded by the ship’s Mutual War Risks Association that they should accept the claim for the damage which the vessel suffered. Determined that no further claim should arise from such a source, the marine underwriters inserted into the Institute Time Clauses a new clause, Number 24, in the following words: “Warranted free from loss, damage, liability or expense arising from: (a) The detonation of an explosive. (b) Any weapon of war. and caused by any person acting maliciously or from a political motive.” 1.26 This clause, sometimes known as the Malicious Damage Clause, was imported into the War Risk Policy by slightly different wording from that used in the case of the f.c. & s. Clause in a way which raised anxious doubts in the minds of the learned editors of Arnould’s Law of Marine Insurance and Average (16th edn), paragraph 880. The work of Alan Jackson and his Committee: the end of the S.G. Form and the advent of the MAR and revised Institute Time Clauses 1.27 Such vigorous criticism from the High Court and from UNCTAD, that the S.G. Form and method of insurance defied easy comprehension, required action to give both the radical overhaul they so clearly needed. It was a most welcome development that Mr. Alan Jackson and his Committee, assisted by the late Mr. Donald O’May, the solicitor who advised them, addressed themselves to this task. A new form of policy document appeared in the shape of the MAR Form. New Institute Time Clauses were also produced, both for Marine Risks and for War Risks, those for cargo taking effect on 1st January 1982, and those for ships and freight on 1 October 1983. Whilst containers had to wait until 1987, they too were similarly treated. Special cargo insurances also received attention. If the Marine and War Risks insurances were still to complement one another, then the Committee had to start with the marine policy and decide which war risks were to be excluded from it. If we take the ships as an example, they are excluded from the marine insurance by Clauses 24 to 27 which are headed, and will no doubt become generally known as, the War Exclusion (24), the Strikes Exclusion (25), the Malicious Acts Exclusion (26) and the Nuclear Exclusion (27). They are set out in the Institute Clauses 8 T he history of the war risks policy with the somewhat commanding heading: “The following clauses shall be paramount and shall override anything contained in this insurance inconsistent therewith.” The War and Strikes insurance gives insurance for these risks, except for the nuclear exclusion, in almost identical terms. There are differences, and the following chapters will attempt to explore them. The nuclear risks are not, in general, insured by either policy, but, as will be seen, in some cases, this is not an absolute concept. 1.28 By setting out the marine insured perils and the war insured perils in separate policies, it can be said that Mr. Alan Jackson and his Committee achieved with the MAR Form a solution which met the complaint made by Mr. Justice Mocatta and that it is no longer necessary to refer to another document, the Marine Policy, before deciding whether the peril is insured by the War Risks Policy. But it would not be correct to say that in all cases no further reference need be made to the Marine Policy, particularly where, as in the days of the S.G. Form, the aim is that both policies should complement one another and provide an insured shipowner with the full range of cover that he requires without gaps between the two policies which could, in some cases, leave him without any insurance at all. 1.29 For instance, a fire on board a ship often raises very difficult questions of how it was caused and these difficulties are increased immeasurably when the fire causes the loss of the ship in deep water where it becomes impossible, or prohibitively expensive, to examine the evidence. Was the fire caused accidentally or was it caused by a weapon of war set off by a terrorist or by a person acting maliciously or from a political motive? Was that person a member of the crew so that questions of barratry arise? In Pan American Airways Inc. v. The Aetna Casualty and Surety Co.7 and Spinney’s (1948) Ltd. and Others v. Royal Insurance8 the courts found immense difficulty in defining the motives of the people who caused the loss, even where, in the Pan American case, the names of those people were known. 1.30 The plaintiff claimant might find that he had no other course, as in Munro Brice v. War Risk Insurance Ltd.,9 but to sue both marine and war risk underwriters at the same time and arrange to have the actions heard together. This would allow the same court to decide whether “on the balance of probabilities” one or the other of the underwriters should meet his claim and avoid the situation, which could otherwise easily arise, that separate courts should hear separate actions and reach opposing conclusions on the same evidence, that both, or neither, underwriters should pay. Suing both sets of underwriters at the same time can involve the plaintiff claimant in the penalty of paying the costs of the successful underwriter and it can only be hoped that an insured shipowner would have the financial support of his Freight, Demurrage and Defence Association in the proceedings. This type of difficulty is not one that can be answered by draftsmen, however skilled, depending as it does on minute details of the facts of any particular case, and Mr. Jackson’s Committee wisely refrained from any such attempt. 7 [1974] 1 Lloyd’s Rep. 207; [1975] 1 Lloyd’s Rep. 77. 8 [1980] 1 Lloyd’s Rep. 406. 9 [1918] 2 K.B. 78. 9 CH A PT ER 2 The underwriters The London market 2.1 War risk insurance is highly specialist and the dangers of insuring the consequences of what other people do to ships contain so many imponderable factors, which are less easy to quantify than insurance against marine risks, that the number of underwriters who are willing to undertake such insurance is limited. Moreover the number of underwriters who are willing to “lead” a risk which others will follow is very small indeed. The well-recognised “leaders” are to be found in the London insurance market among the syndicates at Lloyd’s, and the insurance companies who are members of the Institute of London Underwriters who are willing to give war risk insurance to merchant ships. In case it should be thought from this bare description that the capacity of the London market to give war risk insurance is limited, or that there is a monopoly among a small number of underwriters in the London market to provide it, two points should be made. 2.2 The capacity of the London market is so huge, particularly when the reinsurance treaties are added to the primary war risk insurance given by the underwriters, that the London market could give war risk insurance to all the ships in the world if required to do so. Any increase in the rates will induce other underwriters to overcome their caution and themselves enter the war risks field. This was particularly evident during the first half of the 1980s. In 1984 an attempt was made by the Committee of London War Risk Underwriters, consisting of the known leaders, to raise the annual rates of premium. This very rapidly foundered, because others saw their opportunity to enter the field by reducing rates below those agreed by the Committee, thereby attracting much business in their direction. This, incidentally, was one of the causes which led to the disbandment of the Committee in October of that year. 2.3 In this we can see an example of the efficiency of the London market, particularly where the assured is concerned. The war risk underwriters of the London market may be small in number, but their capacity to provide war risk insurance is colossal, and the forces of competition which exist in any market which is free of artificial restrictions and restrictive practices will ensure that they are never in a position to enforce a monopoly, either in the provision of the insurance or the premiums which are paid for it. A broker, attempting to place war risk insurance on behalf of a shipowner, will find no difficulty in completing his “slip” for the full amount of the insurance which he requires as soon as a leader has “scratched” the “slip” (or, since 2007, 10 T he underwriters concluded the Market Reform Contract1) and indicated the rate of premium which he agrees with the broker. 2.4 The London market as above described, a term which we shall use throughout this work, underwrites on the MAR Form with the respective Institute War and Strikes Clauses attached. It is important to appreciate that there is no requirement that the risks must be written on this form. The individual underwriters are free to make their own bargain with the insured shipowner, and frequently they do so when reinsuring risks from other underwriters or from foreign markets. In practice there is a measure of restraint upon them. 2.5 An exception to this general rule is where a large reinsurance treaty is being underwritten from a foreign market or a mutual association, both of which will require reinsurance for their original risks. Other insurers abroad also afford war risk insurance to ships, particularly in the United States, France, Germany, Italy, Norway and Japan, in the latter case by means of a consortium of underwriters. These issue their own policies. Their capacity is so limited that they find it necessary to reinsure their risks in the London market, or in some cases to give insurance for only a minimal proportion of the amount required by the shipowner. Whilst there is not total uniformity between their policies and those issued by the London market, the willingness of the London market to give war risk cover outside the Institute War and Strikes Clauses is itself very limited, and the wish of a foreign underwriter to give cover for a risk for which he does not have reinsurance is correspondingly inhibited. The Mutual Associations 2.6 Some nationalities of shipowners have followed the practice of the Protection and Indemnity Associations, and have formed Mutual Associations to give war risk cover to the members who enter their ships for insurance with these Associations. The essential difference between a market underwriter and a Mutual Association is that in the latter case, it is the individual shipowners, who are the members of the Association, who actually provide the cover on a mutual basis to any one of their number who, during the policy year, is unfortunate enough to suffer a casualty. If this should happen, then all the members of the Association will bear a share of the loss. The directing body of the Association is the Board of Directors, who are elected by the members from among their own number. 2.7 The managers of the Association, who manage the day-to-day affairs, are paid a fee for their services, and are responsible to the Board of Directors and through them to the membership as a whole. Associations are underwriters who consist of the insured shipowners, a characteristic which enables them, provided that they can retain the confidence of the market underwriters who reinsure them, to control the costs of the insurance and the claims which are paid. In other words, they provide insurance to the shipowners in accordance with the shipowners’ requirements, and also manage the Association on their behalf. A shipowner who insures his war risks with an Association is given a certificate of entry which incorporates the Rule Book of the Association. These two documents together form 1 See the description of how insurance is now placed at Lloyd’s in Chapter 11 of Julian Burling, Lloyd’s Law & Practice, 1st Ed (2013). There has been a movement, instigated by what was the FSA, to challenge the old practice of “deal now detail later”, and reform/modernise the placing of insurance at Lloyd’s. The intention behind the reforms is to improve contractual certainty. 11 T he underwriters the basis of the legal contract between the Association and the member and, in the event of a dispute, are the documents which will be considered by the courts. The Rules themselves are extremely lengthy and, because they deal in great detail with the relationship between a shipowner member and the Association, there is no purpose in burdening the reader with their provisions apart from the Rules which actually provide the insurance cover. These are described at greater length in Chapter 23. 2.8 A comprehensive list of the Mutual War Risks Associations which presently provide war risk insurance cover to shipowners: (a) The Combined Group of War Risk Clubs. This is a pool of three Associations providing war risk cover for all nationalities of ship/operator, namely: The London Steamship Owners Mutual Insurance Association Limited. The North of England Protecting and Indemnity Association Limited. The Standard Steamship Owners Mutual War Risks Association Limited. (b) The United Kingdom Mutual War Risks Association Limited. UK War Risks (as of 2009) insures ships of any flag or ownership, having previously been limited to UK flagged vessels. (c) The Hellenic Mutual War Risks Association (Bermuda) Limited. This Association insures Greek flag and Greek owned and/or managed ships, mostly ocean-going. (d) Den Norske Krigsforsikring for Skib. This Association insures Norwegian flag and Norwegian-owned flagged-out ships, mostly ocean-going. (e) Krigsforsikringen for Danske Skibe. This Association insures Danish flag and Danish-owned flagged-out ships, mostly ocean-going. (f) Sveriges Ångfartygs Assurans Förening. This Association insures Swedish flag and Swedish flagged-out ships, mostly ocean-going. (g) The Canadian Shipowners Mutual Assurance Association. This Association insures Canadian-owned ships, some ocean-going but mostly coastal and lakers. 2.9 In addition, War and Strikes insurance is given on mutual terms by the Through Transport Mutual Insurance Association Ltd. and the Through Transport Mutual Insurance Association of Europe Ltd. to containers, trailers and handling equipment. This includes some insurance for War Risks on Land. 2.10 The reader is asked to note two points. In former times, the Associations only insured ships of their national flags. With the modern tendency to “flag-out”, and the establishment of open registers, such a clear distinction is no longer possible. The Associations now cover ships which are owned by the nationals of their country, mostly regardless of the flags that they fly, in addition to those which fly the flags of their own nationalities. In a chapter which is only intended to indicate who are the principal insurers who give insurance cover to ships against war risks and the forms of policy which they use, and in a book which is designed to describe and comment upon that insurance cover, there is little point in commenting upon the detailed characteristics of the Mutual War Risks Associations. This is a subject which would require a volume on its own. 12 CH A PT ER 3 The premiums Background to premiums 3.1 If an underwriter were to assess his premiums for the war risk insurance to merchant ships on a comprehensive or whole basis, he would have to remember that losses will occur during the following periods: (a) A conflict between the super-powers which is most likely to be a world war or, (b) a period of peace between the super-powers, in areas of the world which can be described by the relative term of peaceful or, (c) a period of peace between the super-powers, in areas of the world where there are local wars or where there is a marked danger of a violent attack upon, or interference with, merchant ships. 3.2 If an underwriter were to take such an overall picture of the risks he was insuring, he would have to take into account the consequences of a world war and the stupendous losses that could be expected. His charge of premium would therefore be correspondingly high. Even if he could persuade the insured shipowners to pay it without fear of being undercut by competitors, two exceedingly doubtful propositions, he would amass an enormous sum of money with, if the prospect of a world war was remote, no apparent or immediate purpose. The presence of such money would itself pose formidable problems. Any attempt to establish it as a reserve would be challenged by the names of a Lloyd’s syndicate or by the shareholders of an insurance company who would want it distributed as a profit, and also by the taxation authorities who would question whether it was a reserve for a genuine purpose. A failure to convince them would give rise to an assessment to tax. Even if these difficulties could be overcome, the additional difficulties of forecasting the possibility of a world war and its probable duration would bring into question whether this reserve was adequate to meet the expected losses. Last, but by no means least, is the consideration that possibly not even the enormous capacity of the London market would suffice to meet the claims arising from a world war, either with or without such a reserve. It is considered that only some governments, or combinations of governments bound together by treaty to one another, possess this capability. 3.3 For these reasons, the underwriter and the insured shipowner agree to concentrate on the peacetime war risk insurance as described in (b) and (c) above and to exclude from the war risk policy any insurance of risks during a world war. This is achieved in the policy, not perhaps entirely satisfactorily, by the notice of Cancellation and Automatic Termination of Cover Clause, 6.2 (Chapter 4). 13 T he premiums 3.4 Confining the insurance to periods of peace between the great powers leaves two other considerations. Many ships will trade only between peaceful places where even the recently increased risks of terrorism, piracy and confiscation by developing countries can to a great extent be contained or confined either to certain limited areas of the world, or by sensible and reasonable precautions taken on board the ship, or in the event of a casualty, by diplomatic representations, or on occasion by police or military action. Other ships will trade to areas of the world which are dangerous at the time the insurance is underwritten or which subsequently become dangerous at some time during the currency of the policy. 3.5 By the normal methods of insurance, the underwriter is required to assess his premium against his risk at the time that the insurance contract is made and cannot subsequently vary his premium until the renewal of the risk, even though the risk itself should suddenly and unexpectedly increase in a way that was never foreseen. It would, however, scarcely be welcome to the insured shipowners whose ships trade solely between such peaceful places as South Africa to the United Kingdom, Canada to Rotterdam or Western Australia to Japan to have their premiums increased at the time the contract is made because of the underwriters’ fear, which may or may not turn out to be justified, that some other part of the world to which they do not trade is dangerous or should suddenly become dangerous to merchant ships at any time during the period of the insurance. Additional war risk premiums and their calculation 3.6 Out of these considerations, therefore, has been born the concept of two premiums. The first premium is paid for the whole period of the insurance, which will be paid for war risk insurance cover to the insured ship throughout the world. 3.7 The second premium is the additional premium (the “AWRP”, as it is often referred to) for visits which are made by the insured ship to geographically defined areas which have a high element of danger to them. It contains no surprises when such areas can be agreed between the parties when the contract of insurance is made or is renewed, even if there is some surprise that the amount of the additional premium or premiums to be charged for such visits during the period of the insurance is not then agreed. 3.8 What may come as a surprise to those who come fresh to war risk insurance is the right that the underwriter reserves to him or herself to designate a new area at any time during the period of the insurance, which is not among the areas that were agreed at the time the insurance contract was made, and, by giving seven days’ notice, require additional premiums to be paid for visits to that area. Moreover, he or she can also require that special terms and conditions should be applied to the insurance whilst the insured ship is within the area. In substance, therefore, the insurer effects a unilateral alteration of the agreed terms of the insurance which can only be justified if there is a clear provision in the war risks policy or if there is a custom of the market which permits this. The situation gives an insured shipowner little time to consult his professional advisers or his mortgagees, which he or she may be obliged to do. 3.9 Before coming to the explanation of why this is a long-accepted practice, it should be noted that Clause 6.1, which on its own is known as the Notice of Cancellation Clause, seems remarkably ill fitted for its purpose, bearing in mind that it must be strictly 14 T he premiums construed against the underwriter who, in all but the most exceptional circumstances, is the only party who is likely to make use of it. Clause 6.1 provides: This insurance may be cancelled by either the Underwriters or the Assured giving 7 days notice (such cancellation becoming effective on the expiry of 7 days from midnight of the day on which notice of cancellation is issued by or to the Underwriters). The Underwriters agree however to reinstate this insurance subject to agreement between the Underwriters and the Assured prior to the expiry of such notice of cancellation as to new rate of premium and/or conditions and/or warranties. 3.10 The first sentence seems clear enough to require no comment. The second sentence, however, would appear to confirm that the underwriter, having given the seven days’ notice, must restore the cover on terms which bind him or her for the remaining period of the contract as to premiums and conditions of insurance. No doubt such a strict interpretation of the second sentence could be overcome by a subsequent notice every time the underwriter felt it necessary to alter the premiums and conditions to reflect either an increased or decreased degree of danger within the area concerned. This would present formidable administrative problems and a most unwelcome degree of confusion both to the underwriter and to the insured shipowner in circumstances where the need for absolute clarity is paramount. 3.11 There has been from time to time a tendency in the London market to refer to visits of the insured ship to areas which have been declared dangerous and thus require the payment of an additional premium or premiums, as “breaches of warranty” and to the premiums so payable as “breach of warranty premiums”. If it ever was, this is certainly an inaccurate description of the consequence of sailing into dangerous areas in the post-Insurance Act 2015 world. 3.12 In any event, it is well understood by the underwriters of the London market, by the insured shipowners and by the courts, that the use of Clause 6.1 of the War Risk Policy is a long and well-accepted device for surcharging the owners of insured ships who trade to such areas and for imposing extra terms and conditions whilst they are within those areas in order to fulfil the requirements which appear in the earlier part of this chapter. Such expressions as “breach of warranties” and “breach of warranty premiums” can still give rise to misunderstandings, and the final reason which persuaded the mutual war risk associations to adopt in 1977 different provisions, which reflect more accurately the purpose for which Clause 6.1 is intended, can be briefly described. 3.13 Shortly after the reopening of the Suez Canal in 1975, a ship was chartered to load grain in New Orleans for discharge in Bombay and Calcutta, a voyage which could have required two to three months to perform. At the time the Suez Canal area, which would have needed little more than 16 hours to go through, was subject to additional premiums because of the fear of terrorist action against ships transiting the Canal by those persons who disapproved of its use. No other part of the voyage presented more than the usual hazards. It was for a time contended that additional premiums were payable for the whole period of the voyage. Fortunately, the view of the mutual war risk association concerned was finally accepted that the premium was payable only in respect of the time spent during the passage through the Canal. 3.14 In order to make the position absolutely clear, the mutual war risk associations have adopted provisions in their rules which depend upon two new and further concepts, the additional premium area and the additional premium. Their directors can, if they feel that an area is becoming more than usually hazardous, or if they find that they are required 15 T he premiums to do so by the provisions of any reinsurance treaty, declare any areas, defined as “any ports, places, countries, zones or areas (whether of land or sea)” to be “additional premium areas” seven days after notice of any such declaration is given by the association to its insured members. An additional premium area needs to be geographically defined with some degree of precision, which gives rise to no special difficulty. If an insured ship “shall proceed to or be or remain within any additional premium area” a premium “to be arranged” is payable and there are powers for the association to stipulate terms and conditions whilst the insured ship is within the additional premium area. 3.15 The insured shipowner has power to suspend his cover whilst the insured ship is within the additional premium area if he decides that he does not wish to have insurance cover with his mutual war risk association during this time. This latter provision is aimed at preventing the uncertain position arising from being “held covered” which gave rise to such difficulty in The Litsion Pride,1 and also in preventing the insured owner from being forced to accept the payment of a premium and the imposition of further conditions against his will. It is suggested that the mutual war risk associations’ provisions are a more accurate reflection of the arrangements, and indeed the practice of the London market, of charging the additional premiums for visits to dangerous areas than is Clause 6.1 of the War Risk Policy. Who pays the AWRP? 3.16 There were historically no provisions in voyage charters permitting the recovery by shipowners of additional war risk premiums from voyage charterers. That was because additional premiums charged by the underwriters for trading to dangerous areas were supposed to be met from the freight which the shipowner receives for the discharge of his primary obligation of carrying the cargo from the loading to the discharging port, and of overcoming the obstacles placed in his way. The rights of shipowners to recover additional premiums were usually confined to time-charterparties. However, as time has passed, the prior situation no longer seems to be the case and one these days regularly sees provisions in voyage charters purporting to give a shipowner a right of recovery of these additional premiums. 3.17 In any event, whether it be in the context of a voyage or time-charter, any rights of recovery of an AWRP will depend upon the terms of the particular charter. Time-charter cases 3.18 There are a series of cases in which it has been held, on the particular terms of the time-charters in those cases, that the charterer was obliged to reimburse the shipowner for the AWRP. In World Magnate Shipping Ltd. v. Rederi A/B Soya2 the charterparty, which had been concluded on the NYPE Form for a 10-year duration, read in material part: If at any time during the currency of this Charterparty the Owners are required to pay extra premiums in respect of war risks insurance over and above that being paid at the 1 Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald Massie (The Litsion Pride) [1985] 1 Lloyd’s Rep. 437. It is doubtful if The Litsion Pride represents good law any more, see Lord Hobhouse in The Star Sea [2003] 1 AC 469 at §71; and Lord Sumption in Versloot Dredging BV v. HDI Gerling Industrie AG [2017] AC at §14 “[Hirst J.’s] decision has not fared well in subsequent decisions”. 2 [1975] 2 Lloyd’s Rep. 498. 16 T he premiums time of delivery to the Charterers … Charterers are to reimburse the actual costs of such premiums to the Owners. Donaldson J. held3 that it made more sense, particularly in the context of a 10-year time-charter, that this provision should refer to increases in the liability of the owners for war risks insurance for trading the vessel within her limits, rather than solely being concerned with the recovery of AWRP. 3.19 Telfair Shipping Corporation v. Athos Shipping Company S.A. (The Athos)4 was a case in which the Athos had been withdrawn from her charter because of non-payment of amounts due from the charterer under the terms of the charterparty. In fact these amounts were additional premiums for visits to additional premium areas which, under the terms of the charterparty, the charterers were obliged to reimburse to the owners. Neill J. ruled against the shipowners on the withdrawal question—a judgment later upheld by the Court of Appeal—but only on the grounds that it had taken place too early. The charterer had been liable in principle to make the payments. 3.20 In Marine Transport Overseas GmbH v. Unitramp and Others (The Antaios)5 the relevant term of the charterparty read: “Any increase in War risks premiums for the vessel, officers and crew, after delivery to be notified … and the (Charterers) to pay the increase.” Goff J. agreed with the arbitrators that the charterers were liable to reimburse the shipowners only in respect of increases in the rates of additional premiums which had taken place after the delivery of the ship to the time-charterers.6 In Schiffahrtsagentur Hamburg Middle East Line GmbH v. Virtue Shipping Corporation (The Oinoussian Virtue) (No. 2)7 the relevant clause read: “Any additional war risk insurance premium over and above normal war risks insurance premiums … to be for Charterers account.” Goff J., again agreeing with the arbitrator, held that “normal” in this context meant the ordinary rate of war risks insurance as contrasted with additional premiums which related to a ship’s entry to an additional premium area. 3.21 In Pacific Navigation Corporation of Monrovia v. Islamic Republic of Iran Shipping Lines (The “EL CHAMPION”, “EL CHALLENGER” and “EL GENERAL”)8 the charterparties read: “Basic War risk insurance premium to be always for owner’s account. Any extra war risks insurance premium on Hull and Machinery due to vessels trading Persian Gulf to be for Charterers account …”.9 Owners claimed AWRP by reason of the vessels having been ordered to Bandar Abbas. Charterers argued successfully in arbitration that all of the premiums claimed by owners were basic, and not extra. Staughton J., overruling the arbitrator, held10 that Clause 68 required the charterers to reimburse the owners for additional premiums payable occasioned by reason of the ships having entered a geographical additional premium area on their voyages. 3 At 500–501. 4 [1981] 2 Lloyd’s Rep. 74. 5 [1981] 2 Lloyd’s Rep. 284. 6 The case went to appeal, but the Court of Appeal’s judgment was purely concerned with the procedural obstacles to an appeal, and made no substantive findings. 7 [1981] 2 Lloyd’s Rep. 300. 8 [1985] 2 Lloyd’s Rep. 275. 9 The El General charter omitted the words “Persian Gulf”, but it was held nothing turned on this. 10 At 278–279. 17 T he premiums 3.22 In Islamic Republic of Iran Shipping Lines v. P. & O. Bulk Shipping (The iscaria),11 the Discaria had been chartered to carry anhydrous ammonia from Qatar D to Iran, and was thus going to sail entirely within an additional premium area for a considerable time. Her normal war risks insurance had been cancelled, and in its place her owners had arranged a special insurance which insured, besides the usual war risks, blocking and trapping insurance, and also loss of earnings. It was to last for 356 days at a premium of U$16,000 per day. The key charterparty Clause read “N4. All additional war risks premiums and blocking and trapping insurance together with war risks bonus payable to officers and crew to be for Charterers account.” Staughton J. held that Clause N4 gave the owners the right to recover from the charterers the additional war risks premiums which it specifically described. They could also recover the cost of the blocking and trapping insurance, because this too was specifically described. They could not recover the cost of the loss of earnings insurance which they had never had in the past; Clause N4 did not stretch that far. 3.23 The relevant part of Clause 21(B) from the Balltime Form in Empresa Cubana de Fletes v. Kissavos Shipping Company S.A. (The Agathon) (No. 2)12 read “… the Owners to be entitled from time to time to insure their interests in the vessel and/or hire … as they shall think fit, the Charterers to make a refund of the premiums.” Hobhouse J. held that this was wide enough to include the whole of the Hellenic Association’s insurance, for hull and machinery, for freight, for detention, for war P. & I. and for sue and labour. He rejected the charterer’s argument that the clause was only wide enough to include the insurance of the actual ship herself. 3.24 In Phoenix Shipping Company v. Apex Shipping Corporation (The Apex)13 the charterparty read: Premium for basic war risks insurance on hull and machinery and crew always to be for owner’s account but any additional premium and/or crew bonus in respect of these risks arising from the vessel proceeding at Charterer’s request to areas currently or subsequently designated as excluded areas by vessel’s war risk underwriters to be for time-charterer’s account … Mustill J. held that this too was wide enough to include the whole of the Hellenic War Risks Association’s insurance. The freight insurance in particular was included because this constituted part of the insurance of the ship herself. 3.25 Finally, Islamic Republic of Iran Shipping Lines v. Zannis Compania Naviera S.A. (The Tzelepi)14 and Seavision Investments S.A. v. Norman Thomas Evenett and Others (The Tiburon)15 are often quoted as being among the cases which define the extent of the liability of the time-charterers to reimburse the owners for war risks premiums, but this is not correct. The first of these cases relates to the offer by the Iranians to give insurance through their own insurance company Bimeh, which was frequently made during the Iran/Iraq War. The case is purely concerned with the extent of the authority given to the charterers to arrange insurance while the ship was in the additional premium area of 11 12 13 14 15 [1985] 2 Lloyd’s Rep. 489, 493. [1984] 1 Lloyd’s Rep. 183. [1982] 2 Lloyd’s Rep. 407. [1991] 2 Lloyd’s Rep. 265. [1990] 2 Lloyd’s Rep. 418. 18 T he premiums the Gulf, and properly belongs to the law of agency. The second case is concerned with whether the Tiburon was properly included as a German-owned ship in the special insurance arranged for German owners. The voyage charter cases 3.26 In Great Elephant Corporation v. Trafigura Beheer BV (The “Crudesky”)16 the shipowners claimed AWRP from the charterers. The voyage charter in question had been concluded on the BEEPEEVOY 3 form, and included the BP War Risk Insurance Clause, which read in material part “War risk insurance additional premiums, crew war bonus and insurance and additional expenses directly incurred as a result of the vessel entering and or transiting an excluded area shall be for charterers’ account …”. The charterers argued that the AWRP had accrued by reason of the vessel not having been allowed to leave Nigerian waters (the excluded area), rather than as a result of it entering or transiting the area. Teare J. rejected this argument,17 holding that the clause was intended to cover the whole time spent by the vessel in an excluded area after it had entered that area.18 3.27 In Gunvor SA v. Crugas Yemen Ltd19 Phillips J. awarded the claimant seller the AWRP it claimed to be due under a term contract for the sale and purchase of gasoline CIF Hodeidah (Yemen). That term contract had incorporated a long term COA on an amended Asbatankvoy form, which itself provided for the charterer (Clearlake) to be liable to the owner for any AWRP. The BIMCO CONWARTIME and VOYWAR 2013 Clauses 3.28 In 1993, the Baltic and International Maritime Council (BIMCO) adopted the CONWARTIME and VOYWAR 1993 War Clauses to replace some very out-of-date war clauses, some of which date backed more than 50 years and no longer reflected modern conditions. Updated iterations of the clause were released in both 2004 and most recently, 2013. 3.29 The CONWARTIME 2013 Clause, which (amongst other things) defines the time-charterers’ liability to reimburse the owners reads in material part: (d) If the Vessel proceeds to or through an Area exposed to War Risks, the Charterers shall reimburse to the Owners any additional premiums required by the Owners’ insurers and the costs of any additional insurances that the Owners reasonably require in connection with War Risks (e) All payments arising under Sub-clause “(d) shall be settled within fifteen (15) days of receipt of Owners’ supported invoices or redelivery, whichever occurs first”. 16 [2012] 2 Lloyd’s Rep. 503. 17 At §76. 18 The case went up to the Court of Appeal where Teare J.’s decision on the demurrage claim (central to the case) was overturned. The AWRP point though did not form part of the appeal. 19 [2018] EWHC 2061 (Comm). 19 T he premiums 3.30 The VOYWAR 2013 clause imposes liability for any additional premiums “required” by the owner’s insurers on the charterer, and lays down a somewhat more involved regime than its time charter sister-clause: (e)(i) The Owners may effect War Risks Insurance in respect of the Vessel and any additional insurances that Owners reasonably require in connection with War Risks and the premium therefore shall be for their account. (e)(ii) If, pursuant to the Charterers’ orders, or in order to fulfil the Owners’ obligations under this Charter Party, the Vessel proceeds to or through any area or areas exposed to War Risks, the Charterers shall reimburse to the Owners any additional premiums required by the Owners’ insurers. If the Vessel discharges all of her cargo within an area subject to additional premiums as herein set forth, the Charterers shall further reimburse the Owners for the actual additional premiums paid from completion of discharge until the Vessel leaves such area or areas. The Owners shall leave the area of areas as soon as possible after completion of discharge. 20 CH A PT ER 4 Cancellation and automatic termination of cover Clause 4.1 This clause acts, either upon the giving of notice or automatically depending on the trigger, to cancel the war risks cover otherwise provided upon the occurrence of certain circumstances. From time to time, for example by the previous author of this text, the possibility has been suggested of removing the provision that war risks insurance would automatically cease “upon … any hostile detonation of any nuclear weapon of war” wherever it may occur. The Second Edition of this text (1995) suggested that there should be a simpler provision that only loss of or damage to the insured object caused by “any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter” should be excluded from the insurance. 4.2 Needless to say, no removal or development of the provision has taken place. The format of the clause adopted on 1.10.83, which is quoted in paragraph 4.5, owed its origin to the time when only the five Powers who formed the Five Permanent Members of the Security Council of the United Nations possessed nuclear weapons, the so-called “ Nuclear Club”. These were the United Kingdom, the United States of America, France, the USSR, and the People’s Republic of China. If one of these Powers should use an atomic weapon against another such Power, then this was tantamount to a “war” of a nature which would automatically bring the insurance to an end in any event. 4.3 Is the clause still fit for purpose though? In an age of nuclear proliferation, many countries outside the previous five have, or are believed to have, military nuclear capabilities. For instance, Israel, India, Pakistan, and possibly in the not too distant future, North Korea or even, Iran. If one of these nations should employ a nuclear weapon against a neighbour, this may (or may not) start a global conflict involving the Five Permanent Members of the Security Council but, under the Clause dated 1.10.83, deployment of such a weapon would bring all the War Risks insurance to an abrupt end. This would cause great hardship to interests whose insured objects were far from the scene and in no possible danger. One hopes of course the situation will never arise. 4.4 The suggestion made in 4.1 has in fact been adopted by a new Clause dated 1.11.95, but only in respect of ships and their freight. Cargo (where the clause appears at all) and container insurance still contain the clause in its 1.10.83 version. It is therefore necessary to consider their respective positions separately. 4.5 The clause in its 1.10.83 version (“the 1.10.83 version”) reads: This insurance may be cancelled by either the underwriters or the assured giving seven days’ notice (such cancellation becoming effective on the expiry of seven days from midnight of the day on which notice of cancellation is issued by or to the underwriters). The underwriters 21 Cancellation and automatic termination of cover Clause agree however to re-instate the insurance subject to agreement between the underwriters and the assured prior to the expiry of such notice of cancellation as to the new rate of premium and/or conditions and/or warranties. Whether or not such notice of cancellation has been given this insurance shall TERMINATE AUTOMATICALLY. Upon the occurrence of any hostile detonation of any nuclear weapon of war … wherever or whensoever such detonation may occur and whether or not the vessel/container/insured object may be involved. Upon the outbreak of war (whether there be a declaration of war or not) between any of the following countries: United Kingdom, United States of America, France, The Union of Soviet Socialist Republics, The People’s Republic of China. In the event of the vessel/container/insured object being requisitioned, either for title or use. 4.6 The Clause in its 1.11.95 version (the “1.11.95 version”), for ships and their freight only, is the same except for one important omission; the words “Upon the occurrence of any hostile detonation … insured object may be involved” are excluded. A separate clause in the Institute War and Strikes Clauses excludes loss or damage actually caused by a nuclear weapon of war (5.2.3 for ships, 4.2.3 for freight). 4.7 The Cancellation and Automatic Termination of Cover Clause, in either of its two versions, appears in the following Institute War and Strikes Clauses (Table 4.1): The clause, in either version, does not appear in the Institute War and Strikes Clauses which insure cargo, but this is because cargo is insured on a voyage rather than a time basis. It should be noted that in the case of cargo stored afloat, only 48 hours’ notice, rather than seven days is required. 4.8 It may initially seem odd that the Institute War and Strikes insurance should contain provisions that allow unilaterally imposed increases in premiums during the currency of the policy, or even the automatic cancellation of the policy before its dated expiry, and all without the fault of the insured or even his agreement. It is hoped that consideration of the four separate parts of the clause will explain why this is not so draconian as may at first appear. Cancellation on seven days’ notice 4.9 This is explained in Chapter 3, which describes how this provision is a well-accepted device for charging additional premiums for trading to areas which become more than usually dangerous during the currency of the insurance. Without this flexibility in place no doubt the underwriters would need to factor in the possibility of a vessel trading to these unusually dangerous areas into all policies. No doubt that would be more unpalatable to the shipping market than the need to pay additional premiums as and when required. Table 4.1 Clause Hulls—Time 1.11.95 Freight—Time 1.11.95 Containers—Time 1.1.87 Cargo stored afloat—1.5.16 6 5 7 14 22 Cancellation and automatic termination of cover Clause Hostile detonation of any nuclear weapon of war 4.10 The use of different wording in the various Institute Clauses to cancel the insurance in the event of the explosion of a nuclear weapon, or to exclude the loss or damage which it may cause to the insured object, can lead to anomalies. One of the purposes of this Chapter 4 is to draw attention to cases where either: (a) the insurance is terminated by the detonation of a nuclear weapon, and furthermore any physical loss of or damage to the insured object is excluded from the insurance cover; or (b) the insurance continues in being, and only the physical loss of or damage to the insured object is excluded from its cover. Ships and freight 4.11 The Cancellation and Automatic Termination Clause, in its 1.11.95 version, is included in the Institute War and Strikes Clauses Hulls—Time 1.11.95 and the Institute War and Strikes Clauses—Freight 1.11.95, the clause number being 6 in respect of Hulls and 5 for Freight. The consequence is that the hostile detonation of a nuclear weapon will not bring the insurance to an end in either case (unless it causes a “war” between the Five Permanent Members). 4.12 Both sets of clauses however contain identical exclusions: 5 This insurance excludes: 5.2 Loss damage liability or expense directly or indirectly caused by or contributed to by or arising from 5.2.1 ionising radiations from or contamination by radioactivity from any nuclear fuel or from any nuclear waste or from the combustion of nuclear fuel 5.2.2 the radioactive, toxic, explosive or other hazardous or contaminating properties of any nuclear installation, reactor or other nuclear assembly or nuclear component thereof 5.2.3 any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter. (The numbering here relates to the Hull Policy. The insurance for freight is numbered “4”; 4.2 is slightly different reading “loss (total or partial) or expense directly or indirectly caused by or contributed to by or arising from”.) 4.13 Although they have never been tested, these provisions would seem to exclude from the insurance physical loss or damage caused by the detonation of any nuclear weapon, whether it be hostile, in practice, or accidental. It is less clear however whether Clause 5.2 excludes from the insurance cover loss of, or damage to, the insured object caused by a nuclear explosion which arises from an agency other than a weapon. Possibly it does not do so, but even if such loss or damage is covered, certain characteristics are expressly excluded. Containers 4.14 Containers are insured by the Institute War and Strikes Containers—Time 1.1.87. This insurance includes the Cancellation Clause (Clause 7) in its 1.10.83 iteration. 23 Cancellation and automatic termination of cover Clause Consequently, the insurance comes to an end upon any hostile detonation of a nuclear weapon wherever this may occur. The detonation has to be “hostile”; the insurance is not brought to an end if the detonation is in practice or accidental. 4.15 There is an exclusion from the insurance for loss or damage to the containers arising from loss or damage caused by a nuclear explosion. Clause 5 reads: 5. This insurance excludes 5.1 Loss damage liability or expense arising from 5.1.1 a ny detonation of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter … . 4.16 This would exclude from the insurance loss of or damage to the insured object caused by the detonation of a nuclear weapon of war whether it be hostile, in practice, or accidental. Loss or damage caused by a nuclear explosion caused by other means would not be excluded by these provisions. In this respect the insurance of containers seems less restrictive than it is for ships and freight. Cargo stored afloat 4.17 The Institute War and Strikes Clauses—Cargo stored afloat on mechanically propelled vessels 1.6.82 contain as Clause 14 the Cancellation and Automatic Termination of Cover clause in its 1.10.83 version. The result is that the insurance cover will come to an immediate end upon any hostile detonation of any nuclear weapon wherever it may occur. In addition, Clause 3 reads: 3. In no case shall this insurance cover … 3.8 loss damage or expense arising from any hostile use of any weapon of war employing atomic or nuclear fission and/or fission or other like reaction or radioactive force or matter. Thus loss or damage to the insured object will not be insured if it is caused by a hostile detonation; a practice or accidental detonation will, however, not be outside the insurance cover. Cargo—War Clauses (general cargo), War Clauses (Special Cargo) and Additional Expenses 4.18 This section deals with three separate forms of insurance: • Institute War Clauses (Cargo) 1.1.82; • Institute War Clauses for Special Cargoes; • Institute Additional Expenses Clause (Cargo—War Risks) 1.7.85. None of these Clauses contain the Cancellation and Automatic Termination of Cover Clause in either version. This is because cargo is usually insured on a voyage rather than a time basis. Consequently, their insurance does not come to an end upon the detonation of a nuclear weapon whether it be hostile, in practice, or accidental. 24 Cancellation and automatic termination of cover Clause 4.19 They do however contain in Clause 3 (11 in the case of Additional Expenses) 3. In no case shall this insurance cover … 3.8 loss damage or expense arising from any hostile use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter. 4.20 Thus loss or damage to the insured object will not be insured if it is caused by a hostile detonation. A practice or accidental detonation will, however, not be outside the insurance cover. 4.21 It should be noted that whilst the Cancellation and Automatic Termination of Cover Clause is not included in the Institute War Clauses 1.1.82 for cargo, another clause exists which can be “attached” if desired. It is titled Institute War Cancellation Clause (Cargo) 1.12.82, and speaks for itself: The cover against war risks (as defined in the relevant Institute War Clauses) may be cancelled by either the underwriters or the assured except in respect of any insurance which shall have attached in accordance with the conditions of the Institute War Clauses before the cancellation become effective. Such cancellation shall however only become effective on the expiry of seven days from midnight of the day on which notice of the cancellation is issued by or to the underwriters. Cargo—strikes 4.22 This section deals with two separate forms of insurance: Institute Strikes Clauses Cargo 1.1.82; Institute Strikes Clauses for Special Cargoes. Neither of these contain the Cancellation Clause in either version. Consequently, their insurance is not ended by the hostile detonation of a nuclear weapon. They, do, however, contain the following exclusion in their Clause 3: 3 In no case shall this insurance cover … 3.9 loss damage or expense arising from the use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter. (In some cases this clause is numbered 3.8.) 4.23 There is a minor but important difference between the Cargo—War and the Cargo—Strikes clauses. The former excludes “hostile” use of a nuclear weapon, whereas the latter excludes only “use”. This would seem to exclude from the cover the consequences of “practice” use, since the word “use” seems to betoken something which is purposeful, whilst leaving an accidental occurrence within it. 4.24 There is a lack of uniformity within the nuclear detonation clauses which will lead to different results in the case of a casualty. This must not obscure the general desire of underwriters to exclude the consequences of nuclear disasters from their insurance cover. 25 Cancellation and automatic termination of cover Clause Outbreak of war between the Five Permanent Members of the Security Council 4.25 The Cancellation and Automatic Termination of Cover Clause (there is no longer the need to distinguish between the two versions of this clause) contains the following provisions. This quotation uses the numbering of the insurance for Hull—Time 1.11.95. 6.2 … this insurance shall TERMINATE AUTOMATICALLY 6.2.1 upon the outbreak of war (whether there be a declaration of war or not) between any of the following countries United Kingdom, United States of America, France, The Russian Federation, the People’s Republic of China. 4.26 These provisions appear in the following Institute War and Strikes Clauses (Table 4.2): 4.27 Further, the loss or damage caused by the act which leads to the outbreak of war between the Five Permanent Members is excluded from the insurance cover in some instances. In the Institute War and Strikes Hulls (5.1.1), Freight (4.1.1), Containers (5.1.2) and Cargo Stored Afloat (3.9) this exclusion appears; loss damage liability or expense arising from the outbreak of war (whether there be a declaration of war or not) between any of the following countries United Kingdom, United States of America, France, the Russian Federation, the People’s Republic of China. 4.28 This exclusion does not appear in the Additional Expenses insurance, and neither does it appear in the Cargo—War cover. In the Cargo—Strikes cover however (3.10 sometimes 3.9), the following exclusion appears: “… or any hostile act by or against a belligerent power”. This would appear to have a similar effect. 4.29 The reasons why underwriters cannot insure the results of a conflict between the Five Permanent Members, which could escalate into a world war, are fully described at the beginning of Chapter 3. 4.30 There are many definitions of “war”, and these litter international treaties and League of Nations and United Nations Conventions, all of which have their own purposes. All that it is necessary to note here is that Chapter 6 deals with “war”, and describes that, in a commercial document such as an insurance policy, one has to ask oneself what did commercial men and women mean when they included “war” in their document. This does not necessarily lead to narrow legalistic definitions which are used elsewhere, although they Table 4.2 Clause Hulls—Time 1.11.95 Freight—Time 1.11.95 Containers—Time 1.1.87 Cargo Stored Afloat—1.5.16 6.2 5.2 7.2 14.1.1.2 26 Cancellation and automatic termination of cover Clause may have some persuasive influence and cannot entirely be disregarded. Besides, whether a state of war exists, to some extent at any rate, is also a question of fact. Questions such as the degree and the ferocity of any fighting have also to be taken into account. 4.31 At the time of writing this Fourth Edition, and in comparison to when the Third was written (2005), the world does seem somewhat more unstable. Nevertheless, a conflict between two or more of the Five Permanent Members still seems remote. What will serve the reader better is to relate two instances: one where Automatic Termination of Cover actually took place, and one where it seemed likely to do so. 4.32 First, as to when the Automation Termination of Cover actually occurred. Early in 1962, the Chinese People’s Liberation Army invaded India over the North-East frontier in furtherance of frontier disputes. These were of some antiquity, originally being made by Tibet against British India. Some very fierce fighting took place as the Indian armed forces were pushed back and China occupied a considerable tract of Indian territory. Eventually the matter was settled by a Peace Treaty with some considerable frontier adjustments in China’s favour, but until this happened there was undoubtedly a “war”. Under the Cancellation Cause as it then stood, the insurance cover ceased. Almost contemporaneously, the Cuba Missile crisis took place, when the USSR was persuaded, with the very greatest difficulty, to remove her missiles, targeted on American cities, from Cuba. At the time there was no War Risk cover for ships, freight, containers or cargo stored afloat, this having been automatically terminated by the India/China conflict. 4.33 Second, as to when the Automatic Termination of Cover almost happened. A border dispute between the USSR and China broke out in the Far East during the early 1970s and lasted for some years. Sometimes shots were exchanged between border patrols on either side. As long as things remained at this level, the situation could not be described as a war, but was rather a more than usually bitter frontier dispute. But would it become one? That was the great question. It seemed at times that one side was poised to mount an invasion of the other, and both sides possessed nuclear weapons. If that had happened there would undoubtedly been a war which would have terminated the insurance cover. Requisition 4.34 Most states have powers of requisition of their own subjects’ property in time of emergency or need, either for title or for use. Requisition for title transfers the property to the requisitioning government, whereas requisition for use leaves the property in the hands of its original owner, but allows the state to use it as it wishes. Requisition must be distinguished from angary, which allows the state to compel a neutral to allow the state to use his property in any way that it requires. 4.35 Requisition, either for title or for use (but not angary), will bring the insurance to an end by the operation of the Cancellation and Automatic Termination of Cover Clause, the necessary provisions being found in the Institute War and Strikes Clauses (Table 4.3): 4.36 The justification for this is that a totally new position arises; a new person, the Requisitioning Authority, is introduced, and the underwriter may not wish to contract with him, or to see much enhanced risks brought into the insurance cover which were never contemplated when the insurance was contracted. 4.37 There is moreover an exclusion which has the effect of excluding loss or damage which may arise from the act of requisition. This is to be found in the Institute War and 27 Cancellation and automatic termination of cover Clause Table 4.3 Clause Freight—Time 1.11.95 Cargo Stored Afloat—1.5.16 Hulls—Time 1.11.95 Containers—Time 1.1.87 5.2.2 14.1.1.3 6.2.2 7.2.3 Strikes Clauses Hulls—Time 1.11.95 and the similar clauses for freight. It also appears in the Container 1.1.87 Clauses although in a slightly different form. It does not appear in the Institute Clauses for Cargo, Additional Expenses insurance, and Cargo Stored Afloat. 4.38 Using the numbers for the Hulls insurance: This insurance excludes 5.1 Loss damage liability or expense arising from 5.1.2 requisition, either for title or use, or pre-emption while the Container Clauses (5.1.3) exclude “requisition or pre-emption”. It is suggested that there is no distinction to be drawn between “requisition” and “requisition for title and use”. It is still “requisition” in whatever form it appears. The mutual associations 4.39 The associations listed in Chapter 2 give Mutual War Risks insurance to ships and freight. To this number must be added the Through Transport Association which began operations in 1968 to insure containers. This Chapter 4, which deals with the Cancellation and Automatic Termination of Cover Clause, will draw attention to the provisions of the Rules (as the terms and conditions of the Mutual Associations are known) which give it similar effect. Lastly, it should be noted that Mutual Insurance Associations are known as “Clubs”, a term which describes their chief characteristic of sharing out the losses equitably between all their members. The Combined Group of War Risks Clubs 4.40 These are the Mutual War Risks Associations whose names are given in paragraph 2.8A. They operate a Pool between them with uniform Rules. Their insurance cover is divided into two entirely separate parts. There is the Queen’s Enemy Risks cover (QER cover) which will only become operative if the United Kingdom becomes involved in hostilities as a belligerent, and the non-Queen’s enemy Risks cover (non-QER cover), which insures risks where the United Kingdom is not a belligerent. The QER cover is given by Rule 2A. The non-QER cover is provided by Rules 2B to 2F and Rule 3. 4.41 The Cancellation and Automatic Termination of Cover Clause, in its 1.11.95 version (suitably altered to meet the purposes of a Club’s Rules) appears in Rule 4D.8. It affects the non-QER cover only; it does not apply to the QER cover. Thus the machinery exists for charging Additional Premiums for non-QER cover (Rule 4D.8.1) when sailing to 28 Cancellation and automatic termination of cover Clause destinations which have suddenly become of more than usual danger. The hostile detonation of a nuclear weapon, wherever it may occur, will have no effect on the continuation of either the QER cover or the non-QER insurance. The non-QER cover, however, contains an exclusion of loss or damage caused by nuclear risks, including any nuclear weapons of war (Rule 4D.3.3). 4.42 The outbreak of a war between the Five Permanent Members will not affect the continuation of the QER cover, but will automatically terminate the non-QER cover (Rule 4D 8.2). In addition, loss or damage arising from the outbreak of war between the Five Permanent Members is excluded from the non-QER cover (Rule 4D.4). 4.43 Requisition for title or for use will not affect the QER cover, but will automatically terminate the non-QER cover. Loss or damage caused by the requisition is excluded from the non-QER cover (Rule 4E.6). This rule must, however, be read in conjunction with its proviso. If the shipowner member retains an insurable interest after requisition, as he is likely to do when the requisition is for use only, then his insurance cover shall nonetheless continue. UK War Risks 4.44 This is the United Kingdom Mutual War Risks Association. It was founded in 1913, and historically comprised a membership that was exclusively UK flagged. Latterly its membership grew to include vessels that were UK owned, even if not UK flagged. Most recently, in 2009, it opened its doors to international owners as well. 4.45 In the UK War Risks Rules, QER cover is given by Rule 2D. It applies only to those vessels registered in the UK, Isle of Man, any of the Channel islands, or any British overseas territory. The Automatic Cancellation provisions are materially identical to those provided by the Combined Group of War Risks Clubs outlined above. The Hellenic War Risks Club 4.46 The Hellenic was formed in 1960 for the benefit of Greek-owned ships, regardless of the flags which they may fly, and was intended to complement the War Risks insurance given by NATO if NATO should become involved in major hostilities. It contains no QER cover, but confines itself to non-QER cover and its attendant risks. It too contains the Cancellation and Automatic Termination of Cover Clause in its 1.11.95 version (suitably amended for the purposes of a club), and thus contains the machinery for charging additional premiums when sailing to destinations which have suddenly become of more than usual danger (Rule 4.1). 4.47 The cover does not cease upon the hostile detonation of a nuclear weapon wherever it takes place, but there is an exclusion of nuclear risks suffered by the insured ship including any nuclear weapon (Rule 3.2). The insurance is automatically terminated by the outbreak of war between the Five Permanent Members (Rule 4.2.1). There is an exclusion for any loss or damage which may be caused by such an outbreak (Rule 3.1). 4.48 The Requisition provision (Rule 4.2.2) is drawn in an unusual way, and this reflects the many flags under which Greek ships sail. The insurance is automatically terminated if the ship is requisitioned, either for title or for use, by the government of the State where the ship is registered or where her main management is carried on. Such loss or damage is excluded from the cover (Rules 3.3 and 3.4). 29 CH A PT ER 5 The insured perils An overview 5.1 As is explained in Chapter 28 which considers “proximate cause” in detail, and in common with the ordinary rules of causation, a claim against a war risk underwriter will succeed only if the loss was “proximately caused” by one of the perils for which insurance is given by the policy (a rule with its roots in section 55(1) of the Marine Insurance Act 1906, and which has received very recent attention from the Court of Appeal and Supreme Court in The B Atlantic).1 In other words, the insured must show that the facts surrounding the casualty which the insured object has suffered lead to the conclusion that the loss or damage was caused by one (or more) of the perils against which the policy gives insurance cover. The purpose of this and the following chapters is to consider the decisions which have been made by the courts and, where appropriate, the practices of the London market in relation to each of them. “Insured perils” versus “risks covered” 5.2 There has in the past been much discussion about whether there is any difference between “insured perils”, perhaps the older and more traditional description favoured by the MAR form and the Marine Insurance Act, or “risks covered” (sometimes simply “risks”), the terms used by the Mutual War Risks Associations. For the purposes of this and the following chapters, it should be noted that section 2 of the Marine Insurance Act 1906 defines “maritime perils”. On the other hand, several cases have dealt with “all risks” or simply “risks” and have defined how far the all-embracing expression of “all risks” actually extends to give insurance cover. It is suggested that where the insurance policy sets out in well-defined lists the misfortunes which the insured object may encounter, as do the Institute Clauses and the Rules of the Mutual War Risks Associations, and states clearly that insurance cover is given in case they are encountered and the terms upon which it is given, there is no substantial difference between the two expressions. The misfortunes themselves are now so well defined by a large body of case law that it can, and will, be assumed that the meaning and extent of each separate misfortune is well known to the parties to the insurance contract when they make it. 1 [2016] Lloyd’s IR 565 (CA); [2018] 2 WLR 1671 (SC). 30 T he insured perils Approach to the interpretation of the insured perils 5.3 In the following chapters the main subdivisions of the insured perils of the Institute Clauses and the Rules of the Mutual War Risks Associations each have a chapter devoted to them. Each insured peril is described individually. That structure is necessary because the proximate cause of any loss must be established by the insured with a considerable degree of certainty. On the other hand, it is also necessary to appreciate that it is not always possible to divide the insured perils into hard and fast categories. For instance, whilst on one view “seizure” and “detention” could be regarded as having entirely independent and distinct meanings, the authorities have not always treated them as such. Conversely, where the meanings of insured perils do overlap, the language sometimes used in various judgments can blur the strict distinctions which do still exist. Whilst, therefore, the perils are treated separately in the following chapters so as to be able to properly delineate their meanings, one should not, at least in respect of some, approach them as having a sense of exclusivity about them. Rix J. cautioned against such an approach of “no overlap” in the context of an aviation war risks policy in Kuwait Airways Corp v. Kuwait Insurance Co SAK.2 It is suggested that the same approach should apply to the lists of perils in the Institute and Mutual clauses. 5.4 Whilst “military and usurped power” is no longer an insured peril, some mention of it is still required because the modern law, particularly on “revolution”, “rebellion”, “insurrection” and “civil commotion”, so greatly depends for its evolution on the cases concerning it. Likewise, mention of the similarly now defunct “consequences of hostilities and warlike operations” from the f.c. & s. warranty cannot be omitted when considering its successor perils of “war” and “hostile act by or against a belligerent power”. The prior incarnations of these new perils were subject to so many and varying interpretations by the courts that the result of any case was completely unforeseeable. It was therefore decided when the new system of war exclusions was implemented in 1983, replacing the old Lloyd’s S.G. Form, that their intended purposes and functions would be better served by these wholly new insured perils. Undoubtedly these new provisions, even though difficulties will arise in their interpretation, are more precise and thus more satisfactory to insurer and assured alike. Whilst “warlike operations”, with all its uncertainties of what was insured and what was not insured, has thankfully disappeared from the War Risk insurance, it had an influence on the formulation of the law during the 100 years of its existence (1883–1983) and it cannot be entirely ignored. 5.5 In line with the consistent thrust of the Supreme Court’s decisions in recent years,3 all of the perils should be approached and construed in a commercial, common sense manner, giving effect to the ordinary meaning of the word or words which make them up: see the Pesquerias and Spinney’s cases in the war risks policy context. See section 8.3 of Chapter 8 for analysis of whether the proximate cause of a casualty must be proven to fall within one of the specified insured perils in order for cover to be engaged. 2 [1996] 1 Lloyd’s Rep. 664 at 690. 3 For example Rainy Sky SA v. Kookmin Bank [2011] 1 WLR 2900; Arnold v. Britton [2015] AC 1619; Wood v. Capita Insurance Services Ltd [2017] AC 1173. 31 T he insured perils The role of criminal and public international law when interpreting the insured perils 5.6 Many of the insured perils of the War Risk Policy involve the criminal liability of the perpetrator, and this must be so in any insurance which gives cover against what other people do to the insured object. A definition of a criminal offence at common law was not rigidly binding on a court which was considering the same offence as an insured peril in an insurance policy, where the judges felt free to give it the meaning that the two parties to the contract must have intended it to mean. In the war risks context, for example, piracy (Chapter 20) has definite requirements for the proof of the criminal offence of piracy, but the rules for the proof of the insured peril of “piracy” are more general and less rigorous. Before 1987, there was greater similarity between the criminal offence of riot and the insured peril of “riot”, but the Public Order Act 1986 (Chapter 17) has changed the position. The suitability and role of this statute from a domestic perspective is one matter, but is it apt to govern the insured peril of “riot”, particularly when it is contained in a contract of insurance which has an international application? This would seem to lead to some strange, and possibly very unsatisfactory results. 5.7 In many cases the obvious intention of the parties will lead straight back to the technical criminal definition. However, this will not necessarily be the case, and neither should it be assumed to be so. Where parties have reached particular agreement on the meaning of words that otherwise would carry a different meaning under English criminal law, one must defer to the parties’ autonomy: see Re George v. The Goldsmiths and General Burglary Insurance Association Ltd.4 This should be the case whether that agreement is express or otherwise to be inferred. 5.8 Pickford J., in the Republic of Bolivia case,5 seems to have been the first judge to have made a clear distinction between a criminal offence and an insured peril. Goddard J., in the Kawasaki case,6 called for construction in “a commonsense way” having regard to the general tenor and purpose of the document which describes the parties’ intentions. 5.9 In sum, the criminal law provides a useful, and persuasive, indication of the meaning that parties will likely have intended to give to an insured peril which is on identical terms with a criminal offence. However, each case will turn on the construction of the particular policy at hand, and the circumstances in which it was concluded. 5.10 Broadly speaking, the same position is true in relation to the technical meaning of any of the insured perils in Public International Law. As Mustill J. explained succinctly in Spinney’s in the context of deciding whether the Court should receive the input of the Secretary of State of Foreign Affairs on whether or not the events in Lebanon had amounted to a civil war: The issue is not whether events in Lebanon were recognized by the United Kingdom as amounting to a civil war in the sense in which the term is used in Public International Law … The question here is whether there was a civil war within the meaning of the policy. 4 [1899] 1 QB 595 at 602–603. 5 Republic of Bolivia v. Indemnity Mutual Marine Insurance Co. Ltd. [1909] 1 K.B. 785. 6 Kawasaki Kisen Kabushiki Kaisha v. Bantham Steamship Co. Ltd. (No. 2) (1939) 63 Ll.L.Rep. 155; [1939] 2 K.B. 544. 32 T he insured perils The two questions are not the same, and a pronouncement by the Secretary of State on one will not suffice to decide the other …7 Future conflicts—cyber warfare? 5.11 There is no caselaw considering how the insured perils to be discussed in the following chapters might fall to be applied in the context of cyber warfare or the increasingly prevalent cyber attacks that occur throughout the world. Perhaps by the Fifth Edition of this book, there will be. 5.12 Interesting questions may arise. Consider for example, the “rebellion” peril, where one would need to bring events within the definition of an attempt to “supplant the existing rulers or at least to deprive of authority over part of their territory”. When would a cyber attack directed a country’s banking, healthcare and government infrastructure, fall within this peril? Gone are the days, perhaps, when an armed mob would simply turn up and take control over a country’s territory by force. And what of the “war” peril? It seems conceivable that future wars may be fought solely through the deployment of cyber weapons—through computer viruses or otherwise. Sooner or later the courts are likely to need to grapple with this. 5.13 What is already clear though is that, as in the non-marine insurance market, the degree of cover an insured can have for cyber risks varies enormously between different policies. For example, cover from the Hellenic War Risks Association currently ostensibly excludes cover for losses caused by the use, as a means of inflicting harm, of any computer virus. However, that exclusion only applies once claims that would otherwise be excluded by the exclusion, exceed US$150 million across Hellenic’s membership in any one policy year. 5.14 By contrast, where the Institute Cyber Attack Exclusion Clause CL380 (10/11/03) is incorporated into war risks cover taken out on the Institute terms, a similar but more extensive exclusion applies, excluding cover for loss damage liability or expense directly or indirectly caused by or contributed to by or arising from the use or operation, as a means for inflicting arm, of any computer, computer system, computer software programme, malicious code, computer virus or process or any other electronic system. There is no provision equivalent to that in Hellenic’s cover to stay the effect of this exclusion beneath a certain global claims limit. Both types of policy though do cover losses arising from the use of a computer/computer programme/electronic system in the launch/guidance/firing mechanism of any weapon or missile. 7 At 426. 33 CH A PT ER 6 War 6.1 It is in one sense surprising that “war” has been expressed as an insured peril only since the MAR Form was introduced in 1983. It is, therefore, a new peril to the War Risks Policy. Having said that, if not mentioned by name, the sense of “war” as being an insured peril under war risk policies was caught by and large by Clause 2(a) of the now defunct S.G. Form which provided “hostilities” and “warlike operations” as perils, and the f.c. & s. warranty which spoke of “consequences of hostilities or warlike operations, whether there be a declaration of war or not”. These words, however, gave rise to significant difficulties of interpretation. The 1943 amendment to the f.c. & s. Clause was in response to the House of Lords’ judgment in The Coxwold,1 and was intended to ensure that only in the clearest cases would casualties, which could have been payable by either the Marine or the War Risks Policies, be paid by the war risk underwriters. The definition of “war” 6.2 War is defined in the Oxford English Dictionary as: “Hostile contention by means of armed forces, carried on between nations, states or rulers, or between parties in the same nation or state; the employment of armed forces against a foreign power, or against an opposing party in the state”, and hostile as: “of, or pertaining to, or characteristic of an enemy; pertaining to or engaged in actual hostilities”, and hostility as: “The state or fact of being hostile; hostile action exercised by one community, state, or power against another.” 6.3 On the one hand the new forms have done away with the need to consider the myriad cases seeking to delineate the meanings of “hostilities” and “warlike operations”, many of which did not speak with the same voice. However, it is quite possible that, at least used sparingly and with a degree of caution, the cases which sought to define the scope of “hostilities” in the past will be apt to apply to the meaning of the “war” peril. To the extent that “war” is to be interpreted more narrowly than “hostilities” and (more likely) “warlike operations”, it seems likely that the overspill will instead fall into the new wording “or any hostile act by or against a belligerent power” (considered in Chapter 10). 6.4 Where, as is so very often the case, “war” appears alongside “civil war” in a list of perils, the sense of the word is of a dispute with an international character. However, if the word was to appear alone, it embraces a war of both an international or domestic 1 [1900] 2 Q.B. 339 at 343. 34 War (i.e. civil) complexion: see Pesquerias y Secaderos de Bacalao de España S.A. v. Beer2 and Spinney’s (1948) Ltd v. Royal Ins Co Ltd.3 6.5 In Driefontein Consolidated Gold Mines Ltd. v. Janson [1900] 2 QB 339 Mathew J. quoted with approval Hall on International Law (4th edn), p.63: When differences between states reach a point at which both parties resort to force, or one of them does acts of violence, which the other chooses to look upon as a breach of the peace, the relation of war is set up, in which the combatants may use regulated violence against each other, until one of the two has been brought to accept such terms as his enemy is willing to grant.4 6.6 Notwithstanding these seemingly authoritative definitions, over a series of cases the courts have made it clear that when they are considering a commercial document such as a war risks policy, they are not going to be bound by narrow, or technical, definitions— even those quoted above. As foreshadowed in Chapter 5, the settled approach taken by the courts is to consider the intention of the parties as disclosed by the documents, and then proceed to give those documents, and their definitions, the meaning which the parties obviously intended they should have. If the parties include “war” in their contract and provide that certain consequences are to follow, “war” will therefore be given its normal and popular meaning. This must mean that formal definitions, such as those set out above, will have a persuasive effect only and will not constitute a binding authority from which no deviation will be made. In other words, the individual facts of any case will be closely considered. 6.7 Two cases in particular demonstrate the approach that the English courts will take. The first is Kawasaki Kisen Kabushiki Kaisha v. Bantham Steamship Company Ltd. (No. 2).5 The court was considering a charterparty, which gave both parties the “liberty of cancelling this charter-party if war breaks out involving Japan”. After the date of the charterparty, the Sino-Japanese War broke out and, on 18 September 1937, Bantham, by notice, withdrew the ship, thus cancelling the charterparty. Kawasaki claimed that this cancellation and withdrawal were wrongful and commenced arbitration proceedings. The case made its way as a case stated to the High Court and the Court of Appeal. 6.8 On 15 August 1937, Japan had charged China with making war preparations against her and stated that her patience was exhausted. The umpire (the arbitrators having failed to agree) found as facts that: (1) There had been no declaration of war by either side. (2) Diplomatic relations between the two countries had not been severed; both countries maintained their Embassies in each other’s capitals. (3) By 19 September 1937, 50,000 Japanese troops, backed by their fleet and airforce, had engaged 1,500,000 Chinese troops in the neighbourhood of Shanghai, and that 100,000 Japanese troops with artillery and aircraft had engaged 300,000 Chinese troops in northern China. Over 50 battles, mostly of a ferocious nature, had been fought, with many killed and injured on each side. 2 3 4 5 (1948–49) 82 Ll Rep. 501 at 513. [1980] Lloyd’s Rep. 406 at 427, 429. 343 to 344. (1939) 63 Ll.L.Rep. 155; [1939] 2 K.B. 544. 35 War (4) The Japanese Navy had blockaded the Chinese coast. (5) The United States had appealed to both sides not to resort to war, and (6) On 29 August and 2 September 1937, Japan had further described her purpose. She desired to obtain a drastic improvement in China’s attitude and to purge aggressive intentions, mostly in the Chinese army, towards her. China deserved to be “beaten to her knees” and thereafter governed by Japan. There was not a state of war between the two parties but merely “a major conflict”. On all this, the umpire found that there was a “war” subject to the decision of the courts. 6.9 In the High Court, Goddard J. approved this finding and dealt with the quotation of Mathew J. which is set out above. He did not consider this quotation as exhaustive. Some people chose to think that China had not chosen to look on Japan’s actions as a breach of the peace and, indeed, it had not so declared. On the other hand, the resistance of her armies indicated that she so regarded it. The parties to a contract are not concerned with the niceties of international law. They “intended the word ‘war’ to be construed as war in the sense in which an ordinary commercial man would use it”. He considered that the same principles of construction applied as those applied by Pickford J. in Republic of Bolivia v. Indemnity Mutual Marine Insurance Company.6 6.10 On appeal, Kawasaki took three points. First, “war” does not have a loose or popular meaning, but a technical meaning which is to be found in the principles of international law. Lord Greene MR, giving the judgment of the Court of Appeal, dismissed this argument, and said “… to say the English law recognises some technical and ascertainable description of what is meant by ‘war’ appears to me to be an impossible proposition”.7 The second argument was that the courts are bound by the opinion of the Foreign Secretary whether a state of war exists between two sovereign States and must accept his certificate as conclusive. That too was rejected, with the Court reiterating that the Foreign Secretary’s view, which in had he had declined to give one way or the other, was not determinative. Instead, the question was one of interpretation: “in the particular context in which the word ‘war’ is found in this charterparty, that word must be construed, having regard to the general tenor and purpose of the document, in what may be called a commonsense way”.8 Third, Kawasaki argued that there can be no war unless there is animus belligerendi between the two States. 6.11 This argument received similarly short shrift. The court had heard the argument, but was none the wiser. When armies were locked together in battle, there must be animus belligerendi whatever this might happen to be. 6.12 The second critical case is Pesquerias y Secaderos de Bacalao de España S.A. v. Beer, which arose out of the events leading to the Spanish Civil War.9 The plaintiffs were the owners of six ocean-going fishing trawlers based on Pasajes in north-western Spain. On 3 July 1936, they effected an insurance policy with the defendant underwriters containing the following clause: 6 [1909] 1 K.B. 785. This principle has also been followed in National Oil Company of Zimbabwe (Private) Ltd. and Others v. Sturge [1991] 2 Lloyd’s Rep. 28, and in Athens Maritime Enterprises Corporation v. Hellenic Mutual War Risks Association (Bermuda) Ltd. [1982] 2 Lloyd’s Rep. 483—The Andreas Lemos case. 7 ([1939] 2 K.B. 544 at 556) 8 At 558–559. 9 (1945–46) 79 Ll.L.Rep. 417; (1946–47) 80 Ll.L.Rep. 318 (C.A.); (1948–49) 82 Ll.L.Rep. 501; [1949] 1 All E.R. 845 (H.L.). 36 War This insurance is only to cover loss or damage to the within insured interest caused by strikers, locked out workmen or persons taking part in labour disturbances or riots or civil commotions arising from incendiarism, use of explosive bombs or other engines of destruction or from any other malicious act whatsoever by any persons, including general average, salvage and salvage charges as a direct result of malicious damage not recoverable under the Marine Policies. Excluding war risks and excluding all other risks ordinarily covered under the vessel’s marine policy. The Pesquerias Case The facts 6.13 In February, 1936, the Spanish General Election returned the Republican Government, which contained many extreme left-wing elements, to power. The Government lost no time in declaring a “state of alarm”, which had the effect of suspending certain laws. On the 18 July 1936, General Franco landed in Spain from Spain’s African colonies and by a pronunciamiento declared that a state of war existed. Nearly all the military commanders in Spain rose in his support as did most of the regular police. In particular General Mola, the army commander in Pamplona, declared for Franco and set about the conquest of the north-western provinces of Spain in his name. The garrison at San Sebastian rose in his support although the Government later managed to subdue it. By the end of July, 1936, General Mola’s troops were within 10 to 15 kilometres of Pasajes and San Sebastian. He was also making considerable progress in his first military aim, namely to cut this part of Spain off from France, although he only achieved this fully by the capture of the frontier towns in the first week of September, 1936. 6.14 Faced with the defection of all but a few of the regular armed forces of the State and the police of the country, the Government had no choice but to raise a militia from its citizens if it was to continue to exist. At first the militia had few arms and no uniforms other than armbands. The Government attempted to impose military discipline upon its militia but, at least in the early stages, with many criminal elements among its ranks, even such limited restraints as military discipline manages to impose on trained and regular troops in scenes of retreat and armed political upheaval were conspicuously absent. This goes far to explain the facts of this case and the nature of the pleadings of the plaintiffs. Nevertheless, the civil governors of the provinces did have some success in resisting General Mola’s men and in maintaining some form of law and order in the territory under their control although, in the nature of things, this was only of a limited nature. They also had considerable difficulty in controlling their men, and formal requisition to furnish them with what they needed to fight a war, observing the forms required by the law, was beyond them. The casualties 6.15 The Government was fighting for its life and its often unruly men took what they needed. Besides taking what could justifiably be required for military purposes, there was a considerable amount of looting and violence to those who opposed them. The scenes in the plaintiff’s fish processing factory in Pasajes where four of the trawlers were berthed can be imagined when the trawlers were required for Government service. There was no polite if firm service of a requisition order by a naval officer or a ministry official; a large and angry mob took what it needed with a minimum of explanation. 37 War 6.16 Other factors also weighed with the court. On 6 August 1936, one trawler was sent from Pasajes to Bilbao where she was fitted with a naval gun. On 17 August 1936, Bilbao was shelled by a Franco warship and the coast was being patrolled by other warships which had sided with him. In early September, 1936, San Sebastian was bombed and was also shelled by a Franco cruiser. On 8 September 1936, the day that General Mola’s troops entered Pasajes, the remaining three trawlers were despatched to Bilbao carrying militiamen, military stores and refugees. General Mola further captured San Sebastian on 13 September 1936. On 5 March 1937, the armed trawler was sunk in a battle with a Franco warship. Another trawler was scuttled, being later raised and handed back to her owners. The remaining two trawlers eventually escaped to a French port, whence they were returned to their owners with the loss of much of their gear. The courts’ decisions 6.17 In the High Court, Atkinson J. found on the facts that a loss had arisen on the policy and gave judgment in favour of the plaintiffs. This judgment was unanimously reversed by the Court of Appeal and in the subsequent further appeal to the House of Lords, the judgment of Lord Greene M.R. in the Court of Appeal was cited with much approval. In the House of Lords, Lord Porter delivered the main speech with which the other Lords, with only minor variations, unanimously agreed. Lord Porter found it necessary to draw different conclusions from the facts from those drawn by the trial judge and meticulously did so. The following passages from his speech are informative: “The crux of the matter is, was there a civil war or not? In my view there plainly was …”.10 Finally it was argued that civil war was not excepted from the risk on the grounds that the word “war risk” did not include war between nationals of the same country. So far as the Court of Appeal was concerned the argument was untenable, the contrary having been decided in Curtis & Sons v. Matthew.11 From these cases, it would seem that the meaning of the insured peril of “war” is reasonably well settled in English law, even though it has only been an insured peril in the War Risk Policy since 1983 and there are so far no decisions of the English courts which consider it in that context. World War II 6.18 Even as recently as the Second World War, wars were undertaken on a far more formal basis than is common today. Each side would line up, issue ultimata, reject or ignore them, and at a well-defined time start fighting one another. Since about 1950, there has been a tendency for wars to start without warning or any of the historical preliminaries. The doctrine of the pre-emptive strike has had a great appeal to many an aggressor, and very often the fighting has taken place in a geographically localised, sometimes very limited area. Everywhere else in the world the two participants to the conflict have behaved peaceably towards each other. When considering the following conflicts and 10 At 513. 11[1919] 1 K.B. 425 (at 513, and see also Lord Morton at 514). 38 War situations, it must be borne in mind that we are dealing with the insured peril of “war”, and must consider it in the way that Lord Greene M.R. indicated. 6.19 On 3 September 1939, the United Kingdom declared war against the German Reich. The fighting ceased on 8 May 1945 and an Armistice was signed by German representatives empowered to sign on behalf of the whole Reich, including that territory which later became the German Democratic Republic, or East Germany. Peace treaties were signed with the Federal Republic of Germany, or West Germany (1948) and with Austria (1955), but were not signed with East Germany until 1978. Were the United Kingdom and East Germany “at war” between 1945 and 1978? (in the sense we are concerned with here). From a very early stage, a pattern of trade developed between the two countries, ships of each national called at each other’s ports, visas were issued, at first argumentatively but later freely, at least one action by an East German nationalised company was fought in the English courts, businessmen came and went, and representatives of each government met and discussed mutual problems. It can hardly be said that the insured peril of “war” would ever arise in such a situation as this. 6.20 The above is consistent with the House of Lords’ decision in Board of Trade v. Hain Steamship Company Ltd.12 In that case it was held that there could not be a loss caused by “hostilities” after an armistice, even though it was recognised by the Court that the armistice dated 11 November 1918 was no more than a temporary cessation of hostilities. The casualty happened on 25 December 1918, and thus predated the Peace Treaty which was not signed until 1919. The Korean War 6.21 In June 1950, North Korea launched an attack upon South Korea without any warning. In answer to a resolution of the Security Council, the United States, the United Kingdom, Australia, New Zealand, India, Greece, Belgium and Turkey sent contingents to aid South Korea. China later joined in the fray on the side of North Korea, and savage warfare continued until 1953 when an armistice was signed. During all this time, the British Embassy (at this time the only Western Embassy) remained open in Beijing, trade continued without let or hindrance between China and most of these countries, and their ships came and went to Chinese ports. Whether a state of war existed between China and North Korea on one hand and the other nations on the other is a most tangled matter with plenty of room for diverging views, but if some insured object had been lost or damaged in the fighting, even ships far from the Korean coastline which were attacked by prowling warships or aircraft, then there should have been no difficulty in recognising the insured peril of “war”. The Falklands War 6.22 The following represent fairly clear examples of the distinction between “war” in the sense of international law, and the insured peril of “war” in a commercial document such as an insurance policy. 12 [1929] A.C. 535. 39 War 6.23 On 2 April 1982, Argentina, which had long laid claim to the Falkland Islands, under the pretence of a naval exercise suddenly and without warning invaded the Falkland Islands and South Georgia. The United Kingdom protested and mounted a vigorous diplomatic offensive. She also drew an Exclusion Zone around the islands and warned everyone else not to enter it. The United States took a hand and sent its Secretary of State on a round of “shuttle diplomacy” between the United Nations, Buenos Aires and London. Meanwhile the United Kingdom dispatched a strong military and naval task force to re-possess the Islands, by force if need be. Having 8,000 miles to travel and some formidable logistical problems to overcome, it would be many weeks before it could arrive on the scene. 6.24 On 25 April 1982, the British armed forces compelled the surrender of the Argentine garrison in South Georgia. The fighting was very fierce if short-lived, and an Argentine submarine was sunk in the process. In early May, a British submarine sank an Argentine cruiser, the General Belgrano, even though she was outside the Exclusion Zone because of the fear that she or her escorting destroyers might attack the approaching British fleet with Exocet missiles. On 21 May, the British armed forces landed on the Falkland Islands, and in a series of hard fought if miniature battles, compelled the Argentine surrender on 14 June. There was considerable loss of life, of ships, of aircraft and of other materiel on both sides before the fighting came to an end. 6.25 During the whole of the period between 24 April and 14 June, neither nation, apart from forbidding each other’s aircraft to land at their airports and recalling their ambassadors, interfered with the other’s citizens or property. British ships in Argentine ports were not interned, but were merely ordered to leave. British soldiers taken prisoner in the early engagements were not interned but were sent home. The considerable British community in Argentina was left in peace. British journalists went into Buenos Aires and interviewed senior political and military figures. Outside the narrow area of some ferocious fighting, everything was peaceful. 6.26 Was there a war? The international lawyers have, from that day to this, been engaged in disputatious discussion without finding a definite answer one way or the other. Had there been loss or damage caused by the insured peril of “war”? Undoubtedly there had. 6.27 During the fighting on the Falkland Islands, the Atlantic Conveyor was hit by an Exocet missile whilst a few miles to the North of East Falkland and sank. This was accepted by her Mutual War Risks Association as a proper claim arising out of the insured peril of “war”. The Monsunen, a Falkland Island ship, was said to have disappeared and, for a time, it was thought the Argentines had sunk her. She was later discovered beached at Choiseul Sound, a very remote spot, with a wire wound round her propeller. She was salvaged by the Royal Navy and when last seen was carrying Ghurkha troops. The Hercules, an American owned tanker, was hit by a bomb dropped from an Argentine aircraft, while a considerable distance to the North of the Falkland Islands. The bomb did not explode and was only removed with the greatest difficulty, but it caused a considerable amount of damage to the ship. The British Wye was still some way out into the South Atlantic carrying 35,000 tons of fuel oil for the Royal Navy when she was attacked by an Argentine Hercules aircraft. It was not a sophisticated operation; the crew of the Hercules could be seen rolling the bombs with their feet off the after ramp of the plane. Fourteen bombs exploded harmlessly in the sea. The last bomb hit the ship just aft of the foc’sle 40 War and went over the side without exploding, but taking with it a considerable length of the ship’s cargo lines and 15 feet of the life-rail. In all these cases, the insured peril of “war” had unquestionably arisen, and the loss or damage was accepted as proper claims by the underwriters. The First Gulf War 6.28 In other cases, difficulty might be found in deciding whether the insured peril had arisen, and a typical example is provided by the first war against Iraq in 1990 and 1991. The relevant period can be subdivided: Period 1: 2 August 1990 to 16 January 1991 6.29 Iraq invaded Kuwait without warning and rapidly overcame the resistance of the Kuwaiti armed forces. She defied a number of Security Council resolutions to leave and proved immune to intense diplomatic pressure to persuade her to do so peaceably. A coalition was formed to prevent a further invasion of Saudi Arabia. The United States, the United Kingdom, Australia, France, Italy, Syria, Egypt, Pakistan and of course Saudi Arabia contributed troops, ships and aircraft to a force whose defensive purposes, at least initially, could be summarised by its name—Desert Shield. In mid-November 1990, when it was clear that nothing short of military force would eject Iraq from Kuwait, the name was changed—Desert Storm. This period was not entirely devoid of military activity; special forces, mainly American and British, were operating inside Iraq, and Iraq fired a number of Scud missiles against Israeli cities and Saudi-Arabia’s capital Riyadh. Period 2: 16 January to end-February 1991 6.30 A ferocious aerial bombardment started with attacks aimed at neutralising the Iraqi armed forces to make a ground attack less hazardous. The United States contributed most of the aircraft, but was assisted by aircraft from the United Kingdom, France and Italy. This was successful in its aim, and the ground forces met far less opposition than they had feared. Kuwait was freed from Iraqi occupation by the end of February 1991. Having no mandate from the United Nations to invade Iraq, the ground forces halted their advance just north of the Kuwaiti frontier. No attempt was made to topple the Iraqi regime; this was thought to be a job for the Iraqis themselves. Period 3: March 1991 to February 2003 6.31 The removal of the Iraqi regime simply did not happen. Iraq was made subject to sanctions until a series of measures, designated in UN resolutions, had been effected by Iraq. These were not taken either. A number of teams of UN Inspectors remained in the country until 1998 to disarm Iraq, primarily of atomic and biological weapons. It now seems they were more successful than even they realised. American and British aircraft patrolled areas in the North and South of the country to try and protect Kurds in the North and Shi’a minorities in the South. 41 War 6.32 Would the insured peril of “war” have arisen during any of these periods? If loss or damage to an insured object had been caused during Period 2, it would probably have been easy to say that it had. Could it have arisen during Periods 1 and 3? That is much more doubtful. Conflict in Kosovo 6.33 In CMA CGM SA v. Beteiligung (The Northern Pioneer),13 which came before the Courts in the form of an appeal under section 69 of the Arbitration Act 1996, CMA had chartered four container ships on long-term charter. Whilst the Court of Appeal’s judgment is concerned with a series of issues relating to section 69 itself, as a by-product certain aspects of the tribunal’s decision, in which the definition of “war” was considered, have made it into the public domain. 6.34 The shipowners were a German company and the ships all flew the German flag. The charters were all on the New York Produce Exchange form and contained the familiar Clause 31: In the event of the outbreak of war (whether there be a declaration of war or not) between any two or more of the following countries—the United States of America, the United Kingdom, France, Russia, the People’s Republic of China, the Federal Republic of Germany and any country of the EEC or in the event of the nation under whose flag the vessel sails becoming involved in war … either the owners or the charterers may cancel this charter party. 6.35 The arbitrators, Sir Christopher Staughton, Mr. Adrian Hamilton Q.C. and Mr. Kenneth Rokison Q.C., found that: The particular (NATO) operation with which we are concerned started on 24 March 1999. Germany participated as a member of NATO. Under the German Constitution, the German Bundestag approved German participation in the operation. From 24 March 1999, the participation involved the deployment of ten Tornado ECR aircraft and four Tornado Recce aircraft of the German Airforce initially suppressing Yugoslav air defences and reconnaissance, and later switching to other targets. During the second half of April the intensity of the operation, including Germany’s participation increased considerably. We conclude however, that the operation was one operation starting on 24th March 1999, and the increase in Germany’s participation was one of scale or tempo, rather than in the nature of Germany’s involvement. 6.36 It was by a majority that the arbitrators had found that: 1. events in Kosovo did not constitute a war within the meaning of the word; and 2. if events in Kosovo did constitute a war, Germany was not involved. They seem to have been unanimous however on one point. Notices of Cancellation in cases such as this must be given within a reasonable time. This notice was not given until 29 April 1999. That was too late. 6.37 Only some parts of the arbitration award have reached the public domain through the Court of Appeal’s judgment and these are quoted above. One does not have the advantage of reading the reasons. However, applying the approach set out in the cases above to 13 [2003] 1 Lloyd’s Rep. 212. 42 War the facts of the situation during this NATO operation, it is evident that the distinguished panel of arbitrators involved applied the law in an orthodox fashion in reaching their conclusions. 6.38 Following the death of Marshal Tito, the disparate peoples which he had held together as Yugoslavia began to break away to form their own states around their own ethnic groupings. The Serbs wished to form a “Greater Serbia”, and began a form of ethnic cleansing which was nothing less than genocide to clear Muslims out of Bosnia. The West’s efforts to halt this by dispatching “peacekeeping troops” to Bosnia were ineffective. 6.39 When the same thing was started in Kosovo, an area inhabited in roughly even proportions by Orthodox Serbs and Muslim Albanians, NATO—although by its constitution a defensive alliance forbidden to take part in offensive operations—resolved to take a much firmer stand at a much earlier date. Peacekeeping troops from many nations, Germany among them, were promptly dispatched to stop the mayhem. Aircraft, including Germany’s, were employed to suppress the lethal Serb air defences, and thereafter in very limited roles. 6.40 The ground troops were forbidden to shoot unless to protect their own lives or those of their comrades. There were no massive artillery bombardments aimed at causing massive casualties or loss of life. The whole operation was partly political, and partly humanitarian. Nobody wanted to see a Third World War start a few miles from the scene of the catalyst which caused the First World War. There was a desire to stop the massive killing and damage to property and the driving of people from their homes where they had lived for generations. Nothing less like a “war”, interpreted in the “commonsense” way on which Goddard J. and Lord Greene M.R. had been so insistent in the Bantham case could be imagined. The 9/11 attacks 6.41 In IF P&C Insurance Ltd (Publ) v. Silversea Cruises Ltd,14 in the context of construing a “loss of income” policy the Court of Appeal considered, obiter, whether the 11 September 2001 attacks on the World Trade Centre in New York constituted an “act of war” or an “armed conflict”. Rix L.J., at [143], took the view that “act of war” and “armed conflict” could be of broader effect than the word “war” insofar as they could arise within a state of “war” being present, and that the responsive invasion of Afghanistan by the United States less than a month later could assist in construing the 9/11 attacks themselves as an “act of war”. It was also reaffirmed that public international law concepts of “armed conflict between sovereign states” was not a particularly helpful way of thinking about war. Ward L.J. however, at [147–148], again emphasising the approach of viewing the events from the perspective of a business person and not an international lawyer, opined that the 9/11 attacks were a terrorist attack, and not an “act of war”. The subsequent declaration of the “War of Terror” by the United States was a colloquialism, and did not alter his conclusion. Furthermore, the singular nature of the attacks distinguished the situation from the sense of continuity that is implicit within the concept of an “armed conflict”. 14[2004] Lloyd’s IR 696. 43 War Key principles derived from the case law 6.42 In seeking to draw conclusions, one should remember that this insured peril is included by agreement in a commercial document, and therefore the question to be asked is what businessmen intended when they so included it. The complex rules of international law are not to be regarded as ruling the interpretation, but rather those of simple “common sense” With this in mind the following propositions are suggested: 1. The word “war” in a commercial document such as an insurance policy is given its normal and common meaning. Any technical meanings it may have in international law are not relevant, or are at best of very limited relevance. 2. The insured peril of “war” will only arise where there is a conflict between two or more nations whose governments have committed them to warfare, either by aggression or defence thereto. 3. Such government may be de jure or de facto. It is not necessary that a de facto government should have all the characteristics which might otherwise be required, such as at least some measure of international recognition by foreign nations; it is sufficient if it has to some substantial degree the character of a sovereign State and has the will and ability, either by persuasion or compulsion, to lead the people over whom it rules into active hostilities. 4. Arguably, the insured peril of “war” can arise where two or more nations consider themselves at war with each other even though no military operations are currently in process. It will not however arise when two nations who have been at war now consider themselves to be at peace with each other even though no peace treaty has been signed. 5. The insured peril of “war” can arise where two or more nations are at peace with each other, but are conducting military operations with each other within a limited area; in such an event, the insured peril will only arise within that limited area and such extensions thereto which are within the ranges and abilities of the various weapons which are employed, such as missiles, patrolling ships or aircraft. 6. A declaration of war is not required; it is sufficient if one nation makes an attack upon another which seeks to repel it. 7. It is not required that the insured object should be the property of a belligerent. The insured peril of “war” can also arise when the damaged property belongs to a neutral. 44 CH A PT ER 7 Civil war 7.1 In the Pesquerias1 case, the House of Lords saw no essential difference between “war” and “civil war” (other than the obvious one that wars are fought between nations and civil wars between the citizens of a State). Lord Porter regarded the matter as settled by the decision of the Court of Appeal in Curtis and Son v. Mathews.2 7.2 In Curtis the premises insured were in Dublin. On 24 April 1916, some 2,000 men, describing themselves as the armed forces of the self-styled Provisional Government of the Irish Republic, occupied the Post Office and other buildings in Dublin in an event known to history as the “Easter Rising”. The British armed forces attempted to suppress the insurgents and there was some vigorous street-to-street fighting. The Post Office itself was shelled by artillery. This started a fire which spread through several intervening buildings until it destroyed the plaintiff’s premises. The fire brigade was unable to put it out because of the shooting by the insurgents. The court noted with approval the finding of Roche J. when giving judgment for the plaintiffs: “I am satisfied that Easter week in Dublin was a week not of mere riot but of civil strife amounting to warfare waged between military and usurped powers and involving bombardment.” 7.3 There is now confirmation of the position apparent in the Pesquerias case in the more recent case of National Oil Company of Zimbabwe and Others v. Sturge [1991] 2 Lloyd’s Rep. 281. There, Saville J., applying the principle that in commercial documents words must be given their ordinary everyday meaning said: “In this context ‘civil war’ means a war with the special characteristic of being civil—i.e. being internal rather than external.” Spinney’s (1948) Ltd. and Others v. Royal Insurance3 The facts 7.4 The most authoritative case on “civil war” is Spinney’s (1948) Ltd. and Others v. Royal Insurance. The facts were complicated in the extreme, and they received a thorough and exhaustive analysis from Mustill J. It is worth rehearsing them in some detail. No easy assumptions could be made about whether any of the separate parties had de facto or de jure status. 1 Pesquerias y Secaderos de Bacalao de Espa ña S.A. v. Beer (1945) 79 Ll.L.Rep. 417; (1947) 80 Ll.L.Rep. 318; (1948–49) 82 Ll.L.Rep. 501; [1949] 1 All E.R. 845. 2 [1919] 1 K.B. 425. 3 [1980] 1 Lloyd’s Rep. 406. 45 Civil war 7.5 The court found that Lebanon’s population consisted of about 3.5 million people (the exact figure was not known) made up by about 1.6 million Christians and 1.6 million Muslims (plus 350,000 Palestinians). The Christians consisted of several individual religious persuasions, the Maronites (the majority), Greek Orthodox, Greek Catholics and some other smaller sects, all of whom were divided by deep and divisive doctrinal differences. The Muslims also were similarly divided by equally deep and divisive doctrinal differences and here the court felt able to give proportions. Of every 11 Muslims five were Sunnis, four were Shi’ites and two were Druze. 7.6 In order to govern the country, the National Pact of 1943 had divided the centres of power so that the President of the Republic was a Maronite Christian, the President of the Chamber of Deputies was a Shi’ite Muslim, the Prime Minister was a Sunni Muslim and the Commander in Chief was a Maronite Christian. The Chamber of Deputies was divided so that there were six Christian to five Muslim seats. The arrangement worked quite efficiently if not to the entire satisfaction of all concerned, and Lebanon became a very prosperous and fairly peaceful country. By 1975, however, the increase in the Muslim proportion of the population to that of the Christians led to an expectation of a rearrangement in the Muslim’s favour, and the Muslim population was not immune to the tide of Arab nationalism which swept the Middle East during the 1960s and 1970s. This expectation and the demands which accompanied it were resisted by the Christians in a way which ensured that trouble was bound to ensue, as it indeed did. 7.7 Spinney’s ran a retail supermarket business selling mostly food. Their business in West Beirut (a Muslim enclave) was conducted from two shops and a tower block which seems to have contained their Head Office and a considerable quantity of food awaiting distribution to retail outlets. Their property was insured with the Royal Exchange Assurance under conditions of great complexity. The perils, whether as insured or excepted perils, which the High Court was called upon to consider were: Civil War, Usurped Power, Invasion, Rebellion; Insurrection, Hostilities; Warlike Operations, Civil Commotion, and the specific exclusion which read: … Any act of any person acting on behalf of or in connection with any organisation with activities directed towards the overthrow by force of the government de jure or de facto or to the influencing of it by terrorism or violence. 7. 8 The events that took place are best presented in a diary form: Table 7.1 Pre-February 1975 A deteriorating political and security situation leads to feuds and violence between the various sects. There are also clashes between the regular army and the Palestinians whose presence is greatly resented by the Christians. There are further clashes between the paramilitary forces maintained by the various Christian and Muslim factions, sometimes involving the Palestinians. The most powerful of these forces are maintained by the Maronite Christians (the Phalange), the Shi’ite Muslims, the Druze, and the Palestinians themselves. 46 Civil war February 1975 The government presently consists of: – The President—Suleman Franjieh (Maronite Christian) – The Prime Minster—Rashid-Al-Sulh (Sunni Muslim) – Cabinet Ministers—Various representatives of the Phalange, other Christian political parties and groups, and Jumblattist Shi’ites. There is an ad hoc opposition consisting of two Muslims, Mr. Said Salan and Mr. Karami, and a Maronite Christian, M. Raymond Edde. These three gentlemen are highly respected political figures who lead their own followers to take more moderate courses than those favoured by the Phalange and the Jumblattists both of whom are far more extreme. 26 February 1975 A strike and a demonstration by fishermen in Sidon over an industrial dispute leads to a riot and the death of one of the local leaders. Demonstrations in sympathy in Sidon and Beirut are put down by the army with more deaths. The army is praised by the Christians and execrated by the Muslims. 13 April 1975 M. Gemeyal (the Maronite Christian leader) attends the consecration of the new church and gunmen kill four of his attendant supporters. The Phalange murder Palestinians in a bus. Muslim and Christian suburbs exchange rocket and small arms fire. A ceasefire is arranged. 26 April 1975 The Jumblattists withdraw from the government and refuse to serve in any future government which includes the Phalange. 15 May 1975 The Prime Minister resigns and the government falls. The Jumblattists refuse to serve in any government that includes the Phalange, which refuses to support any government that does not include it. Some military officers are appointed to run the government until the deadlock can be resolved but have to resign after three days. There is much shooting and sporadic violence. 30 June 1975 Mr. Karami forms a government which includes M. Chamoun, a moderate Christian leader, but excludes the Phalange and the Jumblattists. Two months of uneasy calm follow. End-August 1975 A gaming dispute in Zamleh, a Christian village enclave, leads to shooting which spills over into Tripoli. 7 September 1975 The Christians murder a busload of Muslims and Christian property in Tripoli and the north of Lebanon is looted. 15 September 1975 There is violent fighting in Beirut and the Christians bombard the Souk. 47 Civil war 7.9 At this point, the court finds: (1) The violence is basically sectarian. (2) The Palestinians are hardly involved, if at all. (3) Mr. Karami is doing all that he can to resolve matters peaceably and without violence. (4) Except for the bombardment of the Souk, fighting is in the traditional areas of tension between the Christians and the Muslims (this seems to indicate that up to now there is no invasion of enclaves, but sporadic shooting from one enclave into another). Table 7.2 End-September 1975 Syria now intervenes on the supposed basis that she cannot tolerate disorder on her borders which might tempt the Israelis to intervene themselves. The Foreign Minister comes to Lebanon to mediate and manages to persuade the politicians to form a “Government of National Reconciliation”. It includes both the Maronites and the Jumblattists, but soon breaks down because the Jumblattists continue to insist on being given more posts in the Civil Service and the Army which they consider to be too pro-Christian. The Arab League also attempts to mediate but fails. The President’s and the Prime Minister’s supporters fight in Tripoli. October/November 1975 There is gunfire and looting in Beirut. A ceasefire fails to last. The Christian militias, apparently with some support from the Palestinians, now invade the Muslim enclaves in West Beirut. The court regards this as a turning point, in that fighting is no longer from fixed positions and, for the first time, there is wholescale invasion of an enclave. There is an exodus of refugees and the fighting, punctuated by ceasefires, dies down. November 1975 Mr. Karami makes political moves to form a new committee. At first he meets with no success but later things seem more hopeful. The Syrian President invites Gemeyal to Damascus for talks. 6 December 1975 The worst violence so far breaks out in Beirut. In what appears to be a reprisal, the Phalange murders 200 Muslims. The Muslim militias drive the Phalange out of West Beirut. Muslims and radical politicians rejoin a “Higher Co-ordinating Committee”. Another uneasy peace begins. Early January 1976 The Palestinians block a bridge which is vital to Christian communications. The Phalange engages them and besieges some Palestinian camps. The Palestinians seek to raise the sieges. Fighting also resumes between Christian East Beirut and Muslim West Beirut. The Lebanese air force attacks the Muslims. There is fighting in other parts of the country. 15–18 January 1976 The Phalange occupies, with little resistance, two large working-class Muslim suburbs and the refugees flee to West Beirut, setting up camps along the beach in the neighbourhood of Spinney’s shops and tower block. 48 Civil war 19–20 January 1976 Syria again intervenes and moves a regular brigade, the Yarmouk Brigade, which consists of Palestinians recruited into the Syrian army, into the Bekaa Valley. 20 January 1976 A Syrian political delegation arrives and manages to form a joint Lebanese-Syrian-Palestinian Military Commission to end the fighting. At about this time, Syrian troops enter Beirut and make their presence felt on the streets 7.10 The above is only a very short description of the court’s findings and the reader who wishes a fuller account (which continues after January 1976) should read pages 412 to 425 of the judgment. It is, however, most important to appreciate the situation which existed at the time Spinney’s loss took place: (1) There was no hard and fast division of Christian against Muslim and the more moderate and less radical of the elements of each religion often supported the other, at least politically. (2) Whilst there were enclaves, these were scattered throughout the country in suburbs, villages and small towns. (3) There was no similarity to the American Civil War where the Confederacy controlled from the start a large tract of territory, or the Spanish Civil War where General Franco very rapidly gained control over a large tract of territory shortly after hostilities started. Apart from the Lebanese regular army, which rapidly disintegrated and took sides in accordance with each soldier’s religious and political beliefs, there were no regular forces. (4) There were various militias. The Palestinians had a large armed militia which was intended for use against the Israelis. The Phalange had a large and powerful militia of its own which owed allegiance to the Phalange’s leaders. Likewise the Jumblattist Shi’ites had a similar militia which owed allegiance to its own political leaders. There were several other smaller but well-armed militias which owed allegiance in various directions. (5) Alliances were made and broken with bewildering rapidity. It was not unknown for Muslims and Christians to unite to fight other Muslims or Christians, and it would be going too far to say that all Christians lined up on one side and all Muslims on the other. 7.11 Between 18 and 23 January 1976, Spinney’s two shops and the tower block were broken into and looted. All the edible stock was removed. Some fixtures, fittings and furniture in the offices and shops were taken and the rest were smashed. Some minor internal and external damage of the buildings was caused. There was a small fire in the basement of the tower block, but this seems to have been caused by the looters lighting torches to see their way to the basement food-stores rather than an attempt to set the building on fire. The identity of the looters was not established with any certainty. Spinney’s had previously been presented with demands from some Muslim sects for food and money to feed the refugees on the beach, and had in part met these demands. The looters were described 49 Civil war as being of no one particular economic class and some were obviously well-to-do. Some people loaded their cars with stolen goods. For a time one sect, the Nasserite militants or Moribitoun, provided a guard to prevent looting until sent away by the watchman who feared an outbreak of shooting. The Judge’s findings were: (1) During the looting there was some shooting between the looters themselves and between the looters and such persons who attempted to prevent it. The shooting was sporadic and disorganised. (2) Only small arms were used and the buildings were not fired upon. (3) The Palestinians were not involved in the looting and when present they tried to prevent it. (4) Probably such shooting as there was came from members of various militias who were present. (5) A number of people were acting in concert with one another and they may have been organised, but there was no evidence of an overall organisation to loot. (6) Many people—particularly women and children—took advantage of the situation to loot. (7) There was no sectarian motive for the attack on Spinney’s although the looters seemed mainly to have been Muslims. (8) Possibly some looters came from the refugees camped on the beach, but they did not initiate the looting or form an organised body to loot. (9) If there was a common origin, there was no basis to decide what that common origin was. 7.12 Before moving on to the tests applied by the court to decide whether the loss was due to “civil war”, the Judge’s decisions on the following points should be noted: (1) On “treason” being a necessary ingredient to civil war (as opposed to “military or usurped power”): The expression “civil war” … is part of the contemporary speech, and I cannot see any reason to suppose that it was introduced into this policy with the intent of calling up the ancient doctrine of constructive treason.4 (2) On public international law: “The words [i.e., civil war] under construction are to be given their ordinary business meaning, which is not necessarily the same as they bear in public international law”.5 (3) On the nature of civil war as opposed to war: In my judgment the ordinary and literal meaning of the words are the same; a civil war is a war which has the special characteristic of being civil—i.e., internal rather than external. This special characteristic means that certain features of an international war are absent. Nevertheless a civil war is still a war. The words do not simply denote a violent internal conflict on a large scale.6 4 At 428–429. 5 At 429. 6 Ibid. A view later endorsed by Saville J. in National Oil Co of Zimbabwe (Private) v. Sturge [1991] 2 Lloyd’s Rep. 281 at 282. 50 Civil war Was there a civil war within the meaning of the peril? 7.13 In seeking to determine if the insured peril of “civil war” has arisen on a set of facts (or an alternative peril), and besides having regard to the three points lighted upon above by the Court, it is suggested that the following three tests applied by the court in Spinney’s case7 are also particularly relevant (even though the court was at pains to emphasise that it was not attempting a general definition): (1) Can it be said that the conflict was between opposing sides? It must be possible to say of each fighting man that he owes allegiance to one side or the other, and it must also be possible to identify each side by reference to a community of objective leadership and administration. Complete identity is not necessary and some allies bear considerable animosity to each other. But: “… there must be some substantial community of aim which the allies have banded together to promote by use of force”.8 A civil war is not necessarily restricted to two sides but too many sides can become: “A melee without a clear delineation of combatants which is one of the distinguishing features of a war.” (2) What were the objectives of the “sides” and how did they set about pursuing them?9 The first question should always be whether the party’s aim was to seize dominion over a whole or a part of the State. If not, it may still be a civil war but: “… it will then be necessary to look closely at the events to see whether they display the degree of coherence and community of purpose which helps to distinguish a war from a mere tumultuous upheaval”. Participants can be activated by tribal, racial or ethnic purposes, or even by a desire to change a government’s policies rather than the government itself. Mustill J. took the view that such motives were not inconsistent with civil war, but their presence did require a more involved analysis of the wider situation than might be necessary where conventional (what we might now term) “regime-change” motives were present. (3) What was the scale of the conflict, and its effect on public order and on the life of the inhabitants?10 Factors which require consideration when seeking to ascertain if internal strife has reached the considerable scale that “civil war” requires are: • • • • • • • • 7 8 9 10 The number of combatants. The number of casualties, both military and civilian. The amount and nature of arms employed. The relative sizes of territory occupied. The extent to which it is possible to delineate territory. The degree to which the populace as a whole is involved. The duration and degree of continuity of conflict. The extent to which public order and administration of justice has been impaired. N 3. At 430. Ibid. Ibid. 51 Civil war • The degree of interruption of public services and private life. • The question of whether there have been movements of population as a result of the conflict. • The extent to which each faction purports to exercise an exclusive legislature, and administrative and judicial powers over the territory which it controls. 7.14 Mustill J. clearly did not intend that the scale of the conflict should be judged by these factors alone, or that other relevant factors should be excluded from consideration. Neither did it intend that all the listed factors should exist to a substantial degree. It is, however, clearly essential that a large number of the listed factors must exist, and moreover must exist to a substantial degree, before the scale of the conflict can be serious enough to warrant the conclusion that a civil war exists. It is not correct, therefore, to say that each faction in a conflict must hold a substantial proportion of territory. 7.15 In applying these three tests in Spinney’s case, the judge found that at the time of the looting in January 1976 “civil war”, in the sense that it is used in a war risks policy, did not exist. This case alone shows how difficult it can be, in any particular instance, to identify “civil war” as an insured peril with any measure of certainty. 52 CH A PT ER 8 Revolution, rebellion, insurrection … 8.1 Considered in the strict order in which the insured perils are set out in the War Risks Policy, “revolution, rebellion and insurrection” are the next insured perils to be considered. They are, however, so very close to each other in meaning and also to the meanings of “riots and civil commotions” which appear as insured perils in other paragraphs, that they should be considered together rather than separately. 8.2 It is also apt to consider the cases on “Military or Usurped Power” when construing the scope of revolution, rebellion and insurrection. These are not insured perils in the modern Institute War and Strikes Clauses although they appear as such in insurance policies on other objects. In the Pan Am1 and Spinney’s2 cases they were excluded perils. The relevant cases will continue to have some influence on future decisions, particularly on rebellion and insurrection to which there is some particular similarity. Must the proximate cause of a casualty be proven to fall within one of these specified insured perils in order for cover to be engaged? 8.3 It has been suggested that where an insurance policy sets out no fewer than five types of civil disorder in carefully graduated degrees, beginning with the most serious and ending with the least, and moreover includes a generalised provision about civil strife arising from any of them, then any kind of civil disorder which is within the bracket between the most and least serious disorders is insured by the War Risks Policy even though it is not named as an insured peril by the policy. This suggestion seems to have arisen from the Pan Am case,3 where it appears that there was an agreement between the parties that if the insured peril of “insurrection” could not be proved then the more serious disorders of rebellion, revolution and civil war could not arise. The 2nd Circuit Court of Appeals describes this agreement: All parties agree that if loss was not caused by insurrection then it could not have been caused by any [other] terms relating to civil disorder. Insurrection presents the key issue because rebellion, revolution and civil war are progressive stages in the development in civil unrest, the most rudimentary form of which is insurrection. 1 Pan American World Airways Inc v. The Aetna Casualty & Surety Co. [1974] 1 Lloyd’s Rep. 207; [1975] 1 Lloyd’s Rep. 77. 2 Spinney’s (1948) Ltd. and Others v. Royal Insurance [1980] 1 Lloyd’s Rep. 406. 3 N 1. 53 R evolution, rebellion, insurrection … 8.4 Acceptance of the parties’ submissions on this point does not in itself signify approval by the US court that this suggestion represents the law, to say nothing of the position under English law. Indeed, and although this was not a point under consideration, there is not even a hint of acceptance in the Supreme Court’s treatment of proximate cause in The B Atlantic of such an exception to the rule that the proximate cause of a casualty must come within the explicit terms of at least one of the insured perils of the policy as a condition precedent to any liability on the part of the underwriter. 8.5 In reliance on the Pesquerias4 case, it has also been suggested that where an insured peril such as “civil commotions” is insured by the policy, and another insured peril of greater gravity is excluded such as “war”, and the loss is held to be due to “war”, then the loss is not covered by the insurance. Whether one quite gets that meaning from the Pesquerias case itself is debatable, but the general proposition is probably correct, if only to give effect to the intention of the parties that losses due to the proximate cause of “war” are not to be insured by the policy, and that a lesser peril which is insured cannot have its meaning extended so that it includes a greater peril and thus defeats this intention. It also reflects the approach of the Court of Appeal and Supreme Court in The B Atlantic, where it was reaffirmed that if one of two proximate causes falls within an exception to cover, the loss is not covered (even if the other cause falls squarely into one of the perils): see e.g. Lord Mance in [2018] 2 WLR 1671 at §49 drawing upon Lord Blackburn’s speech in John Cory & Sons v. Burr (1883) 8 App Cas 393. Revolution, rebellion and insurrection defined 8.6 According to the Oxford English Dictionary: (1) “Revolution” is defined as: “A complete overthrow of the established government in any country or state by those who were previously subject to it; a forcible substitution of a new ruler or form of government”. (2) “Rebellion” is defined as: “Organised armed resistance to the ruler or government of one’s country; insurrection, revolt; open or determined defiance of, or resistance to, any authority or controlling power”. (3) “Insurrection” is defined as: “The action of rising in arms or open resistance against established authority or governmental restraint; an armed rising, a revolt; an incipient or limited rebellion”. 8.7 Even if insured perils or risks must be interpreted “in the sense which an ordinary man would use [them]”—the approach of Goddard J. in the Kawasaki case5 —these interpretations must be approached with some caution. There remains some force in adopting the approach of the authors of Hudson and Allen, The Institute Clauses Handbook (3rd edn), p. 189, and consider a rebellion as becoming a revolution as soon as it succeeds. The upheavals known to history as the French and Russian Revolutions began not as attempts to change the governments of France and Russia, but to change the governments’ policies, 4 Pesquerias y Secaderos de Bacalao de Espa ña S.A. v. Beer (1945) 79 Ll.L.Rep. 417; (1946) 80 Ll.L.Rep. 318; (1948) 82 Ll.L.Rep. 501, [1949] 1 All E.R. 845. 5 Kawasaki Kisen Kabushiki Kaisha v. Bantham Steamship Company Ltd. (No. 2) (1939) 63 Ll.L.Rep. 155; [1939] 2 K.B. 544. See paragraphs 6.6–6.10. 54 R evolution, rebellion, insurrection … albeit in far-reaching and fundamental ways. They only became revolutions when the new governments were substituted for the previous governments after it eventually became clear that the previous governments were incapable of the desired changes. “Military or usurped power”: the forerunners of “revolution, rebellion, insurrection” 8.8 Before turning to the modern insured perils under consideration in this chapter, a brief foray into the historical meaning of “military or usurped power”, which is not an insured peril or risk in the modern War Risks Policy, is necessary for two reasons. First, most of the decided cases deal in this area with it rather than with “revolution”, “rebellion” and “insurrection”. Second, for comparative purposes reference was made by Millet J. to the definition of “military or usurped power” in the leading case on the modern terms, Spinney’s case. 8.9 Therefore, consideration must begin with the Treason Act 1351 which made it an offence to wage war against the sovereign in his realm. The Act did not cover all the doings of our turbulent and unruly ancestors and by the sixteenth century the doctrine of constructive treason had become firmly established. In Bradshawe v. Burton6 and in R. v. Messenger,7 the distinction appears that a rebellious mob asserts “usurped power” and is guilty of high treason, whilst a common mob commits only felonies. High treason was an offence against the monarch. “Usurped power” referred to a subject seizing and exercising power which only the constitutional government, namely the monarch, and later the monarch and Parliament, could lawfully use. Lord Mansfield C.J. refined this further in R. v. Gordon8 in which the chief proponent of the Gordon riots was prosecuted: “… If this multitude assembled with intent, by acts of force or violence, to compel the legislature to repeal a law, it is high treason.” 8.10 It was always a necessary ingredient to the offence of high treason that the subject should have arrogated to himself powers which properly belong to the monarch alone or, at least, that he should have attempted to do so. It was not, however, treasonable unless the offenders were in “a posture of war” (bearing arms was enough to prove a treasonable intent), and neither was it treasonable to seek, although armed for the purpose, the redress of private grievances. 8.11 In Drinkwater v. The Corporation of the London Assurance9 Mr. Drinkwater’s malting house in Norwich was insured by a fire policy with the following exclusion clauses: “Burnt by any invasion of foreign enemies, or any military or usurped power whatever.” 8.12 On 27 September 1766, a mob in Norwich protested at “the high price of provisions” (i.e. the high cost of living) and despoiled large quantities of flour. The magistrates read the Riot Act 1714 and the mob, no doubt suitably impressed by its draconian penalties, dispersed peaceably to their homes. The next day, 28 September, their indignation having overnight surmounted their fears of the Riot Act, they reassembled and this time Mr. Drinkwater’s malting house was burnt down. They do not seem to have been very 6 7 8 9 (1597) 79 E.R. 1227. (1668) 84 E.R. 1087. (1781) 21 St. Tr. 485. (1767) 2 Wils. K.B. 363. 55 R evolution, rebellion, insurrection … determined or destructive since they only attacked two bakers and one miller and were put to flight by 30 law abiding citizens without apparently too much difficulty. The court, by a majority of three to one, gave judgment in favour of Mr. Drinkwater. Gould J. (the dissenting judge) considered that it was “usurped power” to attempt to alter by force the laws and the price of victuals and wanted to sign judgment in favour of the defendant underwriter. Clive J. considered that “usurped power” must amount to high treason and not, as here, a mere felonious riot and considered that judgment should be signed in the plaintiff’s favour. The more influential decisions were given by the remaining two judges, both of whom favoured the plaintiff. Bathurst J. considered: Usurped power can only mean an invasion of the kingdom by foreign enemies, to give laws and usurp the government thereof, or an internal armed force in rebellion assuming the power of government, by making laws, and by punishing for not obeying those laws. He did not consider this to be the case here. 8.13 Wilmot C.J. said: My idea of the words, burnt by a usurped power, from the context, that they mean burnt or set on fire by occasion of an invasion from abroad, or of an internal rebellion, when armies are employed to support it, when the laws are dormant and silent, and firing of towns is unavoidable, these are the outlines of the picture drawn by the idea which these words convey to my mind. He further considered that an essential feature of a rebellious mob, which was guilty of high treason was: … A universality, a purpose to destroy all houses, all enclosures, all bawdy-houses. Here they fell upon two bakers and one miller … to abate the price of provisions in a particular place; this does not amount to a rebellious mob. 8.14 Another English case from the eighteenth century is Langdale v. Mason,10 where Lord Mansfield was the presiding judge. It arose out of the Gordon Riots in 1780 where the mob’s fear and fury were directed at Roman Catholics, although in their later stages the riots degenerated into wanton destruction. The government suppressed the riots with some difficulty and in London the troops had to fire on the mob to restore order. A great deal of damage was done to property and, amongst other destruction Mr. Langdale’s brewery was burnt down. It was insured against fire by the Sun Fire office whose policy excluded damage arising from: “Civil commotion and military or usurped power.” 8.15 Lord Mansfield directed the jury in the following terms: What is meant by military or usurped power? They are ambiguous and they seem to have been the subject of a question and determination [a reference to the Drinkwater case11] … They must mean rebellion where the fire is made by authority; as in the year 1745, when the rebels (led by Charles Edward Stuart) came to Derby; and if they had ordered any part of the town, or a single house to be set on fire, that would have been by authority of a Rebellion. That is the 10 (1780) 1 Bennett’s Fire Insurance Cases 16. 11 N 9. 56 R evolution, rebellion, insurrection … only distinction in this case—it must be a rebellion, got to such a head, as to be under authority … Usurped power takes in rebellion, acting under usurped authority. 8.16 In the Pan Am case12 the Circuit Court of Appeals adopted a different approach. It dismissed Aetna’s pleadings based on the 1597 and 1688 cases somewhat brusquely by saying that the pleadings were based on a false reading of English cases and were shot through with non sequiturs. It held: … that in order to constitute a military or usurped power, the power must be at least that of a de facto government. On the facts of this case, the P.F.L.P was not a de facto government in the sky over London when the 747 was taken. Thus the loss was not “due to or resulting from” a “military … or usurped power”. 8.17 In another part of the judgment, the court held that not even in Jordan, where the main elements of the P.F.L.P. were to be found,13 did the P.F.L.P. have the characteristic of a de facto government. 8.18 Until the Spinney’s case14 the English courts did not give further close analytical attention to “military or usurped power” but two further cases should be noted. In Rogers v. Whittaker15 Sankey J. considered whether the expression included foreign military forces. He was considering a case where a Zeppelin had dropped a bomb on a warehouse. He decided that “military power” included the exercise of a foreign military power in time of war: “Military or usurped power suggests something more in the nature of ‘war’ and ‘civil war’ than ‘riot’ and ‘tumult’.” 8.19 In the Curtis case16 Bankes L.J. said: “Usurped power seems to me to mean something more than the action of an unorganised rabble … There must probably be action by some more or less organised body with more or less authoritative leaders.” And added on the Drinkwater17 case: “The acts were the acts of a common mob dispersed in less than an hour acting feloniously and not treasonably.” 8.20 We can thus see why18 in Spinney’s case Mustill J. declined to follow the American view that “military or usurped power” can be exercised only by a government with at least de facto status and felt that here the English and the American laws diverged: Returning to the English cases, they clearly establish the proposition that one of the tests for a usurped power is whether the acts in question amount to constructive treason … The usurpation consists of the arrogation to itself by the mob of a law-making and law-enforcing power which properly belongs to the sovereign. Spinney’s case, therefore, clearly points to the mob arrogating to itself the sovereign’s powers as the proper test. It is not necessary that the mob should have attained the status of a de facto government before it exercises “usurped power”. 12 13 14 15 16 17 18 N 1. The Popular Front for the Liberation of Palestine. N 2. [1917] 1 K.B. 942. Curtis & Son v. Matthews [1919] 1 K.B. 425. See paragraphs 7.1–7.5. Drinkwater v. The Corporation of the London Assurance (1767) 2 Wils. K.B. 363. At 435. 57 R evolution, rebellion, insurrection … 8.21 Mustill J. then applied the English test to Spinney’s case, and also dealt with universality of purpose thus: “… One must ask oneself whether those participating in the events which appeared at the time in question had a sufficiently warlike posture, organisation and universality of purpose to constitute them an usurped power” and found that the answer in the case of the casual looters was “no”. On the other hand, he answered the question with a “yes” in the case of the militias and their civilian allies. It is true that there was not complete identity of purpose in their many and varied motives but there was universality of purpose in that they were all arrogating to themselves the power of government and were therefore exercising a usurped power: “By side-stepping the government and proceeding to direct actions, the citizen groups arrogated to themselves the proper functions of the State and thereby exercised (or constituted) an usurped power …” Revolution, rebellion, insurrection in the War Risks Policy 8.22 Returning now to the insured perils of the War Risks Policy, until Spinney’s case there was the temptation to equate all these expressions as being indistinguishable. It is true that if a casualty should arise, it may be difficult indeed to disentangle the actual events so that there is a clear pointer in one direction or the other. Nevertheless, the distinction does exist and Mustill J. indicated this in the Spinney’s case19: “… Are there other requirements (‘military or usurped power’); in particular that the events should have amounted to a rebellion or insurrection? It seems to me that in the particular context the answer must be no.” 8.23 Even if in the Langdale case20 there was some indication that “usurped power” connotes “rebellion” or “insurrection”, Mustill J. regarded Lord Mansfield as not necessarily equating them and this seems to be the modern view, however fine the distinction may be in practice. The Judge adopted as a definition of “rebellion” that given by the Oxford English Dictionary already seen at paragraph 8.6, viz.: “… Organized resistance to the ruler or government of one’s country; insurrection, revolt” and added something more: “… The purpose of the resistance must be to supplant the existing rulers or at least to deprive them of authority over part of their territory.” 8.24 Regarding “insurrection” he again turned to the Oxford English Dictionary which to him indicated an incipient or limited rebellion with a lesser degree of organisation. He emphasised, however, that, in both “rebellion” and “insurrection”, there must be action against the government with a view to supplanting it. It, like rebellion and revolution, must though have a decidedly domestic character. Should outside actors be the protagonists, it seems likely that the definitions would not be met: see Rogers v. Whitaker.21 8.25 The insured peril “insurrection” received close attention in the American case of Home Insurance Company of New York v. Davila,22 a decision of the 2nd Circuit Court of Appeals. Mr. Davila owned buildings at Jayuy in Puerto Rico which were insured with the Home Insurance Company of New York against fire risks with the following exclusion clause: “Ex loss or damage caused by insurrection.” On 30 October 1950, Puerto Rican 19 Ibid. 20 Langdale v. Mason (1780) 1 Bennett’s Fire Insurance Cases 16. See paragraph 8.12. 21 [1917] KB 942 at 944. 22 212 F. (2d) 731 (1952). 58 R evolution, rebellion, insurrection … nationalists undertook violent actions at various places in Puerto Rico. Four carloads of nationalists arrived at Jayuy and hoisted the nationalist flag. They set fire to several buildings and engaged in a violent gun battle with the police. The fire brigade was prevented from attending to the fires by the shooting of the nationalists and Mr. Davila’s property was seriously damaged. The court described the affair: “as an incident of the uprising staged … by a little band of extremists calling themselves the Nationalist Party of Puerto Rico”. Apparently, they had a rudimentary military organisation with officers, cadets and a training programme. The size of their resources can be judged by the fact that they devoted only four carloads of men to the City of Jayuy. 8.26 The judgment of the 2nd Circuit was given by Magruder C.J. The court was not making a finding whether an “insurrection” had arisen; it was only concerned with the District Court’s direction to the jury. It considered that the jury could find that there was an “insurrection” if it was satisfied that the nationalist leaders had as their “maximum objective” the overthrow of the government. Since apparently the District Court had not so directed the jury, the case was remitted for a new trial. 8.27 Subsequently, in the Pan Am case,23 the 2nd Circuit added further to its judgment on the Davila case: “Under Davila, revolutionary purpose need not be objectively reasonable. Any intent to overthrow, no matter how quixotic, is sufficient” and approved the description given by the District Court that an “insurrection” means: (1) A violent uprising by a group or movement [which is] (2) acting for the specific purpose of overthrowing the constituted government and seizing its powers. 8.28 In applying these principles to the Pan Am case itself, it is scarcely surprising that the 2nd Circuit Court of Appeals found: All risks insurers did not support the burden of proving that at the time of the loss the P.F.L.P. intended to overthrow King Hussein [of Jordan]; if the P.F.L.P. was fighting Hussein, it was fighting for survival rather than Hussein’s overthrow. Alternatively insurrection did not cause the loss, and made a further, and reassuring, finding that in London at that time there was no insurrection. 8.29 In 1981, Mustill J. did have the advantage of considering the judgment of Magruder C.J. in the Davila case (see above), but did not have before him the later judgment of Saville J. in National Oil Company of Zimbabwe and Others v. Sturge24 given in 1991, where “insurrection” was directly in point. It seems that National Oil Company of Zimbabwe25 is the first reported case to have reached the courts after the new forms of insurance for cargo and for ships were adopted in 1982 and 1983 respectively. In that case the plaintiffs (“the Others” included B.P., Mobil, Caltex and Total) owned the gasoil and the mogas being transported through the Beira-Feruka pipeline which carried oil from the coast to landlocked Zimbabwe. Mr. Sturge was the representative underwriter 23 N 1. 24 [1991] 2 Lloyd’s Rep. 281. 25 Ibid. 59 R evolution, rebellion, insurrection … of the insurance of the oil which incorporated the Institute Strikes Clauses (Cargo) 1.1.82. The material parts of the insurance read: Risks covered This insurance covers, except as provided in Clauses 3 and 4 below, loss of or damage to the subject-matter insured caused by 1.1 Strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions 1.2 any terrorist or any person acting from a political motive. whilst the important exclusion read: Exclusions 3. In no case shall this insurance cover … 3.10 loss damage or expense caused by the war civil war revolution rebellion insurrection, or civil strife arising therefrom or any hostile act by or against a belligerent power. 8.30 The material events can be set out: 1962: The Front for the Liberation of Mozambique (Frelimo) is founded. Its object is to gain independence from Portugal by violent means. September 1974: Independence is granted and Frelimo begins to turn the country into a Marxist/ Leninist state. There is wholesale nationalisation of land, villagers are moved to new homes, objectors are thrown into prison, and some people are sent off for “re-education”. March 1976: The previous permission to the Rhodesian armed forces to cross the frontier in “hot pursuit” is withdrawn. Sanctions against Rhodesia are now applied. 1976 to 1980: The Mozambique National Resistance Movement (Renamo) is founded. At first it is ineffective, but rapidly gains in importance. It opposes Frelimo by violent means. A radio station is established in Rhodesia. February 1980: Rhodesia gains independence as the new state of Zimbabwe. South Africa takes Rhodesia’s place as the main supporter of Renamo, and the radio station is moved there. Late 1980: Renamo, much more effective than formerly, is now a formidable guerilla force. It engages in operations against road, rail, water and electricity services, and there are frequent ambushes of government troops besides many instances of murder of Frelimo supporters. By now it controls considerable stretches of territory, and can field up to 8,000 men against the government’s army of about 20,000. July 1982: Renamo attacks the pipeline, and between this date and January 1983 carries out altogether five attacks upon it. A considerable quantity of Gasoil and Mogas is lost. By this time Renamo is able to carry out many daring acts of sabotage over the whole country, and the position is so serious that the President, Samora Machel, has to postpone a visit to London. 60 R evolution, rebellion, insurrection … 8.31 The underwriters were prepared to accept that the losses fell within the insured perils, but contended that Clause 3.10 excluded any claim. The question arose whether Renamo was engaged in a civil war, a rebellion, or an insurrection. 8.32 Notably only Spinney’s case and the Davila case were quoted by counsel for the consideration of the court, and this confirms the dearth of available judicial authority on this topic. Saville J. gave judgment that: “Rebellion” and “insurrection” have somewhat similar meanings to each other. To my mind, each means an organised and violent internal uprising in a country with, as a main purpose, the object of trying to overthrow or supplant the Government of that country, although insurrection denotes a lesser degree of organisation and size than “rebellion”. 8.33 It did not matter what the motives of Renamo were, whether they were moved by high altruistic motives such as the establishment of a democratic regime, or by simple greed and the desire for power for themselves, provided that their purposes were clear. The underwriters had made out their case, and were entitled to judgment in their favour. 8.34 These particular insured perils have not been considered by the English Courts in detail since Saville J.’s decision in the Spinney’s case. The issues have, however, arisen in two relatively recent Commonwealth cases. 8.35 In Grell-Taurel Ltd v. Caribbean Home Insurance Company Ltd 26 the Court of Appeal of Trinidad and Tobago was tasked with considering the meaning of “insurrection”. On 27 July 1990, a group of armed men from the radical Mulismeen group stormed the Police Headquarters in the Port of Spain, killing a sentry guard, and substantially destroying the building. At the same time, a group of around 42 heavily armed men stormed the Parliament Chamber, killing six people, and taking a number hostage— including the Prime Minister. Simultaneously around 70 Muslimeen attacked Television House, taking a further 26 people hostage. The leader of the Muslimeen, Abu Bakr, later that day appeared on television and stated that the Government of Trinidad and Tobago had been overthrown. Following Abu Bakr’s statement widespread and substantial looting commenced in the Port of Spain and various other locations just outside of the city. The claimants, who were engaged in the business of selling and servicing industrial equipment and machinery, owned a facility known as the Grell-Taurel Compound. Having commenced in the Port of Spain itself, over time, and by late on the 27 July, the looting had spread to the Grell-Taurel site, and continued into the 28 July. 8.36 The company’s Fire and Special Risks policy excluded cover for loss or damage arising from, amongst other things, the following “occurrences”: “mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power …” but also provided that any loss or damage happening during the existence of abnormal conditions … which are occasioned by or through or in consequence, directly or indirectly, of any of the said occurrences shall be deemed to be loss or damage which is not covered by this insurance, except to the extent that the insured shall prove that such loss or damage happened independently of the existence of such abnormal conditions. 26 [2002] Lloyd’s Rep. IR 655. 61 R evolution, rebellion, insurrection … 8.37 One of the questions dealt with was whether it could be said that the looting at the Grell-Taurel compound, which was situated a fair way outside of the centre of the Port of Spain, could be said to have been caused by an “insurrection”, even if that was the correct way to characterise what was going on in the centre of the city, such that the loss and damage would fall outside the terms of the insurance. It decided that they could, and so the claimant insured’s appeal was dismissed. The evidence suggested that across Trinidad and Tobago the country was in the grip of widespread serious violence at the hands of the Muslimeen, of the nature that was beyond the capability of the police to control and suppress. That had led the Acting President to declare a state of emergency, not just in relation to once district, but across the whole of the country. At no time had the insurrection been contained within the Port of Spain such as to mean the looting taking place in the Grell-Taurel compound had not arisen as a result of it (indirectly or directly). It could not be said that “the insurrection was so far removed in time and place, to the extent that it had nothing to do with the looting”, which Warner J.A.27 considered to be the test one could derive from Mustill J.’s judgment in the Spinney’s case.28 8.38 The most recent case to consider these perils is the decision of the Supreme Court of the Fiji Islands in Tappoo Holdings Ltd v. Stuchbery,29which arose out of the armed takeover of the Fijian Parliament by a group led by a Mr George Speight. As a result of the takeover, a riot ensued in Suva, during which the claimant’s shop was looted and damaged by the mob. The claimant’s material damage cover excluded “any loss or damage directly or indirectly caused by or resulting from … (a) war, invasion, act of foreign enemy, warlike operations (whether war is declared or not), civil war, mutiny, rebellion, revolution, insurrection, military or usurped power …”. The Fijian Court of Appeal held that the actions of Mr Speight and his associates amounted to an “insurrection” from which the claimant’s loss directly arose, and as such the loss was excluded. 8.39 On appeal, amongst other things, the claimant argued that the events could not give rise to an insurrection because the numbers of individuals (only eight) involved in the enterprise were too few. The Fijian Supreme Court dismissed the claimant’s appeal, agreeing that there was an insurrection. In doing so it held 30 that an insurrection constitutes “an attempt by force to overthrow the established government”, and that whether or not the insurrection was likely to succeed was not a relevant consideration when seeking to define events. Further the Court held that it was not necessary that a large number of individuals be involved in the relevant acts, nor that the affair be highly organised. It may be “a loosely organised affair”. Just as in the Grell-Taurell case, the Fijian Supreme Court also considered that the fact the looting, causing the loss, was motivated by the personal gain of those involved, did not militate against the cause of the loss, for the purpose of the policy, arising from the insurrection (a defining feature of which needs to be the overthrow of the government by the participants, rather than personal gain). 27 28 29 30 At paragraph 93. At 426. [2006] FJSC 1; [2008] Lloyd’s Rep. IR 34. At paragraph 28. 62 R evolution, rebellion, insurrection … Conclusions 8.40 It is submitted the following conclusions can be drawn from the case law considering “revolution”, “rebellion” and “insurrection”: (1) The meaning of “military or usurped power” became clear with the Langdale case in 1780. It could only arise if there was treasonable intent, or at least that of constructive treason. This in turn meant that the objects of the mob had to include the unseating of the government or coercing it by force. (2) “Military or usurped power” are no longer insured perils or excluded risks of the Institute War and Strikes Clauses. Mustill J. found some difficulty in equating “military and usurped power” with their modern equivalents “revolution”, “rebellion” and “insurrection”. There are however some common characteristics, and these include the intention to replace the government or to coerce it. (3) There is always a danger of distortion in describing insured perils in a “steps on the ladder” manner, imputing a descending order of gravity onto them. That approach was to some extent deprecated by Rix J. in the context of a differently worded aviation war risk policy in Kuwait Airways Corp v. Kuwait Insurance Co SAK.31 Nevertheless, it is felt that such an order can, allowing for the necessary flexibility and overlap between the different perils to be preserved, be drawn up in the order of “revolution”, “rebellion” and “insurrection”. Moreover, it is suggested that Saville J. would have been justified in making a finding of a more serious disorder in the Mozambique case. (4) “Revolution”, as an insured peril, does not appear to have been judicially defined in the war risks context. However, drawing upon the Oxford English Dictionary’s definition, it is suggested that the following criteria should be applied: there must be a complete overthrow of the established government by the people over whom it formerly ruled, and a successful and complete substitution by another form of government which rules over and controls the territory in question and the people who live there. An element of forcible substitution is required, although it would be sufficient if the substitution is achieved without force provided that there is the threat of force, either actual or implied. (5) “Rebellion” as an insured peril means the organised, armed and forcible resistance to the government of the country by its subjects, even though assisted from without. An essential aim is the intention to supplant the government, even though in all the circumstances that aim may appear unlikely or impossible of achievement. (6) “Insurrection” as an insured peril is difficult to distinguish from “Rebellion” whose characteristics it shares, in particular the aim to supplant or coerce the existing government. A possible distinction is that it can include an upheaval with a lesser degree of organisation, or which is less widespread. The likelihood of success of an insurrection is not a factor in determining whether one exists. 31[1996] 1 Lloyd’s Rep. 664 at 690. 63 R evolution, rebellion, insurrection … (7) The modern tendency of the courts is to search for the proximate cause of a loss, and to define it strictly. “Revolution”, “rebellion” and “insurrection” are listed as separate insured perils. It can therefore be expected that in future cases, the courts will seek stricter definitions than presently exist. 8.41 It may be helpful to compare the contents of this chapter with Chapter 17 which concerns the insured perils of “riots” and “civil commotions”. These are totally separate insured perils and must be treated as such, even though the actual events of any casualty may, in spite of the most careful analysis, appear to cross the strict boundary lines which must be drawn around each separate insured peril. 64 CH A PT ER 9 … Or civil strife arising therefrom … 9.1 There appear to be no decided cases on this insured peril, apart from some indications in Spinney’s case.1 It is clear from the terms of the policy that this insured peril is intended to cover situations of civil disorder which arise during a war, civil war, revolution, rebellion or insurrection, or which continue after the war etc. is over. As to the latter, it can be envisaged that civil disorder of some kind might arise either during, or after, such traumatic events. Provided that the civil disorder can factually be linked to war etc. in the sense that it “arises” from them, or from one of them (i.e. a question of causation), a claim will arise in respect of an insured object which is lost or damaged as a result. 9.2 “Civil” is defined in the Oxford English Dictionary as: “Of or pertaining to citizens; of or belonging to citizens; consisting of citizens or men dwelling together in a community; also of the nature of a citizen.” “Strife” is defined as: “The action of striving together or contending in opposition; a condition of antagonism, enmity or discord; contention, dispute; in a state of discord or contention; by force or violence (also appropriate to a situation without violence).” 9.3 Following the indications in the Spinney’s case, it is suggested that such “civil strife” must be of a most serious nature amounting at least to a “civil commotion” and nothing less than this will cause this insured peril to operate on its own. Given the need for a causative link between the “civil strife” and the perils mentioned earlier in the clause, it might be the case that a lesser degree of cohesion between the participants involved in the acts constituting “strife” would be required than Mustill J. held would be necessary for “civil commotion” in Spinney’s at 438. If that is right, then it might be the case that widespread disorganized looting that would not of itself fall within any of the perils covered by the clause might be covered if it arises as a consequence of an event which does fall within the definition of one of the insured perils discussed in Chapters 6–8. 9.4 This does not mean that other disturbances of a lesser nature, which are insured perils in their own right, are excluded from the insurance cover. These insured perils will not separately cease to become complete simply because this insured peril will only operate where serious disturbances are involved. 1 Spinney’s (1948) Ltd. and Others v. Royal Insurance [1980] 1 Lloyd’s Rep. 406. 65 CH A PT ER 10 … Or any hostile act by or against a belligerent power 10.1 These words were not included in the f.c. & s. Clause until the 1943 version, and then only in a heavily qualified form. The reasons for the decision of Alan Jackson’s Committee in 1983 to exclude “warlike operations” from the new MAR Form are described in Chapter 1. Its place was taken by the wholly new insured peril of “war”, which in turn was reinforced by “or any hostile act by or against a belligerent power”, promoted for the first time to the full standing of an insured peril in its own right from its previously obscure position. Whilst, as noted in Chapter 6, there are still a number of unanswered questions about “war” as an insured peril, it can still be regarded as definite and precise. Whilst there are few judicial definitions of the insured peril which this chapter considers, there are sufficient to suggest the view that it, too, is definite and precise with a well-defined field of application. 10.2 The Oxford English Dictionary defines “hostile” as: “feeling or showing dislike or opposition; of or belonging to a military enemy” and “hostilities” as: “acts of warfare”. “Belligerent” is defined as “hostile and aggressive”; “engaged in a war or conflict” (both adj); “a nation or person engaged in war or conflict” (n). 10.3 Therefore, even before the eye reaches the word “power” a distinct flavour is introduced of warlike actions (or, one might say, “warlike operation”) by or against a State or at the very least an organised body of persons. In connection with “power”, it should be noted that the f.c. & s. Clause contained an explanation: “and for the purpose [of the f.c. & s. Clause] power includes any authority maintaining naval, military or air forces in association with a power”. This phrase has been left out of the MAR Form, no doubt because it was felt to be unnecessary and added nothing to the insurance cover given. 10.4 Matters were put on to an even firmer and more definitive basis by Bailhache J. in Atlantic Mutual Insurance v. The King.1 The Tennyson sailed from Bahia bound for New York in February 1916 loaded in number 4 hold with a cargo of hides and skins. Five days after sailing, on 18th February 1916, a bomb exploded in the hold, seriously damaging the aft end of the ship and the hides and skins in number 4 hold, killing three seamen and starting a fire. It was clearly a very powerful weapon, and it turned out that it was planted there by Herr Niewerth, a German citizen living in Bahia. Niewerth was an electrical engineer and the manager of a local factory. His house was the centre of German activities in Bahia and he never made any secret of his patriotic feelings. Atlantic, who were the primary insurers, paid the claim of the owners of the cargo, and looked to Mr. King 1 [1919] 1 K.B. 309. 66 … Or any hostile act by or against a belligerent power to reimburse them under the reinsurance policy. This document contained an exclusion clause: “Warranted free from all consequences of hostilities or warlike operations …” 10.5 On “hostilities”, Bailhache J. had this to say: In one sense, it is plainly true that the fire was due to a hostile act, but the plaintiffs say rightly, as I think, that the word “hostilities” as used in the Clause, means hostile acts by persons acting as the agents of sovereign powers, or such organized or considerable forces as are entitled to the dignified name of rebels as contrasted with mobs or rioters, and does not cover the act of a merely private individual acting entirely on his own initiative, however hostile his actions may be. 10.6 If matters had rested there, the plaintiff would have won his case because the conclusion must have been that Niewerth was acting on his own and not on the orders of his government. The court seems not to have been too impressed with the defendant’s list of 27 similar instances, or the expressed policy of Germany to wage war, not only by means of her armed forces but: “… by all her subjects wherever found who were willing to help her by doing … mischief …” 10.7 What seems to have clinched the matter in the defendant’s favour was the production of a circular to all the German naval attachés in Germany’s overseas embassies that they were to spare no effort to recruit “destruction agents”. The chief targets were to be munitions for the United Kingdom, France, Canada, the United States and Russia. Bombs were to be placed on board. Trouble was to be fermented in the ports. The use of anarchists and criminals was sanctioned. Funds would be made available. Whilst there was no evidence that Niewerth ever saw the circular, it was reasonable to assume that a man of his character was the servant, or agent, of Germany. There was no subsequent ratification of his actions by Germany, and he was not an agent in the business sense, but: I am disposed to think that a man is acting in such a case as this as the agent of his government when knowing that the settled and concerted policy of that government is to avail itself of the efforts of all its subjects … he uses such opportunity as presents itself under that policy. 10.8 Niewerth could thus be regarded as a German agent as fully as though he was a member of the German armed forces and wore their uniform. 10.9 Two years later, in 1921, Bailhache J.’s views on the definition of “hostilities”2 received the support of the Court of Appeal and the House of Lords in The Petersham3 and 2 But not his decision that the The Matiana had been engaged in a warlike operation when she stuck a reef whilst sailing under convoy. The Court of Appeal ([1919] 2 KB 670 CA) and the majority in the House of Lords (Lords Cave and Shaw dissenting) ([1921] AC 99 HL) in reversing that decision considered that the vessel’s participation in a convey did not constitute engagement in a warlike operation (cf. the position of the warships escorting the convoy). The Court of Appeal and House of Lords upheld Bailhache J.’s decision in The Petersham that the perils of “hostilities” and “warlike operations” had not been made out because the vessel had collided with another vessel whilst undertaking a peaceful operation whilst sailing at night without lights under order of the Admiralty. The point being there that even though the vessel was sailing without lights under order of the Admiralty, she herself was not involved in hostilities or warlike operations—in fact the very contrary was true. All that could be said was that the risk of the vessel encountering a normal maritime peril of collision had been enhanced, but that was not sufficient to invoke the war risks cover. 3 Britain S.S. Co. v. Rex (The Petersham) (1920) 3 Ll.L.Rep. 163, 205; (1920) 4 Ll.L.Rep. 245; [1921] 1 A.C. 99 (H.L.). 67 … Or any hostile act by or against a belligerent power The Matiana.4 Atkin L.J. considered that “hostilities” implied enemy nations at war with one another (The Petersham).5 When both The Petersham and The Matiana cases reached the House of Lords as a conjoined appeal, Lord Atkinson added to this:6 I concur with Atkin L.J. thinking that the word “hostilities” connotes the idea of belligerents properly so called, enemy nations at war with one another and is used to describe the operations, offensive, defensive, or possibly protective of the one against the other in the conduct of the war. 10.10 Lord Wrenbury7 used different words, but in spite of an initial impression of divergence, it is suggested that he meant the same: All the decisions have, I think, proceeded, and in my judgment have rightly proceeded, upon the footing that the word “hostilities” does not mean “the existence of a state of war” but means “acts of hostility” or (to use the noun substantive which follows8) “operations of hostility”. The sentence may be read “all consequences of the operations of hostility (of war) or operations warlike (similar to operations of war) whether before or after declaration of war.” To attribute to the word the larger meaning—namely “all consequences of the existence of a state of war”—would give the expression a scope far beyond anything which one can conceive as intended. 10.11 The English approach to the definition of “hostilities” and “hostile act” received much support in International Dairy Engineering Company of Asia v. American Home Assurance Company.9 The court’s decision really turned on the “consequences” point but it is clear that the court would have been equally prepared to sign judgment in the underwriter’s favour because the loss was due to “a hostile act by or against a belligerent power” which was similarly excluded from the insurance cover. Sweigert D.J. held: The term “hostilities” and “hostile act”… has been defined as actual operations of war, either offensive, defensive or protective by a belligerent. It has also been held that the hostile act need not involve the overt use of a weapon which is, in itself, capable of inflicting harm; it can be an operation such as the extinguishment of a navigational light or the outfitting of ship—if done for a hostile purpose. 10.12 The Vietcong could not be described as a nation but: “… [The] National Liberation Front [Vietcong] were engaging in hostilities with the Republic of South Vietnam and as such insurgents had taken control of many regions of South Vietnam …” Undoubtedly Bailhache J. would have accorded the Vietcong “the dignified name of rebels” and likewise considered them as “belligerent”. 4 Green v. British India Steam Navigation Co., British India Steam Navigation Co. v. Liverpool & London War Risks Association (The Matiana) (1920) 3 Ll.L.Rep. 205; (1920) 4 Ll.L.Rep. 245; [1921] 1 A.C. 99 (H.L.). 5 At 695. 6 At 114. 7 At 133. 8 In the phrase “consequences of hostilities or warlike operations”. 9 [1971] A.M.C. 1001. 68 … Or any hostile act by or against a belligerent power 10.13 In conclusion: (1) The words “hostile”, “belligerent” and “power” all point in the same direction, that the agency which destroys or damages the insured ship must be a government or, at the very least, rebels. (2) Such a government could have either de jure or de facto status, such as the Confederates in the American Civil War or the Nationalists in the Spanish Civil War. (3) Rebels need to have the same status as is indicated for “rebellion” and “insurrection” (Chapter 8). It will not be sufficient if the persons causing the destruction or damage to the insured ship are engaged in a mere civil commotion or a riot, serious as both of these incidents are. (4) The indications are that as things stand at present, this insured peril can only arise in the context of a “war” or “civil war”. The possibility that it extends the insurance cover beyond them should not be entirely excluded. It is tempting to think that if the hijackers in the Pan Am case10 had been employed by a State at war with another State, in which the United States was neutral, or had been rebels, then the loss of the 747 would have been covered by this insured peril. So far, this line of thinking has not been sanctioned by the authority of judicial decision, and until such a decision is given, this proposition must be treated with caution. 10 Pan American World Airways Inc. v. The Aetna Casualty & Survey Co. [1974] 1 Lloyd’s Rep. 207; [1975] 1 Lloyd’s Rep. 77. 69 CH A PT ER 11 Capture Origin of the capture and seizure perils 11.1 The SG policy, in the form set out in Schedule 1 to the 1906 Act, covered the perils of “takings at sea, arrests, restraints, and detainments of all kings, princes, and people”. The peril of “takings at sea” does not appear1 in the modern clauses, but arrests, restraints and detainments survive. Rule 10 of the Rules for Construction of Policy in Sch 1 provided that the term “arrests, &c., of kings, princes, and people” referred to political or executive acts, and did not include a loss caused by ordinary judicial process. The modern forms continue to exclude ordinary judicial process, and generally cover only political or executive acts. The peril of “seizure” is an important exception (see Chapter 12). 11.2 When underwriters did not wish to insure war risks, the practice grew up of including an exclusion in the form of a so-called warranty “free of capture and seizure”, known as the “f.c. & s.” warranty.2 Where on the other hand the policy was in respect of war risks alone, the practice was to cover the risks which would be excluded by the f.c. & s. warranty.3 The standard form of exception was that the insured ship or cargo was “warranted free of capture and seizure and the consequences of any attempts thereat” or similar wording. “Warranted free” meant that the insurers were not to be liable for the things to which the warranty applies;4 in other words, an exception and not a promissory warranty. 11.3 New marine policy forms were introduced from 1982. The new forms replaced the traditional exclusion and reinstatement method for insuring war risks with a direct statement of the perils covered. In The B Atlantic, Lord Mance noted5 that while the clauses were freshly drafted, they did not abandon, but sought to bring fresh order and clarity to, 1 “Takings at sea” involved the seizure of the vessel and cargo by external force or the threat thereof in the context of arrests, restraints and detainments and did not cover misappropriation of the cargo by the shipowner: Shell International Petroleum Co. Ltd. v. Caryl Antony Vaughan Gibbs (The Salem) [1983] 1 Lloyd’s Rep. 342; [1983] 2 A.C. 375, overruling Nishina Trading Co. Ltd. v. Chiyoda Fire & Marine Insurance Co. Ltd. (The Mandarin Star) [1969] 1 Lloyd’s Rep. 293; [1969] 2 Q.B. 449. Misappropriation of the cargo by the shipowner would be covered under all risks cover. 2 For a description of the practice, see Britain Steamship Co. Ltd. v. The King (The Petersham) [1919] 2 K.B. 670, per Atkin L.J. at pp.692–693. 3 For an example, see Yorkshire Dale Steamship Co. Ltd. v. Minister of War Transport (The Coxwold) (1942) 73 Ll.L.Rep. 1; [1942] A.C. 691 at p.692. 4 Cory v. Burr (1883) 8 App. Cas. 393 per Lord Selborne LC at p.395, per Lord Blackburn at p.400, per Lord Fitzgerald at p.404. 5 Navigators Insurance Co Ltd v. Atlasnavios-Navegacao Lda (formerly Bnavios-Navegacao Lda), (The B Atlantic) [2018] 2 Lloyd’s Rep. 1; [2019] A.C. 136 at [16]. 70 Capture many of the time-honoured concepts used in the market, such that prior authority on those concepts were therefore potentially relevant. Capture, etc.: Hull, Freight and Cargo Clauses 11.4 There is a large degree of overlap, but also some important differences, between the clauses for hull, freight and cargo respectively. The scheme for each of these will be described, then the common provisions will be considered, before dealing with aspects which are peculiar to each. Capture, etc.: Hull Clauses 11.5 The structure of the Hull Clauses is as follows. The perils covered include loss of or damage to the vessel caused by “capture seizure arrest restraint or detainment, and the consequences thereof or any attempt thereat” (Clause 1.2) and “confiscation or expropriation” (Clause 1.6). There is provision for the Assured to be deemed to have been deprived of the possession of the Vessel without any likelihood of recovery where the vessel has been captured, etc., for a continuous period of 12 months (Clause 3). The most directly relevant exclusions are for: (i) requisition and or pre-emption (Clause 4.1.3); (ii) capture, etc., “by or under the order of the government or any public or local authority of the country in which the Vessel is owned or registered” (Clause 4.1.4); (iii) arrest, etc., “under quarantine regulations or by reason of infringement of any customs or trading regulations” (Clause 4.1.5); and (iv) “the operation of ordinary judicial process, failure to provide security or to pay any fine or penalty or any financial cause” (Clause 4.1.6). 11.6 The risks insured are the perils with the exclusions; together they delimit the risks covered.6 Whilst individual exclusions have different purposes, the purpose of clauses 4.1.5 and 4.1.6 is to preserve the essential meaning of the terms in a war risks policy, which is to cover political and executive acts.7 Capture, etc.: Freight Clauses 11.7 The structure of the Freight Clauses is, with one exception, the same as the Hull Clauses. The one difference is that there is provision (Clause 3) for payment of the amount insured in the event that there is a CTL of the vessel under the Hull Clauses. Capture, etc.: Cargo Clauses 11.8 The structure of the Cargo Clauses differs significantly from the Hull and Freight Clauses. First, the cover only extends to capture, etc, arising from the war risks strictly so-called, namely “war civil war revolution rebellion insurrection, or civil strife arising 6 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.416 per obhouse J; [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.572; The Aliza Glacial [2002] 2 Lloyd’s Rep. 421 at H [24–27]. 7 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.572. 71 Capture therefrom, or any hostile act by or against a belligerent power” (Clause 1.2). Second, there is no cover for confiscation or expropriation. Third, due to the limitation on the scope of cover, there are no exclusions matching those set out in paragraph 11.5 in relation to Hull and Freight. Differences between “capture” and “seizure” 11.9 “Capture” and “seizure” both involve depriving the insured of his property,8 but they are nonetheless distinct and separate insured perils. Channell J., when giving judgment in Andersen v. Marten9 in 1907 quoted from Arnould when defining “capture” as: “A taking by the enemy as prize, in time of open war, or by way of reprisals, with intent to deprive the owner of all dominion or right of property over the thing taken.”10 11.10 Lord Fitzgerald in Cory & Sons v. Burr11 contrasted “capture” with “seizure”: Capture would seem properly to include every act of seizing or taking by an enemy or belligerent. “Seizure” seems to be a larger term than “capture” and goes beyond it, and may reasonably be interpreted to embrace every act of taking forcible possession either by lawful authority or by overpowering force. 11.11 Hilbery J. in Forestal v. Rickards12 contrasted “capture” with “takings at sea”, an insured peril which no longer appears in the Institute War and Strikes Clauses but which to some extent is co-extensive with “seizure”: Capture is a taking by the enemy as prize in time of open war with intent to deprive the owners of their property and the goods. It is a belligerent act … A taking at sea is something less, and it may be a taking at sea although at the time there is no intention thereby to deprive the owner of his property and the ship, but merely the intention to take the ship in for an adjudication. It is the lesser thing included in the greater which is capture. This definition was noted with approval by Kerr L.J. in The Salem.13 The meaning of “capture” 11.12 Ships and cargoes are treated as objects of war to be taken in prize or by way of reprisal and this is the meaning of the word “capture” in marine policies.14 25. 8 The topics of actual total loss, constructive total loss and notice of abandonment are treated in Chapter 9 [1907] 2 K.B. 248. 10 Ibid at p.253. 11 (1883) 8 App. Cas. 393 at p.405. 12 Forestal Land, Timber & Railways Company v. Rickards (The Minden); Middows v. Robertson (The Wangoni); W.W. Howard, Bros. & Co. v. Kann (1940) 67 Ll.L.Rep. 484 at p.506; on appeal (1940) 68 Ll.L.Rep. 45 (C.A.); (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 (H.L.). 13 Shell International Petroleum Co. Ltd. v. Caryl Antony Vaughan Gibbs (The Salem) [1982] 1 Lloyd’s Rep. 369; [1982] Q.B. 946 at p.992; on appeal to the House of Lords [1983] 1 Lloyd’s Rep. 342; [1983] 2 A.C. 375. 14 Kuwait Airways Corp v. Kuwait Insurance Co SAK [1999] 1 Lloyd’s Rep. 803 at 815 per Lord Hobhouse; Anderson v. Martin [1907] 2 K.B. 248 at p.253. 72 Capture 11.13 Capture means the hostile seizure of property with intent to deprive the owner of that property.15 It includes every act of seizing or taking by an enemy or belligerent.16 The US Supreme Court has held that the taking of a vessel by a rebel force is a capture, provided the rebel force has belligerent status or is a de facto government.17 The use of actual force is not required; it is enough that there is the exercise of the paramount authority of the State and the implicit threat of force.18 Force is implicit in every command made on behalf of a State.19 Apprehension of capture is considered at paragraph 11.47. 11.14 The capture need not be by a power which is belligerent with respect to the vessel’s flag state20 and (like a seizure) the capture need not be lawful.21 The peril includes any capture in consequence by which the ship is lost to the insured. A capture under a commission 22 from a foreign State where there is no war, is a capture just as much as a capture by an enemy.23 11.15 As between insurer and insured, it is immaterial whether ownership of the vessel is transferred to the captor by international law.24 A ship is lost by the capture, even if never condemned by a court or carried into any port or fleet of the enemy.25 If the ship is recovered or retaken in a complete condition, but the owner has paid salvage or incurred any expense in getting her back, the insurer must bear that loss.26 11.16 Once the vessel is captured, the insured is entitled to be paid for a total loss, and the insurer stands in the place of the insured if the vessel is recaptured.27 The right to recover for a total loss is not lost by the recapture, but if the insured claims a total loss he must abandon the vessel as he cannot recover more than he has suffered.28 Whether there was a total loss by the capture, or only a temporary obstruction to the voyage pending 15 Rodocanachi v. Elliott (1872–73) L.R. 8 C.P. 649 per Brett J at p.670. 16 Cory v. Burr (1883) 8 App. Cas. 393 at p.405 per Lord Fitzgerald. 17 Mauran v. Insurance Co, 6 Wall. 1 (1867) (Supreme Court of the United States). The rebel force was the Confederate States of America. 18 Robinson Gold Mining Company & Others v. Alliance Insurance Company [1901] 2 K.B. 919; [1902] 2 K.B. 489 (C.A.); [1904] A.C. 359 (H.L.) (a case on seizure); Miller v. The Law Accident Insurance Co. [1902] 2 K.B. 694; [1903] 1 K.B. 712 (C.A.); [1904] A.C. 359 (H.L.); British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 at p.665 per Lord Atkinson, at p.669 per Lord Parmoor. 19 British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 at p.659 per Lord Loreburn, at p.672 per Lord Wrenbury. 20 Cory v. Burr (1883) 8 App. Cas. 393 at p.396 per Earl of Selborne L.C., observing that it was not a belligerent capture in Powell v. Hyde (1855) 5 E. & B. 607 (Russian fort fired upon a British ship, alleging that they thought it was Turkish, there being a war between Russia and Turkey but not Great Britain), but that belligerence was unnecessary where the policy referred to both capture and seizure; Miller v. Law Accident Ins [1903] 1 K.B. 712 at p.722 per Mathew L.J. 21 Powell v. Hyde (1855) 5 E. & B. 607 at p.611 per Lord Campbell C.J.; Miller v. Law Accident Ins [1903] 1 K.B. 712 at p.722 per Mathew L.J.; Berens v. Rucker (1761) 1 Blackstone W. 313 (insured entitled to recover payment made to compromise a sentence of condemnation arising out of an unlawful capture). 22 A private ship under a commission of war (a letter of marque) was a privateer. 23 Goss v. Withers (1758) 2 Burr. 683 at p.695; (1758) 2 Keny 325 at p.342. 24 Ibid at pp.693 and 340 per Lord Mansfield. The court stated obiter that by the law of nations, property in the vessel is obtained by the captor when the battle is over and all immediate pursuit has ceased, with all hope of recovery gone; but revests in the original owner if the ship escapes or is retaken or is redeemed by payment of a ransom. 25 Goss v. Withers (1758) 2 Burr. 683 at p.694; (1758) 2 Keny 325 at p.342. 26 Goss v. Withers (1758) 2 Burr. 683 at p.694. 27 Ibid at p.696; (1758) 2 Keny 325 at p.343. 28 Ibid. 73 Capture recapture must be determined on the true facts as at the time an action is brought.29 Furthermore, the insured cannot abandon the ship, but only claim for a partial loss, if upon receiving notice of the capture he is also advised that the ship has been safely recaptured.30 Illustrative cases: the insured peril 11.17 The earliest case which concerns us is Goss v. Withers,31 which arose out of the Seven Years’ War. The case concerned the David and Rebeccah and its cargo of fish which was loaded in Newfoundland for Spain and Portugal. Whilst they were separately insured under different policies, the court made no distinction between them, presumably because the ship and the cargo were owned by the same interests. Furthermore, there seems to have been no exclusion of war risks from the policy. On the voyage, the ship needed extensive repairs after suffering storm damage. She was then captured by a French privateer, the crew removed except for an apprentice and a landsman and the ship directed to a French port with a prize crew on board. The ship was then retaken by a British privateer and brought back to Milford Haven. Notice of abandonment was given to the underwriters. The cargo of fish went bad but it is not clear from the report if this was the result of the prolonged voyage or the lengthy delays in Milford Haven. 11.18 Lord Mansfield made a clear distinction between the positions of the underwriter who insures the ship on the one hand and any vendee or recaptor on the other. Where the ship has not been condemned by an enemy Prize Court so that her legal ownership is transferred from her true owner, a vendee or recaptor has no title against the owner of the ship who retains his property in her. Regarding the underwriters, however Lord Mansfield said: But whatever rule ought to be followed, in favour of the owner, against a recaptor or vendee, it can in no way affect the case of an insurance between the insurer and insured … The ship is lost by the capture … and the insurer must pay the value … Capture by a pirate … or capture under a commission, where there is no war; do not change the property. Yet between the insurer and insured, they are just upon the same foot as capture by an enemy.32 11.19 In the Goss case33 the court judged that the David and Rebeccah and her cargo were total losses but it would appear that the storm damage to the ship, coupled with the salvage and other charges attending her recapture led in any event to what would now be called a constructive total loss apart, of course, from the cargo which was an actual total loss. 11.20 Lord Mansfield emphasised that the mere fact of a capture might not necessarily justify an abandonment to the underwriter and a claim for a total loss, using these words: There might be circumstances under which a capture would be but a small temporary hindrance to the voyage; perhaps none at all; as if the ship was taken, and in a day or two, escaped entire, and pursued her voyage. There are circumstances under which it would be deemed an 29 Hamilton v. Mendes (1761) 2 Burr. 1199 at pp.1210–1211 per Lord Mansfield. 30 Ibid at p.1211 per Lord Mansfield. The court expressed no view as to the result if the ship or cargo were to be restored in safety between abandonment and action, or between action and judgment. 31 (1758) 2 Burr. 683. 32 Ibid at pp.694–695. 33 N 31. 74 Capture average loss; if a ship taken is immediately ransomed by the Master and pursues her voyage, there the money paid is an average loss.34 11.21 Lord Mansfield soon found himself making exactly the same points three years later in Hamilton v. Mendes.35 The Selby was loaded with tobacco in Virginia for London and sailed on 28 March 1760. On 6 May the French privateer Aurora of Bayonne captured the ship and removed the crew except for the Mate and one man. A prize crew was put aboard to take the ship to a French port. On 23 May the ship was retaken off Bayonne by H.M.S. Southampton. On 6 June the ship arrived in Plymouth where the salvor apparently had a right to one-eighth of the value. On 26 June the insured learnt of the fate of the vessel and notice of abandonment was tendered. The underwriters’ response was that they were not bound to take the ship. They were, however, ready to pay salvage and other expenses. On 19th August the ship arrived in London where the cargo was discharged. 11.22 The question was whether the plaintiff had the right to abandon the ship on 26 June. It was held that he did not have this right or the right to claim for a total loss and was entitled to no more than the relatively minor expenses which arose directly from the insured peril. In this case there was little, if any, damage to the ship or to the tobacco. Whilst the capture continued, the vessel was a total loss. As to the effect of the recapture, Lord Mansfield added by way of explanation to what he had said in the Goss case:36 It does not necessarily follow, that, because there is a recapture, therefore the loss ceases to be total. If the voyage is absolutely lost, or is not worth pursuing; if the salvage is very high; if further expense is necessary; if the insurer will not engage, in all events, to bear that expense, although it should exceed the value or fail of success; under these and many other like circumstances the insured may disentangle himself and abandon, notwithstanding there has been a recapture.37 11.23 In the middle of the eighteenth century, it seems to have been assumed that the shipowner’s entitlement to a total loss payment was to be judged at the date that the notice of abandonment was given. Possibly the assumption went even further, that the insured owner was entitled to a total loss payment on the date that the notice was given. Lord Mansfield found it necessary to correct this in the Hamilton case:38 The plaintiff’s demand is for an indemnity. His action then must be founded upon the nature of his damnification as it really is at the time that the action is brought. It is repugnant, upon a Contract of Indemnity, to recover as for a total loss when the final event has decided that the damnification in truth is an average, or perhaps no loss at all. Also: I desire it may be understood that the point here determined is that the plaintiff upon a policy can only recover an indemnity according to the nature of his case at the time of the action brought or, at most, at the time of his offer to abandon. 34 35 36 37 38 Ibid at p.697. (1761) 2 Burr. 1198. N 31. N 35 at p.1209. N 35 at pp.1210, 1214. 75 Capture 11.24 Lord Mansfield declined to give any guidance on the position if the ship and the goods were restored safely between the dates of the notice of abandonment and the issue of the writ or between the dates of the issue of the writ and the giving of the judgment. Furthermore he stated that no inferences be drawn in case the ship or the goods should be restored after the payment of the total loss or whether the insurer could in such a case compel a refund of the money in exchange for the restored ship or goods. 11.25 The application of these principles was further worked out in a series of cases arising out of the Napoleonic Wars or the 1812 War between the United Kingdom and the U.S.A. 11.26 In Bainbridge v. Neilson,39 the Mary was insured with a valued policy of £6,000 on her hull and another policy of £4,000 on her freight. In 1807 the ship sailed from Jamaica bound for Liverpool. On 21 September she was captured by a French privateer, but four days later was recaptured by a British privateer and taken to Loch Swilley. On 30 September the shipowner first heard of her capture (but not of her recapture). Notice of abandonment was given to the underwriters on 1 October and the following day news of the ship’s capture was confirmed. On 6 October the news of the ship’s recapture was first heard and passed to the underwriters. The ship subsequently completed her voyage. 11.27 Lord Ellenborough C.J. and three other judges held that the notice of abandonment was properly given (in that the facts as known to the insured would, if true, entitle him to give such a notice) but that it did not confer any rights on the plaintiffs and of itself make a total loss out of a partial loss. The action was brought after the plaintiffs took possession of the vessel but before the arrival of the ship in Liverpool, and thus after the recapture of the ship. Lord Ellenborough C.J. said this: The effect of an offer to abandon is truly this, that if the offer appear to have been properly made upon certain supposed facts, which turn out to be true, the assured has put himself in a condition to insist upon his abandonment: but it is not enough that it was properly made, upon facts which were supposed to exist at the time, if it turns out that no such facts existed, or that other circumstances had occurred which did not justify such abandonment.40 Here there was no question of huge expenses of recovery which might have arisen from an insured peril and thus lead to a total loss being payable. The expenses were trifling and a partial loss only was held to be justified. The fact that the insured was unaware of the true situation was irrelevant. 11.28 In Patterson v. Ritchie,41 goods to the value of £1,400 were loaded on the Dispatch, namely 31 puncheons of rum, 120 tons of salt, a quantity of coal and some mats. In August 1814 the ship sailed from Liverpool for Quebec. At the end of September the ship was captured by an American privateer. In mid-October the crew returned home and notified the owner what had happened. A notice of abandonment was given to the underwriters and a total loss payment requested but refused. On 27 October the ship and cargo were recaptured by a British privateer and taken to Halifax. Eleven puncheons of rum were sold to pay the cargo’s proportion of salvage. In May 1815 the ship reached Quebec, being further delayed by the freezing of the Saint Lawrence river between November and 39 (1808) 10 East 329. 40 Ibid at p.341. 41 (1815) 4 Mau. & Sel. 393. 76 Capture April. The remaining cargo, although pilfered to a minor extent, was in good condition. The underwriters paid all amounts due on the basis of a partial loss. It was held that whilst the cargo was probably a total loss at the date that the notice of abandonment was given, the circumstances had altered before the writ was issued and a partial loss was all that was due. 11.29 In Brotherston v. Barber,42 the ship Fanny sailed from Maranham in Brazil for Liverpool. On 19 April 1814 she was captured off the coast of Ireland by an American privateer and her crew transferred to a Portuguese ship bound for Liverpool. On 25 April the crew made a full report to the owner and Notice of Abandonment was given to the underwriters. In May the ship was recaptured by H.M.S. Sceptre. In mid-June news of the recapture reached the shipowners and the underwriters. Later in June the ship reached Gravesend and on 26 September arrived at Liverpool. On 10 November the shipowner issued a writ against the underwriters. In giving judgment that the loss was only a partial loss and not a total loss, Lord Ellenborough C.J. said: … it seems to me that these plaintiffs must stand, in regard to their claim for indemnity, in the position in which subsequent events have placed them, at the time when they came to demand it; that is when the action is brought.43 11.30 In Naylor v. Taylor44 goods were loaded on to the Monarch for carriage from Liverpool to the River Plate. The insurance policy contained a liberty that in the event of a blockade, or the ship being ordered out of the River Plate, they may be discharged at another port. In February 1826 the London Gazette notified Brazil’s blockade of the River Plate. In March the ship sailed from Liverpool, arriving in the River Plate on 22 May. On 23 May the ship and the cargo were captured by a Brazilian frigate. On 21 July the ship’s crew overpowered the Brazilian prize crew and the ship and cargo escaped. In August notice of abandonment was given to the underwriters and refused. In September the ship and the goods reached Liverpool. In 1827 a writ was issued against the underwriters claiming a total loss of the goods. Lord Tenterden C.J. held there was no total loss: If the abandonment is to be viewed with regard to the ultimate state of facts, as appearing before the action brought, according to the opinion of the Court in Bainbridge v. Neilson[45] there has not … been a total loss.46 11.31 In Rodocanachi v. Elliott47 silks were despatched from Shanghai to London and sent overland by rail from Marseilles. The Franco-Prussian War broke out during the voyage. On 10 September 1870 the Prussian armed forces cut the rail links between Paris and the north Channel ports. On 13 September the silks reached Paris and were warehoused. On 19 September the Prussian armed forces completed the encirclement of Paris. In October notice of abandonment was given and, on the underwriters refusing to accept it, a writ issued shortly afterwards. In November 1871 the silks arrived in London. During the siege 42 43 44 45 46 47 (1816) 5 Mau. & Sel. 418. Ibid at p.423. (1829) 9 B. & C. 718. N 39. N 44 at p.724. (1873) L.R. 8 C.P. 649. 77 Capture of Paris by the Prussian armed forces, the silks were shut up inside the city. At the time the writ was issued, there was no realistic hope that they would be delivered in London at a time that could be regarded as reasonable. The position was complicated by the sale of the silks on 2 September 1870, subject to their being delivered within four months. In the event, the buyers accepted delivery, paying the contract price of £9,362 12s. 6d. The plaintiffs were nonetheless held to be entitled to receive a total loss (presumably less the proceeds of sale) on the basis that at the date of the issue of the writ, the goods could be regarded as being lost for an indefinite time. 11.32 Before we leave the ancient cases, we should note Cologan v. The Governor and Company of the London Assurance,48 a case which went against the general trend. In 1812 the Friendship sailed from Quebec bound to Tenerife with a cargo of wheat, fish and barrel staves. She was separated from her convoy by a storm and was captured by an American privateer. The privateer took some of the cargo for her own use and sent her with a prize crew to an American port. On the voyage she was recaptured by H.M.S. Shannon and sent to Bermuda. Bermuda at the time was short of food and an embargo was placed upon the wheat and the fish from leaving the island. This was eventually permitted but only on the basis that the cargo, together with an additional quantity of flour, should be taken to Madeira for the use of the British garrison stationed there. This was safely achieved. In an action for the total loss of the cargo some doubts are noticeable on the part of some of the judges, but the court gave judgment in favour of the owners for the reasons given by Bayley J.: The destination is to Tenerife; the ship, with the cargo, in her course thither, is captured; recapture follows, but not so as to enable the ship to proceed to Tenerife; for she is sent to Bermuda, where she is placed under an embargo, from which she is never released, except upon condition of altering her destination to Madeira. Therefore there has been no restitution of any part of the cargo, as it regards the risk insured to Tenerife.49 11.33 The rule first enunciated by Lord Mansfield C.J. in Goss v. Withers50 and followed by the courts since then, notably by Lords Ellenborough C.J. and Tenterden C.J., was thus firmly established by 1872. It is not necessary that there should be condemnation before the insured peril of capture can arise and the time to judge whether or not there is a total loss is the date that the action is brought, namely the date the writ is issued, not the date that notice of abandonment is given. 11.34 Ruys v. Royal Exchange Assurance Corporation51 concerned a case of undoubted capture and thus answered any questions on this score which were left open by Rodocanachi v. Elliott.52 The Doelwyk was insured on a valued policy against war risks on 7 August 1896. She was carrying arms for the Emperor of Abyssinia with whom Italy was then at war. On 8 August she was captured by an Italian cruiser. Notice of abandonment was given to the underwriters on 14 August and refused. Shortly thereafter the shipowners issued a writ against the underwriters claiming that the ship was a total loss. In December 48 49 50 51 52 (1816) 5 Mau. & S. 447. Ibid at p.456. N 31. [1897] 2 Q.B. 135. N 47. 78 Capture 1896 the Prize Court in Rome condemned the ship in prize. The war being over, it did not order confiscation. With the agreement of all parties the ship was disposed of by the underwriters on a “without prejudice” basis. 11.35 The court first dealt with some preliminary issues, notably the shipowners’ knowledge at the time that the insurance was placed. Collins J. noted the line of authorities which are quoted above and gave judgment that on 21 August the ship was a total loss: … much might be said for the view … that the rights of the parties should be finally ascertained upon a proper abandonment. But, the object of litigation being to settle disputes, it is obvious that some date must be fixed upon when the respective rights of the parties may be finally ascertained, and the line of the writ may be regarded as a line of convenience which has been settled by uniform practice for at least seventy years …53 11.36 The Ruys case was followed by Andersen v. Marten54 and together the two cases can be taken as implicit authority that the flag or nationality of the insured ship, or the nationality of her owners, is immaterial to the insured peril of capture; the words in the definitions “taking by the enemy” do not refer to the enemy of the insured ship’s flag or her nationality or that of her owners, although it seems necessary that the captor himself is in the service of a belligerent. 11.37 In Andersen55 the disbursements of the Romulus, a German ship, were insured under a policy for one year commencing on 12 January 1905. The policy contained the following clause: “Warranted free from capture, seizure and the consequence of hostilities …” In December 1904 the Romulus sailed from Cardiff bound for Vladivostok with a cargo of coal. It was the time of the Russo-Japanese War. She was supplied with false papers and instructed to follow a circuitous route to her destination to avoid Japanese warships. On 21 February 1905 whilst in the Urup Strait the ship was badly damaged by ice. The crew obliged the master to sail for Hakodate to do repairs. On 26 February whilst in the Tsugaru Strait and only 40 miles from Hakodate, the ship was stopped by a Japanese cruiser and boarded by a naval party. The Japanese Captain was unimpressed by the false papers, put a prize crew aboard, and ordered the ship to proceed to Yokosuka, which was a greater distance away but where there is a Prize Court. On the following day bad weather arose and the ship was beached to prevent her sinking. She broke her back. In March the crew was taken to Yokosuka where the Prize Court investigated the circumstances of the capture. In May a surveyor examined the ship and announced she was an actual total loss. The ship was subsequently condemned as prize. 11.38 There was no doubt in the minds of the judges of the Queen’s Bench Division, the Court of Appeal or the House of Lords, that the Romulus had been captured on 26 February. The question was whether she was lost by “capture” (an excluded peril) on that date or by bad weather on the following day. All were unanimous that she was lost by “capture” for the following reasons: Channell J., after noting with approval Arnould’s definition of “capture” and Shee J.’s writings in Abbott on Shipping (11th edn, 1867) said this: 53 N 51 at p.142. 54 [1907] 2 K.B. 248; [1908] 1 K.B. 601; [1908] A.C. 334. 55 Ibid. 79 Capture … Although mere capture in itself when there is no condemnation does not divest the property, when there is an adjudication of a Prize Court which is an adjudication in rem binding on all the world, it is a decision not merely that the property has passed at the date of the decision, but that it did pass at the time of capture and its effect therefore may be described as relating back.56 11.39 In the Court of Appeal, Cozens-Hardy M.R. with the support of the other judges adopted Channell J.’s reasoning, namely: I think that most people, looking at the matter from a common sense point of view and apart from technicalities, would say that under the circumstances the owner lost his ship by capture, and that the Japanese captors afterwards lost their prize by shipwreck.57 He also drew attention to the ancient case of Hahn v. Corbett58 where the ship was first lost by being driven on to a sandbank and afterwards captured. Here it was held that she was lost by perils of the seas. 11.40 The House of Lords agreed with the two lower courts. Loreburn L.C., after noting that the ship was employed transporting contraband of war by fraud: “I think the reasonable and true way of regarding what actually occurred is that there was in fact a total loss by capture on February 26, though its lawfulness was not authoritatively determined until May 16 following”59 and Lord Halsbury: “… given the facts … it would have been impossible in an English court to deny there was a total loss to the owner on February 26” and “… the rightfulness of the seizure and consequently the change of property related back to the time of capture.”60 In The Bunga Melati Dua, the Court of Appeal construed the Andersen case as one where the peril occurred at the moment of the capture, with the loss occuring by reason of the capture, but that (whether in terms of relation back or not) the actual total loss was established only by condemnation.61 Unlikelihood of recovery 11.41 The cases quoted thus far explain two propositions on the insured peril of “capture”, namely that it is complete when the actual physical capture takes place irrespective of any subsequent decision by a Prize Court, and that matters between the plaintiff shipowner and the defendant underwriter must be judged as they stand at the time that the action against the underwriters is commenced. There is a further element that must be considered which did not arise in either the Ruys62 or the Rodocanachi63 cases, because at the time that the actions were commenced, there seemed to be no possibility of recovery 56 [1907] 2 K.B. 248 at p.255. 57 Dictum of Channell J. cited at [1908] 1 K.B. 601, p.607. 58 (1824) 2 Bing. 205. 59 [1908] A.C. 334 at p.339. 60 Ibid at pp.339–340 and 341. 61 Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1 Lloyd’s Rep. 630 at [42–44] per Rix L.J. 62 Ruys v. Royal Exchange Assurance Corporation (The Doelwyk) [1897] 2 Q.B. 135. 63 Rodocanachi v. Elliott (1873) L.R. 8 C.P. 649. 80 Capture of the insured property. The further element, which was given greater prominence in the subsequent cases, particularly on seizure, is that at the time that the action is commenced, what is the possibility that the ship or the goods will be returned? 11.42 There is a line of cases before 1906 where this element was expressed in terms as to whether or not “ultimate release from capture was a matter of uncertainty”. This was altered by the Marine Insurance Act 1906, which defines constructive total loss in subsection 60(2)(i) as follows: In particular there is a constructive total loss—where the insured is deprived of the possession of his ship or goods by a peril insured against and (a) it is unlikely that he can recover the ship or goods as the case may be … It will be seen that “uncertainty” has been substituted by “unlikely”. 11.43 The test is thus somewhat stricter as is shown by Polurrian Steamship Co. Ltd. v. Young.64 In 1912 the Polurrian loaded a cargo of Welsh coal for carriage to Istanbul. On sailing, the Captain was aware that a war had broken out between Italy and Turkey but he was not aware that Greece and Turkey had also gone to war, a development which had occurred during the voyage. On 25 October 1912 a Greek destroyer intercepted the Polurrian off Tenedos. The Master’s evidence was that “the Greek Captain said he had orders to seize us; that he would convey us to Mudros Bay, Lemnos.” On 26 October notice of abandonment was given to the underwriters and refused, but the shipowners were put in the same position as if a writ had been issued. This date is thus agreed as the date of the commencement of the action. On 27 October discharge of the coal into the Greek flag ship began. Subsequently all the cargo was taken by various units of the Greek fleet. The Master met the Greek Admiral who, in spite of the Master’s denials, formed the view that the Master knew of the hostilities between Greece and Turkey. Later the Master criticised the interpreter, whose English was poor, and it is quite possible that a misunderstanding arose because of language difficulties. After consulting with his government, the Admiral ordered the Polurrian to Piraeus to be dealt with by the Prize Court, a suggestion which emanated from the British Ambassador. On 28 November discharge was completed, and the Polurrian accordingly sailed to Piraeus, where she arrived the following day. On 1 December an armed guard was put aboard and the Polurrian taken to the naval base in Salamis. On 8 December, the Greek Government, by now convinced that the Master did not in fact know of the outbreak of war between Greece and Turkey and that he had conveyed a wrong impression on this point to the Admiral, released the Polurrian. 11.44 Kennedy L.J. gave the judgment at the Court of Appeal with which the other two members of the court agreed. On the facts, he considered that as the law stood before 1906, the shipowner would have been entitled to recover a constructive total loss; on 26 October the owner’s loss might have been permanent and was, at any rate, of uncertain continuance. At the date of the trial, however, “uncertainty of recovery” had been substituted by “unlikelihood of recovery” in the 1906 Act, and the owners now had to establish that it was not merely uncertain whether they could recover her within a reasonable time, but that the balance of probability was that they could not do so. 64 [1915] 1 K.B. 922. 81 Capture 11.45 Whilst the test of “unlikelihood of recovery” is firmly established, Kennedy L.J. glossed the statutory definition by adding that the unlikelihood of recovery was “within a reasonable time”.65 11.46 In the Forestal66 cases Lord Wright in the House of Lords approved Kennedy L.J.’s judgment and added: There is a real difference in logic in saying that a future happening is uncertain and saying that it is unlikely. In the former, the balance is even. No one can say one way or the other. In the latter, there is some balance against the event. It is true that there is nothing in the Act to show what degree of likelihood is required. If on the test of uncertainty the scales are level, any degree of unlikelihood would seem to shift the balance, however slightly. It is not required that the scale should spring up and kick the beam.67 Apprehension of capture 11.47 Apprehension of capture is to be distinguished from actual capture.68 In English law, the question to be asked is whether the frustration of the adventure was due to a peril or to something done to avoid a peril.69 It should be noted that different perils may operate in different ways. Whilst a restraint of princes (such as a declaration of war by the vessel’s flag State) may affect a vessel far from the enemy port, making it unlawful to continue the voyage, a risk of capture by the enemy at the same port may not have any relevant causative effect at a distance. Thus, where the insured sells his cargo at a neutral intermediate port in order to avoid the risk of confiscation at the port of destination, which has declared itself closed to vessels from certain nations, there is no total loss by capture or “detention of princes” as there is no direct and immediate operation of the peril, only an apprehension of the peril.70 However, where the cargo is warehoused and abandoned to underwriters at a neutral port as a result of war being declared in respect of the port of destination, the illegality of continuing the voyage amounts to a loss by restraint of kings, princes or people.71 11.48 In Hadkinson v. Robinson72 a cargo of pilchards was loaded on to the Pascaro in Penzance for Naples. The pilchards were insured that they were: “… Warranted free from average unless general or the ship should have stranded.” There was also a liberty to sail in convoy from Falmouth. In October 1800 the ship, having completed loading, sailed to Falmouth for her convoy. In January 1801 the ship sailed in convoy with H.M.S. Seahorse. After a time sheltering from bad weather, the convoy sailed from Lisbon. On 5 March 65 Ibid at p.937. 66 Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden); Middows v. Robertson (The Wangoni); W.W. Howard, Bros. & Co. v. Kann (1940) 67 Ll.L.Rep. 484; (1940) 68 Ll.L.Rep. 45 (C.A.); (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 (H.L.). 67 [1942] A.C. 50 at p.87. 68 British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 at p.665 per Lord Atkinson; Becker Gray & Co. Ltd. v. London Assurance Corporation [1918] A.C. 101. 69 Becker Gray & Co. Ltd. v. London Assurance Corporation [1918] A.C. 101 at p.108 per Lord Dunedin. 70 Hadkinson v. Robinson (1803) 3 Bos. & Pul. 388. The decision was distinguished in British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 at pp.665, 670, 672. 71 British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 (restraint of kings, princes and peoples). 72 (1803) 3 Bos. & Pul. 388. 82 Capture the convoy received news that all British ships were debarred from entering the ports of the Kingdom of Naples. On 16 March the Commodore ordered the ship not to proceed to Naples but to go to Port Mahon in Minorca for further news. On 25 March the ship arrived in Port Mahon where the news was confirmed. Under the directions of the Vice-Admiralty Court, the cargo is surveyed and then sold for a very small sum. Later intelligence revealed that France and the Kingdom of Naples have signed a treaty excluding all ships under British colours from Naples. To sail for Naples would be to invite confiscation of ship and cargo. On 23 April, notice of abandonment was tendered and refused. 11.49 In the subsequent proceedings, a jury found for the defendant underwriters. Under the procedures of the time the plaintiff obtained an order that the defendant should show cause why the verdict should not be set aside and a new trial ordered. The verdict was, however, found to be correct as Lord Alvanley C.J., noting that the policy covered “capture” and “detention of Princes”, explained: But it has appeared to me that where underwriters have insured against capture and restraint of princes, and the captain, learning that if he enter the port of his destination the vessel will be lost by confiscation, avoids that port, whereby the object of the voyage is defeated, such circumstances do not amount to a peril operating to the total destruction of the thing insured … I think that the detention of the cargo on board the ship at a neutral port in consequence of the danger of entering the port of destination cannot create a total loss within the meaning of the policy, because it does not arise from a peril insured against … The Plaintiff therefore cannot recover, unless the article be totally lost by a peril within the policy; and such peril must, as I think, act directly and not collaterally upon the thing insured.73 11.50 Lord Alvanley’s judgment was given on 20 May 1803. On 16 July 1803, Lord Ellenborough C.J. heard the case of Lubbock v. Rowcroft74 which concerned a very similar case. Twenty bags of pepper bound for Messina on board the Nelly also arrived in Minorca. Messina was blockaded by French warships (a surprising way to treat a treaty partner) and the Master decided not to risk certain capture. The case never got properly under way because a belated examination of the bills of lading revealed that the pepper had been endorsed over to a receiver in Minorca. This resulted in the plaintiff being “non-suited”, but not before his Lordship made it perfectly clear that, even though he did not refer to the Hadkinson case,75 he would have reached a similar decision to Lord Alvanley C.J. 11.51 Kacianoff v. China Traders Insurance Co. Ltd.76 dealt with a different situation. The plaintiffs were Russian merchants importing various goods, in this case large quantities of salt beef, into Eastern Russia and Siberia from San Francisco. The Russo-Japanese War had broken out on 8 February 1904, and the first two shipments, loaded on the Coptic and the Corea and bound for Vladivostok and Port Arthur respectively, had been captured by the Japanese navy. The underwriters had accepted these losses as proper claims. The third shipment was insured for total loss only for, amongst other risks, “capture, seizure”. It was in the process of being loaded on to the China for carriage to Vladivostok via Nagasaki, and the ship was due to sail on 26 February 1904, when the underwriters sent a cable to the merchant’s agents in San Francisco pointing out that if the shipment went ahead, 73 74 75 76 Ibid at pp.392–393. (1803) 5 Esp.50. N 72. [1914] 3 K.B. 1121. 83 Capture the point would be taken that the insured merchants had deliberately caused its loss. They justified this very high-handed action by pointing to the indisputable fact that Japanese warships were known to be stopping and capturing ships and cargoes and, indeed, had already done so with the plaintiffs’ goods. Very surprisingly the agents accepted this because they were unwilling to cause further loss to the underwriters and they did not take any of the points which seem to have been open to them. The goods were discharged and sold to Shanghai. Notice of abandonment was given and refused. 11.52 The plaintiffs claimed for a constructive total loss, giving credit for the sale proceeds. Judgment was given for the underwriters by Pickford J. in the High Court, and by Lord Reading C.J., Phillimore L.J. and Lush J. in the Court of Appeal. All four judges were in agreement that no insured peril had begun to operate. There were very reasonable grounds to expect that the cargo would be lost, in fact its “capture” was almost certain. On the other hand, the prospective instruments of the “capture”, the Japanese warships, were many thousands of miles away at the time of the plaintiffs’ loss and “capture” could not be said to be its proximate cause. One is left with the feeling, perhaps unjustifiably, that the plaintiffs’ agents adopted a remarkably supine stance towards the underwriters. Surely a firmer attitude taken at the time and a claim under the Sue and Labour Clause might have served the plaintiffs better than a direct challenge of the nature which they actually made. The reports do not show such a claim being made even in the alternative. For the purposes of this work however, the decisions are very clear on the point whether or not the insured peril of “capture” had caused the loss. 11.53 No doubt encouraged by the decisions in the Sanday case,77 the plaintiffs pursued the case of Becker Gray & Co. Ltd. v. London Assurance Corporation.78 In June 1914 Beckers, a British firm, sold 500 bales of jute to German buyers. Property was not to pass until the goods arrived in Hamburg and were paid for there. On 6/7 July 218 bales were loaded in Calcutta on to the Kattenturm, a German ship which sailed shortly afterwards. On 28 July the plaintiffs effected war risk insurance with British underwriters on the goods. The insured perils included: “Men of war … enemies … takings at sea, arrests, restraints and detainments of all Kings, Princes and people of what nation, condition or quality soever.” On 4 August the United Kingdom declared war on Germany. On 6 August the ship put into Messina, later shifting to Syracuse. On 1 September notice of abandonment was given, the goods being described as a constructive total loss through the consequences of hostilities. On 2 September the underwriters rejected the notice and put the plaintiffs in the same position as though a writ had been issued. In October the Italian Government, by decree, forbade the export of jute. On 11 November the plaintiffs, through the British Consul in Rotterdam, asked the shipowners, Hansa Lines, to deliver the goods. On 20 November Hansa replied that the German Government had forbidden its delivery. On 17 December following the rejection of a second notice of abandonment a writ was issued. The jute was sold in Italy on a “without prejudice” basis. In June 1915 the Admiralty confirmed by letter, which was accepted by both sides, that at the time any enemy steamer would have been at the risk of capture. The letter did not, indeed cannot, say that the ship would have been captured. Given the strength of the Royal Navy 77 Sanday v. British & Foreign Marine Insurance Co. [1915] 2 K.B. 781. 78 [1918] A.C. 101. 84 Capture and the French Navy in the Mediterranean at the time, and particularly in the neighbourhood of Gibraltar, the inference must be that the risk of capture was a high one. 11.54 In the High Court, Bailhache J. held that the goods were not lost by a peril insured against but from steps taken by the Captain to avoid an insured peril which had not begun to operate. This finding was unanimously upheld by the Court of Appeal. On appeal to the House of Lords, all five Law Lords, Lords Loreburn L.C., Atkinson, Wrenbury, Dunedin and Sumner, were unanimous that even though the ship would have been in peril of capture, this was not enough for the plaintiffs’ case. The plaintiffs could not prove “capture”, Lord Dunedin saying: “… if I had to decide positively I should decide as Bailhache J. did—that the captain went into Messina to avoid a peril and not under the stress of an actual peril.”79 11.55 Lord Dunedin had noted80 that one of the main writers, Phillips, thought otherwise and that the result under American law and Continental law might have been different. English law followed the course set by the Hadkinson81 and Kacianoff 82 cases and he considered this to be correct. He distinguished the Sanday case83 where British shipowners suddenly found that the declaration of war made continuation of their voyages illegal. There was nothing illegal (at least in English law) in the German Master continuing his voyage. 11.56 With the benefit of hindsight from the Forestal cases,84 it does seem strange that the courts were not invited to consider the position of the German Master, who no doubt had orders from his government, as the Hansa letter indicates, or the Italian Government’s decree which was surely a “restraint”. Perhaps the plaintiffs might have succeeded in taking these points. 11.57 But it must not be thought that a “capture” must have taken place before the insured peril of “capture” arises. Butler v. Wildman85 is often quoted that “capture” is complete if property is lost or destroyed when actual “capture” is imminent and this case can be distinguished on its facts from the Hadkinson,86 Lubbock87 and Becker88 cases. A large quantity of Spanish dollars was insured on the S.G. Form for carriage from Cadiz to La Guaira via Cuba. It was the time of the South American rebellions, which resulted in the formation of the South American countries we know today. The defendant underwriters knew that the King of Spain was at war with, in the court’s words: “… Certain persons exercising the powers of government in parts beyond the sea in South America, formally part of the Spanish Empire.” 11.58 Whilst it was not stated in so many words, there seems to have been no doubt in the minds of the judges that these persons had the status of de facto governments. A ship 79 80 81 82 83 84 85 86 87 88 Ibid at p.109. Ibid at pp.107–108. N 72. N 76. British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650. N 66. (1820) 3 B. & Ald. 398. N 72. Lubbock v. Rowcroft (1803) 5 Esp. 50. Becker Gray & Co. Ltd. v. London Insurance Corporation [1918] A.C. 101. 85 Capture of war carrying a letter of marque gave chase to Captain Jose Lopez and his ship which she eventually captured. Before she did so but whilst she was still in hot pursuit, Captain Lopez threw the dollars into the sea. He did so as a loyal Spanish citizen to prevent so large a sum of money falling into the hands of his country’s enemies. Abbott C.J. and Bayley J. considered this to be a loss by jettison which they thought had a wider application than to general average alone. Abbott C.J. could not distinguish the case from setting fire to a ship to prevent her falling into the enemy’s hands, for which the writers Emerigon and Pothier thought the underwriters liable. Bayley J. thought there was a loss by enemies similar to a destruction of the ship by fire, the enemy being the proximate cause. Best J. was particularly impressed by previous French decisions quoted by Pothier which had been given in the plaintiff’s favour. “Enemies”, without the general words “and of all other perils, losses, and misfortunes that had or should come, to the hurt, detriment, and damage of the said goods …” would include only the actual taking and destruction. The general words give cover in this instance for risks which are ejusdem generis to the specific perils insured by the policy: “… By including all losses which are the consequences of justifiable acts done under certain expectation of capture or destruction by enemies.” Holroyd J. gave a concurring judgment. 11.59 The court gave judgment for the plaintiff. It can be questioned if, after throwing the dollars overboard, the result would have been the same if Captain Lopez had managed to make good his escape. It is suggested that, provided the evidence indicates that a reasonable man could have concluded that capture was imminent at the time of the jettison, and this must depend on the evidence before the court, the judges would still have given judgment in the plaintiff’s favour. 11.60 Butler’s case89 does not seem to determine precisely whether the general words are essential to include a loss of the nature that occurred there. Abbott C.J., Holroyd J. and Bayley J. would appear to have been satisfied that the “general words” were not necessary, whereas Best J. seems to have been quite certain that they were. Subsequent judgments seem to tend towards Best J.’s view in preference to the views of the other three judges. There is, however, the little known or quoted case of Gordon v. Rimmington90 which indicates that Lord Ellenborough L.C. seems to have been quite certain that they were not so essential. The Reliance sailed in 1804 from Bristol to West Africa, whence she was due to sail to the West Indies. The nature of the voyage raises some questions in the mind as to the exact nature of her employment, but this was not pertinent to the case. She arrived in the River Gambia in June, 1804, and there she was chased by a much more powerful and much faster French privateer. She tried to escape, but the privateer was rapidly overhauling her. The crew fired the guns into the hatchways to set her on fire and escaped in the boats. She was completely burnt. Only sketchy details of the insurance are given in the report, but the shipowners are shown as pleading that she was lost by fire to prevent her and her cargo falling into the hands of the king’s enemies. The judgment in Gordon is very short and to the point: This case is new; but I am clearly of opinion that the plaintiff is entitled to recover. Fire is expressly mentioned in the policy, as one of the perils against which the underwriters undertake 89 Butler v. Wildman (1820) 3 B. & Ald. 398. 90 (1807) 1 Camp. 123. 86 Capture to indemnify the assured; and if the ship is destroyed by fire, it is of no consequence whether this occurred by a common accident, or by lightning, or by an act alone in duty to the state. Nor can it make any difference whether the ship is thus destroyed by third persons, subjects of the King, or by the captain and crew acting with loyalty and good faith. Fire is still the causa causans and the loss is covered by the policy.91 11.61 The report does not mention a jury, but ends with a laconic statement “verdict for the defendant”. This is surprising in view of Lord Ellenbrough L.C.’s robust direction. There is however a footnote: Although this point of insurance law be new in England, it has long been decided in foreign countries that, as the master is justified in burning the ship under such circumstances, the insurer is liable for the loss … So it has been held, that the insurer is liable, if a ship is burnt, without any fault in the master, from an apprehension that she has the plague on board, and to prevent the infection from spreading. 11.62 Possibly the distinction is that the insured peril of “fire” does cover such a loss as that of the Reliance to avoid her capture by the enemy, whereas destruction of property by means which are not included in an insured peril requires the aid of the general words to bring them within the cover afforded by the underwriter. So long as the general words are included in the policy, the point is probably of no real importance, and here reference is particularly made to “attempt thereat” (Chapter 14). Prize and search cases 11.63 The second of the two aspects is the cases which the Prize Court has dealt with which are often quoted in relation to the insured perils of “capture” and “seizure”. Whilst on the facts there can be little difference between “capture” and “seizure” as an insured peril, or for the purposes of consideration by the Prize Court, particularly in the case of neutral vessels, it must be borne in mind that these are Prize Court cases and that it could be very misleading to quote them as fully binding in the field of insurance. There are distinctions of an important nature as Bankes and Scrutton L.J.J. pointed out in The Sommelsdijk case.92 There are a great number of cases but three will serve to demonstrate the point. 11.64 A belligerent nation has long had the right as a matter of customary international law to visit and search neutral vessels at sea. During the First World War this was extended to allow searches in port because of the impossibility of searching a large vessel at sea and the risk posed by lurking submarines. Sir Arthur Channell described it thus in The Bernisse:93 … so little suspicion is required to justify a search that their Lordships are not prepared to say that if a boarding officer were to state that finding a cargo to be in bulk he thought something 91 Ibid at pp.123–124. 92 Nederlands American Steamship Co. v. H.M. Procurator-General, The Sommelsdijk (1925) 22 Ll.L.Rep. 358; (1925) 23 Ll.L.Rep. 119; [1926] 1 K.B. 84. 93 [1920] P. 1; [1921] A.C. 458; (1920) 5 Ll.L. Rep. 359. 87 Capture may be hidden under it, and therefore directed a search, his conduct would be so unreasonable as to subject the Crown to a liability for damages.94 The suspicion must, as always, be an honestly held suspicion even if others could criticise it as being unjustified. 11.65 In the cases of The Bernisse and The Elve95 neutral Dutch shipowners claimed damages from the Crown for the loss of one ship and the damage to the other. In May, 1917, both ships sailed from Rufisque in French Colonial Africa carrying ground nuts for Rotterdam. They had French clearances and should not therefore have been required to obtain British clearances as well, known at the time as the “green clearance”. They were stopped by H.M.S. Patria near the Faroe Islands and were required to go into Kirkwall to obtain green clearances. The Masters protested that this would take them through the danger area where they were liable to be attacked by U-boats. They received an answer to the effect that their voyages would take them through the danger area in any event, and one U-boat more or less would make little difference. Royal Navy officers and ratings sailed with them to make sure that they went to Kirkwall. Both were torpedoed, the Elve being sunk and the Bernisse severely damaged. The Prize Court and the Privy Council held that this was a wrongful use of the right to visit and search, and awarded damages to the Dutch owners. 11.66 The Sommelsdijk,96 concerned an appeal by the Crown to the Court of Appeal against an award of compensation by the War Compensation Court, established under the Indemnity Act 1920 to deal with compensation to people whose interests had suffered by the exercise of His Majesty’s Royal Prerogative during the First World War. In 1915, the Sommelsdijk, a Dutch ship, loaded grain in Buenos Aires for Sweden. She was visited and searched off The Downs by H.M. Naval Patrols who sent her into London for a full search. A naval party was put on board her and she was escorted by a torpedo boat. After six weeks’ search when no contraband was found, she was released. Her owners claimed damages. During the hearing, the terms “capture” and “seizure” were freely used but it is essential to appreciate them in their true context. 11.67 Bankes L.J. posed the two important questions. First, is a visit and search effected under the royal prerogative? Second, is such a claim within the jurisdiction of the Prize Court? If it was in the Prize Court’s jurisdiction, then the terms of the Indemnity Act excluded it from the jurisdiction of the War Compensation Court. The commission of the Prize Court authorised it to deal with “all manner of captures, seizures, prizes and reprisals of all ships.” Since the Prize Court exercised exclusive jurisdiction in this respect, and awarded compensation and judged responsibilities by applying “the rules of international law”, Bankes L.J. considered that the appeal should be allowed for these reasons alone without making any decision on the prerogative point.97 11.68 Scrutton L.J. noted Oppenheim’s view that: “Seizure is effected by securing possession of the vessel through the captor sending an officer and some of his own crew on board” and added: “I cannot doubt that what happened here was a seizure, the legality 94 95 96 97 (1920) 5 Ll.L. Rep. 359; [1921] A.C. 458. at p.464. Ibid. N 92. [1926] 1 K.B. 84 at pp.92–96. 88 Capture of which could be investigated in the Admiralty sitting in Prize …”98 That legality would be judged not by the rules of common law, but the more general law which is the law of nations and which is applied by the Prize Court. Finally there could not be any question of the Royal Prerogative. That gave the King power over his own subjects only and did not extend to those who owed him no allegiance. Atkin L.J. gave similar judgment and the appeal was allowed. 11.69 The last case that needs to be considered is The Mim.99 The Mim was a Norwegian ship and Norway was a neutral country at this stage of the Second World War. In August 1939 the ship was chartered to carry grain from Australia to a wide range of European discharging ports, among them Hamburg. On 3 September the United Kingdom declared war on Germany. On 14 October the ship bunkered in Las Palmas. By this time the cargo had been sold to the Norwegian Grain Monopoly. The charterparty had been “cancelled” and the ship was instructed to sail around the north of Scotland and to discharge at Vaksdal. On 31st October the ship was stopped and visited by a boarding party from H.M.S. Colombo north-west of the Faroe Islands. Suspicions stemmed from the original range of destinations and the circuitous route being sailed. The ship was ordered into Kirkwall for a search following a route prescribed by the boarding officer with his party on board. On the way, she stranded on Reefdyke, north of Ronaldshay and was a total loss. 11.70 The plaintiffs pleaded that the boarding party was responsible for the navigation, and that if the Master was negligent, the ship’s officers had become the defendants’ agents. Furthermore, the defendants were wrongly in possession and were therefore responsible for the ship’s loss. Hodson J. held that there was nothing exceptionally dangerous in the prescribed route and the plaintiffs failed on this point. There was no ulterior motive in sending the ship to Kirkwall and the rights of visit and search were properly conducted. The boarding officers’ suspicions were perfectly justified. On the Court of Appeal’s findings in The Sommelsdijk100 he noted that the Court of Appeal was considering the jurisdiction of the Prize Court: … and rejected the argument that a mere temporary detention in exercise of the right of visit and search was, for the purpose of the definition, inconsistent with capture. This use of the word “seizure” is no doubt in a sense wider than that normally used by international lawyers who speak of the centuries old right of belligerent warships to visit and search merchant ships, whether enemy or neutral, as a right existing before capture or seizure …101 11.71 Hodgon J. thought “seizure” was not an appropriate description of what had happened to the Mim, and that the sole question was whether the Crown’s actions were rightful or wrongful. He decided that they were rightful and the plaintiffs’ claim therefore failed. 11.72 It seems that, until The Mim case, there was no English case that dealt directly with these points. There was, however, an American case, Wilcocks and Others v. Union Insurance,102 which on similar facts went the other way. The distinction was made that in 98 Ibid at p.96. 99 [1947] P. 115. 100 Nederlands American Steamship Co. v. H.M. Procurator-General, The Sommelsdijk (1925) 22 Ll.L.Rep. 358; (1925) 23 Ll.L.Rep. 119; [1926] 1 K.B. 84. 101 N 99 at p.119. 102 (1810) 2 Binn. 574. 89 Capture the Wilcocks case, the crew were held to be in the hands of the captors who had seized the ship. Such a finding could be expected to lead to a different conclusion. 11.73 When drawing conclusions on “capture”, comparisons must be made with the similar conclusions on “seizure”, which themselves lead on to further comparisons with “arrest, restraint or detainment” (see Chapter 13). 90 CH A PT ER 12 Seizure Meaning of “seizure” 12.1 The origin of the perils of capture and seizure are treated in the introduction to Chapter 11. The most comprehensive definition of all is that given by Lord Fitzgerald in the House of Lords in Cory & Son v. Burr:1 Capture would seem properly to include every act of seizing or taking by an enemy or belligerent. Seizure seems to be a larger term than capture and goes beyond it, and may reasonably be interpreted to embrace every act of taking forcible possession either by lawful authority or by overpowering force. 12.2 The concept of a “seizure” is thus wider than “capture” and is to be given its ordinary and natural meaning of a forcible taking of possession either by lawful authority or by overpowering force.2 “Seizure” is not a term of art in insurance law, and there is no requirement that those taking possession intend to keep the vessel for themselves; their intention may simply be to plunder the cargo.3 A “seizure” need not be by a belligerent power or in time of war.4 Nor does it need to be lawful.5 It would previously have included piracy.6 12.3 In order for there to be a seizure, there must be a forcible taking of possession. There are two elements to this, namely force and the taking of possession. The presence of force is a question of fact, and it is clear that implicit force is sufficient. Where the act is that of the State, there is no difficulty with “force”, since force is in reserve behind every 1 (1883) 8 App. Cas. 393 at p.405. 2 Kuwait Airways Corp v. Kuwait Insurance Co SAK [1999] 1 Lloyd’s Rep. 803 at 812 per Lord Hobhouse; Cory v. Burr (1893) 8 App. Cas. 393 at p.405; Johnston & Co v. Hogg (1883) 10 Q.B.D. 432 at p.434 per Cave J. (locals took possession of a vessel and ejected the Master and crew in order to plunder the cargo; their conduct rendered the vessel a CTL and this was held to be within the warranty that the vessel was free from capture and seizure, and the consequences of any attempt thereat). 3 Johnston & Co v. Hogg (1883) 10 Q.B.D. 432 at p.434 per Cave J. 4 Cory v. Burr (1883) 8 App. Cas. 393 at p.396 per Earl of Selborne LC, at p.400 per Lord Blackburn, citing Kleinwort v. Shepard (1859) 1 E. & E. 447; 28 L.J.Q.B. 147 (passengers rising in mutiny; not barratry because not Master or crew; not pirates because lawfully in the ship), approved by Lord Hobhouse in Kuwait Airways Corp v. Kuwait Insurance Co SAK [1999] 1 Lloyd’s Rep. 803 at p. 814; Miller v. Law Accident Ins [1903] 1 K.B. 712 at p.722 per Mathew L.J. 5 Robinson Gold Mining Co v. Alliance Ins Co [1901] 2 K.B. 919; [1902] 2 K.B. 489 CA; [1904] A.C. 359 at p.361 per Lord Halsbury LC; Bayview v. Mitsui Marine [2003] 1 Lloyd’s Rep. 131 at p.137, CA. 6 Dean v. Hornby (1854) 3 E. & B. 180. Piracy is now excluded (see clause 4.1.7). 91 Seizure State command.7 In Bayview v. Mitsui8 it was common ground that a seizure did not require actual force, but that the threat of force or its indicia were required.9 It was held that this was absent on the facts of the case, on the basis that there was no display of force. At first instance, Steel J. had held that the officials were not acting as organs of the State and in that capacity there was no display or threat of overwhelming force.10 This seems correct in the case of persons who merely have access to property as a result of their official status, and remove it surreptitiously. However, an official acting in an openly corrupt manner may do so on the basis that he is immune from challenge due to his status, and this may amount to an implicit assertion of the force of the State. 12.4 As for the taking of “possession”, this is a mixed question of fact and law, and the concept may have broader or narrower meaning in different contexts. In the context of a constructive total loss, the phrase “deprived of the possession” of the property in section 60(2) has been given the broad meaning of being deprived of “the free use and disposal” of the property.11 Such a broad definition is unlikely to be useful in the present context, where it is the loss of control which is in view. Legal possession of a ship remains with its owners. However, physical control of the ship is exercised by the owners through the Master and crew as their employees. The Master accordingly has custody of the vessel on behalf of the owners. The same is true of the cargo. The shipowner has possession of the cargo, which has been bailed to it by or on behalf of the cargo owner, and the shipowner exercises that possession physically through the Master and crew of the vessel. The cargo owner (or whoever is the bailor) does not have possession of the cargo, only a right to possession. This matters because possession of the ship or cargo may be lost to their owners in different ways. The Master or crew may make off with the vessel, or dispose of the cargo. Passengers on board may take the vessel or cargo from the Master and crew. Third parties may take the vessel from the crew, or may force the crew to sail the vessel contrary to the owners’ instructions. Not all of these situations amount to a “seizure”. 12.5 The basic question is whether where there is a misappropriation by a person already in actual possession of the vessel or cargo. Misappropriation of the vessel by the Master or crew is barratry, and not a seizure.12 Similarly, in The Salem13 misappropriation of cargo by the shipowner as bailee was held not to be a “taking at sea”, a peril akin to seizure.14 In Bayview Motors Ltd v. Mitsui Marine,15 customs officials at a port of transshipment appropriated consignments of vehicles for their own purposes and without lawful justification. Since the goods were voluntarily in the possession of customs for clearance, there was no “seizure”, only a theft.16 7 British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 at p.659 per Lord Loreburn, at p.672 per Lord Wrenbury; Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden) [1942] A.C. 50 at p.81 per Lord Wright. 8 [2003] 1 Lloyd’s Rep. 131. 9 Ibid at p.137. 10 [2002] 1 Lloyd’s Rep. 652 at [34]. 11 Owners of the Bamburi v. Compton (The Bamburi) [1982] 1 Lloyd’s Rep. 312. 12 See the US cases of Greene v. Pacific Mutual Life Insurance Company (1864) 91 Mass. (9 Allen) 217 and The “Hai Hsuan” [1957] 1 Lloyd’s Rep. 428; [1958] 1 Lloyd’s Rep. 351. 13 [1983] 2 AC 375. 14 Ibid at pp.388–389 per Lord Roskill. 15 [2003] 1 Lloyd’s Rep. 131, CA. 16 [2003] 1 Lloyd’s Rep. 131 at pp.136–137 per Tuckey L.J. 92 Seizure 12.6 By way of contrast, where the passengers take control of the ship, there is a seizure, since passengers are not in possession of the vessel.17 The Master and crew need not be ejected from the vessel in order for there to be a seizure. If the Master and crew are forced to obey the instructions of a third party, possession of the vessel can still be lost to the owners, since the Master and crew no longer hold the vessel for the owners but for a third party, the latter having control.18 12.7 Finally, there is the question of the nature of the motive for taking possession. In Cory v. Burr, Lord Fitzgerald’s definition19 (set out in part in paragraph 12.1) referred to any act of taking forcible possession. However, the Earl of Selborne L.C. had referred to a forcible taking of possession: not for a temporary purpose, not as incident to a civil remedy or the enforcement of a civil right, not as security for the performance of some duty or obligation by the owners of the ship, but … in order to obtain a sentence of condemnation and confiscation of the ship.20 This seems to suggest an implicit exclusion of civil enforcement and perhaps a requirement that the party taking possession do so for a public purpose. Whilst the perils of “arrests, restraints, and detainments of all kings, princes, and people” in the S.G. Form were to be understood (by Rule 10) as referring to political or executive acts, and not including ordinary judicial process, there is no such implicit restriction on the scope of seizure. Seizure may include the act of private individuals such as pirates or passengers, or public officials acting in a private capacity, as in Bayview Motors Ltd v. Mitsui Marine.21 The scope of the peril will, however, normally be restricted by express exclusion of matters such as ordinary judicial process (for the exclusions, see Chapter 23). Illustrative cases describing the insured peril 12.8 Touteng v. Hubbard 22 was a charterparty case. In 1800 the Economy of Stockholm, a Swedish ship, was chartered to load fruit at Ponte del Gada for carriage to London. The charterparty contained a clause “restraint of Princes and Rulers during the said voyages always excepted”. In late December, 1800, the ship sailed from London but was driven back by heavy weather and in January, 1801, took refuge in Ramsgate. There she was embargoed by the British Government’s embargo on all Swedish vessels, and she remained in Ramsgate until June, 1801, when the embargo was lifted. The Captain was willing to perform the voyage but the charterer refused on the grounds that there was no point in sailing to load fruit at that time of the year. The shipowner sued for his whole freight (£748 2s. 6d.) and his expenses during the detention (£397 6s. 6d.). Lord Alvanley 17 Naylor v. Palmer (1853) 8 Ex. 739; affmd on appeal (1854) 10 Ex. 382; Kleinwort v. Shepard (1859) 1 El. & El. 447. 18 In Panamanian Oriental SS v. Wright [1970] 2 Lloyd’s Rep. 365, Mocatta J. observed at p.380 that in Polurrian Steamship Co. Ltd. v. Young [1915] 1 K.B. 922 at p.935, owners were said to have been deprived of possession where the vessel had been boarded by a naval officer and required to follow warships. The test Mocatta J. applied was loss of control (see pp.380–381). 19 N 1 at p.405. 20 Cory v. Burr (1883) 8 App. Cas. 393 at p.396. 21 N 15. 22 (1802) 3 Bos. & Pul. 291. 93 Seizure C.J. found only one prior decision of assistance, namely a decision of Marshall J. in what seems to have been an insurance case: “… If a British ship be arrested or seized by the authority of the British Government from State necessity, this shall be a detention within the meaning of the policy for which the insurer is liable.”23 A detention by the home government of the vessel is now subject to express exclusion in the Institute Clauses. 12.9 With an insured peril of such a wide nature, it is inevitable that some cases should often find their way into the reports even though close examination reveals only the loosest connection. Two have already been noted. Two more are Rohl v. Parr24 and Jones v. Schmoll,25 both cases of a repulsive nature concerning as they do cargoes of slaves. The first case dealt with the application of a deductible upon loss and the second with a mutiny among the slaves so that their connection with the insured peril of “seizure” is not obvious. Another case which is frequently quoted, again without appearing to be fully relevant, is Court Line v. Dant and Russell.26 This case concerns the frustration of a charterparty when the Yangtze River was closed by a boom during the China-Japan War in the 1930s. 12.10 Cases more directly on “seizure” as an insured peril include two of a particularly interesting nature. In Powell v. Hyde,27 the court heard that on 17 March 1854, the Bedlington sailed from Galatz bound for London. Her policy on the S.G. Form included a warranty: “Warranted free from particular average, unless stranded, sunk or burnt; also from capture and seizure, and the consequences of any attempt thereat.” 12.11 Before reaching the mouth of the Danube, she had to pass a Russian fort which was firing on Turkish troops. She flew the British flag which the Russians said they mistook for the Turkish flag when they fired upon her. The court thought this to be an unlikely excuse. The United Kingdom was at the time neutral, only later being engaged in the Crimean War. The crew took to the boats, being later rescued by the Russians, and the ship was sunk. Lord Campbell found on the evidence that the Russians intended to detain the ship and gave judgment: Capture is not confined to lawful capture but includes any capture in consequence whereof the ship is lost to the insured … When they had fired on the ship, and the crew had left her, and she was at the mercy of the Russians, I am of opinion that she was seized by them; that there was, not only an attempt at seizure, but an actual seizure.28 12.12 Coleridge J. thought that it was a capture by lawful authority and the intention was to seize her. Wightman J. held that if the exception was confined to legal actions, illegal actions could not be within the insured perils. To him seizure could be either legal or illegal. He further held that it was either a seizure or an attempt at one. In signing judgment for the underwriters, the court did not feel it necessary to make a clear distinction between capture and seizure as both were excepted. The inference from the judgment appears to be that if the Russians had succeeded in stopping the ship, they would either have retained her, thus capturing her, or would have seized her temporarily before releasing her. 23 Ibid at p.301. The decision was referred to by Bailhache J. in Sanday & Co. v. British and Foreign Marine Insurance Company [1915] 2 K.B. 781 at p.786. 24 (1796) The Times, 10 March; 1 Esp. 445. 25 (1785) 1 Term Rep. 130. 26 (1939) 64 Ll.L.Rep. 212; 161 L.T. 35; 44 Com. Cas. 345. 27 (1855) Ed. & Bl. 607. 28 Ibid at p.611. 94 Seizure 12.13 A clearer distinction appears in Johnston & Co. v. Hogg.29 The Cypriot was insured on the S.G. Form with the following clause: “Warranted free of capture and seizure and the consequences of any attempt thereat”. On 7 October 1879, the ship ran aground in the Brass River. On the following day, local inhabitants chased away the Master and the crew and took possession of her. They did so much damage to the ship that both parties agreed that she was a constructive total loss. The jury found that the locals intended to plunder the cargo but did not intend to keep the ship. The plaintiff shipowners contended that to constitute “seizure”, there must be taking with intent to keep the ship as one’s own and not merely to plunder her. 12.14 Cave J. rejected this view, holding30 that the word “seizure” could be used in a more general or in a more restricted sense, depending on context, but that its ordinary and natural meaning, as used in this policy, was that of a forcible taking of possession. Even though the locals did not intend to keep the ship, and lost interest in her as soon as they had plundered her, the court held that it was still a “seizure” and judgment was signed for the underwriters. 12.15 One of the leading cases on “seizure” is Cory & Sons v. Burr.31 Before considering the Cory case itself, four earlier cases frequently quoted in the courts in connection with “seizure” will be considered. The first, Havelock v. Hancill,32 and a similar American case, American Insurance Company v. Dunham,33 can both be distinguished quite easily on the wording of the policies. The third case, Livie v. Janson,34 was a decision on proximate cause. None of these three cases seems appropriate to “seizure”. A fourth case, Arcangelo v. Thompson,35 is rather closer. 12.16 In Havelock v. Hancill,36 the Economy was insured for 12 months to engage in “any lawful trade”. The insured perils included barratry of the Master and mariners “and all other perils, losses and misfortunes that had or should come to the hurt, detriment or damage of the said ship”. In March, 1785, the ship sailed from Ostend bound for Sunderland. The Master put into Shields to smuggle ashore a large quantity of brandy and other liquors which belonged to him. The Customs promptly seized the ship and, but for the prompt payment of £408 by the owner, a large sum in those days, would have forfeited her. The underwriter pleaded that the policy only covered the Master’s barratry whilst engaged in a lawful trade and this trade was unlawful. Lord Kenyon C.J. gave judgment for the shipowner: “If the owner of the ship conducts himself with propriety, he is entitled to be indemnified against all the perils insured … Now in the present case, the owner is not engaged in any unlawful trade.” However, it does not follow that a warranty free of capture or seizure on account of unlawful trading would only apply where the insured owner was a party to such trading.37 29 30 31 32 33 34 35 36 37 (1883) 10 Q.B.D. 432. Ibid at pp.434–435. (1881) 8 Q.B.D. 313; (1882) 9 Q.B.D. 463; (1883) 8 App. Cas. 393. (1783) 3 Term Rep. 277. 2 Wend. N.Y. 463. (1810) 12 East 648. (1811) 1 Camp. 620. N 32. Cory v. Burr (1883) 8 App. Cas. 393 at p.402 per Lord Blackburn. 95 Seizure 12.17 In American Insurance Company v. Dunham,38 a ship was seized and detained on facts which were very similar to the Havelock39 case. Prohibited goods were found on board which the Master intended to smuggle. The insurance policy appears to have contained a clause freeing the underwriter from liability for “seizure” or “detention” arising from an illicit or prohibited trade. The American courts held, in a decision which can also be distinguished from the Cory case on the wording of the policy, that this clause only applied where the illicit or prohibited trading took place with the owner’s knowledge and consent. The shipowners were awarded judgment. 12.18 The Arcangelo case40 is rather closer to the Cory case (though concerned with capture rather than seizure) because the question of barratry also arose. In 1797 a ship, warranted to be Danish, was insured for a voyage from Trieste to Hamburg. There was no f.c. & s. Clause in the policy. Shortly after leaving Trieste and apparently following a prior agreement which the Danish Captain had made with the French Captain, she was captured by a French privateer and taken to Venice where both ship and cargo were condemned in prize. Underwriters’ counsel objected that the loss was from barratry, whereas the plaintiff claimed it arose from “capture”. Lord Ellenborough C.J. answered him thus: The plaintiff was no party to the barratrous agreement under which the ship was taken. As to him, the loss actually arose from the capture. He might have recovered under a count laying the loss by barratry; but the ship was actually taken by a French privateer, I think this declaration, laying the loss by capture, is sustained by the evidence.41 12.19 In the Cory case42 there was a warranty against: “Capture and seizure and the consequences of or any attempt thereat” in the S.G. Form on which the Rosslyn was insured. In May, 1879, the Master loaded eight tons of tobacco in Gibraltar with the intention that it should be trans-shipped surreptitiously at sea on to a coaster which should then smuggle it into Spain. For this he was bribed £30. It was common ground that he was guilty of barratry. Instead of the coaster, two Spanish revenue cutters appeared out of the night and seized the ship. She was taken to Cadiz where the Master and crew were put in jail and proceedings to condemn and forfeit the ship were commenced. The owner had to pay a large sum to get her released and the action was for its recovery. 12.20 In the High Court,43 on a special case, Field and Cave J.J. gave judgment for the underwriters. In view of the warranty, it is not difficult to appreciate why the plaintiff strained every nerve to prove that the loss was caused by barratry. He advanced the view, quoting the Second Edition of Arnould as authority, that loss arising from barratry was in a class of its own in that the barratry need not be the proximate cause of the loss; it was sufficient that it was a remote cause. That being so, the seizure off Cadiz was the result of the barratry in Gibraltar. Not even the judges who were prepared to accept Arnould’s view, notably Field J., who considered that a barratrous act “hardly ever is” the proximate cause of a loss, and Cotton L.J., would agree that the loss was caused by barratry in this case. Field J. joined Cave J. in deciding that the loss was caused by “seizure”. 38 39 40 41 42 43 2 Wend. N.Y. 463. N 32. Arcangelo v. Thompson (1811) 2 Campbell 620. Ibid at p.621. (1881) 8 Q.B.D. 313; (1882) 9 Q.B.D. 463; (1883) 8 App. Cas. 393. (1881) 8 Q.B.D. 313. 96 Seizure 12.21 The case went to the Court of Appeal44 and to the House of Lords45 and the views of Field and Cave J.J. were upheld. The Earl of Selbourne L.C. rejected the argument of the plaintiffs that “capture and seizure” covered belligerent acts only, since whilst this might be true of “capture” alone, “seizure” was a much wider expression which included non-belligerent seizure such as seizure by Revenue authorities.46 Seizure was to be given its natural meaning (see further, paragraph 12.2).47 12.22 A distinction can be drawn between the Arcangelo48 and the Cory cases,49 apart from the fact that there was no warranty in the former case. In the Arcangelo case, the barratrous act considered of letting the privateer capture the ship, virtually handing her over. In the Cory case, the barratrous act was the loading of the tobacco in Gibraltar with intent to smuggle it. As Field J. recognised, the plot would have succeeded and there would have been no loss to the owners but for the appearance of the Spanish revenue cutters and the seizure which they then effected. It is worth noting a comment of Brett L.J. that, but for the warranty, the shipowner could have sued either in barratry or seizure. He was careful to add that “… It is a warranty against seizure whether by an enemy or by piracy and, as so enlarged, there is nothing to prevent it from applying to a seizure which is the result of barratry.” If there had been an f.c. & s. Clause in the Arcangelo case,50 then, even though the barratry and the capture were apparently simultaneous, the underwriters would have been excused. 12.23 Another case, Banque Monetaca and Carystuiaki and Others v. Motor Union Insurance Company Ltd.51 involved fine distinctions as to whether or not the ship was lost by seizure or by piracy. The policy was against war risks, substantially of capture, seizure, or arrest and the consequences thereof; and there was an exception for loss from piracy. Roche J. adopted the analysis of Pickford J. in Republic of Bolivia v. The Indemnity Mutual Marine Assurance Company, Ltd.52 that it was not the nature of the act which mattered, but the motive, the pirate acting for private rather than public ends. Because the political and military motivation of those affecting the seizure seemed to be the dominant motives, even though those of personal gain were undoubtedly strong, this was held to be a “seizure”. 12.24 A case that arose from the first Gulf War (1990–91) is of interest although it concerns aircraft rather than ships, namely Kuwait Airways Corporation v. Kuwait Insurance Company SAK.53 Kuwait Airways insured the 23 aircraft of its fleet with Kuwait Insurance on an “all risks” basis but with war risks excluded. A separate policy insured these risks and specified the insured perils in a list as follows: 44 45 46 47 48 49 50 51 52 53 (1882) 9 Q.B.D. 463. (1883) 8 App. Cas. 393. Ibid at p.395. Ibid at p.396. (1811) 2 Camp. 620. N 43; (1882) 9 Q.B.D. 463; (1883) 8 App. Cas. 393. N 35. (1923) 14 Ll.L.Rep. 48. [1909] 1 K.B. 785. [1996] 1 Lloyd’s Rep. 664 (High Ct.); [1997] 2 Lloyd’s Rep. 687 (C.A.); [1999] 1 Lloyd’s Rep. 803 (H.L.). 97 Seizure (a) War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power or attempts at usurpation of power (b) … (c) … (d) any malicious act or act of sabotage (e) confiscation, nationalisation, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government (whether civil military or de facto) or public or local authority (f) … 12.25 Iraq invaded Kuwait on 2 August 1990 and occupied Kuwait Airport. The Iraqi armed forces took possession of 15 aircraft belonging to Kuwait Airways, and during the next few days flew them to Baghdad. They also took a large quantity of spares. Kuwait Insurance paid in February 1991 the sum of $300 million, contending that this was an overall ground limit to cover for any one occurrence, any one location. The House of Lords held that this limit did not apply to spares. Cover was extended to include loss of or damage to aircraft spares “other than Paragraph (a)”. It was not disputed that the spares were lost by a cause, such as “invasion”, which fell within paragraph (a) set out above, but there was an issue as to whether it could also be “seizure” within paragraph (e). 12.26 In the House of Lords, the main judgment was given by Lord Hobhouse, with whom Lords Lloyd, Clyde and Hutton agreed (Lord Browne-Wilkinson dissenting in part). Lord Hobhouse confirmed54 that the ordinary meaning of “seizure” was that adopted in the Cory case, namely the act of “taking forcible possession either by a lawful authority or by overpowering force”, and that it included both belligerent and non-belligerent takings.55 He rejected the argument that each paragraph should be construed so as not to overlap with the others, and observed that in any event the typical incidents of war (covered by paragraph a) included the destruction of property rather than matters affecting title or possession (covered by paragraph e). There was nothing in the wording of the clauses to give “seizure” anything other than its ordinary meaning.56 Since the assured is entitled to an indemnity if he proves that his loss was proximately caused by any one of a number of perils covered by the policy, Kuwait Airways would therefore recover, provided that the risks in paragraph (a) were simply omitted from the cover for spares when not in transit and were not, on the true construction of the policy, excepted perils.57 The House of Lords held that there was no exclusion and the insured was entitled to recover in respect of the spares. The presence of force 12.27 How much force is required to effect a seizure? Two cases in particular, Robinson Gold Mining Company and Others v. Alliance Assurance Company,58 and Miller v. 54 55 56 57 58 [1999] 1 Lloyd’s Rep. 803 at p.812. Ibid at p.814. Ibid at p.815. Ibid. [1901] 2 K.B. 919; [1902] 2 K.B. 489 (H.L.). 98 Seizure The Law Accident Insurance Company59 address this question. Both cases should be read together because they have been used as guides as to the degree of force that is necessary, particularly on “restraint”, in the line of cases currently ending with The Bamburi in 1981.60 12.28 Robinson’s case61 concerned a shipment of gold made on the eve of the outbreak of the Boer War. Robinson Gold Mining Company was incorporated in the Republic of South Africa and the gold emanated from that territory as it was before the start of the war. On 2 October 1899, the gold was loaded onto a train at Johannesburg for Cape Town where it was to be shipped to London. On the same day, it reached the frontier station at Vereeniging. Whilst it was still within the Republic’s territory, the resident justice, acting on the instructions of the Republic’s Attorney-General, ordered the railway company to unload the gold. The railway company complied and armed guards accompanying the gold did not attempt to resist. On 9 October 1899, more of Robinson’s gold was taken on the orders of the Republic’s government whilst it was in a bank in Johannesburg. Again there was no resistance. On 11 October 1899, the Republic declared war on the United Kingdom. The gold was insured against: “… arrests, restraints and detainments of all kings, princes and people of what nation, condition or quality soever.” The policy contained an f.c. & s. Clause. 12.29 Phillimore J. found that the taking was lawfully made and was a “seizure” within the meaning of the f.c. & s. Clause. He rejected the arguments that seizure required a hostile taking and that seizure excluded the operation of the law. Sir Walter Scott (later Lord Stowell) disposed of this idea in The Maria,62 which Phillimore J. cited with approval: “It is a wild conceit that wherever force is used, it may be forcibly resisted; a lawful force cannot be lawfully resisted …” The only exception is in time of war, when there is a right to attack and a right to resist. 12.30 Judgment was signed for the defendant underwriters and the plaintiff appealed. In the Court of Appeal, Collins M.R. noted that the plaintiffs were in difficulty because the perils insured (arrests, restraints and detainments) imported some act of force, while at the same time getting out of the warranty “free from capture and seizure”. The argument that there was no force, but the insured willingly acquiesced to the Government’s right to invite owners to part with their property, was rejected: The suggestion that a subject or resident of the Transvaal owing allegiance to its Government, or to all events subject to and under the protection of its laws, in surrendering so large a share of his property is not yielding to force and that the act of taking possession of his property is not a seizure on the part of the authorities, seems to me incapable of serious argument.63 12.31 Mathew L.J. considered that if the goods had been taken at sea, that would have been a “capture”, adding: “Here there was a capture, for which no force was necessary; and there was a seizure, unaccompanied by any actual violence. … Can there be any doubt that belligerency or an act of violence is not necessary.”64 Belligerency was said to 59 60 61 62 63 64 [1902] 2 K.B. 694; [1903] 1 K.B. 712 (C.A.); [1904] A.C. 359 (H.L.). [1982] 1 Lloyd’s Rep. 312. Robinson Gold Mining Co v. Alliance Ins Co [1901] 2 K.B. 919; [1902] 2 K.B. 489 CA; [1904] A.C. 359. (1799) 1 C. Rob. 340 at 360. [1902] 2 K.B. 489 at p.497. Ibid at p.502. 99 Seizure be excluded by the terms of the warranty (presumably by virtue of the addition of seizure and detention) and the suggestion that violence is indispensable, was held to be farfetched, presumably on the basis that the threat of force sufficed. Cozens-Hardy L.J. simply noted his agreement with both judgments. 12.32 The House of Lords dealt very briefly with the case as all five Law Lords considered that the Court of Appeal was plainly right. The Earl of Halsbury L.C. considered it plain, and the other Lords concurred with this, that the gold was lost because of a “seizure” and it did not matter whether that “seizure” was lawful or unlawful. Public or private ends 12.33 In Nesbitt v. Lushington,65 the Industry was loaded with wheat and coal for carriage from Youghall to Sligo. Bad weather forced her to take shelter in Elly Harbour. At the time, there was a severe lack of corn in that part of Ireland and the mob from ashore took control of the ship, weighed her anchor so that she went aground, and forced the Captain to sell the wheat at a sum which was about three-quarters of its invoice value. This they removed from the ship leaving only ten tons which, being damaged in the stranding, was thrown overboard. The cargo was insured on the S.G. Form and one plea was that the loss was due to arrests, restraints or detainments “by people”. Lord Kenyon C.J. held that this was not arrests, restraints or detainment of “people”, as “people” referred to “the ruling power of the country.”66 Buller J. similarly stated that people “means the supreme power … the power of the country, whatever it might be.”67 12.34 In Societe Belge des Betons S.A. v. London and Lancashire Insurance Co. Ltd.,68 insurance was on the S.G. Form with the f.c. & s. Clause deleted, covering “arrest, restraints, and detainments of all kings, princes and people”. At the start of the Spanish Civil War, two Belgian companies were engaged on harbour works in Valencia through their wholly owned subsidiary, Iberica, which seems to have owned the equipment and the barges engaged on the work. On 18 July 1936 the Spanish Civil War began. In Valencia a strike began, led by the main communist, syndicalist and anarchist unions who armed their members. The garrison was subdued. The Popular Executive Committee (P.E.C.) was formed “from the very entrails of the people” and exercised the function of government. On 18 August the workers’ management committee notified Iberica’s manager, Mr. Ceresa, that he was to make no management decisions without first informing it. On 4 September Mr. Ceresa saw the governor who refused to help him. He was sent back to the works where a document was served upon him to the effect that the works were being taken over. He was threatened with death if he stayed and departed for his home in France. On 14 September the plaintiffs received Mr. Ceresa’s report. On 6 October notice of abandonment was tendered. The underwriters refused to put the plaintiffs in the same position as if a writ had been issued and referred them to the Belgian Foreign Office. On 6 November the P.E.C. granted an incautacion of Iberica’s property. On 10 November the plaintiffs issued a writ. In December the government replaced the P.E.C. whilst confirming all its previous incautaciones. 65 66 67 68 (1792) 4 Term Rep. 783. Ibid at p.787. Ibid at p.788. (1938) 60 Ll.L.Rep. 225; [1938] 2 All E.R. 305; 158 L.T. 352. 100 Seizure 12.35 Porter J. held that on 10 November it was unlikely that the barges or other property would be recovered within a reasonable time. He then posed the question “Was there a seizure by peoples?” and answered, on the basis of Nesbitt v. Lushington,69 that it “was undoubtedly a seizure, but it is established law that a seizure by the governing power of the country is necessary in order that the assured may recover under this head.”70 Originally it was a seizure by the workers to protect their livelihoods, but it had the support of the P.E.C. whose acts were later acquiesced in and confirmed by the government. Although in his reasoning Porter J. referred to a “seizure”, his finding71 was that the loss was by a “restraint of peoples”. Seizure of the ship by those on board 12.36 Can a ship suffer “seizure” by those on board her? The answer is that it may do so, depending on whether those taking possession are members of the crew or not. Naylor v. Palmer72 is a convenient starting point. The Victory was to carry 360 Chinese emigrants from Canton to Callao. The monies laid out on provisions and goods for the emigrants were insured by British underwriters on the S.G. Form but without an f.c. & s. Clause. At some time during the voyage, the emigrants “piratically and feloniously” murdered the Captain and several of the crew and took over the ship. The background is not clear, but it appears that they were not willing emigrants. They landed on the nearest land and made good their escape. The ship was not damaged and the Mate and the rest of the crew could have completed the voyage; in fact they never did. Pollock C.B. dismissed the defendant’s pleas that the loss arose out of the emigrants’ unwillingness to go to Peru, which seems to have been unattractive to them, and decided: The act of seizure of the ship, and taking it out of possession of the Master and crew by the passengers, was either an act of piracy and theft, and so within the express words of the policy, or, if not of that quality, because it was not done animo furandi, it was a seizure ejusdem generis analogous to it … falling within the general concluding words of the perils enumerated by the policy.73 12.37 Then came Kleinwort v. Shepard.74 The Henriette Marie, a Dutch ship, was to carry 350 emigrants from Macao to Havana. She and the provisions for the voyage were insured on the S.G. Form, which included “pirates” and “thieves” as insured perils, but this time there was an f.c. & s. Clause: “Warranted free from capture and seizure, and the consequences of any attempt thereat.” 12.38 Again, some, but not all, of the emigrants “piratically and feloniously” assaulted the Captain and some of the crew, and by force stole, took and carried away the ship and provisions from the Captain and the crew’s custody and made good their escape. The plaintiff pleaded that “seizure” could only arise if caused by a belligerent, or by persons 69 70 71 72 73 74 N 66. (1938) 60 Ll.L.Rep. 225 at p.234. Ibid at p.235. (1853) 8 Ex. 739; affmd on appeal (1854) 10 Ex. 382. Ibid at p.750. (1859) 1 El. & El. 447. 101 Seizure from without the ship, and excluded everything done by those lawfully on board her. Lord Campbell C.J. held that the actions of the passengers were within the ordinary meaning of “seizure”, namely the act of taking forcible possession, and that there was no reason to give “seizure” a restricted meaning which depended on the motives of those taking possession. Indeed, the court observed: “we clearly think it would extend to a capture or seizure by pirates.”75 12.39 The scene shifts to the United States where two decisions deal with the misdeeds of the crew. Both are decisions of the Circuit Court of Appeals and, although nearly a century apart, should be considered together. Greene v. Pacific Mutual Life Insurance Company76 concerned a case of a whaler where the crew killed the Master and the Mate and badly wounded the other officers. The ship was also badly damaged and the voyage had to be abandoned. She was insured for “barratry” but “seizure” was excluded by the American form of f.c. & s. Clause. Bigelow C.J. held that this was clearly barratry, one form of which was by the crew forcibly dispossessing the Master and officers of the ship. As for seizure, this was construed as not applying to such barratrous acts, of either the Master or the crew. The court was of the view that the Master has by law possession and control of the ship and could not be said to seize what was already in his own keeping. As for the crew, they were said to have “qualified possession”, in that it is in their care and custody, subject to the order of the Master. Their taking the vessel was described as a breach of trust, not a seizure, the latter requiring the taking of possession by superior force from without. The English case of Kleinwort v. Shepard was distinguished on the basis that mutiny by passengers can be treated as violence from without. 12.40 This analysis, which seems to depend on the Master having legal possession of the ship, is not strictly accurate as a matter of English law. The Master has actual possession (or custody) of the vessel, but not legal possession, the latter remaining in the Owners as his employers. Since a seizure may unlawful, and thus of no effect on legal possession, it is actual possession which matters. 12.41 Nearly a century later, the U.S. Court of Appeals (4th Circuit) heard the case of The “Hai Hsuan”.77 At the end of the Second World War, the United States sold to the Nationalist Government of China 13 vessels and assumed the position of mortgagee. Civil war broke out in China, and by the end of 1949 the Communists had established the People’s Republic of China. The Nationalists were confined to the island of Taiwan. In January 1950 the United Kingdom recognized the Communist Government, but the United States did not do so. Orders were given for the ships to sail to Taiwan, but all such orders were disobeyed and communist flags were raised on the vessels as the Masters or crew defected. The war risks policies covered barratry, but excluded capture and seizure. 12.42 Thomsen C.J. gave the judgment of the District Court. He allowed the claim in respect of six vessels, but held that the “Hai Hsuan” was seized, because the Master had resisted the crew. The judge considered that there was a distinction between the “possession and control” of the ship by the master and the “qualified possession” of the crew. 75 Ibid at p.454. See Cory v. Burr (1893) 8 App. Cas. 393 at pp.396, 402. 76 (1864) 91 Mass. (9 Allen) 217. 77 [1957] 1 Lloyd’s Rep. 428; [1958] 1 Lloyd’s Rep. 351. 102 Seizure The Court of Appeals held that there was no such distinction, applied the Green v. Pacific Mutual78 analysis, and allowed the claims for barratry in respect of all seven ships. Seizure of the cargo by those on board 12.43 As we have seen, there can be no seizure of the ship itself by the Master or crew, though it can be seized by others on board, such as passengers. So far as the cargo is concerned, seizure by those other than the Master and crew is in principle the same as seizure of the ship. Seizure of cargo by the Master is not an act of barratry if done with the connivance of the Shipowner,79 but would otherwise be barratry since it is an act prejudicing the Shipowner, who is liable for his misconduct.80 12.44 In the Forestal case,81 cargoes owned by British subjects were on board German ships at the outbreak of the Second World War. The Masters were ordered by the German government to take refuge, return to Germany if possible, and as a last resort scuttle the ships. Two ships were scuttled and one reached Germany. The House of Lords held that when the Masters obeyed these orders they held the goods as agents of the German government and not as bailees of the insured, and so the insured was deprived of possession of the cargoes by an executive act of government. Lord Wright held82 that it was a restraint of princes within the war risks of “capture seizure arrest restraint or detainment … also the consequences of hostilities or warlike operations.”, which were intended to repeat the words printed in the body of the policy, “enemies, … takings at sea, arrests, restraints and detainments of all kings, princes and people.” This was on the basis83 that the Master, being in possession of the goods as a carrier for the assured, seized them in the sense that he ceased to hold them as carrier and changed the character of his possession by taking and controlling them as agent for the German government with the intention and effect of holding them adversely to the assured and applying them to the hostile purposes of his government, thereby depriving the assured of them. It was not barratry, as the Shipowners were assumed to be sympathetic with or subject to the government orders. Lord Porter also held84 that there was a loss by restraint of princes and that this was a seizure. 12.45 In Shell International Petroleum Co. Ltd. v. Caryl Anthony Vaughan Gibbs (The Salem),85 the Shipowner agreed to carry a cargo of crude oil to Italy with the intention of misappropriating it, and delivering it to South Africa, in breach of sanctions. Most of the cargo was discharged at Durban, and a small quantity went down with the ship when it was subsequently scuttled. The cargo was insured under a form of open cover on the 78 Greene v. Pacific Mutual Life Insurance Co. (1864) 91 Mass. (9 Allen) 217. 79 Shell International Petroleum Co. Ltd. v. Caryl Anthony Vaughan Gibbs (The Salem) [1983] 1 Lloyd’s Rep. 342; [1983] 2 A.C. 375. 80 Rule 11 of the Rules of Construction in the 1906 Act defines “barratry” as including every wrongful act wilfully committed by the master or crew to the prejudice of the owner, or, as the case may be, the charterer. Barratry can only be committed against the shipowners: Shell International Petroleum Co. Ltd. v. Caryl Anthony Vaughan Gibbs (The Salem) [1983] 1 Lloyd’s Rep. 342; [1983] 2 A.C. 375 at p.392. 81 Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden) (1940) 67 Ll.L.Rep. 484; (1940) 68 Ll.L.Rep. 45 (C.A.); (1941) 70 Ll.L.173; [1942] A.C. 50 (H.L.). 82 [1942] A.C. 50 at p.78. 83 Ibid at pp.79–80 per Lord Wright. 84 Ibiid at pp.110–112. 85 [1981] 2 Lloyd’s Rep. 316; [1982] 1 Lloyd’s Rep. 369 (C.A.); [1983] 1 Lloyd’s Rep. 342 (H.L.). 103 Seizure Lloyd’s S.G. Form with the Institute Cargo Clauses (F.P.A.) and Institute strikes, riots and civil commotions clauses attached. 12.46 The claim was complicated by the fact that in The Mandarin Star86 the Court of Appeal had previously misconstrued the decision in the Forestal case and held that there was a “taking at sea” where the shipowners had wrongfully misappropriated cargo. The House of Lords overruled The Mandarin Star.87 Cargo owners had not obtained all risks cover, and the standard Lloyd’s S.G. Policy did not cover wrongful misappropriation of cargo by a shipowner. Cover included88 “takings at sea, … and of all other perils, losses, and misfortunes, that have or shall come to the hurt, detriment, or damage of the said goods and merchandises, and ship, etc., or any part thereof. …”. But there was no such thing as a “taking at sea” of the cargo by the shipowner, as there was no deprivation of possession. 86 [1969] 1 Lloyd’s Rep. 293; [1969] 2 Q.B. 449. 87 Ibid. 88 The peril of “thieves” was covered, but does not apply to theft by passengers or crew: Rule 9 of Schedule 1 to the Marine Insurance Act 1906. 104 CH A PT ER 13 Arrest, restraint, detainment … General 13.1 In addition to capture and seizure, the Institute Clauses also refer to “arrest, restraint and detainment”. This is similar to the S.G. Form’s perils of “arrests, restraints, and detainments of all Kings, Princes and people, of what nation, condition or quality soever”. Rule 10 of the Marine Insurance Act 1906 Rules for construction of policy provided that this term referred to political or executive acts, and did not include riot or ordinary judicial process. Although that Rule no longer applies, the same effect is achieved1 by the express exclusions of quarantine, customs or trading regulations (Clause 4.1.5) and of ordinary judicial process (Clause 4.1.6). Exclusions are considered in Chapter 23. Arrest 13.2 As noted in paragraph 13.1, ordinary judicial process is excluded, and the effect of the exclusions as a whole is to limit the peril of “arrest” to political or executive acts. It is not clear what sort of event is covered only by this peril, particularly when it is found together with the broad perils of “seizure”, “restraint” and “detainment”. In Rodocanachi v. Elliott,2 Brett J suggested in argument that “seizure” is a taking possession of goods for the purpose of confiscating them, “arrest” is a taking with the intention of restoring them at one time or other, and “restraint” is preventing the goods from being got away, without laying hands upon them. On this classification, distinctions are to be drawn between perils which involve a taking of the property (seizure and arrest) as against those which simply impede the property (restraint), and between perils which are permanent (seizure) and those which are temporary (arrest and restraint). In his judgment, Brett J held that it was not an arrest where goods were besieged, since arrest required that the goods be seized and taken out of the possession of the owner.3 An embargo is not a capture or seizure since it leaves the property in the possession of the owner.4 However, in Johnston v. Hogg,5 Cave J said that it was impossible to give distinct and different meanings to such words as “capture”, “seizure”, “arrest”, “detention” and “restraint”. Whilst it would be going too far to suggest that these perils cannot be differentiated at all, it is clear that the terms all overlap to some degree. 1 2 3 4 5 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 per Lloyd LJ at p.572. (1872–73) L.R. 8 C.P. 649 at p.659. Rodocanachi v. Elliott (1872–73) L.R. 8 C.P. 649 at p.670. Driefontein Consolidated Gold Mines Limited v. Janson [1900] 2 Q.B. 339 at p.344 per Mathew J. (1882–83) L.R. 10 Q.B.D. 432 at p.435. 105 A rrest, restraint, detainment … Restraint 13.3 As noted in paragraph 13.1, ordinary judicial process is excluded, and the effect of the exclusions as a whole is to limit the peril of “restraint” to political or executive acts. The word “restraint” has a wide commercial meaning.6 It may be a lawful or unlawful restraint.7 It is a word more properly applicable to persons than to goods, so that a restraint of goods means a restraint of those having the custody of goods.8 The words “restraint of princes” have the same meaning in charterparties and insurance policies;9 and it is a restraint “of princes” if it is an act of a sovereign state or prince.10 There may be an overlap between restraint and seizure.11 13.4 A blockade is a restraint, provided the blockade is effective; it is effective if the enemies’ ships are in such numbers and position as to render the running of the blockade a matter of danger, although some vessels may succeed in getting through.12 There is no difference in principle between a siege, a blockade and an embargo, so far as regards the question whether it amounts to a restraint.13 In both a besieged or blockaded town or port, the detention is the act of a sovereign power, and it does not matter whether it is the act of the State in which the goods are, or the act of the enemy.14 However, there is no restraint unless the ship or cargo is within a blockaded port; there is no restraint if the vessel voluntarily refrains from entering a port for fear of becoming subject to a blockade.15 There is nevertheless a restraint if the ship is within the port and liable to have its cargo destroyed if it does not leave.16 Where a ship is ordered into port by the flag state in anticipation of war breaking out, and for the purpose of taking control of cargo onboard all, there is also a restraint of princes or people.17 The requisition of a ship is also a restraint of princes,18 though such a restraint is subject to express exclusion (Clause 4.1.3). 13.5 A limitation, restriction or confinement may be a restraint if imposed by the application of external force without taking possession of the person or goods which are 6 Owners of the Bamburi v. Compton (The Bamburi) [1982] 1 Lloyd’s Rep. 312 at p.315; Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.417 per Hobhouse J; [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.571. 7 Miller v. Law Accident Ins [1903] 1 K.B. 712 at p.722 per Mathew L.J. 8 Rodocanachi v. Elliott (1873–74) L.R. 9 C.P. 518 at p.522. 9 Rodocanachi v. Elliott (1872–73) L.R. 8 C.P. 649 at p.666 per Bovill C.J. (cargo of silks was trapped in Paris when it was surrounded by German armies in the Franco-Prussian war). 10 Geipel v. Smith (1871–72) L.R. 7 Q.B. 404 at p.410 per Cockburn C.J. (charterparty, with an exception for restraint of princes and rulers) 11 Seizure of a vessel by revenue officers on account of smuggling is a restraint of princes: Cory v. Burr (1883) 8 App. Cas. 393 at pp.399–400 per Lord Blackburn, referring to Havelock v. Hancill (1789) 3 T.R. 377. 12 N 10. 13 Rodocanachi v. Elliott (1872–73) L.R. 8 C.P. 649 at pp.664–665 per Bovill C.J., p.670 per Brett J, p.671 per Grove J. 14 Ibid at pp.667–668 per Keating J. 15 Ibid at p.665 per Bovill C.J.; Hadkinson v. Robinson (1803) 3 Bos. & Pul. 388; Lubbock v. Rowcroft (1803) 5 Esp. 50; Forster v. Christie (1809) 11 East. 205. 16 Miller v. Law Accident Ins [1903] 1 K.B. 712 at pp.720–721. 17 Czarnikow v. Leslie & Anderson (1941) 70 LL. Rep. 319 at p.326 (the German government took control of all German merchant shipping in anticipation of the outbreak of war between Germany and Great Britain in 1939). 18 F.A. Tamplin Steamship Company v. Anglo-Mexican Petroleum Products Co Ltd [1916] 2 A.C. 397 at p. 426 per Lord Parker (charterparty case). 106 A rrest, restraint, detainment … restrained.19 Goods are restrained or detained where they are by the application of a hostile force prevented from being carried to their destination.20 However, there need not be actual force used if the Master submits to the orders of the authorities.21 13.6 In Miller v. Law Accident Ins,22 a government prohibition on the import of diseased cattle, which prevented a cargo entering the port of discharge, was held to be a “restraint” of people, as it was an act of State and not analogous to an arrest to enforce the rights of a private individual.23 The claim was dismissed on the basis of the f.c. & s. warranty. The situation was distinguished from the line of cases which hold that there is no restraint where the vessel refrains from entering a blockaded port on the basis that the Master did not act voluntarily, since the government intervened and detained the cattle on board the vessel by the prohibition on landing.24 There was a restraint because the Master was subject to the jurisdiction of the local authorities. In the case of voluntarily refraining from entering a port, the Master will successfully avoid being subject to the control of the authorities. Detainment 13.7 As noted in paragraph 13.1, ordinary judicial process is excluded, and the effect of the exclusions as a whole is to limit the peril of “detainment” to political or executive acts. The word “detainment” has a wide commercial meaning.25 It means the same as “detention”.26 A vessel is detained in a commercial or conditional sense if it is unable to leave without infringing regulations and would have been stopped by force if it had tried to do so.27 13.8 Where the ship is unable to leave port on its voyage due to an embargo, there is a detention.28 However, if the Master refrains from entering the port of destination in order to avoid confiscation, there is no “detention of princes”, only an apprehension of the same.29 The fact that a detention is under the ordinary laws is not fatal to a claim.30 19 Olivera v. Union Insurance Company (1818) 16 U.S. (3 Wheat.) 183 at pp.189–190, US Supreme Court, per Marshall C.J., applied in Rodocanachi v. Elliott (1873–74) L.R. 9 C.P. 518 at p.523. 20 N 3 per Brett J. 21 Miller v. Law Accident Insurance [1903] 1 K.B. 712 at pp.721–722 per Mathew L.J. 22 [1903] 1 K.B. 712. 23 Ibid per Vaughan Williams L.J. at p.718. 24 Ibid at p.721 per Stirling and Mathew L.J. 25 N 6. 26 Miller. v. Law Accident Insurance [1903] 1 KB 712 at p.722 per Mathew L.J. 27 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.417 per Hobhouse J; [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.571. 28 Rotch v. Edie (1795) 6 T.R. 413. 29 Hadkinson v. Robinson (1803) 3 Bos. & Pul. 388; Lubbock v. Rowcroft (1803) 5 Esp. 50; Forster v. Christie (1809) 11 East. 205. 30 Panamanian Oriental Steamship Corporation v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365; reversed [1971] 1 Lloyd’s Rep. 487; Miller v. Law Accident Insurance [1903] 1 KB 712; Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.415 per Hobhouse J; [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.571. 107 A rrest, restraint, detainment … 13.9 The detention must be fortuitous.31 In The Wondrous, the voluntary conduct of the shipowners in not paying port dues, leading to the ordinary consequence that the vessel was not cleared for departure, was not a fortuity.32 However, that the vessel could only be cleared for departure by shipowners discharging the financial obligations of the exporter and Charterer in respect of the cargo was fortuitous, as it was not an ordinary incident of ownership of the vessel or of trading.33 13.10 In The Wondrous, Lloyd L.J. held that if a vessel were detained by reason of the expiry of her International Safety Certificates that would not be a detainment within the perils insured.34 It is not clear whether this would be on the grounds that it was not a fortuity, an analysis relied on by Hobhouse J. at first instance, or because the perils were to be read together with the exclusions, as Lloyd L.J. held. Cases illustrating the insured peril 13.11 It was at one time thought that every subject consented to, and adopted as his own, every act of his government and this was so decided in Conway v. Gray.35 This being so, a claim could not be made for the restraints of a subject’s own Prince. This was overruled by the Court of Exchequer Chamber in Aubert v. Gray.36 In 1859, 30 bales of carpets were insured on the S.G. Form for shipment from London to Alicante on board the Jovellanos. The shipowner and the cargo owner were both Spanish subjects. The policy contained the insured perils of: “Arrests, restraints, and detainments of all Kings, Princes and people of what nation, condition or quality soever”. There was no f.c. & s. Clause. 13.12 In Corunna, the ship was embargoed by the Queen of Spain to carry troops to fight in the current war between Spain and Morocco. The cargo was discharged during bad weather and was unceremoniously dumped on the quayside. The weather continued wet and rainy and the carpets were severely damaged. The court’s judgment was read by Erle C.J.: “The restraint of a Prince caused the loss, the assured have used the words which expressed that they are to be indemnified against any restraint from any Prince”;37 and: The assertion that the act of the government is the act of each subject of that government is never really true. In representative governments, it may have a partial semblance of truth; but in despotic governments it is without that semblance.38 13.13 Rotch v. Edie39 had considerable influence on “restraint”. The case was decided at a time when it was accepted that a policy on a ship insured not only the loss of the ship 31 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.415 per Hobhouse J; see generally H Bennett, ‘Fortuity in the Law of Marine Insurance’ (2007) LMCLQ 315. 32 Ibid at p.416. 33 Ibid. 34 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.572. 35 (1809) 10 East 536. 36 (1862) 3 B.&.S. 169. 37 Ibid at p.181. 38 Ibid at p.182. 39 (1795) 6 Term Rep. 413. 108 A rrest, restraint, detainment … but the loss of the adventure as well. This is no longer the case.40 The facts of Rotch v. Edie were these: in 1792, three whaling ships, Adelaide, Adele and Victor were insured “at or from L’Orient” for voyages to “all ports, seas and places between the Cape of Good Hope and Cape Horn” until their return to L’Orient. The policy was on the S.G. Form and insured against: “Arrests, restraints and detainments of all Kings, Princes and people of what nation, condition or quality soever and against all other perils, losses and misfortunes that should come to the hurt, detriment or damage of the said ships.” In January 1793 the Minister of Merchant Marine in Paris instructed the Admiralty Court in L’Orient to lay an embargo on all French ships. This affected the three insured vessels, which were unable to leave. Clearances and passports were not granted so the perishable stores were sold off and the crews discharged. Notices of abandonment were given and refused in February and August 1793. 13.14 The plaintiff successfully sued for total losses. Lord Kenyon C.J. held that an arrest or an embargo at the load port by a Prince, not an enemy, was insured by the policy: “The plaintiff has, in fact, lost the voyage; the ships have been detained either by Kings, Princes, or people, the governing power of the country where [they are].”41 In The Bamburi,42 Staughton J (as arbitrator) considered that the decision was still good law, notwithstanding that it was probably based on the theory (now discarded) that there could be a loss of adventure with respect to a ship. Force 13.15 The word “restraint” indicates some degree of power to prevent the insured shipowner from carrying on with a course of action on which he is properly embarked. Just as in the case of “seizure” case it is sufficient that there is the threat of force were there to be non-compliance with the authorities43, the same applies to “restraint”.44 13.16 In Miller v. The Law Accident Ins Co,45 the Bellvue carried a cargo of bulls from Liverpool to Buenos Aires. Before the shipment, an Argentine decree had forbidden the import of diseased animals into Argentina, and also the import of animals from countries where certain diseases were prevalent. The bulls were insured under a policy which covered arrests, restraints or detainments and “all other perils, losses and misfortunes that have or shall come to the hurt, detriment or damage of the said goods and merchandises or any part thereof”. There was also an f.c. & s. Clause which covered “capture, seizure or detention”. 13.17 On arrival of the vessel in Buenos Aires the bulls were found to be diseased and the Argentine authorities ordered the vessel to leave the port. Transhipment was permitted outside port limits. The bulls were transhipped into lighters where they spent some days 40 The history of this change and the reasons for it were traced by Staughton J. in Owners of the Bamburi v. Compton (The Bamburi) [1982] 1 Lloyd’s Rep. 312. 41 N 39 at pp.422–423. 42 Owners of the Bamburi v. Compton (The Bamburi) [1982] 1 Lloyd’s Rep. 312. 43 Robinson Gold Mining Company v. Alliance Assurance Company [1901] 2 K.B. 919; [1902] 2 K.B. 489 (C.A.). 44 Miller v. The Law Accident Insurance Company [1902] 2 K.B. 694; [1903] 1 K.B. 712 at pp.720, 721–722 (C.A.) 45 Ibid. 109 A rrest, restraint, detainment … and then to another vessel in which they were taken to Montevideo. After 40 days’ quarantine, they were sold at a considerable financial loss. 13.18 Bigham J. held that there was no restraint of people and the claim failed. He also held that the f.c. & s. Clause applied on the basis that “detention” covered arrests, restraints and detainments.46 On appeal the Court of Appeal reversed the judge on “restraint”. Stirling and Mathew L.J.J. considered that there was an exercise of force by the Argentine Government, and if no force was actually used, it was because the Master submitted to the orders of that government’s servants; the Argentine State had plenty of force in reserve to enforce its demands if necessary. There was therefore a “restraint”, but the claim still failed on the basis of the f.c. & s. Clause for the same reason as given by the judge. 13.19 The Miller case47 was followed by St. Paul’s Fire & Marine Insurance Co. v. Morice.48 An American insurance company had insured a bull for carriage from New York to Buenos Aires on board the Merchant Prince. On arrival, it was found to be infected by foot and mouth disease and was slaughtered by the Argentine authorities on board the ship. St. Paul’s had paid their assured under the primary policy which contained a mortality Clause and claimed against their reinsurers who were Lloyd’s underwriters. Kennedy J. found some difficulty with the mortality Clause, which seemed to him to cover fortuitous or accidental death or death by disease, but not death by slaughter. However, he made a similar finding to the Miller case,49 that the actions of the Argentine authorities were excluded from the policy by the f.c. & s. Clause. 13.20 A “restraint of Princes” was held to arise in Sanday v. British and Foreign Marine Insurance Company.50 In July 1914, linseed was loaded into two British ships, the St. Andrew and the Orthia in Argentina for carriage to Hamburg. It was sold on C.I.F. terms but property was not to pass until delivery in Hamburg. This never took place, and so the property in the linseed remained in the plaintiffs throughout. On 4 August 1914, the United Kingdom declared war on Germany and proclamations were made by Her Majesty’s Government prohibiting trade between British subjects and Germany on 5 August and 9 September 1914. On 9 August, the St. Andrew, when off the Lizard, first heard of the war from a French warship which suggested she should seek orders from her own government. The Naval Control Officer in Falmouth sent her to Liverpool to discharge which she duly did. The Orthia was warned by her owners whilst in a bunkering port of the outbreak of war and of the Admiralty’s suggestion that she should proceed to a British port. She duly did so and discharged her cargo in Glasgow. Besides there being no prospect of the linseed being sent on to Hamburg within any reasonable time, it also suffered substantial physical damage. 13.21 By policies written on the S.G. Form and dated 31 July 1914, the linseed was insured on both vessels against the perils of: “… Takings at sea, arrests, restraints, and detainments of all Kings, Princes, and people of what nation, condition, or quality soever.” The free of capture and seizure Clause was deleted from the policy. On 7 September 1914, Notice of abandonment was given and refused, no point being taken that the notice was late. 46 47 48 49 50 [1902] 2 K.B. 694 at p.700. Miller v. The Law Accident Insurance Company [1902] 2 K.B. 694; [1903] 1 K.B. 712. (1906) 11 Com. Cas. 153. N 47. [1915] 2 K.B. 781; [1916] 1 A.C. 650. 110 A rrest, restraint, detainment … 13.22 The plaintiffs claimed for a constructive total loss of the goods on the grounds that the adventure had been terminated by a “restraint”. The defendant underwriters argued that: there was no loss, or if there was a loss it was not caused by an insured peril; the peril insured against was not the proximate cause of the loss; if loss was claimed because of any action by the United Kingdom authorities, then such actions would not amount to “restraint”. The Court of Appeal held that submission to the municipal law, namely the common law principle which made it unlawful to trade with an enemy, was not a loss by “ordinary judicial process”.51 The argument that restraint of princes did not apply to an act of the executive of which the insured was a subject was also rejected.52 On a further appeal, the House of Lords held that the 1906 Act had not altered the rule that insurance of goods for a voyage insured not just the cargo against the risk of injury but also their safe arrival at destination.53 The House also held that the declaration of war was a restraint of princes as it was an executive act which made it unlawful for the vessels to continue to Germany, there being no difficulty with a requirement for “force” where the master submits to a requirement, since force is in reserve behind every State command.54 13.23 Lastly, it should be noted that a warranty was added to the cargo policies as a result of this case, and that this warranty was considered in the Forestal cases.55 This warranty has been further refined to a direct exclusion from the Institute War Clauses (Cargo) in respect of “Any claim based upon loss of or frustration of the voyage or adventure.” (Clause 3.8). The frustration Clause 13.24 Three important cases on “restraint of princes” arose in 1940 and 1941, and were heard together as representative cases, known as Rickards v. Forestal.56 Just before the outbreak of the Second World War, the plaintiff British firms shipped goods on three German ships. The marine and war risks insurance on the cargoes covered “enemies … surprisals, takings at sea, arrests, restraints and detainments of all kings, princes and people,” and, by incorporation of the Institute War Clauses, the risks excluded by an f.c. & s Clause, and “the consequences of hostilities” or “warlike operations …” Each policy also contained what was referred to as the frustration Clause: “Warranted free of any claim based upon loss of, or frustration of, the insured voyage or adventure caused by arrests, restraints or detainments of kings princes peoples …” Such frustration clauses were introduced into use following the decision in the Sanday case57 that a voyage policy on goods insured the loss of the voyage even if the goods were not physically lost. 51 [1915] 2 K.B. 781 at pp.804–805 per Lord Reading C.J., at pp.824–825 per Bray J. 52 Ibid at pp.808–809 per Lord Reading C.J., at p.828 per Bray J. 53 [1916] 1 A.C. 650 at pp.657–658 per Earl Loreburn, p.663 per Lord Atkinson, p.668 per Lord Parmoor, p.674 per Lord Wrenbury. 54 Ibid at pp.658–660 per Earl Loreburn, p.665 per Lord Atkinson, at pp.669–670 per Lord Parmoor, pp.671–672 per Lord Wrenbury. 55 Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden); Middows, Ltd. v. Robertson (The Wangoni); W.W. Howard Bros. & Co. Ltd. v. Kann (The Halle) (1940) 67 Ll.L.Rep. 484 (1940) 68 Ll.L.Rep. 45 (C.A.) (1941) 70 Ll.L.Rep. 173, [1942] A.C. 50 (H.L.). 56 Ibid. 57 [1916] 1 A.C. 650. 111 A rrest, restraint, detainment … 13.25 All three ships had sailed in August 1939, the Minden from Buenos Aires for Durban, where the cargo was to be transhipped to China, the Wangoni from Bremen for Cape Town and the Halle from Australia for London. They would not reach any of these ports until after the outbreak of war on 3 September 1939, but at the time of sailing the pre-war crisis between the United Kingdom and France on the one hand and Germany on the other was at its height. The exact date and form of the orders given by the German Government to the Masters of German ships was not known at the dates of the hearings, but it was accepted that the German Government had taken control of all German shipping and had instructed the Masters that they should take refuge in neutral ports and if possible return to Germany. They were to avoid capture by Allied warships and, as a last resort, they were to scuttle their ships. In compliance with these orders, the Minden took refuge in Rio de Janeiro, the Wangoni in Vigo and the Halle in Bissao. Subsequently all three ships left their ports of refuge to return to Germany. In September and October 1939 respectively, the Minden and the Halle were challenged at sea by Allied warships and were scuttled with the loss of their cargo. The Wangoni managed to reach Hamburg in March 1940. Only the Master of the Wangoni, through the medium of neutral agents, offered to land the cargo and restore it to the plaintiffs, first in Vigo and later in Hamburg. He first required some very onerous conditions to be met on payment of freight and discharging costs and the giving of guarantees. 13.26 The House of Lords held that there was a constructive total loss of the goods whilst they were still covered by the policy, at the time when the Master obeyed the instructions of his government and held them as servant of that government rather than as bailee of the insured, which amounted to a restraint of princes.58 As Lord Wright explained, the Master’s actions could not be piracy, as they were done on the express orders of the national government, and they could not be barratry, as it was to be presumed that the shipowners were sympathetic to his conduct.59 Furthermore, the claim was not within the scope of the frustration Clause, as that only applied where the claim was based solely on the loss of the voyage rather than on the loss of the goods.60 13.27 The frustration Clause was considered subsequently in Atlantic Maritime Co Inc v. Gibbon,61 where there was insurance in respect of freight against loss caused by restraint of princes, civil war and warlike operations, but warranted free of claims based on either loss of, or frustration of, any voyage or adventure caused by restraints of princes, or loss proximately caused by delay. The insured chartered the vessel to carry cargo from a Chinese port under Communist control to Japan. While waiting outside the port to load, the master was warned by naval forces of the then Chinese Government to leave the port, and, after witnessing warlike operations, he left and did not return. The insured brought a claim for loss of freight. It was found that the Master did not act voluntarily, but due to a restraint of princes or an episode of civil war, and was justified in treating the charter as lost. The Court of Appeal upheld that finding by a majority, albeit with considerable doubt. Nevertheless, the Court of Appeal held that the frustration Clause applied, and that 58 [1942] A.C. 50 at p.64 per Viscount Simon L.C., pp.78–80 per Lord Wright, p.110, 112 per Lord Porter. 59 Ibid at p.80. 60 Ibid at p.65 per Viscount Simon L.C., p.71 per Viscount Maugham, p.91 per Lord Wright, pp.107–108 per Lord Porter. 61 [1954] 1 Q.B. 88. 112 A rrest, restraint, detainment … the insured was not able to rely on the peril of civil war without relying also on restraint of princes, since the latter was the real, efficient cause, operating in the context of a civil war.62 Mutual War Risks Associations—practice 13.28 In the Third Edition of this work, the late Michael Miller set out his personal experience of the practice of the Mutual War Risks Associations in cases of arrest, restraint or detainment between the late 1960s and the early 1980s. These were cases which did not result in litigation. The reader is referred to paragraphs 13.51–13.62 of the Third Edition for Mr Miller’s insightful comments as to how the practice of the Associations was more commercial than strictly legal. The Bamburi decision 13.29 In contrast to the approach of the Mutual Associations, the Market underwriters preferred that the issue should be defined in a test case by way of a judicial arbitration before Staughton J. as to The Bamburi.63 13.30 The Bamburi was a cement carrier insured against war risks on the S.G. Form with the Institute War & Strikes Clauses attached. The Persian Gulf and adjacent waters were an excluded area and additional premiums had been paid for entry. The vessel sailed from Mombasa bound for Khor-al-Zubeir. She arrived on 22 September 1980 and commenced discharge. On the same day, Iraq invaded Iran, and the resultant war lasted for eight years. Fighting in the vicinity was heard by the crew and several bombs fell nearby. The harbour master initially told the Captain that if he wishes, he may sail without a pilot, but then informed him that all shipping movements were prohibited. After completion of discharge on 24 September, permission to sail was refused. On 29 September the crew was repatriated. The Master, Chief Officer and Chief Engineer stayed nearby, and visited the vessel, until they left on 10 October. Notices of abandonment were given and refused. The Chief Engineer returned on 22 December, the Chief Officer returned on 14 January 1981, and two further crew members joined them in May 1981.Maintenance by this skeleton crew continued to the date of the arbitration. The vessel remained undamaged, personnel were permitted to leave, and there was no Iraqi presence onboard. No response was given to requests for permission to leave. 13.31 Staughton J. decided that the order not to sail emanated from an executive organ of the government and that a prohibition of all navigation was a “restraint of princes” regardless of the motive.64 This was in response to an argument that a restriction for safety reasons was not a restraint of princes.65 Staughton J. was of the view that safety was in fact not the motivation; rather it was to avoid the embarrassment of vessels being sunk in Iraqi waters.66 The position would be different if there were simply limits to permissible 62 63 64 65 66 Ibid at pp.118–119 per Lord Evershed M.R., at p.134 per Jenkins L.J., at pp.137–138 per Morris L.J. N 42. Ibid at p.315. Cf Bulchow Vaughan and Co. v. Compania Minera (1916) 32 T.L.R. 404. Ibid. 113 A rrest, restraint, detainment … navigation, but in such a case the limit would not prevent navigation and would be unlikely to amount to a restraint. 13.32 As to the question of deprivation of possession, Staughton J. accepted that on the narrowest legal definition, owners had not been deprived of possession; however, they had been deprived of the free use and disposal of their vessel.67 Payment or non-payment of hire for the vessel was irrelevant.68 As for the example of constructive total loss in section 60(2)(i) of the 1906 Act, which depends on the assured being deprived of possession, Staughton J. reviewed the authorities and held that, though the law may have taken a wrong turn, the Act intended “possession” to mean “free use and disposal”.69 Finally, Staughton J. decided that it was unlikely that the owners would recover their vessel within 12 months, and so there was a constructive loss.70 The 12-month Clause 13.33 As a result of the Bamburi decision, the Detainment Clause was included in the Institute War and Strikes Clauses for containers and ships. This Clause has been in existence for many years but before 1982 was scarcely used. It reads: In the event that the [] shall have been the subject of capture, seizure, arrest, restraint, detainment, confiscation or expropriation, and the assured shall thereby have lost the free use and disposal of the [] for a continuous period of twelve months then for the purpose of ascertaining whether the [] is a constructive total loss, the assured shall be deemed to have been deprived of the possession of the [.] without any likelihood of recovery. 13.34 The Institute War and Strikes Clauses for freight contain a similar provision, although the wording is slightly different. For immediate purposes, it should be noted that, when the 12 months have passed, the assured is excused from the onus of proof, which has always been difficult to discharge, that at a set point of time it was unlikely that the insured object could be recovered. 13.35 At least one attempt has been made to contend that the wording of the Detainment Clause creates an independent right to receive payment for a constructive total loss once the stipulated period of detention has expired. In Sunport Shipping Ltd. v. Tryg-Baltica International UK Ltd. (The Kleovoulas of Rhodes)71 this received short shrift in both the High Court and subsequently in the Court of Appeal. Clarke L.J., dismissed the owners’ contentions on the basis that the proximate cause of the original detention of the vessel was the unlawful importation of drugs into Greece and that the whole of the detention or detainment arose from the infringement of the Customs regulations, without any break in the chain of causation. The Detainment Clause is not an insured peril, but simply the mechanism which governs when a ship has become a constructive total loss. 67 68 69 70 71 Ibid at p.317. Ibid. Ibid at p.320. Ibid at p.322. [2003] 1 Lloyd’s Rep. 138. 114 CH A PT ER 14 … And the consequences thereof or any attempt thereat 14.1 The Institute War and Strikes Clauses read: “Capture seizure arrest restraint or detainment, and the consequences thereof or any attempt thereat” whereas the rules of the Mutual War Risks Associations read: “Capture, seizure, arrest, restraint or detainment, and the consequences thereof or any attempt thereat.” The differences in punctuation should not produce any difference in construction: both “consequences” and “attempt” apply to each of the preceding insured perils. 14.2 The war risk cases on “consequences” all arise out of the f.c. & s. Clause of the S.G. Form, where the standard form of the warranty included the words “and the consequences thereof or any attempt thereat”. They have thus been decided in the context of an exception to a peril, which would otherwise have been insured by the Marine Policy, or an excepted peril which is turned into an insured peril in the War Policy, and have to be read in that context. At the date of writing, there have been no cases decided on the modern Institute War and Strikes Clauses’ “consequences and attempt”. It is suggested that the cases of the S.G. Form continue to be authoritative. The question as to what is a “consequence” of an insured peril simply involves identifying whether the proximate cause continues to operate.1 The “consequences” of an insured peril are the losses resulting from that peril, and the word does not enlarge the peril.2 Causation in general is considered in Chapter 28. Cases on causation decided before Leyland Shipping Co v. Norwich Union Fire Insurance Society,3 need to be considered with some care, as before Leyland the proximate cause was normally identified as the cause latest in time rather than that which was the most efficient cause. 14.3 Ionides v. The Universal Marine Insurance Company4 concerned 6,500 bags of coffee loaded on board the Linwood in Rio de Janeiro bound for New York with calls in Belize and New Orleans. The coffee was insured on the S.G. Form with the following exclusion clause: “… free from capture, seizure, and detention, and all the consequences thereof, or of any attempt thereat, and free from all consequences of hostilities, riots, or commotions.” The ship ran aground when the Master was confused by the absence of a light, which had been extinguished by Confederate troops in the American Civil War. 1 Ionides v. The Universal Marine Insurance Company (1863) 14 C.B. (N.S.) 259. 2 Liverpool and London War Risks Association Limited v. Ocean Steamship Co. Limited [1948] A.C. 243 at p.257 per Lord Wright; Costain-Blankevoort (U.K.) Dredging Co. Ltd. v. Davenport (The Nassau Bay) [1979] 1 Lloyd’s Rep. 395. 3 [1918] A.C. 350. 4 N 1. 115 … A nd the consequences thereof or any attempt thereat Confederate officers took the Captain and crew prisoner. 150 bags of coffee were landed and seized by Federal troops and, if the Confederate troops had not prevented it, another 1,000 bags could have been safely landed. The ship then broke up in bad weather and the remaining coffee was lost. 14.4 The act of extinguishing the light was held to be a hostile act, but the loss of the ship was not a consequence of that act. Erle C.J. considered various scenarios as to what would or would not be a consequence.5 First, a hostile attempt is made to take a ship. In her endeavours to escape she goes aground. This is a loss by the “consequences of hostilities”. Second, the ship is chased by an enemy warship and, in trying to avoid being taken, she is forced into a bay from which the wind will not let her escape. The wind drives her ashore. This loss results from an “attempt at capture”. Third, there are two channels to a port, only one of which is mined. In ignorance, the Master uses the mined channel and the ship is mined. The proximate cause of the loss is the “consequences of hostilities”. Fourth, a ship is chased into a bay from which she escapes on a change of wind. She is later lost in a storm which, but for the chase and the resultant delay, she would have avoided. The proximate cause is perils of the seas, not an attempt at seizure. Fifth, the Master, aware of mines in one channel, uses the other and runs the ship aground by bad navigation. This is not a loss proximately connected with the consequences of hostilities, but with a peril of the seas. 14.5 In the Linwood, Erle C.J. considered that the ship was wrecked as a result of “perils of the seas”, but that only 5,350 bags of coffee were lost by this cause. One thousand bags could have been landed but for the hostile actions of the Confederate troops. The underwriters were excused paying for these because of the exception. Willes J. agreed. As to “consequences” he said this: I apprehend it is a fallacy to say that a larger sense is to be given to this exception by reason of the use of the word “consequences” than if the word used had been “effects”. In construing the exception we can only look to the proximate consequences of hostilities.6 And: “the word ‘consequences’ is to be dealt with according to the ordinary rule, as meaning proximate consequences only.”7 Byles and Keating J.J. agreed. 14.6 Although “any attempt thereat” has for many years figured in the War Risk Policy, there is not the wealth of decided cases as there is with “consequences”. In Butler v. Wildman,8 the Captain of a ship threw a quantity of dollars overboard in order to avoid them falling into the hands of the enemy, which was pursuing his vessel and subsequently captured it. Abbott C.J. considered that it was a loss by jettison (though unusual in that the currency was not thrown overboard to save the ship), or that it was ejusdem generis with the named perils and so within the sweeping up clause of “all other losses and misfortunes, etc”. It was, he considered, indistinguishable from the situation of a captain who sets fire to his ship to prevent her falling into the hands of the enemy, and was recoverable. Bayley and Holroyd J.J. agreed, adding that it would also be a loss by enemies. Best J. considered that it might not be a loss by enemies without an actual taking or destruction 5 6 7 8 Ibid at pp.286–287. Ibid at p.289. Ibid at p.290. (1820) 3 B. & Ald. 398. 116 … A nd the consequences thereof or any attempt thereat by the hand of the enemy, but that it was within the general wording, which included “all losses which are the consequences of justifiable acts done under the certain expectation of capture or destruction by enemies”.9 Under the modern form of wording, it is suggested that the claim would be justifiable as resulting from the enemy’s “attempt” to capture the currency. 9 Ibid at p.407. 117 CH A PT ER 15 Derelict mines, torpedoes, bombs and weapons of war Generally 15.1 Loss or damage caused by derelict mines, torpedoes, bombs or other weapons of war now pose special difficulties. These do not arise from the law itself, since the establishment of the claim will concern issues of fact only. They arise from the wording of the policy and in particular the inclusion of the word “derelict”. Where the suggestion for the use of this word came from, or why it was included, is not known but it is interesting to note that the earlier drafts of the new Institute War and Strikes Clause with the new MAR Form did not include it. As will be seen it poses a problem of no mean order. The Mutual War Risks Associations have attempted to avoid this problem by insuring the consequences of these weapons being used, both in respect of unqualified mines and other weapons, and “derelict” mines and other weapons. 15.2 Before 1983, there were attempts to argue that the f.c. & s. warranty excluded the risk of contact with mines and torpedoes from the Marine Policy in only certain, but not all, circumstances. These attempts were never pleaded in court and thus put to the test, if only because of the well-known practice of the London market to cover loss or damage arising from mines and torpedoes under the War Risk Policy. This policy, as has already been noted earlier in Chapter 1, included “mines, torpedoes, bombs or other engines of war” as specific insured perils and this, it is suggested, would have defeated any serious attempt to plead that in some circumstances the Marine Policy on the S.G. Form would have covered loss or damage caused by such weapons. Before 1983, therefore, it could be said that loss or damage caused by such weapons were at least traditionally regarded as matters for the War Risk Policy and were accepted as such, although as mentioned earlier,1 the marine underwriters accepted the claim on the Granwood in circumstances that might have justified a refusal to do so. 15.3 Since 1983, the new Institute Time Clauses have excluded from their insurance only “derelict mines, torpedoes, bombs or other derelict weapons of war” and the new Institute War Clauses include these as insured perils word for word in the same form. This seems to beg the question that the underwriters of the Marine Policy intend to bear at least some of the risks of mines and other weapons which cause loss of or damage to the insured object. will be found in the chapters devoted to ships, cargo and containers. 1 See Chapter 1. 118 Derelict mines, torpedoes, bombs and weapons of war 15.4 The word “derelict” is defined in the Oxford English Dictionary as meaning: Forsaken, abandoned, left by the possessor or guardian; especially of a vessel abandoned at sea; land left dry by the recession of the sea; a piece of property abandoned by the owner or guardian especially a vessel abandoned at sea. A person abandoned or forsaken. It is suggested that these definitions will, at the best, give only marginal help to the court which has to decide what is meant by “derelict mines, torpedoes, bombs or other derelict weapons of war” and whether, in the particular circumstances that exist between the Marine Policy and the War Risk Policy, indeed if either policy, should bear the risk of loss or damage that may be caused. This will apply particularly where the Marine Policy is on a different form to the MAR Form and has a simple exclusion of all mines and other weapons from its cover regardless of whether or not they are “derelict” in any sense of the word. 15.5 At the seminar held in October, 1983 to introduce the new MAR Form, the question was put to the members of Mr. Alan Jackson’s Committee—what was intended by the expression “derelict”? No clear answer was forthcoming. The learned authors of Hudson & Allen, The Institute Clauses Handbook,2 suggest that the word has been added to reverse the effect of the decision in The Nassau Bay.3 In that case British armed forces stationed in Mauritius during the Second World War had, on the conclusion of the conflict, dumped their unwanted ammunition in shallow water off the coast of Mauritius. Subsequently the Nassau Bay, engaged in dredging operations, was badly damaged by an explosion. The High Court held that this was not the result of a “warlike operation”. 15.6 Hudson & Allen took the view that if the relevant mine is sown or the weapon is fired so that one of the risks in Clause 1.1 of the War Risk Policy is involved (dealing for the moment with just the ship’s insurance), then a claim for loss or damage would be paid under that clause. Equally if such a weapon was used by a striker, or somebody engaged in a civil commotion, or a terrorist, then the war risks underwriters would have to meet the claim under the War Risk Policy, Clause 1.4 or 1.5, whichever is appropriate. 15.7 If this is the correct view, then the draftsmen of the War Risk Policy appear to have considered that the sowing of mines and the firing of weapons would only take place during a war, or some other lesser upheaval, which is an insured peril provided for in Clauses 1.1, 1.4 and 1.5 of the War Risk Policy, so that, in order to give comprehensive insurance, it was only necessary to make special provision for “derelict mines”. In this way, they intended that the War Risk Policy would give insurance cover in all instances where such weapons cause loss of or damage to the insured ship; either the loss or damage would be caused by an insured peril specifically provided for in Clauses 1.1, 1.4, and 1.5 of the War Risk Policy, or if not by “derelict” weapons in circumstances similar to the Nassau Bay. There are, however, some serious flaws to this line of reasoning. 15.8 These insured perils, war, strikers, terrorists or whatever else, do not exhaust the possibilities in which such weapons, derelict or otherwise, may be encountered. Weapons have been known to be discharged accidentally. In addition, what should happen if a vessel encounters a mine laid in peacetime? Such mines could not be described as “derelict”, 2 Lloyd’s of London Press Ltd., 1986. 3 Costain-Blankevoort (U.K.) Dredging Co. Ltd. v. Davenport (The Nassau Bay) [1979] 1 Lloyd’s Rep. 395. The authors of Arnould (19th edn) opine similarly at §24–32. 119 Derelict mines, torpedoes, bombs and weapons of war but would not either fall within one of the insured perils in Clauses 1.1, 1.4 or 1.5. It would be difficult to impute malice, political motives or even terrorism to a government which appeared to be anxious to protect its own coastline from the possibly harmful attentions of others, however unreasonable its fears might be, and to require any approaches to its ports or its coastline through designated channels which its own armed forces could all the more easily watch. It would appear that these eventualities would now fall outside of the cover provided by the War Risk Policy (cf. the cover provided by the Mutual War Risk Associations—see below). Ships and freight 15.9 Ships are insured by the marine clauses for a set number of insured perils only which do not include mines or other weapons. It is arguable that the insured perils of “fire, explosion” (Clause 6.1.2) could be stretched to insure explosions caused by mines and other weapons, but it is suggested that this clause insures internal fires and explosions only. Derelict mines and other weapons are excluded from the marine clauses, and are insured by the war clauses (Clause 1.3). The same is true of freight, although the clause numbers are 7.1.2, 18.3 and 1.1.3 respectively. It is thus possible to say that ships and freight have insurance for derelict mines and other weapons, but not for these weapons when the appellation “derelict” cannot be applied. 15.10 There is not the same problem with the insurance given by the Mutual War Risks Associations. Their rules give insurance for “mines” and other weapons, and also “derelict mines” and other weapons. Even though there may be a problem with the insurance given by the London Market, recent history has shown how it has been resolved in a practical way. 15.11 In 1984, 16 ships were damaged by mysterious explosions in the Red Sea. Such factors as the short space of time within which the explosions occurred, the depth of water at the sites of the explosions, the many different ports which the affected ships had come from, the nature of the damage to the bottoms of the ships and the interesting fact that four ships were damaged at positions in a straight line, all pointed in the direction of mines sown from a moving craft as the only possible cause. Although suspicion centred on one particular ship, the culprit was never traced with any certainty and this fact alone would have made it impossible to say whether the actual sowing of the mines was in pursuance of a naval operation in connection with a war, or whether it was the work of a terrorist or somebody acting from malice or from a political motive. In fact, the chief suspect was a ship supposedly under Libyan control. If these suspicions were justified, again Libya was not at war with anyone and it would be difficult to see what appellation could be applied to her from the risks insured by the War Risk Policy. In the subsequent sweeping operations, the Royal Navy recovered a mine of recent Soviet manufacture which was obviously freshly sown. Lying on the bottom of the sea as it was designed to do, there seemed to be no question of it having broken adrift and drifted from elsewhere. While there was nothing determinative to connect it with the mines which had damaged the ships, there was at least a strong indication that the mines which had caused the damage to the ships were not “derelict” in the normal sense that the word is used. 15.12 Many will find astonishing the assertion that where there are casualties that could involve the War Risk Policy, there are often difficulties, sometimes of a most extreme 120 Derelict mines, torpedoes, bombs and weapons of war nature, in ascertaining with any degree of certainty how the casualty happened and what were the motives or reasons for any human agency that was involved. Whether or not a particular casualty should be paid for by the Marine Policy or the War Risk Policy (or both or neither) will depend not so much upon fine consideration and interpretation of the clauses of each policy as on the establishment of the actual facts; it is not impossible to foresee the claimant insured shipowner faced with enormous difficulties in establishing that his casualty comes within one of the insured risks of the War Risk Policy, and the defendant marine underwriter encountering equally grave difficulties in showing that he is entitled to the benefit of the exclusion clauses of the Marine Policy. The re-designation of the former insured risk of mines and other weapons as “derelict” has, perhaps inadvertently, immeasurably increased such difficulties. 15.13 In advance of any judicial decisions on the point, it is submitted that the better view is that, in all circumstances, the War Risk Policy should pay for any loss or damage caused by any such weapons because: (1) The views advanced by Hudson & Allen as described above are a correct interpretation of the intentions of the draftsmen, and will in any case cover most situations where mines are sown or other weapons are fired. (2) Traditionally the War Risk Policy has insured loss or damage caused by mines, torpedoes, bombs and other weapons and it is intended that it should go on doing so. (3) There was a ready acceptance by the London market that the War Risk Policy should meet the claims arising from the Red Sea mines. (4) There has been an equally ready acceptance to meet the claims arising from mines, which cannot be described as “derelict” in the sense the word is normally used, in the Arabian Gulf during the Iran/Iraq War, even though in this instance there is evidence that the mines were sown as a “hostile act by or against a belligerent power”, namely Iran. 15.14 However, despite the above approach being the one that would seem to best reflect the practice of the London market, it is open to serious question whether or not the courts would feel able to resolve the question of interpretation through reliance on that practice in circumstances where the clear words of the policies seem to suggest the contrary position. It is, of course, a cannon of the construction of contracts, including those of insurance, that they should be construed by reference to their wording, giving due account to the background factual matrix against which they were concluded. It would not normally allowed that further evidence should be given to show that the parties to the contract had intended a different effect or result or that the words of the contract should be given a different meaning to that normally attributable to them. Containers 15.15 Containers are insured on the London market for marine risks on an “all risks” basis, but there is a qualification regarding their machinery; this is only insured for “fire, or explosion” which originates “externally to the machinery” (Clause 4.2.1). Derelict mines and other weapons are excluded from the marine insurance (Clause 6.3), but are insured by the War and Strikes Clauses (Clause 1.3). 121 Derelict mines, torpedoes, bombs and weapons of war 15.16 It thus appears that containers, including their machinery, are insured for damage done by derelict mines and other weapons by the War and Strikes insurance. For mines and other weapons, to which the label “derelict” cannot be applied, there is insurance under the marine clauses except possibly to their machinery. Even in this case, Clause 4.2.1 could be stretched to include an “explosion” of these weapons, because it originates externally. Cargo 15.17 The “all risks” insurances, broadly the (A) Clauses, give insurance against “all risks” of loss or damage except that derelict mines etc. are excluded (Clause 6.3). These are insured by the war clauses (Clause 1.3). It can thus be said that mines and other weapons are insured by the (A) Clauses, except for derelict mines and other weapons which are insured by the war clauses. 15.18 The clauses that give more limited insurance, the (B) and (C) Clauses, are in a very similar position to ships and freight. They too give insurance for a set number of insured perils, among them “fire or explosion” (Clause 1.1.1). They too exclude derelict mines and other weapons (Clause 6.3), but are insured for derelict mines and other weapons by the war clauses (Clause 1.3). 15.19 The redrafting of the Institute Time Clauses in the early 1980s (now further revised by the 1/1/09 iteration) was excellent, but in the case of mines and other weapons there are a series of anomalies. It has always been the intention of the London market that mines and other weapons should be excluded from the marine clauses and insured by the war clauses. This could easily be achieved by deletion of the word “derelict” in both sets of clauses at the next revision. If, as the learned authors of the Institute Clauses Handbook suggest, there is a wish to give insurance in cases such as the Nassau Bay case, then the addition of a sentence in brackets which included “derelict” mines and other weapons would suffice. 122 CH A PT ER 16 Strikers, locked-out workmen or persons taking part in labour disturbances, riots or civil commotions The “strikes risk” Clause 16.1 The standard clauses providing war risks cover for “Strikers, Locked-out Workmen or Persons taking part in Labour Disturbances, Riots or Civil Commotions” have a lengthy history, but have generated relatively little litigation. There appears to be no case in which strikers or their counterparts, workmen who have been excluded from their workplace by their employer locking the factory gates, or persons taking part in labour disturbances, have been judicially considered in the context of a War Risks Policy. The overlapping limits of “riot” and “civil commotions” as civil disturbances of a serious nature are discussed in Chapter 17. In determining the limits of cover, reference will therefore be made to disputes arising outside of the insurance arena. The reported cases are drawn from other areas of international trade (notably, in respect of laytime/demurrage) and from civil and criminal cases testing the definitions of “riot”, “lock-outs” and “civil commotion”. The decision to “read across” from trade union litigation and charterparty cases is justified by the reciprocal use of shipping cases in recent decisions of the Court of Appeal and Employment Appeal Tribunal.1 Whilst the precise limits of the contractual and regulatory definitions of key terms might not be identical, the courts have identified a broad range of common principles. Although most of the above definitions are given in laytime cases, there would appear to be no reason to suppose that these should not apply to the insured perils in the War Risks Policy. Moreover, there is no reason to limit the “strikers” to those who are engaged in the business of the ship in some way, such as stevedores, tug crews, crane drivers, linesmen, pilots or customs officers, who render some services to her; strikers from other places of work or interests, even those that have no connection with the ship or even with shipping in general, can give rise to the insured peril. 16.2 The strikes clause was taken from the S.G. Form with Institute War and Strikes Clauses attached. It has never been regarded as a well-drafted or happily worded clause and has given rise to difficulties in its interpretation. It is a pity that “riots and civil commotions” were not in 1983 removed to Clause 1.1 of the MAR Form, leaving this clause to deal with the consequences of industrial action which are themselves serious enough to merit a clause of their own. Had this been done, then the true intentions of the War Risks Policy would have been better expressed, namely 1 Connex South Eastern Ltd v. National Union of Rail Maritime and Transport Workers [1999] IRLR 249 (CA) and Norris v. London Fire & Emergency Planning Authority [2013] ICR 819. 123 ST R I K ERS, LOCK ED - OU T WOR K M EN OR PERSONS TA K I NG PA RT I N LA BOU R DIST U R BA NCES that the policy should give cover for a number of violent disturbances, as expressed in Pan American World Airways Inc v. The Aetna Casualty & Surety Co.2 as being in descending order of seriousness whoever caused them, and a separate clause would be left to deal with loss or damage caused by industrial disputes or disturbances which can be of a violent nature. 16.3 It has been suggested that “persons” should be read ejusdem generis with “strikers” and “locked-out workmen”.3 If this were so, then some very odd results would follow. Cover would only be given in riots and civil commotions if the perpetrators were strikers or locked-out workmen or something akin, and it would not be given in the case of anyone else who could not be so described. Alternatively, it could also be argued that damage done by strikers and locked-out workmen and other persons would not be covered at all unless it was a riot or civil commotion or a labour disturbance of a most violent nature which would involve considering if an insured peril had arisen simply because of the degree of violence used. If this were correct, then there would be an important gap in the insurance cover where stevedores, workmen or other persons like them caused damage to a ship, because the War Risks Policy would not pay for it and Clause 24 of the Marine Policy would be strong enough to exclude it from that policy’s cover. 16.4 Furthermore, if two strikers of an alarming appearance should damage a ship, there would be no cover because two people cannot form a riot; they would need to be joined by more people before there could be a riot, when cover would be given by the War Risks Policy.4 This would effectively frustrate the intentions of the new Institute Time Clauses, both marine and war that, like the old S.G. Forms which they were replacing, there should be no gaps in the insurance cover that was provided. A very artificial position would arise if this reading were adopted as the correct one. It is suggested that the following summary truly reflects the intention of the Institute War and Strikes Clauses and is consistent with the wording that is used in it. These clauses give insurance against loss or damage caused by (1) strikers, or (2) locked-out workmen, or (3) persons (whoever they are) taking part in labour disturbances, riots or civil commotions. “Strikers” 16.5 Turning now to considering the three separate insured perils, there is an enormous body of case law on “strikers” in the maritime field out of charterparty and bills of lading disputes, mostly on laytime. Aligned with this is a further body of trade union disputes which have been resolved on similar principles. There is one important limitation on most forms of war risks marine cover. Apart from the special cover given by the Mutual War Risks Associations, where in one narrow instance “strikers” has a wider application, it must be remembered that the Institute War and Strikes Clauses are solely concerned with physical loss or damage that they cause to the insured object. Whilst this might arise by way of an act or an omission, we are not 2 [1974] 1 Lloyd’s Rep. 207; [1975] 1 Lloyd’s Rep. 77. See paragraphs 6.16–6.26, 8.13, 8.30, 8.31, 17.13, 17.24–17.26. 3 Nishina Trading Co Ltd v. Chiyoda Fire & Marine Insurance Co Ltd, The Mandarin Star [1969] 2 QB 449, 467 per Phillimore L.J. 4 The modern definition of riot under the Public Order Act 1986 requires 12 people; the common law offence required a minimum of three. See Chapter 17. 124 ST R I K ERS, LOCK ED - OU T WOR K M EN OR PERSONS TA K I NG PA RT I N LA BOU R DIST U R BA NCES concerned with the consequences of delay to the vessel or the cargo, as in laytime/demurrage disputes. 16.6 The definition of “strikes”, as with many forms of industrial action, has developed through case law and statutory intervention over the past 150 years. English judges resolving commercial disputes have stressed its mutable and non-exhaustive nature, as in The Laga, where McNair J. stated: one has got to bear in mind that the meaning of the word “strike” must change with the progress (if that is the right word) of industrial history and it may have a different meaning today from the meaning given to it a century ago.5 In 1876, it was held that there was a strike if the workmen went on strike for higher wages and for this purpose alone. Unions had only recently become lawful, and the emphasis was on more money to relieve the appalling poverty of the time. This rather restrictive view was developed in further cases until Sankey J.’s famous definition which appeared in Williams Bros. Hull Ltd. v. Naamlooze Vernootschap W H Berghuys Kolen-handel.6 The ship was chartered by her Dutch owners for a voyage from Hull to Rouen. The owner found that his crew refused to face the German submarine menace in the North Sea and no other seafarers could be induced to take their place. Sankey J. had some difficulty in deciding there was a strike which arose from fear to do a particular thing, or perform a particular contract, but he eventually held that a “grievance”, not necessarily connected with wages, would be sufficient: “I think the true definition of the word ‘strike’, which I do not say is exhaustive, is a generally concerted refusal by workmen to work in consequence of an alleged grievance …”7 This definition continues to form the basis for many labour law disputes, although there are specialist definitions of both “strikes” and “lock-outs” to be found in a limited number of the current statutory codes governing employee and trade union rights and immunities.8 16.7 MacKinnon J. followed this by holding in Seeberg v. Russian Wood Agency Ltd 9 that a sympathy strike was also a strike. A Latvian ship was ready to load in Leningrad. The stevedores, in pursuing a policy of refusing to handle Latvian ships in sympathy with some Latvian union’s grievances, refused to load her. The rest of the port was working normally. This was still a “strike”. McNair J. had to deal with a very similar case in J. Vermaas Scheepvaartbedrijf N.V. v. Association Technique de L’Importation Charbonniere (The Laga).10 The Laga arrived in Nantes on 12 March 1963, to discharge coal, and by the time it was her turn to discharge, the stevedores, crane drivers, pilots and tug crews refused to unload coal ships. They had no grievance with their employers, but they wanted to assist the French coalminers who were on strike. Counsel for the shipowners contended that a sympathetic strike was not a strike, there being no grievance against the employers on the part of the strikers. McNair J. ruled against him in a judgment which made much of 5 [1966] Lloyd’s Law Rep. 582, 590. 6 (1915) 21 Com. Cas. 253. 7 (1915) 21 Com Cas 253, 257. 8 S Deakin and G Morris, Labour Law (Hart, 6th edn, 2012), [11.72] describe the comprehensiveness of the definitions in ss. 235(4) (5) Employment Rights Act 1996 as “unusual”. 9 (1934) 50 Ll.L.Rep. 146. 10 [1966] 1 Lloyd’s Rep. 582. 125 ST R I K ERS, LOCK ED - OU T WOR K M EN OR PERSONS TA K I NG PA RT I N LA BOU R DIST U R BA NCES the General Strike (1926). Nobody could say that this was not a “strike”, even though most of those taking part had no quarrel with their employers: … The word “strike” is a perfectly good, appropriate word to use to cover a sympathetic strike and a general strike and there is no need for it today to have any ingredient of grievance between those who are refusing to work and their employers. It made no difference that only coal carriers were affected and the rest of the port was working normally. As noted above, this reflected the shifting nature of industrial relations. There is no reason why this gradual evolution should not continue, at least insofar as the terms are extended in labour law disputes. 16.8 Finally, the Court of Appeal decided that there was a strike in Tramp Shipping Corporation v. Greenwich Marine Inc. (The New Horizon).11 The ship arrived in St. Nazaire in May, 1973, to discharge grain from Norfolk. It was usual and normal for the stevedores to work three shifts around the clock when asked, although there was no legal or contractual obligation on them to do so. At the time, they were engaged in industrial action to improve their working conditions, and were restricting their work to eight hours a day. For ten days, during the ship’s stay in the port, they refused to do any work at all. Lord Denning M.R. noted Sankey J.’s definition and added: If I may amplify it a little, I think a strike is a concerted stoppage of work by men done with a view to improving their wages and conditions, or giving vent to a grievance or making a protest about something or other, or supporting or sympathising with other workmen in such endeavour. It is distinct from a stoppage which is brought about by an external event such as a bomb scare or by an apprehension of danger. Stephenson L.J. added to this: In my judgment, it is a species of stoppage. There cannot be a strike without a cessation of work by a number of workmen agreeing to stop work; and the question is, what kind of concerted stoppages are properly called strikes today? It must be a stoppage intended to achieve something, to call attention to something, as my Lord has said; a rise in wages, improvement of conditions, support for other workers; for political changes; an expression of sympathy or protest. Lord Denning’s definition of strike in The New Horizon was considered by the Court of Appeal in Connex South Eastern Ltd v. National Union of Rail Maritime and Transport Workers.12 The dispute arose in the context of a ballot for industrial action comprising an overtime and rest day ban. The validity of the ballot was contested under the Trade Union and Labour Relations (Consolidation) Act 1992, which defined a strike in section 246 as “any concerted stoppage of work”.13 The Court of Appeal agreed unanimously that the intended action constituted a strike in that it was “concerted action” and a “stoppage of 11 [1975] 2 Lloyd’s Rep. 314. 12 [1999] IRLR 249 (CA). 13 The definition in s. 246 was amended by entry into force of s. 229(2A) (added by the Employment Relations Act 1999) for the purposes of balloting procedures, but leaves the wide definition of strike untouched for e.g. trade union immunity disputes. 126 ST R I K ERS, LOCK ED - OU T WOR K M EN OR PERSONS TA K I NG PA RT I N LA BOU R DIST U R BA NCES work”. Aldous L.J. defined “concerted” as “mutually planned” and a “stoppage of work” as “encompass[ing] any refusal to work”. These definitions have been further refined by later case law. In Norris,14 firefighters with the role of “starred crew managers” (designated CM*) were competent to cover for the higher level role of watch manager, and received additional payment when they did so. Following a period of industrial action, three “starred” crew managers refused to cover for the higher role, under the impression that they were not contractually obliged to do so. Each received a 20 per cent deduction in pay on the basis that their refusal to act up constituted taking part in a strike or other industrial action. These deductions were challenged. Underhill J. held that “a refusal to do work which the employee is not contractually bound to do may become industrial action if but only if another element is present”,15 such as the intention to apply pressure on the employer to achieve some ulterior aim. He exemplified this “ulterior aim” by referencing the dicta of Lord Denning in The New Horizon, that distinguished employment related disputes from “a bomb scare or by apprehension of danger”.16 Having decided that Norris was not engaged in a strike, Underhill J. nonetheless gave a reasoned obiter analysis of the “sole actor” point. He was clear that, following Bowater,17 a person acting alone cannot strike or participate in industrial action as each required collective action: As a matter of ordinary language, I agree that it is unnatural to refer to a single person “taking part in” action undertaken by no one else: it is like one hand clapping. I also agree that in ordinary usage “industrial action” connotes action of some kind taken by more than one worker acting together.18 For the purposes of assessing cover under the war risks clauses, this final limitation might be the most pertinent. It is clear that the term “strike” is interpreted broadly enough to cover a wide range of industrial action, but cannot normally be the action of a lone individual. The actions of a single disaffected worker in causing damage to an insured vessel might fall outside this part of the clause, although potentially not cover entirely. The limits of indemnification for malicious acts are considered in Chapter 19. “Locked-out workmen” 16.9 There should be no difficulty in recognising and identifying with sufficient precision “locked-out workmen” as people locked out of their place of work by their employers, usually as a means of exerting pressure in a labour dispute where some “grievance” has been expressed. In Bloomfield v. Springfield Hosiery Finishing Co Ltd,19 a decision of the short-lived National Industrial Relations Court, Donaldson J. found that the period of employment for 14 15 16 17 18 19 Norris v. London Fire & Emergency Planning Authority [2013] ICR 819. At [20]. Emphasis in original. See paragraph 16.8. Unreported, 27 May 1982. At [26]. [1972] 1 WLR 386. 127 ST R I K ERS, LOCK ED - OU T WOR K M EN OR PERSONS TA K I NG PA RT I N LA BOU R DIST U R BA NCES accrual of redundancy rights was not interrupted by a strike or even the dismissal of workers on strike (with an offer to re-hire on amended terms). In interpreting the Redundancy Payments Act 1965, he stated: It is a commonplace that one man’s strike is another man’s lock-out and it will, we think, suffice to say that similar considerations apply to the definition of “lock-out” as to the definition of “strike”.20 “Persons taking part in labour disturbances” 16.10 These are more difficult to define and here the conclusions must be offered more tentatively. There is likely to be considerable overlap with the labour law concept of “a trade dispute”.21 It is suggested that they are not workmen with some sort of “grievance” and may be people who simply attach themselves to some labour disturbance, interpreted in its broadest sense, and may not have any justifiable or legitimate interest in its outcome. Examples of “labour disturbances” 16.11 Previous editions discussed at this point a series of well-known UK industrial disputes of the 1970s and 1980s, but without referencing legal sources. The examples previously used—of Grunwick and Wapping—are maintained, but with the factual matrix as described judicially. The House of Lords was asked to resolve the role of the Advisory, Conciliation and Arbitration Services (ACAS) in Grunwick Processing Laboratories Ltd v. ACAS.22 ACAS had suggested that the appellant employer recognise a union (APEX) for the purposes of industrial relations. It did so on the basis of a consultation exercise carried out by questionnaire. ACAS was only able to canvas the opinion of those who were on strike as members of the Union, and who had been (mostly) dismissed by their employer. The twothirds of employees not involved in the industrial action could not be contacted because the employer refused to supply contact details. Overturning the decision of the Court of Appeal, the House of Lords found that ACAS had an overriding obligation to reflect the views of the employees as a whole, and that its recommendation to Grunwick’s managers to recognise APEX for collective bargaining purposes was ultra vires. The ensuing dispute led to the involvement of the wider Trade Union movement. This is described by Lord Scarman in his subsequent report.23 APEX were perceived as a “white collar”, moderate union.24 The widening of the dispute brought in less “conservative” unions. Local postal workers refused to sort or deliver mail to the Grunwick offices and a substantial mass picket was arranged from 13 June 1977. This led to notorious incidences of violence, with mass arrests, and allegations of brutality on both sides. 20 At 391. 21 See generally, S Deakin and G Morris, Labour Law (Hart, 6th edn, 2012), [11.26]–[11.29]. 22 [1978] AC 655. 23 “Report of a Court of Inquiry under the Rt Hon Lord Justice Scarman, OBE into a dispute between Grunwick Processing Laboratories Ltd and Members of the Association of Professional, Executive, Clerical and Computer Staff” (Cmnd 6922, 1977). 24 At [12]. 128 ST R I K ERS, LOCK ED - OU T WOR K M EN OR PERSONS TA K I NG PA RT I N LA BOU R DIST U R BA NCES Wherever fault actually lay, it is clear that the disturbance outside the Chapter Road premises involved the Police, members of the dismissed workforce, representatives of the wider community and members of other unions whose workforce was not directly involved in the dispute. It remains an obvious example of a “labour disturbance”. 16.12 The circumstances giving rise to the dispute centred on the movement of News Group Newspapers Ltd from its traditional base around Fleet Street to a new site at Wapping are well known. The best judicial description in given in Stuart-Smith J.’s judgment in NGN Ltd v. SOGAT’8225 in respect of an interlocutory injunction sought against “unlawful picketing, marches and demonstrations”. He describes a long-standing situation in which violence towards the police, threats of violence to workers entering the site, and threats (and actual damage) to vehicles leaving the site were not uncommon. Given the size of the demonstrations, estimated as up to 7,000 people at some events, those involved in the wider protests could not have been limited to the employees directly affected by the industrial action. Here there was a recognisable grievance, and it could be said of the persons who joined in that they were “persons taking part in a labour disturbance”. It is suggested that, had they turned their hands to destroying or damaging a ship, cargo, containers or whatever, the insured peril would have been complete. 25 [1987] I.C.R. 181, 193–200. 129 CH A PT ER 17 Riots, civil commotions 17.1 In ordinary parlance, “riot” and “civil commotion” are not easy to distinguish one from the other and the victims are not likely to appreciate fine distinctions. Moreover, when the courts are faced with only one or other term, either as an insured peril or as an excluded peril, which they must consider in the circumstances of the case, the distinctions can become further blurred. Nevertheless, there are important distinctions between them and in a work such as this, they must be explored. As a start, there are definitions of “riot” and “civil commotion” which, in the legal field, are to be preferred to the definitions given by the Oxford English Dictionary. These will be illustrated with cases. “Riot” 17.2 Until 1987, “riot” had a well-settled meaning in English common law. Various definitions had been given, but the most comprehensive was that given by Phillimore J. in Field v. Receiver of Metropolitan Police.1 Each element had to be present: (1) (2) (3) (4) number of persons, three at least; common purpose; execution or inception of the common purpose; an intent to help one another by force if necessary against any person who may oppose them in the execution of their common purpose; (5) force or violence not merely used in demolishing, but displayed in such a manner as to alarm at least one person of reasonable firmness and courage. 17.3 With the entry into force of sections 1, 2 and 10 of the Public Order Act 1986, the law on “riot” was substantially altered. The Act abolished the common law criminal offence of “riot”, which had been assumed to provide the limits of the insured peril of “riot”. In its place was substituted section 1 of the Public Order Act 1986: (1) Where twelve or more persons who are present together use or threaten unlawful violence for a common purpose and the conduct of them (taken together) is such as would cause a person of reasonable firmness present at the scene to fear for his personal safety, each of the persons using unlawful violence for the common purpose is guilty of riot. 1 [1907] 2 K.B. 853, 860. It was followed in Munday v. Metropolitan Police Receiver [1949] 1 All ER 337. 130 R iots, civil commotions (2) It is immaterial whether or not the twelve or more use or threaten unlawful violence simultaneously. (3) The common purpose may be inferred from conduct. (4) No person of reasonable firmness need actually be, or be likely to be, present at the scene. (5) Riot may be committed in private as well as in public places. 17.4 Moreover, section 10(2) of the 1986 Act provided that Rules 8 and 10 of the Marine Insurance Act 1906 should be construed in accordance with section 1. The precise source of this provision is not clear, and was not discussed in the Green Paper, White Paper or Law Commission report that preceded the Bill.2 It is assumed that this was intended to ensure that all statutory references to riot were updated to refer to the statutory offence, but this may have been unnecessary in respect of the 1906 Act. The “rules for interpretation” appended to the 1906 Act were only ever an indication of practice at the time of the passage of the Act, and not binding on contracting parties.3 Section 10(2) makes an oblique reference only, saying in effect that rioters who attack the ship from the shore must be rioters within the definition of section 1, and “arrests etc. of Kings, Princes and people” (which is no longer an insured peril) shall not include rioters who come within the definition of the same section. Nevertheless, the intention seems clear that the section 1 definition should, in respect of policies taking effect on or after 1st April 1987, apply to the insured peril of “riot”. It would indeed be strange if rioters who attack the ship from the shore must be 12 or more in number, whereas for every other purpose three would be enough. 17.5 The underlying assumption at the heart of this analysis is that the limits of the peril of “riot” track the criminal law. This is not an isolated issue and problems have arisen in respect of the interpretation of other overlapping perils/offences such as “theft”.4 Given that the insurance market should be concerned with the identification of the optimal level of cover, there is an inherent weakness in tracking the criminal standard. The failure to adopt an autonomous definition of “riot”, or to reword the clause so as to pick a neutral term, assumes that the perceived benefits of continuity outweigh the consequences of change occurring in criminal law for reasons unrelated to insurance. The effect of section 10(2) is, as described above, likely to guide judicial interpretation of the word “riot” in the marine insurance context to the new definition, but without an obvious market reason for so doing. The restatement of the limits of the criminal offence was to ensure proportionate scaling of seriousness of offence to potential sanction.5 The statutory offence of riot carries a potential sentence of imprisonment double that of “violent disorder”, which only requires three participants and less concerted hostility. The effect of these changes on case law examples is described at paragraph 17.10. 2 Home Dept, “Review of the Public Order Act 1936 and related legislation” (HMSO, Cmnd 7891, 1980), Home Office, “Review of Public Order Law” (HMSO, Cmnd 9510, 1985) and Law Commission, “Criminal law offences relating to public order” (L Com No 123, 1983). 3 See MD Chalmers & D Owen, The Marine Insurance Act 1906 (Clowes & Sons, 1st ed, 1907) p.142. 4 In the marine context, see Clothing Management Technology Ltd v. Beazley Solutions [2012] Lloyd’s Rep. IR 329, [45] and generally Dobson v. General Accident Fire & Life Ass Corpn [1990] 1 QB 274. See also M Wasik, “Definitions of crime in insurance contracts” [1986] JBL 45. 5 R v. W(N) [2010] 1 WLR 1426, [14] per Moore-Bick L.J. 131 R iots, civil commotions 17.6 There are substantial differences between the common law offence and the statutory reformulation. Comments can be made as follows: (1) There now need to be 12 persons or more taking part in place of the previous three. Riot is the most serious offence in the statutory triumvirate of riot/violent/disorder and affray.6 (2) There is now the need for unlawful violence, or at least the threat of it, whereas under the common law it was enough that the rioters were prepared to commit a tort which was not a crime. Since all violence is unlawful—except in self-defence—there is probably no substantial difference. (3) The common purpose remains but this may now be inferred from conduct. It seems that it is no longer necessary to show that the common purpose was either completed, or at least actually began. (4) The necessity to prove force or violence displayed in such a manner as to alarm a person of reasonable firmness or courage has disappeared. The threat of force or violence is enough and may be inferred from conduct on the common purpose. (5) The fear of force or violence is now related to personal safety, but the person of reasonable firmness or courage need not be present at the scene. It is enough that if he were, he would fear for his personal safety. Elements that remain unchanged: (1) Riot, as was held in London & Lancashire Fire Insurance Co. v. Bolands,7 can be committed in private as well as in public places; (2) Riot can be committed by (threatening) violence to property and not just to persons.8 17.7 Unlike the criminal law, the insured peril of “riot” is not concerned with who is guilty of “riot” because they use unlawful violence as opposed to those in the crowd who refrain from its use. The question is whether a riot has occurred. In this respect, the insurance coverage questions are akin to the “riot compensation” case law under the Riot (Damages) Act 1886 (and its successor legislation). So, to focus on a key part of the actus reus: in a civil case, the cause of the loss must be at least one person using unlawful violence and at least 11 more using or threatening violence. As will be shown from the recent case law, there does seem to have been some difficulty in the application of the Public Order Act definition. These difficulties will be highlighted and considered in the case reviews that follow. Riot as a public order offence 17.8 A clear example of the kind of serious public disorder that constitutes riot under the Public Order Act 1986 is found in R v. Lewis.9 Following the shooting by armed police 6 7 8 9 Ss. 1, 2 and 3 of the Public Order Act 1986 respectively. [1924] AC 836. Mitsui Sumitomo Ins Co v. The Mayor’s Office [2014] Lloyd’s Rep. 20, [77]. [2014] 2 Cr App R (S) 27. 132 R iots, civil commotions of Mark Duggan in London, looting, violence and property destruction broke out across British cities. In Birmingham, a group of around 40 men assembled outside a public house before breaking into it and throwing petrol bombs to set it on fire. The apparent motive for this activity was to attract the police so that officers could be fired at with handguns. Much of the disorder was captured on CCTV, and the perpetrators mostly remained in groups of above a dozen active participants. Eight were convicted of riot (among other offences). Levenson L.J.’s description of the issues considered at trial is indicative of the difficulty courts have had in summarising the components of riot: The particular issues in relation to the allegation of riot were (a) whether the 12 or more persons using or threatening unlawful violence shared the common purpose of attacking the police and (b) whether each appellant used unlawful violence, or encouraged others to use violence, for the common cause.10 For this is not the offence of riot that section 1 of the Public Order Act describes: Where 12 or more persons who are present together use or threaten unlawful violence for a common purpose and the conduct of them (taken together) is such as would cause a person of reasonable firmness present at the scene to fear for his personal safety, each of the persons using unlawful violence for the common purpose is guilty of riot. For each appellant to commit riot, he must have used unlawful violence for the common purpose. Those who threaten unlawful violence do not commit riot, but a minimum of 11 other people present must (at least) threaten violence for the active violence to be riot. This lack of clarity may be due in part to the format of the definition, in that the wider circumstances are described first, and the actions of the defendant only at the end of the clause.11 Riot as an insured peril 17.9 The Andreas Lemos12 is well known as an authority on the limits of piracy as an insured peril, but contained considerable discussion of riot as a peril in the marine context. This pre-dates the statutory reformulation of the definition. Staughton J. was faced with an attempt by armed men to covertly steal ship’s lines and related equipment from a vessel anchored in the Chittagong roads. He noted the judicial criticism of the use of the technical criminal definition of riot in US aviation insurance case law,13 but considered its substitution by the “ordinary meaning of the word” unsuitable for a marine insurance policy in which many phrases are archaic and better viewed as terms of art.14 On this basis, he took the meaning of “riot” to be that in use in determining criminal liability and in imposing an obligation on local authorities to compensate for the occurrence of a riot. On 10 At [41], emphasis added. 11 For an example of this in practice, see the discussion at paragraph 17.17. 12 Athens Maritime Enterprises Corpn v. Hellenic Mutual War Risks Assocn (Bermuda) Ltd, The Andreas Lemos [1982] 2 Lloyd’s Rep. 483. 13 Pan American World Airways v. The Aetna Casualty & Surety Co [1974] 1 Lloyd’s Rep. 207. 14 Citing Shell Intl Petroleum Co Ltd v. Gibbs, The Salem [1982] 1 Lloyd’s Rep. 369, 376 per Kerr L.J. 133 R iots, civil commotions the facts, there was no riot at the time of the loss, as the thefts had been covert, although he found that a riot (as then defined) did occur after the loss: A riot did occur. But it was not complete until after the loss … Clandestine thieves who use or threaten violence in order to escape, after the theft has been committed, do not give rise to a loss by riots …15 17.10 This case provides the most obvious example of a finding which would have to be reversed if it were to be decided under the new definition of riot under the Public Order Act 1986. The evidence before Staughton J. was of six to seven locals. This would meet the requirement of three persons under the common law rule, but not the 12 required under the 1986 Act. This represents a narrowing of cover sold internationally on the basis of an attempt to modernise English public order offences in light of social unrest played out through labour disturbances and football hooliganism in 1980s Britain. Despite Staughton J.’s preference for “riot” as a term of art, a business-like interpretation (as with “war”)16 that followed the understanding of the business community might have been preferable. Nonetheless, the authorities lead to the conclusion that the technical definition is the current preferred option. The Riot (Damages) Act 1886 and the Riot Compensation Act 2016 17.11 It has long been accepted that damage to some property caused by “any persons riotously and tumultuously assembled together”17 must be paid for by the community on the basis that the community owes a duty to each subject to keep the Queen’s peace and must pay for any damage arising out of any failure to do so.18 In 1886 the financial aspects of this duty were imposed on the police authority as representatives of the community. This duty has been the subject of recent Supreme Court consideration, and subsequent amendment by statute in 2016. For the purposes of interpreting marine insurance policies, the recent litigation and statutory changes to the riot compensation scheme make relatively little difference, but go some way in showing the ongoing difficulties of establishing a state of “riot”. 17.12 The Riot (Damages) Act 1886 was until recently the source of the obligation on the police authority to compensate those who suffer losses as a result of riots. The liability imposed on the police authority was strict. Payment of these sums was made out of reserves, a situation which was often considered unsustainable in light of the funding basis of modern police forces.19 Given the nature of the statutory scheme as a form of indemnification for loss following riot, it provides a useful source of judicial practice on the limits of the peril in insurance. It should be noted that the conditions for indemnification are not identical, as the 1886 Act requires also a state of tumultuousness. This is considered in the case law in paragraphs 17.4–17.9. 15 N 12 at 492. 16 See Chapter 6. 17 S. 2(1), Riot (Damages) Act 1886. 18 The origins of the 1886 Act dating back to 1285 are described in Bedfordshire Police Authority v. Constable [2009] Lloyd’s Rep. IR 39, [8]–[12] per Walker J. 19 A useful summary of the issues is found in the independent review of the 1886 Act commissioned by the Home Office in 2013: N Kinghan, ‘Independent Review of the Riot (Damages) Act 1886’ (HO_02091_G, 2013), archived at www.gov.uk/government/publications/riot-damages-act-independent-review. 134 R iots, civil commotions 17.13 Previous editions of this work paid considerable attention to the case law under the 1886 Act applying the common law definition of riot. Given the passage of time since the passing of the Public Order Act 1986, these cases must be seen as generally of historic interest only. These will now only be referred to insofar as they remain relevant to courts applying the statutory definition. As Moore-Bick L.J. made clear in a criminal trial under the Public Order Act 1986: It has been recognised more than once by this Court that the Act is to be given its natural and ordinary meaning and should not be interpreted by reference to the common law offences which it abolished.20 17.14 The two main sources of litigation under the Riot Damages Act 1886 in the Public Order Act era were the disturbances at the immigration detention centre at Yarl’s Wood in Bedfordshire in 2002, and those in London and other major British cities in 2011 following the shooting of Mark Duggan by police. 17.15 The Yarl’s Wood disturbances led to parallel litigation between, first, the operators of the detention centre and the local police authority21 (a claim for compensation under the 1886 Act) and, second, the police authority and its public liability insurers22 (to recover any sums paid under the first action). Neither case turned on the definition of riot,23 and it was assumed that there was a state of riot from around 7:30pm on the night of the 14/15 February 2002 until at least 10:30pm, but possible until as late as 2:00am. The claim for compensation for damage to property by fire, theft and violence was put as high as £32 million with several attempts at a mass escape from the detention centre. 17.16 The 2011 disturbances which led to the Mitsui Sumitomo litigation occurred across large parts of London and surrounding areas, and in other major cities, including Birmingham. On 8 August 2011, a group of youths broke into, looted and then set on fire the Sony distribution warehouse in Enfield, Middlesex. In considering whether a riot had occurred (in partial fulfilment of the requirements for compensation under the 1886 Act), Flaux J. held: … there is no doubt that the elements of the statutory offence of riot were satisfied in this case. There were more than 12 youths present, using or threatening unlawful violence which … includes violence towards property. In my judgment, even if not all the gang were smashing down the door or throwing petrol bombs, the others by their presence were threatening unlawful violence … even the two 12-year-olds … encountered outside, who were presumably some sort of lookout.24 17.17 This passage is criticised in Smith and Hogan for conflating support for a common purpose to use violence with the required element of the offence that at least 12 must 20 R v. W(N) [2010] 1 WLR 1426, [13]. 21 Yarl’s Wood Immigration Ltd v. Bedfordshire Police Authority [2009] 1 All ER 886 (QBD); [2010] QB 698. 22 Bedfordshire Police Authority v. Constable [2009] Lloyd’s Rep. IR 39 (QBD); [2009] Lloyd’s Rep. IR 607 (CA). 23 The action under the 1886 Act was concerned with whether a “contracted out” public service provider was entitled to protection under the Act; the public liability policy case turned on whether the 1886 Act obligation on the police fell within “liable in damages”. 24 Mitsui Sumitomo Ins Co v. The Mayor’s Office [2014] Lloyd’s Rep. 20, [69]. 135 R iots, civil commotions have used or threatened violence for it to be a riot.25 The support of the boys at the door ought not to have been included in the dozen required. Nonetheless, on the facts described in Mitsui it is likely that there were at least a dozen active participants, and the finding was not challenged in the subsequent appeal.26 17.18 Whilst the subsequent appeals to the Court of Appeal and Supreme Court focused on the kinds of losses for which compensation was available until the 1886 Act, a useful “rule of thumb” was suggested by Lord Dyson MR: “the focus of the enquiry is whether property has been damaged or destroyed as a result of mob violence”.27 This concept of “mob violence” would provide a useful alternative phrasing should the wording of the war risks policy be revised, as a neutral term not constrained by the technicalities of the Public Order Act definition. 17.19 The significant losses after the 2011 riots contributed significantly to the repeal of the 1886 Act and its replacement with by the Riot Compensation Act 2016. The key provisions of that Act came into force on 6 April 2017.28 The most significant change for the purposes of war risks is the removal of the somewhat archaic requirement that the cause of the damage be both “riotous and tumultuous”. Compensation will now be awarded on the basis of a riot, as defined by the Public Order Act 1986.29 17.20 The meaning of “riot” has been amended within criminal law to ensure that a wider range of offences, each with an appropriate sanction, could be created. The assimilation of the insured peril- which will apply to perils occurring across the globe- to English criminal law is not justifiable, and means that cover has been substantially reduced with the passage of the Public Order Act 1986. “Civil commotion” 17.21 Unlike “riot”, “civil commotion” does not enjoy a well-defined character in English law. The source of much of the judicial analysis is the direction given to the jury by Lord Mansfield in Langdale v. Mason.30 He described the (excluded) peril of “civil commotion” in the following terms: “I think a civil commotion is this; an insurrection of the people for general purposes, although it may not amount to a rebellion, where there is usurped power.” 17.22 The jury decided that the Gordon Riots, in which rioters … traversed [London] for several days burning and destroying Roman Catholic chapels, public prisons, and the houses of various individuals the ostensible purpose of their assembling being to procure the repeal of a wise and humane law (which had passed for some indulgences to Roman Catholics) amounted to a “civil commotion”. These attacks constituted a civil commotion as in pursuit of a general purpose (the repeal of the recent law) and was sufficient even they did not have as a purpose the overthrow of the government (a treasonable purpose). 25 D Ormerod QC & K Laird, Smith & Hogan’s Criminal Law (OUP, 14th ed, 2015), [32.2.1.2]. 26 [2014] Lloyd’s Rep. 612, [70]. 27 [2014] Lloyd’s Rep. 612, [67]. 28 The Riot Compensation Act 2016 (Commencement) Regulations 2017. 29 S. 1(6), Riot Compensation Act 2016. 30 (1780), digested in JA Park, A System of the Law of Marine Insurance (3rd ed, 1796), p.445; EH Bennett, Fire Insurance Cases (Hurd & Houghton, 1872), p.16. 136 R iots, civil commotions 17.23 In Levy v. Assicurazione Generali31 a warehouse in Jaffa (now part of Tel-Aviv) was damaged in December 1936 by fire, a peril insured against. However, the policy contained a widely drafted “reverse burden” Clause, which required (on its face) that the insured prove that none of the exclusion clauses were operative. The excluded clauses included “civil commotion”. Moreover, the clause continued: Any loss or damage happening during the existence of abnormal conditions whether physical or otherwise, directly or indirectly, proximately or remotely, occasioned by or contributed to by or arising out of or in connection to with any of the said occurrences shall be deemed to be loss or damage which is not covered by this insurance, except to the extent that the insured shall prove that such loss or damaged happened independently of the existence of such abnormal conditions. The Privy Council approved the following definition from Welford and Otter-Barry’s text, The Law Relating to Fire Insurance: Civil Commotion. This phrase is used to indicate a stage between a riot and civil war. It has been defined to mean an insurrection of the people for general purposes, though not amounting to rebellion; but it is probably not capable of any very precise definition. The element of turbulence and tumult is essential; an organized conspiracy to commit criminal acts, where there is no tumult or disturbance until after the acts, does not amount to civil commotion. It is not, however, necessary to show the existence of any outside organization at whose instigation the acts were done.32 This definition is a restatement of Mansfield’s direction in Langdale. Applied to the facts of the case, the Privy Council held that this fell short of the level of disorder required. As will be seen from the findings of the court in the Spinney’s case33 the last sentence of the definition should now be regarded as qualified at least to some extent. 17.24 An issue that arises in respect of both riot and civil commotion is the physical proximity of the participants to one another, so as to create an identifiable breakdown of law and order. This is most clearly demonstrated in the insurance case law in London and Manchester Plate Glass Company Limited v. Heath.34 The plate glass windows of large stores were insured for damage: “Caused directly by, or arising from, civil commotion or rioting.” In March 1912, the windows of the insured were broken for the second time as part of a campaign orchestrated by the Suffragette movement. The attacks were dispersed throughout London’s West End and were perpetrated with no other acts of violence or resistance (although other Suffragette actions did end in disorder). 17.25 When the case came before Bucknill J. he removed it from the jury on the basis that, following Lord Mansfield’s direction in Langdale v. Mason, there could not have been a “civil commotion”. He was unanimously upheld by the Court of Appeal, Vaughan L.J. saying: “It is plain that in this case there has been no insurrection of the people for the purpose of general mischief” and Buckley L.J.: “Commotion connotes turbulence or 31 (1940) 67 Ll.L.Rep. 174; [1940] A.C. 791. 32 A Welford & W Otter-Barry, The Law Relating to Fire Insurance (Butterworths, 3rd edn, 1932), p.64. 33 Spinney’s (1948) Ltd. and Others v. Royal Insurance [1980] 1 Lloyd’s Rep. 406. See paragraphs 7.7–7.15, 8.17, 8.18, 17.27–17.29. 34 [1913] 3 KB 411. 137 R iots, civil commotions tumult and, I think violence or intention to commit violence … The acts were done without causing any tumult or disturbance …” and Hamilton L.J.: … A civil commotion … must at least involve that the acts which constitute the commotion should be acts done by the agents together, and not merely acts which are done in pre-concert and simultaneously and in proximity to one another.35 17.26 The existence of an organised conspiracy to commit criminal acts was not enough to establish the requirement of localised lawlessness, “the breaking of the glass did not arise from civil commotion. There was, at the moment of breakage at any rate, no commotion other than the breakage of the glass”.36 This is consistent with statements made elsewhere in Langdale v. Mason is describing civil commotion as “an insurrection of the people resisting all law, setting the protection of the government at nought, taking from every man who was the object of their resentment that protection”.37 17.27 The importance of the disregard for the rule of law is shown by two House of Lords cases which arose out of (presumed) Irish Republican activity in the early 1920s. In each of Boggan38 and Cooper,39 armed men took control of motor vehicles from their owners by threatening force. The brazenness of the actions of the perpetrators led Viscount Finlay to remark in Cooper that “those who were engaged in this abstraction must have been acting with some force behind them which made them feel they were the masters of the situation”.40 In Boggan, the Earl of Birkenhead found that the proximate cause of the loss was both civil commotion and riot: “the car was taken by men who were working … in the interests of those who were carrying out disorder and engaged in violent courses in Ireland”.41 These issues must generally be a matter for the court to determine on the basis of the proximate cause doctrine, but English law appears to recognise preparatory acts (the theft of the cars) as potentially an act of civil commotion, where an ongoing state of disorder exists. 17.28 The leading modern authority on civil commotion is Spinney’s case.42 The dispute arose out of insurance cover for retail premises in Beirut which were looted and/or seriously damaged by fire. The political situation in the Lebanon at the time was complex and deteriorated over time, with factions divided by religious, political and racial differences. The policy covered losses by fire, but excluded (among other perils): (a) … civil war; (b) Mutiny, civil commotions assuming the proportions of or amounting to a popular rising, military rising, insurrection, rebellion, revolution, military or usurped power … 35 Ibid per Vaughan L.J. at 416, Buckley L.J. at 417, and Hamilton L.J. at 421. 36 Ibid at 418. 37 Langdale v. Mason [1780] 2 Park 965. 38 (1923) 16 Ll.L.Rep. 64. 39 (1922) 13 Ll.L.Rep. 219. 40 Ibid at 222. 41 Ibid at 66. 42 Spinney’s (1948) Ltd and Others v. Royal Insurance [1980] 1 Lloyd’s Rep. 406. See paragraphs 7.7–7.15, 8.17, 8.18. 138 R iots, civil commotions Mustill J. sought to define and distinguish a series of perils, including “civil commotion” to enable distinctions to be drawn between “civil commotion”, “insurrection” and “riot”. He treated Langdale v. Mason as the root of the definition of civil commotion.43 The court said, on the difference between an “insurrection” and a “civil commotion”: It still remains to be considered whether the “civil commotion” assumed the proportions of or amounted to a popular rising—which is broadly to be equated to an “insurrection”. For a popular rising, there must be some unanimity of purpose … and this must involve the displacement of the government. I doubt whether a violent attack by one section of the population on the other on the grounds of … religion or race would be described as a rising. Adopting this interpretation, I would not say that the disturbances in the Lebanon amounted to a popular rising … … and on the dimensions of the proportion of the population involved and the degree of tumult for a civil commotion to exist: “All one can say is that it must involve a really substantial proportion of the populace, although obviously not all of the population need participate, and that there should be tumult and violence on a large scale”. 17.29 Mustill J. concluded: … I find nothing in the authorities compelling the court to hold that a civil commotion must involve a revolt against the government, although the disturbances must have sufficient cohesion to prevent them from being the work of a mindless mob. Confusing and fragmentary as the violence in the Lebanon may appear … a state of civil commotion … [was] prevalent in Lebanon. The emphasis on size and seriousness both of the disturbances and the degree of disorder should be noted. Riot, civil commotion in other common law jurisdictions 17.30 The South African courts had to consider “civil commotion” and Soloman J. made the following observations in Lindsay Pirie v. The General Accident Fire & Life Assurance Corporation Limited.44 He noted that Lord Mansfield was directing a jury in a particular case and was not giving a definition suitable for all occasions. He then added: … and that the effect of his directions to the jury was that a rising of the people (by which I presume he meant a considerable number of the population) for purposes of general mischief amounting to civil commotion … The court also noted that the Gordon Riots started as a rising against Roman Catholics, eventually degenerating into destruction and plunder. There was never an “insurrection” which intended to overthrow the government. 17.31 In the US courts, the exclusion of “civil commotion” was pleaded by Aetna in the Pan Am case.45 The main judgment, which was fully approved by the 2nd Circuit Court of Appeals, was given by the District Court. 43 Ibid at 437. 44 [1914] S.A.R. (App. D) 574. 45 N 13. 139 R iots, civil commotions 17.32 The District Court made the point: “Civil commotion occurs in a locale—a city, a country or an area. It is essentially a kind of domestic disturbance … The authorities speak consistently of and the cases all concerned local … outbreaks and domestic disturbances.” Applying this to the Pan Am case,46 the District Court found great geographical difficulties: It stretches the concept beyond breaking to reach for our hijacking from Dawsons Field or the rest of Jordan, or to sweep the Pan American aeroplane into a kind of globally scattered “commotion” based upon a supposed identity of causes, motives or purposes. 17.33 Aetna pleaded the Cooper47 case as authority for the proposition that a loss arising from a “civil commotion” need not take place at the scene of the commotion. The court found itself unimpressed by the reasoning of the House of Lords and felt more persuaded by the decision of the 4th Circuit Court of Appeals in the Hartford case.48 Besides setting fire to the mine, a crowd of miners had caused some disturbance some distance away from the mine on the issue of whether the union should be recognised by the mine’s owners. The 4th Circuit Court of Appeals decided that even if there was a “civil commotion”, it was too far away to have been responsible for the damage to the mine. Bearing in mind the requirement of the American law that loss or damage arising from a “civil commotion” must be caused at the scene of the commotion itself, which is reflected in the District Court’s decision, it is not surprising that the District Court in the Pan Am case49 felt that it was not necessary to go into the vexed question of whether there was a “civil commotion” in Jordan as a whole (although it did decide there was no such commotion at Dawsons Field for the simple reason that there was no population to disturb there) and dismissed Aetna’s plea that the loss of the 747 was due to “civil commotion” with the comment: Less needs to be added concerning the contention that the loss “resulted” more generally from “civil commotion” in Jordan. However wide the net of causation may be, it cannot in fact span this much on any sensible reading of our record, including especially the P.F.L.P.’s go-it-alone terrorist “external operations”. 17.34 In recent years, claims for riot, civil commotion and cognate terms have been tested in the Caribbean and Fijian courts. In Grell-Taurel,50 serious disorder in Trinidad and Tobago accompanied an attempt to overthrow the government. The litigation concerned contemporaneous looting and property damage to commercial properties. The policy excluded loss by insurrection (and other war risks), but was amended to cover riot. In the face of a reverse burden of proof clause, the insured was not able to satisfy the court that the damage to the insured property was sufficiently unconnected to the insurrection, even though it was geographically removed from the seat of Government. 46 Ibid. 47 Cooper v. The General Accident Fire & Life Assurance Corporation Ltd. (1922) 12 Ll.L.Rep. 514; (1922) 13 Ll.L.Rep. 219 (H.L.); See paragraphs 17.30–17.31. 48 295 F. 663 (1924). See paragraph 17.15. 49 N 13. 50 Grell-Taurel Ltd v. Caribbean Home Ins Co Ltd [2002] Lloyd’s Rep. IR 655. 140 R iots, civil commotions 17.35 In Tappoo,51 similar circumstances arose in an attempt to overthrow the government of Fiji. The Lloyd’s policy covering the commercial premises excluded losses for “… war, invasion, act of foreign enemy, warlike operations (whether war is declared or not), civil war, mutiny, rebellion, revolution, insurrection, military or usurped power …” Underwriters claimed that the attempted coup constituted an insurrection, whilst the insured argued that the looting and rioting which was the immediate cause of the damage was not causally related to the coup. The Fijian Supreme Court upheld the insurer’s analysis of the situation and denied recovery. Summary 17.36 “Riot” has the characteristics set out in section 1 of the Public Order Act 1986, which are noted at the start of this chapter. The following should also be noted: (1) Riot can be a once-only disturbance without a principal cause. (2) It can be the work of a “mindless mob” of the kind rejected by Mustill J. when considering “civil commotion” in the Spinney’s case.52 (3) Unlike “civil commotions” it can be a disorder in a very small area without the widespread tumult that “civil commotion” requires.53 The English courts will, unlike the American, recognise that loss or damage can arise some distance away from the scene of the “riot”. (4) The same cause can give rise to a number of separate and individual riots in several localities, sometimes many miles apart, and possibly even simultaneous. 17.37 A “civil commotion” has the following characteristics: (1) A substantial proportion of the population, or at least a substantial number of people, rise to engage in “general mischief” or “to do terrible things”. (2) Such “general mischief” or “terrible things” do not envisage the overthrow of the government as a principal cause (although this may be regarded as a desirable result by at least some of the participants); if they did, the insured perils of “rebellion” or “insurrection” would arise. There must, however, be a principal cause or causes such as arise out of differences in political views or aspirations, religious beliefs, or racial or ethnic differences. (3) It is not necessary that there should be leaders or factions which promote such principal cause or causes, although if there are such leaders or factions, the presumption that “civil commotion” is responsible for any violence is enhanced, particularly if they instigate it or do nothing to discourage or disown it. (4) Widespread tumult is a necessary ingredient and furthermore a very considerable degree of tumult. Tumult here involves violent damage to persons or property or the threat or possibility thereof or at least the intention to cause it. It also requires a considerable number of persons acting together. A mere criminal conspiracy to do damage by individuals, perhaps even small groups 51 Tappoo Holdings Ltd v. Stuchbery [2008] 1 Lloyd’s Rep. 34. 52 N 33; see paragraph 17.27. 53 This underlies the decision in Mann v. Lexington Ins Co [2001] Lloyd’s Rep. IR 179, which considered contractual limits per occurrence on riot(s) in Indonesia. 141 R iots, civil commotions of individuals, and even similar damage simultaneously over a wide area, will not constitute tumult, although in some circumstances there may be a number of simultaneous “riots”. Tumult does not need to be continuous and may be sporadic over a long period. (5) The English law recognises that if a “civil commotion” exists elsewhere, loss or damage caused in a peaceful place, always provided that the loss or damage is done in the general cause of the “civil commotion”, will still be loss or damage caused by “civil commotion”. 142 CH A PT ER 18 Any terrorist … Maritime terrorism: incidences and litigation 18.1 It is evident from databases tracking terrorist incidents that insured vessels have been the subject of terrorist attacks on multiple occasions during the past 50 years. The Rand Database of Worldwide Terrorism Incidents recorded 136 maritime targets since records began in 1968.1 British flagged vessels can be found within this, notably in a series of attacks on British vessels purportedly carried out by anti-Cuban protesters in United States waters in the late 1960s.2 The motive seems to have been to discourage trade with Cuba. Vessels insured at Lloyd’s would certainly also be within this list, and some examples are detailed at paragraphs 18.18–18.29. Whilst it is possible to observe practice in settling these claims, there have been remarkably few reported cases on point. This is not due to a lack of unresolved issues. O’May described the uncertainty of the position of terrorist losses within marine and war risks cover at the time of the anti-Cuban attacks: In 1968, the Granwood and Caribbean Venture were severely damaged by external explosions at Miami. “Credit” was claimed by a shadowy outfit calling itself “Cuban Power” … In the Granwood claim, for instance, agreement was reached between marine and war risk underwriters for each to fund 50 per cent of the claim pending full investigation.3 Judicial approaches to interpreting terrorism as a contractual term 18.2 Although the meaning of terrorism in insurance has not been tested before the UK courts, the Court of Appeal recently confirmed its approach to interpreting the related perils of “acts of war” and “armed conflict”. In obiter comments in IF P & C Insurance Limited v. Silversea Cruises Limited, The Silver Cloud,4 Rix and Ward L.J.J. considered whether the 9/11 attacks could fall within those perils.5 Both accepted that the question was not to be determined by technical definitions of public international law but by the 1 http://smapp.rand.org/rwtid/search.php. 2 These include The Granwood (24/05/68, Key West); The Lancastrian Prince (01/08/68, waters off Florida); The Caribbean Venture (08/08/68, Miami). Irish Republican attacks on British flagged vessels are reported in the early 1980s, notably HMS Hecate (02/11/1981) and The St Bedan (23/02/1983, Lough Foyle). 3 D O’May “War Risks” [1976] LMCLQ 180, 181. 4 [2004] Lloyd’s Rep. IR 696. 5 At [139]–[140] (Rix L.J.); [147] Ward L.J. 143 A ny terrorist … “common sense” understanding of commercial operators.6 Ward L.J.’s approach is likely to be adopted by future courts in respect of terrorism claims: For my part I do not believe that men of business, the underwriters and the insured, would have said as they watched those aircraft smash into the Twin Towers, “That’s an act of war!” They would have concluded, as the U.S. authorities described it in their Worldwide Cautions … that these were “terrorist actions from extremist groups … with links to Usama Bin Laden’s Al Qaeda organisation” and “retaliatory actions by terrorists … who harbor grievances against the United States”.7 18.3 Nonetheless, the definition of terrorism is unlikely to be developed in an entirely ad hoc fashion. The courts are likely—as with “war”—to draw upon elements taken from definitions in related areas. This chapter therefore reviews the contractual definitions in marine insurance policies, the statutory definitions in anti-terror (and related) legislation and case law relating to insurance cover for non-marine terrorism. Collectively, this will provide the likely components for any future judicial determination of disputes under an insurance policy. The definition of terrorism in marine insurance policies 18.4 The standard Hull & Machinery policies, both marine and war risks, simply name terrorism as an excluded and included peril, without further definition.8 However, the Institute Cargo Clauses provide a definition of terrorism that requires further comment.9 Clause 7.3 excludes losses: caused by any act of terrorism being an act of any person acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of any government whether or not legally constituted. The limiting effect of this clause in its own right is considerably reduced by the inclusion of Clause 7.4, which further excludes losses “caused by any person acting from a political, ideological or religious motive”. 18.5 The Cargo Clauses definition is similar to that used in section 2, Reinsurance (Acts of Terrorism) Act 1993. However, as the statutory definition merely defines the scope of state intervention in the property reinsurance market for terrorism risk, it is unlikely ever to receive judicial analysis. Whilst it is legally possible that a claim might be brought against Pool Re, or the Treasury, for acting ultra vires, it is hard to imagine the circumstances in which this would arise. Some limited guidance can be gained from the practice of Pool Re as it is seeking to extend its operations.10 18.6 The addition of Clause 7.4 captures individuals acting not in concert with others, but in support of a wider cause. Given the rise of “lone wolf” attacks—such as the murder 6 Citing Kawasaki Kisen Kabushiki Kaisha of Kobe v. Bantham Steamship Company Limited [1939] 2 KB 544, 559 and Spinney’s (1948) Ltd v. Royal Insurance Co Ltd [1980] 1 Lloyd’s Rep. 406, 426. 7 At [147]. 8 E.g. cl 24.2 Institute Time Clauses Hulls 1983: “any terrorist or any person acting from a political motive”. 9 Cl 7.3, Cargo Clauses A, B, C (2009). 10 www.poolre.co.uk/who-we-are/about-pool-re/. 144 A ny terrorist … of British MP Jo Cox—this would exclude such acts even if not considered terrorism per se.11 Even with the combination of Clauses 7.3 and 7.4 there are circumstances that fall outside the express limits. For example, the primary statutory definition of terrorism in English public law has added racial motivation to the previous definition of “political, ideological or religious motive”.12 Statutory definitions of terrorism 18.7 Where marine policies provide only for a terrorism exclusion without further definition, one likely source of interpretative assistance is likely to be statutory definitions. With the exception of the Reinsurance (Acts of Terrorism) Act 1993 noted in paragraph 18.5, UK law adopts a common definition for terrorism, found in section 1, Terrorism Act 2000 (as amended).13 The definition is a composite one. First, it imposes limits on the intended purpose of the action or threatened action. This must be “designed to influence the government or an international governmental organisation or to intimidate the public or a section of the public”, and made “for the purpose of advancing a political, religious, racial or ideological cause”. This is supplemented by section 1(5) which makes clear that a “reference to action taken for the purposes of terrorism includes a reference to action taken for the benefit of a proscribed organisation”. 18.8 Second, sections 1(2) and (3) provide a typology of actions that will be considered terrorism if done (or threatened) for these purposes: (a) (b) (c) (d) involves serious violence against a person, involves serious damage to property, endangers a person’s life, other than that of the person committing the action, creates a serious risk to the health or safety of the public or a section of the public, or (e) is designed seriously to interfere with or seriously to disrupt an electronic system. (3) The use or threat of action falling within subsection (2) which involves the use of firearms or explosives is terrorism whether or not subsection (1)(b) is satisfied. 18.9 Finally, section 1(4) provides guidance on potential territorial limits: (a) “action” includes action outside the United Kingdom, (b) a reference to any person or to property is a reference to any person, or to property, wherever situated, (c) a reference to the public includes a reference to the public of a country other than the United Kingdom, and (d) “the government” means the government of the United Kingdom, of a part of the United Kingdom or of a country other than the United Kingdom. 11 www.theguardian.com/uk-news/2016/nov/23/thomas-mair-found-guilty-of-jo-cox-murder (accessed 25/08/2017). 12 Added to s. 1 Terrorism Act 2000, by s. 75, Counter-Terrorism Act 2008 on the advice of the independent reviewer of terrorism legislation, Lord Carlile, The Definition of Terrorism (Cm 7052, 2007), [66]. 13 A Greene, ‘Defining Terrorism: One Size Fits All?’ (2017) ICLQ 411. 145 A ny terrorist … This definition has been criticised as a “race to the bottom” to create the broadest possible legal construct, and reliant on prosecutorial and administrative discretion to avoid undue interference with civil liberties and/or overly broad criminal offences.14 This view has received some support from obiter comments in litigation in the Supreme Court.15 18.10 From the perspective of commercial law, a catch-all definition for terrorism raises no comparable policy objections, particularly if the definition is used to exclude losses from marine coverage but include them within war risks cover. However, an overly wide definition of terrorism may cause issues of overlap with other included or excluded perils (such as war, malicious acts, piracy and others). This may cause practical issues where losses are ascribed to multiple proximate causes, one of which is expressly covered and the other expressly excluded as in The B Atlantic, with the result that the loss suffered is neither within war risks nor standard marine cover.16 18.11 A narrower definition can be found in section 2, Reinsurance (Acts of Terrorism) Act 1993, which created the Pool Re scheme for the reinsurance of property risk arising through terrorism. Whilst this might at first sight appear to be an “insurance” definition, its function is to enable State intervention in a commercial market. Moreover, its application to newer forms of terrorist action, such as cyber-risks has proved problematic.17 It defines acts of terrorism as: the acts of persons acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of Her Majesty’s government in the United Kingdom or any other government de jure or de facto. The requirement of an organisation (and this is defined as “any association or combination of persons”) means that acts of an individual would not be considered terrorism. Given that this was enacted as a response to Irish Republican terrorism in the 1990s, this definition seems dated, given the subsequent rise of single person attacks. 18.12 Ultimately, the limits of terrorist risk in standard marine insurance cover would be best set by treating the issue as a contractual question of interpretation, given the numerous potential overlapping perils. The statutory definitions would be best treated only as a starting point, and ought not to be treated as exhaustive. The purpose of the definition here is risk-allocation, and not some broader public policy objective. The judicial interpretation of “terrorism” in insurance-related litigation 18.13 The English courts have not considered terrorism risks within the standard “war risks” policies. However, some limited consideration has been given in respect of: (i) The duty to insure against terrorism risks in respect of commercial residential property; 14 See Greene, ibid, and Hansard (HC Deb, 14 December 1999, vol 341, cc152–233). 15 R v. Gul [2013] UKSC 64, [62]. 16 Navigators Insurance Co Ltd v. Atlasnavios-Navegacao Lda (formerly Bnavios-Navegacao Lda), The B Atlantic [2019] AC 136. 17 S. 21, Counter-Terrorism & Border Security Act 2019 widened the potential scope of the reinsurance pool to any losses consequent on a terrorist attack, and not only where the attack caused physical damage to insured property. This provision came into force on 12/02/19. 146 A ny terrorist … (ii) the exclusion of liability in a commercial “public and products liability” policy (iii) The aggregation of losses arising out of the 9/11 attack; and (iv) loss of business for Cruise Ship operators following the 9/11 attack. 18.14 In Qdime Ltd v. Bath Building (Swindon) Management Company Ltd,18 the Upper Tribunal (Lands Chamber) had to establish whether a requirement to insure against explosion (as required by the standard Council of Mortgage Lenders guidelines) should be read as to include a duty to purchase cover for the residential property against terrorism risk. The management company for the property (and the individual leaseholders) argued that terrorism cover was unnecessary and the costs of that element could not be passed on to them. In interpreting the clause, Judge Edward Cousins made specific references to terrorism cover as defined by section 2(2) of the Reinsurance (Acts of Terrorism) Act 1993, as considered in paragraph 18.5: “… acts of persons acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of Her Majesty’s government in the United Kingdom …”19 This is a clear indication that the interpretation of terrorism within insurance contracts does not operate solely on the basis of the criminal/public law standard found in the Terrorism Act 2000. 18.15 In Aioi Nissay Dowa Insurance Co Ltd v. Heraldglen Ltd,20 the High Court was faced with claims on retrocession policies covering aviation losses following the twin attacks on the World Trade Centres as part of the 9/11 plot. The crucial issue was whether the attacks on the Towers constituted a single incident or two separate events for the purpose of the aggregation clause and policy limits. The approach to “terrorism” as an insured peril in Heraldglen was necessarily brief. The policy covered (by Clause AVN 48B) claims caused by “(d) any act of one or more persons, whether or not agents of a sovereign Power, for political or terrorist purposes”. Any question of whether the actions of the 9/11 conspirators fell within insured cover would be resolved by the wider cover offered by Clause (g): “hi-jacking or any unlawful seizure or wrongful exercise of control of the Aircraft in flight made by any person or persons on board the Aircraft acting without the consent of the Insured”. 18.16 In Axa Corporate Solutions SA v. National Westminster Bank,21 Axa claimed that the “public and products liability” element of cover provided to NatWest Bank was subject to an exclusion against losses arising in connection with terrorism. The putative exclusion was in the form “terrorism exclusion- wording to be agreed” and was said to have been incorporated into the 2002–03 policy (and subsequent renewals) as a response to the 9/11 attacks. The potential existence of the clause became significant when Nat West notified Axa that it was being sued in US courts for providing banking services to a UK charity (Interpal) which was alleged to have links to Hamas, the Palestinian organisation linked to suicide bombings in Israel. The litigation against Nat West in US courts is ongoing.22 18.17 Much of the litigation in the UK High Court was concerned with factual matters as to whether the parties had “negotiated out” this exclusion in negotiations subsequent 18 19 20 21 22 [2014] UKUT 0261 (LC); [2014] 3 EGLR 18. At [14]. [2013] 1 C.L.C. 440; [2013] Lloyd’s Rep. I.R. 281. [2010] 2 CLC 149. Weiss v. National Westminster Bank (2016) 176 F. Supp. 3d 264. 147 A ny terrorist … to the initial offer of cover on terms contained in a fax from Axa. Hamblen J. found that the insured and broker were unable to substantiate this claim. On that basis, the exclusion clause stood. Whilst no final wording was ever agreed, the clause (“terrorism exclusion— wording to be agreed”) was accepted by Hamblen J. as “words of substance and content on their own … they state and identify that which is excluded from cover”.23 He refused to provide detailed guidance on the meaning of the clause in the abstract and it does not appear that the issue was revisited in subsequent proceedings. At this point, there is therefore little authority in favour of employing the Terrorism Act 2000 as indicative of the position in insurance. Contrast the position in respect of riot as an insured peril, where it is assumed that reforms in criminal law influence the limits of cover. 18.18 The closest analogous case to terrorism property damage claims in marine insurance is found in the Silver Cloud litigation, concerning maritime business interruption risks. In IF P & C Insurance Limited v. Silversea Cruises Limited, The Silver Cloud,24 an amended version of the 1996 Norwegian Plan 25 (which was primarily used for oil tankers) was used to insure a cruise ship operator against risks including financial losses from terrorist action. Following the 9/11 attacks against the World Trade Centers, the Pentagon and other sites, the US government issued warnings (including the “Worldwide Cautions”) as to the likely risk of further attacks against US citizens worldwide. It was not contested that the 9/11 attacks and the subsequent warnings had a substantial detrimental effect on Silversea’s profitability and it sought to claim under its insurance. 18.19 As described by Rix L.J., the policy provided for three distinct but related layers of cover: Ai: “This insurance covers loss due to the vessel being wholly or partially deprived of income as a consequence of an occurrence within the policy period of one of the following events”, with the relevant named perils identified as: [5] Blockage or closure of any canal or navigable waterway, capture, seizure, confiscation, or any other event which directly interferes with the scheduled itinerary of the vessel by … terrorists … actual or threatened … [7] Acts of war, armed conflict, strikes, riots, and civil commotions which interfere with the scheduled itinerary of the insured vessel, whether actual or threatened. To this was added Aii: The Assured’s loss of anticipated income expected to be earned on any future cruise as detailed in the current Cruise Atlas …. This loss of income was further defined as: To cover the Ascertained Net Loss resulting from a State Department Advisory or similar warning by competent authority regarding acts of war, armed conflict, civil commotion’s [sic], terrorist activities, whether actual or threatened, that negatively impacts the Assured’s 23 At [124]. 24 N 4. 25 A full copy of the policy terms is appended to the Court of Appeal judgment. 148 A ny terrorist … bookings and/or necessitates a change to the scheduled cruise itinerary, subject to a maximum period per event of 6 months from date that management within Silversea Cruises Ltd. shall determine and will so notify the Berkely Group accordingly. 18.20 Finally, the cover in section B provided for additional liability for “cruise credits” and/or “on-board credits” incurred in circumstances that would trigger cover under Ai. Cover under B was therefore dependent on liability under that earlier provision. 18.21 The application of these provisions to the conditions in the cruise ship market immediately before and after the 2001 attacks proved contentious. As Tomlinson J. noted this “was not assisted by the extraordinary level of mutual mistrust which seems now to exist between insurer and insured”.26 18.22 A number of issues were raised on appeal, but for our purposes, the key considerations were: (i) The proper construction of Clause Aii in light of the effect of both the 9/11 attacks and the subsequent warnings on customer demand for cruises; and (ii) Whether the events of 9/11 could (irrespective of their characterisation as terrorist acts) constitute losses under Aii, para 7 under “acts of war”. Before considering these issues in detail, it is worth reviewing the relationship between the cover Ai and Aii. Rix L.J. made clear that the difference between them was temporal: the critical distinction between Ai and Aii is that Ai is concerned with the immediate consequences of Ai insured perils upon the operations of the vessels and their current itineraries, whereas Aii is concerned with loss of custom or the less immediate consequences of Aii insured perils on future cruises.27 The insured perils under Aii: the relationship between the 9/11 attacks and the subsequent US government warnings 18.23 The underwriter contended that on the proper construction of Aii, losses due to the 9/11 attacks (rather than the subsequent government warnings themselves) were excluded from coverage. If correct, then the consequences would be considerable for the insured’s claim, as losses jointly attributable to an insured and an excluded peril would fall outside the insurer’s obligation to indemnify (applying Lord Phillips M.R. in The Demetra K): 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.28 26 At [5]. 27 At [73]. 28 Kiriacoulis Lines SA v. Compagnie d’Assurances Maritimes Aeriennes et Terrestres (CAMAT), The Demetra K [2002] 2 Lloyd’s Rep. 581, [18]. 149 A ny terrorist … 18.24 Rix L.J. refused to interpret Aii as excluding losses arising from terrorist acts from cover. Such losses were simply not insured perils for Aii (but were insured perils for Ai and B). On this basis, losses arising due to a combination of the 9/11 attacks themselves and the subsequent warnings fell within Aii: There is no intention under this policy to exclude loss directly caused by a warning concerning terrorist activities just because it can also be said that the loss was also directly and concurrently caused by the underlying terrorist activities themselves.29 Did 9/11 amount to “acts of war” or “armed conflict” within the seventh paragraph of perils under cover Ai? 18.25 The Court of Appeal considered whether the acts and consequences of the 9/11 attacks could constitute “acts of war” or “armed conflict” under Clause Ai. The interest in this additional classification lay in the requirement for terrorism losses that that the acts “directly” interfere with the scheduled itinerary, but for the extended coverage for hostilities, mere interference was sufficient. As the causal effect of the attacks was contested, it was potentially to the insured’s advantage to recharacterise the losses as due to “acts of war” or “armed conflict”. Having heard detailed argument on the point, both Rix and Ward L.L.J. expressed a view, although it in both cases it was obiter and somewhat tentative. Nonetheless, it provides a useful insight into the potentially overlapping nature of terrorism and war-related perils. This has some significance in establishing whether terrorism can be the result of state or quasi-state actions. 18.26 For Rix L.J., terrorism and war-related perils were not mutually exclusive: “the fact that everyone could agree that 9/11 was an example of a terrorist attack does not to my mind itself answer the question of whether it amounted to something more”.30 His approach was generally pragmatic, and influenced by the kinds of considerations identified by Mustill J. in Spinney’s, namely as to the “scale and ramifications of the conflict”.31 18.27 Ward L.J. did not agree on this point. He distinguished the 9/11 attacks and its perpetrators from the consequential conflict against Afghanistan and viewed war as a state-on-state action: “But it was not a war against them for war is not conducted against an individual and his wicked henchmen, however real a threat they pose to the security of a state”.32 On this basis, the implication is that terrorism is not state action, at least not when carried out overtly. 18.28 Ultimately, this point remains unresolved.33 It is the view of the author that the pragmatic approach of Rix L.J. is to be preferred, so that acts of violence might constitute both acts of terror and acts of war, in appropriate circumstances. Ultimately, the final analysis will depend on the terms of the particular insurance policy. The potential overlap between war and terror needs only to be resolved where either the recoverability for losses between each differs, or where one is insured and the other excluded. 29 30 31 32 33 At [104]. At [143]. At [143]. At [147]. Mummery L.J. simply agreed (at [145]), without expressing a view on this point. 150 A ny terrorist … Prior claims related to terrorism 18.29 The Third Edition of this text contained a list of claims handled by the London market that are indicative of the likely approach taken to terrorism losses. This section is quoted below: (1) In 1987, an Air India Boeing 747 was destroyed over the North Atlantic by a bomb placed among the aircraft’s navigational equipment. This was clear from the wreckage which was, with some difficulty, brought to the surface. The aircraft and her cargo were lost, and all on board were killed. The perpetrators were thought to be Sikh extremists living in Canada, although this was never proved with certainty. The public cause was the desire of the Sikhs for an independent state of their own. The indiscriminate nature of the incident needs no comment. (2) In 1988, a Pan American Boeing 747 was destroyed over Lockerbie in Scotland by a bomb placed among the passengers’ luggage. This again was clear from the wreckage. Again, the aircraft and her cargo were lost and all on board were killed. In addition, people were killed and injured, and much property was destroyed or damaged in the town of Lockerbie onto which some of the wreckage fell. The perpetrators were originally unknown (at least publicly), and the public cause was thought to be a revenge attack for the recent accidental shooting down of an Iranian Airbus by the U.S.S. Vincennes. Painstaking investigation by the Scottish police later indicated that some others may have been responsible. They have yet to be extradited and tried, so that nothing can be said whether they did or did not cause the loss of the aircraft. Likewise the public cause cannot be ascertained. It was clear from the damage that this was a terrorist attack, that it was indiscriminate, and that somebody had caused it, almost certainly for a public cause, even if that public cause was uncertain. This was sufficient to complete the insured peril.34 (3) Again in 1988, the City of Poros, a Greek holiday ship which gave tourists day trips to the Greek Islands in the neighbourhood of Athens, sailed from Piraeus with 400 passengers. A group among the passengers threw hand grenades and opened fire with machine guns. Many passengers were killed or injured and the ship herself was seriously damaged. The outrage had been carefully planned; it cannot have been an easy task to smuggle the weapons on board, and fast motor-boats were on hand to convey the perpetrators from the scene. The perpetrators were not known with any certainty, although it is thought that Abu Nidal, a splinter group which had broken away from the P.L.O., were probably responsible. Abu Nidal’s exact aims are not certain, and may not even exist, but it is known to nurse a grievance that the State of Israel continues to 34 This account of the events is retained from the Third Edition, written by Michael Miller. 151 A ny terrorist … exist, and a grudge that the P.L.O. pursues policies which are not to its liking. In spite of these uncertainties, the Mutual War Risks Association concerned accepted that the insured peril was complete. Again the indiscriminate nature of the attack needs no comment, and nobody does this sort of thing unless they are terrorists.35 35 See the Third Edition of this book, paragraph 18.16. 152 CH A PT ER 19 … Or any person acting maliciously or from a political motive Malice and maliciously 19.1 This element of war risks cover has generated a steady trickle of disputes in the English courts. A number of key issues have been identified in recent litigation, and these provide the focus for this chapter. The courts have identified four main sources of ambiguity within the “malicious acts” cover, and these are taken in turn. 19.2 First, the extent to which “malice” requires some personal spite targeted at the owner or operator of the property damaged, rather than some more generalised mental element. This has been considered in some depth by Colman J. in The Grecia Express1 and in The North Star,2 by the Court of Appeal (in relation to non-marine losses) in Tektrol,3 and by the Supreme Court in The B Atlantic.4 This edition therefore concentrates in detail on the judicial reasoning adopted in those cases, and readers interested in the historic position are directed to the Third Edition of this work. 19.3 Second, where the burden of proof lies in respect of identifying the instigator of the malicious damage. In practice, whether the insured that it was not complicit in the infliction of deliberate damage to insured property as a component of the insured peril. The alternative is that the underwriter would be required to raise complicity by way of a positive defence, such as wilful misconduct. 19.4 Third, the relationship between the positive cover for “malicious acts” and potentially overlapping excluded perils, such as barratry and detention for customs infringements. This has arisen in particular in respect of standard war risks cover for Hull & Machinery. This point of construction was considered at all levels in The B Atlantic,5 including at the Supreme Court stage. Linked to this is the application of the proximate cause doctrine to “malicious acts” cases where “overlapping” excluded perils might be found to have had significant causal effect. This was also considered in The B Atlantic. 1 Strive Shipping Corp v. Hellenic Mutual War Risks Assocn (Bermuda) Ltd, The Grecia Express [2003] 1 CLC 40. 2 North Star Shipping Ltd v. Sphere Drake Insurance plc [2006] 1 CLC 606. 3 Tektrol Ltd v. International Insurance Co of Hannover Ltd [2005] 2 CLC 339. 4 Navigators Insurance Co Ltd v. Atlasnavios-Navegacao Lda (formerly Bnavios-Navegacao Lda), The B Atlantic [2018] 2 WLR 1671; [2018] 2 Lloyd’s Rep. 1. 5 [2012] 1 Lloyd’s Law Rep. 619 (Hamblen J.); [2015] 1 Lloyd’s Law Rep. 117 (Flaux J.), [2017] 1 WLR 1303 (CA). 153 … Or any person acting maliciously or from a political motive Malice as “targeted” or “wanton” vandalism 19.5 On the question of targeted spite, Lord Mance in The B Atlantic6 drew a distinction between the case law on this question, those predating the drafting of the Institute Time Clauses (Hulls) 1983, and a series of subsequent first instance decisions. The historic case law can be read as providing a more restrictive interpretation of malicious acts, requiring some degree of targeted ill-will towards the insured property. The more recent case law had adopted a wider approach under which acts of untargeted vandalism could still fall within the peril. Lord Mance evidently preferred the narrower test, but his judgment requires careful consideration to establish the precise position in law. 19.6 The B Atlantic concerned the deliberate planting of a substantial quantity of narcotics on board a vessel in harbour in Venezuela. On discovery of the drugs, the vessel was impounded as part of judicial proceedings. The wider issues in this case are discussed elsewhere in this book,7 but one question was whether secreting the drugs constituted a malicious act. The dispute in The B Atlantic progressed to the Supreme Court on the basis that planting the drugs was a malicious act, but the Supreme Court was not prepared to hear the case on this basis, and requested submissions on this point.8 The “targeted malice” test 19.7 In The Mandarin Star,9 the Court of Appeal was faced with a marine cargo policy over goods which the master of the vessel refused to deliver to the consignees, but instead mortgaged them with a third-party, as a form of security for unpaid freight. The perils insured included theft and “loss or damage by persons acting maliciously”. 19.8 Lord Denning M.R. treated “maliciously” as requiring “spite or ill-will”.10 His formulation evidently required some motivation beyond personal gain, but did not resolve whether some degree of personal animus was required, such that it was action not merely against the property but against the owner. Edmund Davies L.J. agreed with Denning M.R.,11 and Phillimore L.J. read the peril as restricted to incidences of civil disturbance and the like.12 19.9 This ambiguity was identified but not resolved by Mustill J. in The Salem in determining that the “malicious acts” clause was inapplicable on the facts.13 Mustill J.’s approach to the malicious acts issue was not tested in the subsequent appeals to the Court of Appeal or House of Lords. His initial approach was to assume, consistent with a narrow reading of The Mandarin Star, that personal malice was required: The conspirators were not inspired by personal malice against [the owners of the cargo]; they simply wished to steal the cargo, the identity of the owner being immaterial. The same is the case as regards the destruction of the cargo remaining on board when the vessel sank.14 6 7 8 9 10 11 12 13 14 N 4. See Chapters 11 and 12. At [14]. Nishina Trading Co Ltd v. Chiyoda Fire & Marine Insurance Co Ltd, The Mandarin Star [1969] 2 QB 449. At 462. At 463. At 467. Shell International Petroleum Co Ltd v. Gibbs, The Salem [1981] 2 Lloyd’s Rep. 316, 328. At 328. 154 … Or any person acting maliciously or from a political motive 19.10 However, Mustill J. was prepared to countenance the wider version of malice to include acts of wanton violence, directed against the goods rather than the owner of the goods, but held that it was unnecessary to decide the point.15 The “wider” test developed by Colman J. 19.11 In The Grecia Express,16 Colman J. was faced with competing explanations of the cause of the loss of an ageing passenger ferry. The physical cause of the loss was generally agreed between the parties, as a valve was opened in the auxiliary engine room, and the entry of seawater caused the vessel to capsize and sink. Combined with the cutting of the mooring ropes, this rendered the vessel a potential constructive total loss. The question was who had carried out these actions. The owners contended that it was persons unknown acting maliciously (an insured peril under the war risks policy in place) whereas the underwriter argued that the watchman was complicit and that this was either a loss by barratry or wilful misconduct by officers of the ship-owning company. In either alternate circumstances the defendant underwriter would not be liable for the loss. 19.12 The defendant insurers argued that for the sinking to be malicious, it had not only to be deliberate but “for the purpose of harming the insured”. Combined with its argument that the insured had to prove a lack of complicity, this would make it necessary (in Colman J’s words): “for the owner to prove that the motive for the sinking was directed at him and not by him”.17 This raised comparisons with the elements required to be proven to establish barratry, and in particular whether the insured had to prove a lack of complicity. The issue of proof is dealt with at paragraph 19.35. 19.13 For the purposes of establishing the meaning of “malicious acts”, Colman J. reviewed three sources considered in the previous edition of this work: the obiter comments of the Court of Appeal in The Mandarin Star18 and The Salem,19 and section 58, Malicious Damage Act 1861. He treated the analyses given by Denning M.R. and Mustill J. as obiter on the basis that the decisions in The Mandarin Star and The Salem did not turn on which definition was adopted.20 19.14 In considering those definitions in light of the facts of The Grecia Express, Colman J. was prepared to read the clause as covering wanton damage, rather than limiting it to cases of personal grievance. He drew comfort from the general nature of war risks perils, which are in the most part “necessarily wholly unrelated to the identity of the insured”.21 Even for those risks which might be personal in nature (and he listed several useful examples including arrest, strikes and labour disturbances) none require as a proven element of the peril that it “was aimed at or directed against the owners personally as distinct from the vessel itself”.22 15 16 17 18 19 20 21 22 At 328. [2002] 2 Lloyd’s Rep. 88. At 95. N 9. N 13. At 96. Ibid. Ibid. 155 … Or any person acting maliciously or from a political motive 19.15 In working towards a usable definition of malice for the purposes of war risks cover, he drew on section 58, Malicious Damage Act 1861 and offered the following test: Provided that the evidence establishes that the vessel was lost or damaged due to the conduct of someone who was intending to cause it to be lost or damaged or was reckless as to whether such loss or damage would be caused, that is enough to engage the liability of war risks underwriters.23 19.16 The addition of “recklessly” inflicted harm to the insured events would make the peril substantially wider than under the narrow version. This was demonstrated in the subsequent decision in The North Star, where Colman J. reiterated this approach to malicious damage: The causing of deliberate or reckless damage to the vessel by someone who is neither a terrorist nor someone acting from a political motive and is not a member of the crew24 is therefore an insured peril for which the insurers will be liable unless they prove to the requisite standard of proof that the claim is fraudulently advanced because the assured was complicit in the causing of damage.25 The test in The B Atlantic 19.17 Lord Mance matched Colman J. in starting his analysis with a contextual point. Rather than consider the nature of war risks perils as a whole, he focused on the immediate context of the neighbouring perils of “any terrorist” and “any persons acting from a political motive”.26 He saw a common thread running through the clause of persons “whose actions are aimed at causing loss of or damage to the vessel …”27 19.18 Lord Mance made the point that those who surreptitiously planted the drugs wanted the opposite result: that the drugs go undetected and the vessel suffer no adverse effects. This raises the question whether there are only two types of acts: (1) those with targeted malice and (2) those without; or three, (1) those with targeted malice, (2) those with malice towards the property but not motivated by some spite towards the owner, and (3) those who were reckless as to whether a loss would occur or not. This is the ambiguity which Mustill J. identified in The Salem, and, it is submitted, remains unresolved even after The B Atlantic. 19.19 Lord Mance provided the following definition: any person acting maliciously … should … be understood as relating to situations where a person acts in a way which involves an element of spite or ill-will or the like in relation to the property insured or at least to other property or perhaps even a person, and consequential loss of, or damage to, the insured vessel or cargo. It is not designed to cater for situations where the state of mind of spite, ill-will or the like is absent.28 23 24 25 26 27 28 At 96. These exclusions reflect the policy terms, the reference to the crew relates to the exclusion of barratry. At [83]. The limits of malicious acts cover were not a ground of appeal, [2006] 2 Lloyd’s Rep. 183. At [14]. Ibid. At [22]. 156 … Or any person acting maliciously or from a political motive 19.20 There is then a distinction between actions where harm was intended but it might be uncertain as to whether it was motivated by malice towards the insured person or property and circumstances such as The B Atlantic where the perpetrator was either indifferent as to whether a loss would occur, or more realistically, would hope that no loss would occur, but was indifferent to any harm caused to the insured property (rather than to the success of the criminal enterprise) if one did. 19.21 Lord Mance’s definition is wide enough to capture actions which are either directed with targeted malice towards the specific insured property, or generalised malice (such as random vandalism). He acknowledged this could encompass the issue raised by Colman J.: I do not consider that Colman J. was intending to do more than decide the narrow issue before him, which was, as indicated, whether spite, ill-will or the like required conduct targeted specifically at the insured property or its owner, rather than casual or random vandalism … His references to recklessness must be read in the context of the issue before him, whether the cover extended to casual or random vandalism.29 19.22 Lord Mance’s definition is consistent with a model in which losses which are intended are insured, but recklessness is not sufficient: What the context and authorities indicate is that an element of spite, ill-will or the like is required. But I would not limit the concept to conduct directed towards the insured interest. An act directed with the relevant mental element towards causing the loss of or damage or injury to other property or towards a person could lead to consequential loss of or damage to an insured interest within clause 1.5, whether the actor was a terrorist, a person acting maliciously or a person acting from a political motive.30 19.23 The final sentence of Lord Mance’s conclusion above, linking together the perils of terrorism, political motive and malicious acts indicates that this analysis would hold across all of these perils. Given the paucity of case law on terrorism and politically motivated losses, this is significant, even if obiter. 19.24 The test in the B Atlantic was applied in McKeever v. Northernreef Ins Co SA,31 before Dias Q.C. (sitting as Deputy High Court Judge). McKeever concerned a yacht insured on Northernreef terms for perils including perils of the sea, piracy, theft and malicious acts. It was not therefore a standard war risks policy, but a hybrid. The vessel grounded and subsequently abandoned in a secure state. When the claimant insured returned to the vessel the following day with Coastguard assistance, it was surrounded by small vessels and had been systematically looted. Entry to the vessel had been gained by smashing windows. The broken windows were the presumed source of much of the water (up to six inches deep in some sections) in the vessel when it was recovered. The proceedings before the High Court were marked by the absence of the Uruguayan insurer, although it did not contest jurisdiction and the policy was subject to English law. 19.25 Whilst Dias Q.C. was prepared initially to view the smashing of the windows as a malicious act under the test in The B Atlantic as the damage and destruction was 29 At [24]. 30 At [28]. 31 Unreported, [2019] 5 WLUK 444. 157 … Or any person acting maliciously or from a political motive intended, even if not the subsequent entry of the water, she found some difficulty in reconciling that approach with Lord Mance’s comments on The Salem. On the assumption that Lord Mance treated The Salem as requiring that the malicious act be an action for its own distinct purpose and not part of some wider scheme, Dias Q.C. found that the smashing of the windows was not qualitatively distinct from the deliberate destruction of the remainder of the cargo in The Salem. In both cases, these were not the deliberate destruction of property as an act of pure spite, but actions motivated by some ulterior purpose, namely personal profit. 19.26 In the Brilliante Virtuoso,32 Teare J. was faced with a policy covering “malicious acts” and “vandalism or sabotage”. The circumstances of the damage to the vessel were extraordinary, with a fire deliberately caused by persons permitted on board on the pretence that they were security guards. The fire was started on the basis of a further pretence that these armed men were pirates disguised as security guards. In fact, this was a complex fraud with the owner complicit in these actions. The innocent co-insured Bank sought to recover on the policy. In applying the decision of the Supreme Court in The B Atlantic in light of the MacKeever case, Teare J. developed two limitations on the definition of “malicious acts”. First, the actions of those assisting the owner in a scuttle, were not malicious acts because they were not contrary to the interests of the owner. The damage was caused to the vessel, but in the wider pursuit of promoting the insured’s fraudulent scheme. Deliberate damage was not therefore motivated (as was required) by “spite, illwill or the like”.33 This is akin to the limit on the peril of barratry in Hull & Machinery cover that the actions must be to the prejudice of the owner.34 This restriction is not necessary to prevent recovery on the policy where the owner was the claimant, as the doctrine of wilful misconduct would operate. It does restrict the rights of innocent co-insureds. 19.27 The second restriction adopted by Teare J. is novel. He found that the threat of violence to those of the crew who were not a party to the conspiracy—which he accepted would have seemed real—was insufficiently indicative of the activity as a whole for the operation to be characterised as malicious.35 With respect, this seems an unnecessary additional requirement. The real question is whether the proximate cause of the loss was a malicious act, and not whether the operation as a whole could be so characterised. Malicious damage: specific intent and non-marine insurance cases 19.28 There is recent case law on the required mental element to establish specific malicious intent in the non-marine insurance context. These relate to policy exclusions removing coverage for losses which were caused maliciously and pre-date the decision in The B Atlantic. In Porter v. Zurich Insurance,36 Coulson J. was faced with insurance claims arising out of a deliberate fire set by the insured in a residential property. The insured attempted suicide by burning down his house following significant personal and mental problems. The underwriter denied liability for the initial damage by fire and for 32 33 34 35 36 [2019] EWHC 2599 (Comm). At [504]. Arnould at [23.46]. At [505]. [2010] Lloyd’s Rep. IR 373. 158 … Or any person acting maliciously or from a political motive subsequent thefts from the property whilst it was boarded up and awaiting repair. In respect of the fire damage, it relied on “General Exclusion Clause 1” which excluded “any wilful or malicious act by a member of the family or by a person lawfully at or in the home”. 19.29 Coulson J. found that the express clause, and the effect of general principles of law (including the ex turpi causa doctrine) was to deny liability for the fire damage unless the insured was legally insane at the time of the fire: Mr Porter is only able to circumvent all of those difficulties, and to recover in respect of the fire claim, if he is able to demonstrate that, on 27 March 2001, he did not know “the nature and quality of the act he was doing; or if he did know it, that he did not know that he was doing what was wrong.” If Mr Porter is able to establish that, in accordance with this test, he was insane according to law, then he can recover; if he is able to show mental illness which falls short of this test, then the claim in respect of the fire damage must fail.37 This approach blurred the lines between malicious, reckless and intentional acts in the insurance context. 19.30 The scope of malicious acts cover was also considered in the Court of Appeal decision in Tektrol.38 The litigation concerned liability on an “all risks” business interruption policy. The business developed energy-saving devices and the source code for its software was a key business asset. Due to a burglary and an unrelated computer virus, all copies of the source code were lost. As with most “all risks” policies, there was a series of excluded perils, and Clause 7(b)(i) excluded: “erasure loss distortion or corruption of information on computer systems or other records programmes or software caused deliberately by rioters strikers locked-out workers persons taking part in labour disturbances or civil commotion or malicious persons”. The appeal in Tektrol was heard after the decision in The Grecia Express, but none of the marine insurance authorities were cited to the court. 19.31 Whilst the types of damage bear little resemblance to standard marine war risks cover, the excluded perils are familiar. Buxton L.J. treated the enumerated perils other than “malicious persons” as requiring some physical proximity and understood deliberately as requiring some intention to cause the loss of the source code and not “accidentally or carelessly in the course of other depredations”.39 He was concerned that the addition of “malicious persons” to the list of excluded causes could potentially exclude the actions of a wide range of remote hackers. He was evidently concerned by this sudden alteration in the nature of the perils excluded: I am therefore driven to the conclusion that although … the author of the virus was a “malicious person”, the clause does not extend to interferences by such people that are not directed at the computer systems, etc, used by the insured at the premises. If the insurer wished to exclude all damage caused however indirectly by a computer hacker he needed to place that exclusion in a separate clause, and not refer to malicious persons in the same terms as rioters or locked-out workers.40 37 38 39 40 At [23]. N 3. At [11]. At [12]. 159 … Or any person acting maliciously or from a political motive 19.32 The approach of Buxton L.J. in Tektrol suggests that a malicious act which is indiscriminate in nature, in the way that the release of a computer virus is indiscriminate, should not be treated as falling within the malicious act exclusion in non-marine insurance cases. Conclusions on malicious conduct 19.33 The meaning of maliciousness is insurance contracts is not universal, and depends in part on the nature of the neighbouring perils. 19.34 It is possible to reconcile The Grecia Express, The B Atlantic and Tektrol on the following basis: (1) A vandal that boards three ships at random and smashes the first glass window he encounters on each vessel can be acting maliciously, even in the absence of targeted malice against the owner of each vessel; but (2) A vandal that catapults a cannon ball randomly into a crowded harbour,41 with no intended targeting, simply for the pleasure of damaging property might lack the specific intent provided by physical proximity to establish malice against particular property. Malicious acts: proof of complicity 19.35 The defendant insurers in The Grecia Express also failed to persuade the court on its second contention: that for the act to be malicious the insured needed to establish that it was not complicit. Referencing the judicial treatment of the peril of barratry in the Court of Appeal in Elfie A Issaias v. Marine Insurance Co Ltd 42 he noted that “it is presumed that the sinking was both wrongful and to the prejudice of the owner or charterer …” 43 and for the underwriter to raise some defence to the claim, such as proof of wilful misconduct. Colman J. thought it would “be strange indeed” for a higher standard to be imposed where the vessel was proved to have been sunk intentionally by vandals than sunk by the crew. This must be correct, at least until such time as the Issaias decision is reconsidered. Malicious damage and related perils 19.36 The decision of Lord Mance in The B Atlantic44 that there was no malicious act was, in his view, sufficient to dispose of the dispute.45 However, the Supreme Court having given leave to appeal on the wider issues raised, he gave a fully reasoned (if presumably obiter) analysis of the relationship between the cover for malicious acts (in Clause 1.5) and the limited cover for capture and seizure (Clause 1.2), where related to the infringement of customs rules (Clause 4.1.5). 41 42 43 44 45 This simple hypothetical scenario avoids any complications that the use of an explosive would bring. (1923) 15 Ll L Rep. 186. At 416. N 4. At [31]. 160 … Or any person acting maliciously or from a political motive 19.37 The initial issue is one of construction of the policy. At first instance, Flaux J. had found that the exclusion in Clause 4.1.5 would not apply “where the only reason why there has been an infringement of the customs regulations is because of the malicious acts of third parties”.46 Lord Mance rejected this approach on the basis that none of the criteria for an implied term to this effect was met.47 Difficult hypothetical scenarios had been raised in litigation on this issue as far back as The Anita, where Lord Denning considered how the clause would respond to a “put up” job where contraband was planted by the authorities as the pretext for arresting the vessel.48 Lord Mance was satisfied that these issues could be resolved by the application of the proximate cause doctrine, as in such cases the dominant cause of the loss would be the malicious act of planting the contraband rather than its seizure.49 19.38 Where, as in the facts of The B Atlantic, the cause of the loss was the combined effect of the planting of the narcotics and the seizure of the vessel that resulted from their discovery, a rule of law was required to determine the underwriter’s liability. Applying the approach of Lord Blackburn in Cory v. Burr,50 Lord Mance viewed the exclusion in 4.1.5 as the dominant provision: where the perils insured include both detainment and malicious acts and the policy wording introduces different stages in an inquiry, at each of which different considerations may apply. Subsequent authority confirms Lord Blackburn’s conclusion that, where an insured loss arises from the combination of two causes, one insured, the other excluded, the exclusion prevents recovery.51 Examples from beyond the litigated cases 19.39 In the previous edition, the former author gave examples from his personal experience that the practice of underwriters was to follow the guidance of Lord Denning M.R. in The Mandarin Star and these are reproduced below. To the extent that these conflict with the subsequent explanation of the law described above, they should be treated as of historic interest only. It may be helpful to describe some of the cases where the Mutual War Risks Associations have accepted claims on the basis that persons were “acting maliciously”: (1) In Haifa, fires broke out simultaneously in the ship’s crew accommodation aft, in the accommodation amidships and in the paint store forward. The fire brigade found definite evidence that arsonists had been at work. The crew could have caused these fires, but it was thought more likely that the stevedores had done so, being disgruntled with the Master. 46 [2015] 1 Lloyd’s Rep. 117 at [258]. 47 At [33]. 48 Panamanian Oriental Steamship Corpn v. Wright, The Anita [1971] 1 Lloyd’s Rep. 487. 49 At [34]–[36]. 50 (1883) 8 App Cas 393. 51 At [49]. He cited in further support of this rule: P Samuel & Co Ltd v. Dumas [1924] AC431, 467, per Lord Sumner; Wayne Tank and Pump Co Ltd v. Employers Liability Assurance Corpn Ltd [1974] QB 57, per Lord Denning M.R. at p 67B—F, per Cairns L.J. at p 69B—D and per Roskill L.J. at pp 74E—75D. 161 … Or any person acting maliciously or from a political motive (2) In Canada, drunken youths threw inflatable life rafts over the side of ferries to see if they floated. (3) Again in Canada, a moored ship was cut adrift. (4) In Mombasa, three naval ratings from H.M.S. Eagle, well gone in drink and disgusted with their officers, their ship and East Africa in general, entered the engine room of a merchant ship and smashed all the gauge-glasses. (5) Between Durban and Singapore, a North Korean crew expressed their disgruntled feelings with the owners and the Greek officers by throwing the navigation equipment overboard.52 Political motive 19.40 “Political motive” so far appears to have received no judicial definition. The current definitions of “political” in the Oxford English Dictionary are of variable use, but the fifth definition offered is apt: “Relating to or concerned with public life and affairs as involving questions of authority and government; relating to or concerned with the theory or practice of politics”.53 19.41 In the discussion of malicious acts at paragraph 19.22 it was noted that Lord Mance assumed that the perils of terrorism, politically motivated acts and malicious acts all required some degree of intentional harm, over and above mere recklessness: An act directed with the relevant mental element towards causing the loss of or damage or injury to other property or towards a person could lead to consequential loss of or damage to an insured interest within clause 1.5, whether the actor was a terrorist, a person acting maliciously or a person acting from a political motive.54 Whilst this would not be binding on a future court, it is highly persuasive. The potential overlap between politically motivated acts and the malicious acts peril is considerable. Political malice would still be malice. There does remain the possibility of treating malicious acts as wider in nature, despite Mance’s assertion to the contrary. The kind of indiscriminate actions seen in Tektrol, ought, with respect, to not be so readily excluded from the politically motivated sphere. The Stuxnet virus was used to degrade physical machinery in order to slow the processing of nuclear material.55 The indiscriminate release of a virus of this kind might be both politically motivated and lack the specific intention to harm particular targets to constitute a malicious attack under Lord Mance’s approach. 19.42 The previous edition of this work noted that influence of attacks on British vessels trading with Cuba on the drafting of this clause: In the early history of this insured peril, “political motive” was intended to include such actions as those of Cuban exiles in Miami in 1964. Disapproving of British ships trading to Cuba, they placed limpet mines on the hulls of British ships regardless of whether they were 52 See the Third Edition of this work at paragraph 19.10. 53 “political, adj. and n.” (OED Online), www.oed.com/view/Entry/146887? (5th defn) “Relating to or concerned with public life and affairs as involving questions of authority and government; relating to or concerned with the theory or practice of politics”. 54 N 30. 55 www.businessinsider.com/stuxnet-was-far-more-dangerous-than-previous-thought-2013-11. 162 … Or any person acting maliciously or from a political motive themselves trading with Cuba. During the early stages of its work, Mr. Alan Jackson’s Committee considered “ideological motive”. It was felt that this was too narrow for the purposes of the war and strikes insurance.56 19.43 It will be apparent to the reader that there is a considerable degree of overlap between “terrorists”, “acting maliciously” and “political motive”. It is possible to identify examples of behaviour that fall outside some elements of the triptych of perils. Individuals acting alone will often fall outside the definition of “terrorist”. Similarly, actions taken against dissident groups (rather than governments) might constitute politically motivated acts but be insufficiently targeted at a state power to constitute a terror attack. Finally, actions that are indiscriminately violent might be malicious, but might be difficult to distinguish in practice from losses that will be not covered under war risks insurance, particularly if the motive is not the infliction of damage but some wider scheme, such as burglary. It remains open to underwriters to remove or restrictively redefine cover for malicious acts. Absent this, further litigation is not unlikely. 56 See the Third Edition, paragraph 19.12. These attacks are considered in respect of terrorism and are covered in Chapter 18. 163 CH A PT ER 20 Piracy Piracy as an insured peril: Hull & Machinery cover 20.1 In recent decades, piracy has alternated between being treated as an insured peril under the standard marine policies (alongside perils of the sea and other maritime risks) and under war risks policies (with political risks).1 Whether it is treated as a marine or a war risks peril is a matter for the parties and the market, but it would normally be insured under one form of cover and specifically excluded under the other.2 20.2 At present, piracy is by default located within maritime risks (under the Institute Times Clauses Hulls (1982) and other standard Hull & Machinery policies)3 but is commonly excluded by contract variation and insured within war risks cover. This places piracy alongside other deliberate acts by third parties, such as “malicious acts” and terrorism. The specific variations to cover which remove violent theft, piracy and barratry from marine perils and extend cover to include them in the war risks clauses were drafted in 2005 as a response to increased levels of modern piracy.4 Despite this change in approach, many leading texts still consider piracy as a part of the standard marine risks.5 Piracy as an insured peril: cargo cover 20.3 Piracy is an insured peril under Institute Cargo Clauses A (as all risks cover), but not Institute Cargo Clauses B or C. In the 1983 and 2009 variants of the Institute Cargo Clauses (A-C), certain named war and strikes risks are specifically excluded by Clauses 6 and 7, but the exclusion of “capture or seizure” in Clause 6.2 explicitly does not apply to piratical seizures. Cargo Clauses B and C do not, in any event, insure piracy (whether by 1 See Marine War Risks (3rd edn), Chapter 20. 2 The “seamlessness of cover” that normally exists between the perils excluded under maritime risks policies and those insured under war risks policies was frustrated at times by the drafting of the pre-1982 policies. See Panamanian Oriental Steamship Corpn v. Wright, The Anita [1971] 1 Lloyd’s Rep. 487, 491 where Ld Denning M.R. described the arrangement of the policy as “very complicated but hallowed by practice”. 3 It is similarly insured (by default) in the International Hulls Clauses 2003. 4 “Violent Theft, Piracy and Barratry Exclusion—for use with the Institute Time Clauses Hulls 1/10/83” (JH2005/046) and the associated “Violent Theft, Piracy and Barratry Extension—for use with the Institute War & Strikes Clauses Hulls -Time 1/10/83”. Equivalent clauses exist to amend the ITCH 1/11/95: “Violent Theft, Piracy and Barratry Extension—for use with the Institute War & Strikes Clauses Hulls—Time 1/11/95” (JW2005/003). 5 J Gilman, et al., Arnould’s Law of Marine Insurance and Average (Sweet & Maxwell, 19th edn, 2018), Chapter 23. 164 Piracy seizure or otherwise) as a named peril.6 The Institute War & Strikes Clauses do not (by default) cover piracy, that being treated as marine peril rather than a war risk.7 Piracy: the limits of the peril 20.4 Piracy as a peril has been the subject of careful judicial scrutiny, as its precise limits differ from those in other legal contexts. Moreover, its relationship to other perils, such as violent theft, barratry, terrorism, seizure, and capture will be important in policies which do not treat each of these risks equally. The need to carefully identify the limits of piratical losses is added to by the changing nature of modern day piracy. The last two decades has seen the rise (and fall) of Somali piracy-for-ransom and the rise of violent theft of cargo in the Gulf of Guinea. As ever, changing circumstances raises fresh questions on the limits of insured perils and exclusions.8 20.5 As noted in previous editions, the words “piracy” and “pirates” are elastic terms whose meanings can vary depending on the circumstances. The precise limits of the peril in a marine insurance policy is fundamentally a matter for the parties but in the absence of express words the courts have often made reference to other legal and non-legal definitions. These include: (1) Piracy jure gentium by hostes humani generis, or piracy against the Law of Nations by the enemies of all mankind. It is a criminal offence, and any state which captures a pirate may try and punish him regardless of where his crimes were committed. (2) Piracy which is a crime against the domestic laws of a state. These will vary from state to state. (3) Piracy as defined by treaty in Public International Law. For example, Articles 100–107 of the United Nations Convention on the Law of the Sea empower (and sometimes, oblige) contracting states to act against pirates on the High Seas. (4) Piracy as defined by statute entitling officers and men of the Royal Navy to a bounty for dealing with pirates. (5) Piracy for the purposes of commercial documents such as charterparties, bills of lading, and insurance policies. 20.6 This work is particularly concerned with the last aspect, but there are some common threads which run through them all, and in considering “piracy” as applied to commercial documents, the courts and NGOs have drawn on sources from across the range. Piracy: incidences 20.7 The International Chamber of Commerce hosts the International Maritime Bureau’s Piracy Reporting Centre, which logs the location, nature, and outcome of suspected 6 For further consideration of the position in respect of cargo insurance, see J Dunt, Marine Cargo Insurance (Informa, 2nd edn, 2015), paragraphs 10.1–10.3. 7 CL 397 (2016). 8 www.icc-ccs.org/piracy-reporting-centre/live-piracy-map. 165 Piracy piratical attacks globally.9 The real-time global piracy map that it maintains shows hot spots in the Gulf of Guinea, the Gulf of Aden and in the waters surrounding Indonesia. Other regions are identified as being of high risk when at berth. Many of the incidences during 2017 were relatively minor in terms of loss of or damage to hull or cargo, but some were potentially more serious with the use of weapons against crew members. The centre has created a “Community of Reporting” intended to counter the under-reporting attacks on vessels, particularly in the Gulf of Guinea, but the figures produced should be treated as indicative rather than the complete picture. 20.8 The reported data from 2010–18 show a considerable shift in the distribution of attacks since the high water mark in the Gulf of Aden in the mid-2000s. The 2017 reports show 180 incidents across the globe, broadly in line with the 2016 figures. However, this does not mean that the position is entirely static. Attacks in some regions have been significantly reduced by the intervention of littoral States in hot spots, but some of this activity is displaced to neighbouring locations. Moreover, the nature of the attacks varies considerably, with pirates variously engaged in the capture of the vessel, cargo and crew for ransom in some areas; the kidnapping of crew in others; and smaller scale operations involving the forcible theft of cargo and parts. Focusing on the frequency of attacks and attempted attacks, there is a notable shift in the past decade. The 2010 figures show three-quarters of the 445 attacks linked to six key locations (Somalia and Gulf of Aden, South China Sea, Bangladesh, Indonesia, Nigeria, Red Sea), with Somalia and the Gulf of Aden accounting for 43% of the overall total. By 2017, the year-end figure had reduced to 180 incidents, with notable hotspots in Indonesia (24%), Nigeria (18%), the Philippines (12%), Venezuela (7%) and Bangladesh (6%). Piracy: definitional issues 20.9 Cases concerned with the definition of piracy in marine insurance policies and other commercial contracts have often considered, but not found themselves constrained by, definitions from criminal and public international law. The orthodox approach is to treat it as a question of contractual interpretation, albeit one informed by the norms of both criminal and public international law. 20.10 The leading decisions on the meaning on piracy for the purposes of marine insurance are Republic of Bolivia v. Indemnity Mutual Marine Assurance Co, Ltd10 and The Andreas Lemos.11 In the Republic of Bolivia case, Pickford J. was concerned with goods seized whilst in transit on a voyage on the Amazon, in a region on the Brazilian/Bolivian border. The insured cargo was seized by armed men hostile to the establishment of Bolivian control over the region, as the vessel carrying the goods was also shipping supplies intended for the Bolivian authorities. In determining the meaning of the word piracy within the “warranted fc&s” Clause, and having reviewed competing definitions in criminal and public international law texts, he stated: 9 www.icc-ccs.org/piracy-reporting-centre. At the time of writing, annual reports were available for 2010–17. 10 [1909] 1 KB 785. 11 [1982] 2 Lloyd’s Rep. 483. 166 Piracy … I am not at all sure that what might be piracy in international law is necessarily piracy within the meaning of the term in a policy of insurance. One has to look at what is the natural and clear meaning of the word “pirate” in a document used by business men for business purposes; and I think that, looking at it in that way, one must attach to it a more popular meaning, the meaning that would be given to it by ordinary persons, rather than the meaning to which it may be extended by writers on international law.12 This approach was affirmed subsequently by the Court of Appeal, although there was no unanimity as to what criteria this entailed. The issues raised in the Republic of Bolivia case provide a useful guide to many of the contentious points in later case law. 20.11 First, Pickford J. noted that the policy related to a river voyage policy and so references to piracy as limited to actions on the high seas would be inappropriate. This was specifically doubted by Vaughan Williams L.J. on appeal,13 but he did not receive support in this from Farwell L.J. and Kennedy L.J. This issue: whether “piracy” can only occur on the high seas, was the subject of detailed consideration in The Andreas Lemos, and is considered at paragraph 20.14. 20.12 Pickford J. continued by considering the motive required for an act to be piratical, and distinguished personal and political motivations: [Piracy’s] essence consists in the pursuit of private, as contrasted with public, ends. Primarily the pirate is a man who satisfies his personal greed or his personal vengeance by robbery or murder in places beyond the jurisdiction of a State. The man who acts with a public object may do like acts to a certain extent, but his moral attitude is different, and the acts themselves will be kept within well-marked bounds. He is not only not the enemy of the human race, but he is the enemy solely of a particular State.14 This distinction between political and personal acts is critical for distinguishing between the modern perils of piracy and terrorism, amongst others. In this, Pickford J. received the full support of the Court of Appeal.15 20.13 The third element is the type of action undertaken. Piracy has long been expressed as “robbery at sea”.16 Whether the event need be maritime (as opposed to riverine or estuarine) was noted above, but there remains the issue as to whether it need be robbery. In some early cases, the issue was whether this required overt force and/or violence, but in latter days the courts have had to consider whether the form of “piracy-for-ransom” operated out of Somalia and neighbouring states constituted piracy for marine cover. These issues, and their associated authorities, are considered in turn below. 12 N 10 at 790. 13 Ibid 799. 14 Ibid 791. 15 Ibid, per Vaughan Williams L.J. (at 796), Farwell L.J. (at 799) and Kennedy L.J. (at 803). 16 As in The Republic of Bolivia case, n 10, per Kennedy L.J. at 802–803 quoting (with approval) the definition given in T Carver, A Treatise on the Law Relating to the Carriage of Goods by Sea (4th edn, 1905), p.117: Piracy is forcible robbery at sea, whether committed by marauders from outside the ship or by mariners or passengers within it. The essential element is that they violently dispossess the master, and afterwards carry away the ship itself, or any of the goods, with a felonious intent. 167 Piracy Piracy and location: high seas/territorial waters 20.14 In many of the pre-twentieth-century cases, piracy as an insured peril was assumed to be limited to events on the high seas, in accordance with its definition in international law at that point in time. The early criminal definition of the offence of piracy also assumed geographic limits, but based on the limits of admiralty law, and extending “throughout all seas, and the ports, creeks, and rivers beneath the first bridges next the sea even unto the higher water mark”.17 The modern definition for international law purposes (in Article 101, UNCLOS) remains limited to attacks on the high seas or “in a place outside the jurisdiction of any State”, although acts of incitement can occur in any jurisdiction. In The Andreas Lemos,18 Staughton J. was faced with the removal of valuable equipment (mostly, mooring ropes) by armed men whilst the vessel was moored within port limits, and Bangladesh territorial waters. The policy’s “FC&S Clause” excluded the consequences of piracy from cover. The judge continued the tradition of distinguishing the interpretation of a commercial contract from defining piracy for criminal or public international law purposes. In determining the geographic limits of piracy in a marine insurance policy, he stated: I see no reason to limit piracy to acts outside territorial waters. In the context of an insurance policy, if a ship is, in the ordinary meaning of the phrase “at sea” … or if the attack upon her can be described as “a maritime offence” … then for the business purposes of a policy of insurance she is … in a place where piracy can be committed.19 In reaching this conclusion, Staughton J. drew some support from the definition offered in rule 8, Schedule 1 of the MIA 1906 and three American cases,20 which envisage piracy as encompassing attacks from the land, and thereby not (presumably) limited to attacks outside territorial waters. Piracy and method: theft/attempted theft/ransom 20.15 If piracy is, as many of the criminal cases suggest, “robbery at sea” then what of actions that do not fall within the definition of robbery? In The Andreas Lemos,21 a group of men armed with machetes removed mooring ropes from the vessel. This was undertaken stealthily, and Staughton J. had to consider whether the use of force was a required element for an act of “piracy”. Kennedy L.J. in the Republic of Bolivia case had approved the definition of piracy in Carver’s Carriage of Goods by Sea22 that piracy is “forcible robbery at sea” and a similar view was expressed in The Salem where Denning L.J. stated “there were no pirates here because there was no forcible robbery”.23 On this basis, the 17 R v. Dawson (1696) St Tr 5. The criminal jurisdiction has been tested, at least in Scots law, in more recent times, see Cameron v. HM Advocate [1971] JC 50. 18 N 11. 19 Ibid at 490. 20 Ibid at 490. The American cases reviewed were U.S. v. Smith (1820) 5 Wheat 153; U.S. v. Furlong (1820) 5 Wheat 184 and People v. Lol-lo (1922) Ann Dig Vol 1, p.164. 21 N 11. 22 N 16. 23 [1982] QB 946, 986. The point was not discussed in the subsequent appeal to the House of Lords. 168 Piracy actions of the assailants in The Andreas Lemos was not piracy, it was “clandestine theft which was discovered; force or a threat of force was used by the men to make good their escape”.24 This clear divide between clandestine theft and robbery was consistent with the definitions of the offence in section 8, Theft Act 1968. 20.16 If the physical elements of piracy are those of robbery, but at sea, what of the consequences of unsuccessful attacks? This issue was raised in the special reference to the Pricy Council in In Re Piracy Jure Gentium in 1934,25 but remains a practical issue for marine insurance, as modern pirates have access to considerable weaponry that could cause significant damage to a vessel irrespective of whether it is captured. The Privy Council was concerned with whether the criminal offence of piracy was made out even though the attack was unsuccessful, and readily confirmed that it was: “a frustrated attempt to commit a piratical robbery is equally piracy jure gentium”.26 This decision was considered in passing in The Andreas Lemos, and is likely to represent the position in marine insurance law also. 20.17 Finally, what of those attacks which are not meant to gain permanent control of the goods or vessel attacked but merely to hold it to ransom? This has been the modus operandi in the Gulf of Aden since the turn of the century, and is commonly referred to as Somali piracy. It is clear that the market has considered such losses as piratical, with substantial levels of compensation paid.27 In the only case on point, Masefield v. Amlin,28 the Court of Appeal was concerned with the nature and timing of the loss, but assumed that the event fell within the peril of piracy.29 It was common ground that the seizure of the vessel and the insured cargo of bio-diesel constituted a loss within the policy, which covered all risks, except for certain war risks (“capture, seizure, arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat”).30 Piracy (as an exception to the excluded risks) was therefore insured. Rix L.J. treated the actions of the Somali pirates as piratical seizure even where “where there was not only a chance, but a strong likelihood, that payment of a ransom of a comparatively small sum, relative to the value of the vessel and her cargo, would secure recovery of both”.31 20.18 Recent litigation has tested whether damage to the vessel by a simulated attack by pirates or similar could constitute piracy. In The Brilliante Virtuoso,32 men said to be armed guards boarded a vessel, set off an explosive and set it on fire, causing extensive damage. The owner was found to be complicit in what was shown to be a complex fraud. 24 N 11 at 491. 25 [1934] AC 586. 26 Ibid at 588. 27 An estimate of $80 million was given of ransom payments paid in 2008. See House of Lords EU Committee, Combating Somali Piracy: the EU’s Naval Operation Atalanta (2010, HL Paper 103), www.publications.parliament.uk/pa/ld200910/ldselect/ldeucom/103/103.pdf at [53]. 28 [2010] 1 Lloyd’s Rep. 509 (QBD); [2011] 1 Lloyd’s Rep. 630 (CA). 29 Somali piracy has been considered in respect of charterparties: Eleni Shipping Ltd v. Transgrain Shipping BV, The Eleni P [2019] 2 Lloyd’s Rep. 265 (off hire); Osmium Shipping Corp v. Cargill International SA, The Captain Stefanos [2012] 2 Lloyd’s Rep. 46 (off hire); Pacific Basin IHX Ltd v. Bulkhandling Handymax AS, The Triton Lark [2012] 1 Lloyd’s Rep. 151 (refusal of voyage order); Cosco Bulk Carrier Co Ltd v. Team-Up Owning Co Ltd, The Saldanha [2011] 1 Lloyd’s Rep. 187 and general average claims: Mitsui & Co Ltd v. Beteiligungsgesellschaft LPG Tankerflotte mbH & Co KG, The Longchamp [2018] 1 Lloyd’s Rep. 1. 30 [2010] 1 Lloyd’s Rep. 509 at [8]. 31 [2011] 1 Lloyd’s Rep. 630 at [56]. 32 [2019] EWHC 2599 (Comm). 169 Piracy Nonetheless, the Bank which had provided the mortgage for the vessel’s purchase sought to recover on the war risks policy as innocent co-insured. Piracy was an insured peril. Teare J. denied that the activities of the armed men constituted piracy. In doing so, he reiterated the need to interpret the peril as would be understood by the reasonable business person.33 This involved making explicit certain implicit limits on the peril of piracy: First, despite the significant damage to the vessel and apparent threats to the crew, in his view there was “no attack on the vessel. Rather, there was an arranged rendezvous at sea pursuant to which the master was willing to let the armed men board”.34 This is important because it is not simply stating that the complicit owner was barred from recovery due to wilful misconduct, but that no loss by piracy occurred because the owner was complicit in the actions. This was reinforced by his second finding on the motives of the “attackers”: “the motives of the armed men were not to steal or ransom the vessel or to steal from the crew, but to assist the Owner to commit a fraud upon Underwriters”.35 This means that personal gain alone is not sufficient (so as to distinguish from political actions), but that particular types of personal gain are required. Teare J. rejected the further argument that the Owner was a pirate, viewed from the perspective of the co-assured bank.36 The act of the Owner was that of attempted insurance fraud, not piracy. 20.19 The facts of The Briliante Virtuoso were extraordinary, and give rise to further unanswered questions on the limits of piracy. Teare J. interpreted the Republic of Bolivia case as requring more than simply an unlawful attack at sea, and relied on the suggestion that the attack need to be indiscriminate in nature: “The conduct must be that which a business man would say amounted to piracy”.37 This would appear to exclude from the definition of piracy collusion between the owner of a vessel and actual pirates, even if the insurance protects an innocent cargo owner or bank. Teare J.’s vision of the overwhelming causative force of collusion by the insured has the potential to narrow considerably a wide range of marine insurance policies, except those offered on an all risks basis. 20.20 Re Piracy Jure Gentium38 is freely quoted in commercial piracy cases although it was entirely criminal with no commercial elements at all. On 1 April 1931, two Chinese junks pursued a third cargo junk and fired shots at her from a range of 200 yards. They were prevented from boarding her by the intervention of two merchant steamers, the Hang Sang and the Shui Chow, until H.M.S. Somme, in answer to their radio messages, could arrive. The pirates surrendered and were taken off to Hong Kong for trial as pirates jure gentium. The jury found them guilty but themselves posed a question of law: whether an accused person may be convicted of piracy in circumstances where no robbery has taken place. 20.21 The full Court of Hong Kong decided that, in such circumstances, there was no piracy without robbery, which meant that the accused had to be acquitted. This was a surprising decision, because the criminal law had, for many years, regarded an unsuccessful attempt to commit a crime as equally blameworthy as a successful one. The question was posed to the Privy Council whether actual robbery was an essential element to the 33 34 35 36 37 38 At [486]. At [487]. Ibid. At [491]. At [486]. N 25. 170 Piracy crime of piracy jure gentium, or whether an attempt to commit a piratical robbery, albeit a frustrated attempt, will make the offence complete. The Privy Council answered: “Actual robbery is not an essential element to the crime of piracy jure gentium and … a frustrated attempt to commit a piratical robbery is equally piracy jure gentium”. 20.22 The Privy Council thus answered the narrow question posed by its terms of reference. It included a review of the findings of the previous legal writers, which is a fascinating account.39 The Council did however add a passage of its own, after noting Kenny’s view (paragraph 20.16) that piracy is any armed violence at sea which is not a lawful act of war: … Although even this would include a shooting affray between passengers on a liner which could not be held to be piracy. It would, however, correctly include those acts which, as far as their Lordships know, have always been held to be piracy, that is, where the crew or passengers of a vessel on the high seas rise against the Captain and officers and seek by armed force to seize the ship.40 The definition is then only a partial one. At least insofar as the criminal law was concerned, a private robbery by one passenger of another might not be considered to be piratical, simply because it occurred at sea. This point has not been litigated directly. Piracy and strangers: crew/passengers 20.23 As noted above, the Privy Council’s decision in Re Piracy Jure Gentium stated that piratical actions against the ship or its cargo need not come from outside the vessel, but may include the actions of passengers or crew. 20.24 The decision in Brown v. Smith41 concerned insurance over the slave vessel The Friendship and its cargo. Whilst off the coast of Africa, the crew mutinied and intended to sail for an enemy port. Unable to navigate the vessel, the mutinous crew had to rely on the boatswain, who covertly sailed for Barbados, then under British control. The vessel was then recaptured by British authorities. The issue before the court was whether there had been a total loss of the vessel (given its recapture) and not which peril was the cause of the loss. The reported facts describe the actions of the crew as piratical, but this is not considered in the judgment. This case is typical in assuming without detailed argument that barratrous acts of the crew can be piratical. In a similar vein, Porter J. in Marstrand Fishing Co Ltd v. Beer, The Girl Pat considered the taking of a vessel for personal use by the master of a fishing vessel as within the limits of a policy insuring “among other things, against perils of the seas, against theft and against barratry”.42 In this case, the loss was claimed as resulting from barratry and the issue before the court was whether an actual or constructive total loss had occurred, Porter J. finding that no such loss was proven.43 39 40 41 42 43 The student of history will find this in the report [1934] AC at pp.589–600. N 38, at 598–599. (1813) 1 Dow 349; 3 E.R. 725. (1936) 56 Ll L Rep. 163, 170. Ibid at 174. 171 Piracy 20.25 The Scots case of Cameron v. HM Advocate44 raised the question of whether mutinous actions by crew could constitute piracy, albeit in the criminal context. The crew of a trawler took forcible control of the vessel and landed the skipper at Peterhead, before navigating the vessel on to the high seas. Whilst there was an issue as to whether the offence could be committed in territorial waters, there was no suggestion that the status of the crew prevented the act being classed as piracy: The essential elements of this crime are no more and no less than those which are requisite to a relevant charge of robbery where that crime is committed in respect of property on land and within the ordinary jurisdiction of the High Court.45 Piracy and seizure for political motive 20.26 The definition of piracy is limited by the operative motive of the person or organisation causing loss to the insured property. Unlike the relationship with barratrous losses, where a set of circumstances could be both barratrous and piratical, identifying the motive will be important distinguishing between a loss caused either by piracy, terrorism or state seizure. This issue will be problematic from an evidential standpoint when, for example, a vessel is seized by a local warlord, and the motive could credibly have been some combination of political considerations and personal gain. 20.27 This issue was demonstrated in Banque Monetaca & Carystuiaki v. Motor Union Insurance Company Ltd,46 a case of some complexity. In June, 1920, the Filia was bound from Constantinople to Batum. She had some engine trouble and anchored off the Turkish coast, first at Samsun and then at Kerassounde. Her insurance included the insured perils of “capture, seizure, or arrest and the consequences thereof, or warlike operations, whether before or after declaration of war”. Piracy was however an excluded risk. 20.28 This was the time of great political upheaval in Turkey following the First World War. The Government of Turkey, before it was taken into the firm hands of Kemal Ataturk, was weak and uncertain. There was, however, the general aim of resisting the Greek army, which was preparing to invade Turkey, and of expelling it from the Aegean coast of the country. Some military operations had already taken place. In the Kerassounde area, a local warlord, Osman Agha, held sway. He was the President of the National Defence Association, a body affiliated to the Turkish Nationalists whose main aim was resistance to the Peace Treaty. Osman was in part a nationalist leader, and in part a feudal baron. Barons good, barons bad, Osman was one of the worst, looting and robbing his fief and helping himself to whatever took his fancy. He had recently boarded and robbed a French steamer, and the Kemalists had found it necessary to apologise to the French Government. The presence of the Filia aroused his worst instincts, and it was not long before he had boarded and seized her, even running up the Turkish flag. She was never recovered, and it appears that the Master, the crew, and the passengers were murdered. 20.29 Roche J. declined to find that the loss of the vessel was due to piracy. In doing so, he noted that the burden of overcoming any uncertainty in the evidence lay with the 44 (1971) SLT 333. 45 Ibid at 55. 46 [1923] Ll L Rep. 48. 172 Piracy underwriter to prove that the piracy exception applied, but found that he could resolve the case without relying on the burden of proof. Roche J. described Osman as “a person of very low character” and “a brigand”: I am satisfied that he did capture and seize this Greek vessel under cover of and largely upon motives of a political character. That is to say, he desired to effect a stroke against the Greeks. It may be, and I dare say it was, the case that personal gain was also a motive, but the action in my view was dominantly political and military.47 This led to the conclusion: “I am satisfied, so far as I have the evidence, that in this case there was a loss from seizure and not from piracy”.48 On this, judgment was signed for the plaintiff. 20.30 The evidence here showed that Osman’s main motives were to attack his country’s enemies wherever he could find them, and they were thus military or political by nature rather than robbery for personal gain. He had some local standing, and even became governor of the province in December, 1920. Following the Republic of Bolivia case, it was impossible to call him a pirate. This was a seizure case. Anti-piracy measures and marine insurance 20.31 Where piracy is an anticipated risk, the insured may be required to take preventative measures to mitigate the risk. This may arise as part of the insured’s obligation to ensure the vessel is seaworthy, or in response to specific contractual provisions. In respect of the risk of Somali piracy (particularly for vessels transiting the Gulf of Aden) a common standard was created. In the recent litigation in The Brilliante Virtuoso, the war risks policy required compliance with “Recommended Best Practice” (which was taken to refer to the Best Management Practices guidance applicable at that date).49 The current basis for preparedness is set by “Best Management Practices to Deter Piracy and Enhance Maritime Security in the Red Sea, Gulf of Aden, Indian Ocean and Arabian Sea”, known as BMP5, and this should be treated as best practice for transiting any areas of significant risk.50 The BMP5 advice covers risk assessment, planning by on-shore management and by the Master, technical ship protection measures and guidance on reporting both during and after an attack. Piracy: nature and timing of loss by piratical seizure 20.32 Recent litigation has concerned the effect of a piratical seizure on the insured property, and whether this constitutes a total loss of the property insured at the moment of capture.51 In Masefield v. Amlin,52 the Court of Appeal was required to determine the 47 48 49 50 51 52 Ibid at 50. Ibid. Suez Fortune Investments Ltd v. Talbot Underwriting Ltd [2019] EWHC 2599 (Comm) at [48]. (2018), https://eunavfor.eu/wp-content/uploads/2018/06/BMP5-PP.pdf. For further discussion of the nature of capture and seizure, see Chapters 11 and 12. Masefield v. Amlin, The Bunge Melati Dua [2011] 1 Lloyd’s Rep. 630. 173 Piracy effect of piratical seizure of a cargo of bio-diesel. As this occurred as part of the spate of attacks in the waters surrounding Somalia, the vessel, crew and cargo was released as expected after the payment of a ransom which represented a relatively small fraction of the value of the property seized.53 The cargo owner would normally be liable for a general average contribution to this payment, which would presumably have been covered by the cargo policy, although this was not considered on appeal. However, the more substantial loss was caused by the delay in the voyage, with the bio-diesel missing its market for resale, which caused a potentially substantial financial loss to the insured.54 As delay was not a peril insured against,55 the insured sought to avoid this loss by claiming that the cargo was a total loss at the moment of seizure, meaning that a full indemnity was payable from that moment. If correct, then the underwriter would bear the risk of any subsequent fall in value. The particular policy in question was found at first instance to exclude a claim for constructive total loss of the goods by piratical seizure,56 and so the insured had to establish an actual total loss to recover. 20.33 The case therefore turned on whether seizure by the Somali pirates constituted an actual total loss of the cargo seized (a claim for constructive total loss of this kind was excluded under the policy) or only a partial loss, such as the contribution to the general average loss by ransom payment. 20.34 Rix L.J. recognised that there was no direct authority on the nature of piratical capture for ransom. Perhaps the closest was an obiter comment from Kuwait Airways Corpn v. Kuwait Insurance Co SAK which he had decided (as Rix J.): “In case of capture, because the intent is from the first to take dominion over a ship, there is an actual total loss straightaway, even though there later be a recovery”.57 He therefore resolved the case by considering in turn: (1) The nature of actual total loss in marine insurance; (2) the case law on piratical capture; and (3) the case law on total losses where the insured property was (or could have been) restored to the owner. Actual total loss in marine insurance 20.35 The approach of the courts has been to apply the doctrine of actual total loss in marine insurance strictly (“with the utmost rigour” as Rix L.J. put it),58 as the lesser requirements of constructive total loss cover cases of mercantile impossibility with actual total losses describing physical impossibility.59 For capture of this type, the test for an actual total loss is that of “irretrievable deprivation” under section 57(1) MIA 1906. Counsel for the insured asserted that under Dean v. Hornby, piratical seizure of the cargo constituted an actual total loss (ATL), unless there was recovery of the insured property 53 The ransom paid was $2 million, against a combined value of vessel and cargo of $80 million; ibid [12]. 54 The loss of value (plus storage expenses) was claimed at $7.6 million against an agreed value of cargo of $13.3 million. 55 Under s. 55(2)(b) MIA 1906: “Unless the policy otherwise provides, the insurer on ship or goods is not liable for any loss proximately caused by delay, although the delay be caused by a peril insured against”. 56 [2010] 1 Lloyd’s Rep. 509. 57 [1996] 1 Lloyd’s Rep. 664, 687. 58 N 52 [16] and exemplified at [19]–[23]. 59 Ibid, quoting Sir M Chalmers and D Owen, The Marine Insurance Act 1906 (Clowes & Sons, 1907), p.86. The lack of a formal system of constructive total loss in non-marine insurance means that marine and non-marine cases should not be treated as identical. 174 Piracy before the date of commencement of proceedings. On the facts before the court, proceedings were agreed as commencing on the issue of the notice of abandonment, some 11 days before the ransom was paid and the vessel released. Piratical capture and loss 20.36 Dean v. Hornby60 concerned a vessel captured by pirates in late 1851 in modern day Chile and subsequently captured by an English warship in early 1852. Its recapture did not restore it to the insured owners, and it was taken by the prize master to the nearby port of Valparaiso. On hearing of this, the owner gave a notice of abandonment to its insurer, on the mistaken understanding that it had been condemned as a prize at Valparaiso. In fact, it left on a voyage for Liverpool, under the control of the prize master. En route, it suffered minor damage due to heavy weather, and was unjustifiably sold on the mistaken advice of a surveyor that the vessel was too badly damaged to be usefully repaired. The vessel was purchased, repaired (at minor cost) and arrived in London under the control of her new owner. Proceedings for possession were successfully pursued by the original owner, who sold the vessel and litigation then commenced as to the proper distribution of the purchase price between original owner and underwriter. For this, the court had to determine whether the notice of abandonment issued in 1852 gave rise to a total loss or a partial loss. 20.37 Lord Campbell C.J. described the applicable rule as follows: … if once there has been a total loss by capture, that is construed to be a permanent total loss unless something afterwards occurs by which the assured either has the possession restored, or has the means of obtaining such restoration.61 20.38 In addition to this, counsel for the insured in Masefield suggested that the ATL “can be made good if the condition subject to which recovery is feasible is one which an assured has no duty to perform”.62 This contention was based on Stringer v. English & Scottish Marine Insurance Co Ltd.63 In Stringer’s case, the cargo owner insured was not deprived of a claim for a total loss by its failure to deposit “bail” in an American prize court, at a level estimated at double the value of the property insured, described by Blackburn J. as “an unreasonable speculation”.64 On this basis it was argued that the piratical capture of the bio-diesel was an actual total loss, and remained so at the time of the notice of abandonment and commencement of proceedings. Capture and recovery 20.39 Having identified the line of case law dealing with marine captures, including piratical seizures, Rix L.J. continued by reviewing a series of aviation disputes involving 60 61 62 63 64 Dean v. Hornby (1854) 3E&B 180; 118 ER 1108. At (1854) 3E&B 180, 190; 118 ER 1108, 1112. N 52 at [40]. Stringer v. English & Scottish Marine Insurance Co Ltd (1869) LR 4 QB 676. Ibid at 691. 175 Piracy capture and hijacking.65 He acknowledged that his earlier comments in KAC v. KIC were incorrect, and that “the mere intention to exercise dominion over seized property” did not constitute an ATL.66 20.40 On this basis, Rix L.J. found that: piratical seizures in the circumstances of this case, where there is not only a chance, but a strong likelihood, that payment of a ransom of a comparatively small sum, relative to the value of the vessel and her cargo, would secure recovery of both, was not an actual total loss. It was not an irretrievable deprivation of property. It was a typical “wait and see” situation.67 Examples of losses by piracy from outside the litigated cases 20.41 Previous editions of this text have been much improved by examples drawn from Michael Miller’s personal experience. These are preserved below as quotations, and references given back to the Third Edition: As a matter of practice, the Mutual War Risks Associations have refused to recognise as piracy a claim where a ship was invaded by marauders and damaged whilst she was tied up alongside in the port of Santos. The port is in a lagoon which is approached by a narrow channel and the ship could not be said to be “at sea” in any sense of the word; moreover the marauders came from the shore and seemed to be the normal petty criminals which are to be found in any city or port.68 Another case which was accepted by one of the Mutual War Risks Associations as a case of piracy is of interest. The ship was waiting at sea to enter the port of Lagos. She was not at anchor, but was stopped in the water with her engines on stand-by. She was boarded from a small boat by several persons who attacked the crew, forced open several of the containers, and began thieving. The ship was got under way and the marauders were chased off the deck. Before they dived into the sea, they let both the bower-anchors go. The anchor chains snapped, and both anchors were lost. It seemed uncertain exactly when the anchors were let go, but the Association concerned accepted that they were let go during the course of the thieving and the assaults upon the crew, and that this was a case of piracy.69 20.42 A recent case in 1998 shows the sheer effrontery of some of the attacks. A Greek vessel was anchored off the South Harbour of Manila when “police officers” boarded her and announced that they were looking for a seaman who was said to have murdered a prostitute. Such cases are all too common and the Master, and such of the crew who were aboard at the time entertained no suspicions when they were required to assemble in the crew mess-room for police investigations. There the “police officers” dropped all pretence and said they were taking over the ship. They required her to sail at once, and when the Chief Engineer refused to start the engine he was assaulted. The ship duly sailed for the open sea, and the original seamen still on board were landed at various islands. 65 Notably, the arbitral decision of Michael Kerr QC (as he was) in Dawson’s Field (1972); KAC v. KIC, n 57, and Scott v. Copenhagen Reinsurance Co UK Ltd [2003] Lloyd’s Rep. 696. 66 N 52 at [56]. 67 Ibid. 68 See the Third Edition of this work at paragraph 20.39. 69 Ibid. 176 Piracy Some of the crew were on shore leave in Manila, and raised the alarm when they found their ship was gone. A helicopter search was made but the ship was not sighted. A fortnight later, she was seen off the Sultan Shoal but sailed before the Singapore Police could organise an attempt at re-possession. Another week passed before she was again found at Kota Kimbalu. She was re-possessed by number of “heavy gentlemen”, who persuaded the miscreants that their time had run out. The expenses incurred were met by the Mutual War Risks Association with whom she was insured. No court proceedings were necessary; she was either “seized” or had been taken by pirates. Dr. Lushington’s guidance in The Magellan Pirates … indicated that, in a case which was not a criminal trial of pirates, it made no difference that the ship was taken in port and not on the open sea.70 Summary 20.43 As conclusions, the following are suggested: (1) Piracy as an insured peril in an insurance policy must be distinguished from the criminal offence of piracy jure gentium, or a criminal offence under a local statute. The two have a number of similarities but: (a) the criminal offence will only exist if the accused is hostes humani generis—the enemy of all mankind—so that he may be tried and punished by any State which captures him, regardless of where he has committed his depr edations or whom he has injured whereas, (b) for the purposes of the insured peril in any insurance policy, he need only be a “sea robber”, and the further conclusions which follow relate to such a “sea robber” only. (2) Piracy must be committed “at sea” or “on the sea” as it is generally understood in everyday parlance, and such considerations as port limits or a State’s territorial waters are immaterial. (3) Piracy may be committed in ports, harbours or inland waters immediately adjacent to the sea provided that it merits the new concept developed by Staughton J. from the Republic of Bolivia71 case of “maritime offence”. (4) Violence, or the threat of violence, is an essential element to piracy as it is to robbery and must be present before or at the time the offence is committed. Violence only to effect escape is not sufficient. (5) A pirate’s aim must be his personal gain but this need not be material gain. It will be sufficient if his depredations are committed to satisfy his desire to cause material or physical harm to others. (6) There is no piracy where the predators are pursuing political aims, however unlikely their fulfilment might be. They were undoubtedly pursuing political aims in the Republic of Bolivia72 case, but it might not be so easy to distinguish whether the culprits in the City of Poros massacre (in 1988) were motivated by a political aim or a simple psychotic desire to murder, and any enquiry is unlikely 70 Ibid. 71 N 10. 72 Ibid. 177 Piracy to reach a definite conclusion. This might not give rise to difficulty if they can be described by the insured peril of “terrorist”. (7) There is no piracy where the predators are acting under the authority of a State or with a State’s commission, however atrocious their acts may be. (8) It seems to be generally accepted that in English law both passengers and crew may commit piracy by seizing the ship and there are several indications among the judgments quoted that this is so. It is hard to draw a distinction between an outsider who robs a seaman or a passenger, and a fellow seaman or passenger who does the same thing. It is not clearly defined in the judgments. 178 CH A PT ER 21 Confiscation and expropriation 21.1 “Confiscation” and “expropriation” were not insured perils under the S.G. Form, but were introduced in the early 1980s when the new Institute Time Clauses were introduced with the MAR Form. They are found in the Clauses for Hulls, Freight and Containers, but are not insured perils in the Cargo clauses. Relevant exclusions are those for requisition, and for capture and seizure, etc., by the country of registry of the vessel (or place of business of the container insured), or as a result of infringement of customs or trading regulations (see Chapter 23). 21.2 There is no authority on the meaning of confiscation or expropriation, though vessels have been confiscated on account of smuggling in the Anita,1 the B Atlantic,2 and (subject to release by payment) in Cory v. Burr.3 In the South African case of the Morning Star,4 the vessel was confiscated for non-payment of a fine. The ordinary meaning of confiscation is where the state appropriates property on the grounds of illegality. Expropriation is dealt with in international law, and refers to the appropriation of foreign-owned property by the State for political purposes. Compensation may be required if it is to be lawful. It is distinguishable from nationalization by the State of the property of its citizens. 1 Panamanian Oriental Steamship Corpn. v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 371. 2 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2019] A.C. 136; [2018] 2 Lloyd’s Rep. 1. 3 Cory v. Burr (1883) 8 App. Cas. 393. 4 Incorporated General Insurances Ltd v. A.R. Shooter t/a Shooter’s Fisheries (the Morning Star) [1987] 1 Lloyd’s Rep. 401. Failure to pay the fine was held to be the proximate cause of the loss. 179 CH A PT ER 22 Sue and labour Introduction 22.1 The insured may recover from the underwriter in respect of expenditure incurred as a result of an insured peril, where that expenditure is, or is part of, the measure of indemnity. This chapter is concerned with the recovery of expenditure which is not part of the measure of indemnity but is incurred to avert or diminish loss covered by the policy. The S.G. Form contained a centuries-old provision which permitted the assured to sue and labour, but did not oblige him to do so, namely: … And in case of any loss or misfortune it shall be lawful to the assured, their factors, servants and assigns, to sue, labour, and travel for, in and about the defence, safeguards, and recovery of the said goods and merchandises, and ship, etc., or any part thereof, without prejudice to this insurance; to the charges whereof we, the assurers, will contribute each one according to the rate and quantity of his sum herein assured. The use of the clause has been traced back to 1669, and the phrase “sue, labour and travel” described exertions extending beyond physical labour and comprehended attempts to procure a result by supplication, persuasion and the expenditure of money.1 This clause has been replaced by Duty of Assured Clauses (in different terms) in the Hull Clauses and in the Cargo Clauses.2 Unlike the S.G. Clause, these clauses do impose an obligation on the assured and their servants and agents. The obligation arises in case of any loss or misfortune and is to take reasonable measures to avert or minimise a loss which would be recoverable under the insurance. The Cargo Clause requires in addition that the insured ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised. Such steps are not strictly in the nature of sue and labour, unless the rights preserved concern the recovery of the goods rather than obtaining damages.3 22.2 Section 64(2) of the 1906 Act provides that expenses incurred by or on behalf of the assured for the safety or preservation of the subject-matter insured, other than general average and salvage charges, are called “particular charges”, and are not included in particular average. They are therefore not recoverable as a partial loss. Section 78(1) then provides that where the policy contains a suing and labouring Clause, “the engagement thereby entered into is deemed to be supplementary to the contract of insurance”, and 1 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523 at p.614 per Phillips L.J. 2 Clause 13 of the ITC—Hulls and Clause 16 of the Institute Cargo Clauses. 3 Kuwait Airways Corporation v. Kuwait Insurance Co SAK [1996] 1 Lloyd’s Rep. 664 at p.698 per Rix J. 180 Sue and labour the assured may recover from the insurer any expenses properly incurred pursuant to the clause, notwithstanding that the insurer may have paid for a total loss, or that the subject matter may have been warranted free from particular average, either wholly or under a certain percentage. The Duty of Assured Clause in the Institute Clauses has been held to be within a Clause section 78(1).4 22.3 Where there is a sue and labour Clause which does not expressly provide for reimbursement of expenses by underwriters, a term to that effect that may be implied.5 However, it is an open question whether the insured is entitled to sue and labour expenses in the rare case of a policy which contains no sue and labour Clause at all.6 22.4 The 1906 Act provides that certain losses and charges are not recoverable under the sue and labour Clause. This is of course subject to the wording of the particular clause. In the absence of agreement to the contrary, one category of irrecoverable expenses are those incurred for the purpose of averting or diminishing any loss not covered by the policy.7 Other specific losses and charges which are not recoverable as sue and labour expenses, unless specifically agreed, are8 General Average losses and contributions,9 and salvage charges,10 as defined by the 1906 Act. General average losses are defined in section 66, which provides that (subject to any express provision in the policy) general average expenditure and contributions are recoverable from the insurer,11 provided the loss or contribution were incurred for the purpose of avoiding, or in connection with the avoidance of, a peril insured against.12 Salvage charges are defined as those recoverable under maritime law by a salvor independently of contract.13 This does not include services in the nature of salvage rendered by the assured or his agents, or any person employed for hire by them, and such expenses, where properly incurred, may be recovered as particular charges or as a general average loss, according to the circumstances under which they were incurred.14 22.5 Sub-section 78(4) provides that it is the “duty” of the assured and his agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss. The entitlement to recover expenses pursuant to section 78(1) and the duty to act imposed by section 78(4) are not necessarily co-extensive. It may be equally reasonable to take action or to do nothing, so an expense may be recoverable under 78(1) even if there was no duty to act under 78(4).15 The duty in section 78(4) is said to apply “in all cases”; in particular, it is not restricted to a casualty giving rise to an abandonment.16 4 Noble Resources Ltd v. Greenwood (the Vasso) [1993] 2 Lloyd’s Rep. 309 at pp.312–313. 5 Netherlands Insurance Co. Est. 1845 Ltd v. Ljungberg & Co A.B. [1986] 2 Lloyd’s Rep. 19, Privy Council. The contrary obiter dictum of Neill J. in Integrated Container Service Inc v. British Traders Insurance Co Ltd [1981] 2 Lloyd’s Rep. 460 at pp.464–465 was not considered by the Privy Council. 6 See the discussion in Arnould’s Law of Marine Insurance and Average, 19th edn, 25–36 to 25–37. 7 Section 78(3). 8 Section 78(2). 9 Defined in section 66 of the 1906 Act. 10 Defined in section 65 of the 1906 Act. 11 Section 66(4) and (5). 12 Section 66(6). The test is not whether the casualty was due to an insured peril, but whether general average was for the purpose of avoiding such a peril. 13 Section 65(2). 14 Ibid. 15 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523 at p.634 per Phillips L.J. 16 Kidston v. Empire Marine Insurance Co. (1866) L.R. 1 C.P. 535 at pp.542–544 per Willes J. 181 Sue and labour 22.6 Section 87(2) provides that any duty declared by the Act which may be lawfully modified by agreement, may be negatived or varied by express agreement, or by usage, if the usage be such as to bind both parties to the contract. Modifying the duty in section 78(4) would plainly be lawful. Commencement and duration of sue and labour 22.7 The duty to sue and labour, and any right to recover expenses, arises when an insured peril is operative or obviously imminent,17 and continues (subject to one caveat18) for so long as it is reasonable to act so as to preserve the property from an insured peril. The peril must be one which is insured under the policy. If, for example, expenses are incurred in forwarding goods insured only against total loss, when there is no danger of such loss, the expenses are not recoverable as sue and labour expenses.19 However, forwarding costs are recoverable under a policy on freight, where the freight would be a total loss if the goods were not forwarded to their destination.20 In the Third Edition of this work, Mr Miller described his personal experience of the practical reality of forwarding goods affected by war risks.21 22.8 The question of just how likely an insured peril must be has proved controversial. In Lohre v. Aitchison,22 Brett L.J. formulated the test as requiring the danger to be such that without unusual or extraordinary labour or expense a loss will “very probably” fall on the underwriters.23 In the Integrated Container Service case,24 Eveleigh L.J. noted25 that there was nothing in the sue and labour Clause or in the 1906 Act which required that loss would “very probably” occur in the absence of steps to sue and labour. All that was required, in his view, was that the expenses were reasonably incurred.26 Dillon L.J., however, referred to the formulation of Brett L.J. and noted that probability of loss was emphasised throughout that judgment.27 The third member of the court agreed with both.28 In Royal Boskalis v. Mountain,29 Rix J. considered that none of the definitions in the authorities were intended to be exclusive, and that as a matter of general principle Eveleigh L.J. had stated the position “compendiously and accurately” in saying that “the assured should be able to recover all extraordinary expenses reasonably incurred by him where he can demonstrate that a prudent assured person, mindful of an obligation to prevent a 17 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523 at p.614 per Stuart-Smith L.J.; Linelevel Ltd v. Powszechny Zaklad Ubezpieczen SA (the Nore Challenger) [2005] 2 Lloyd’s Rep. 534 at [82] per Cooke J. 18 The caveat is the effect (if any) of notice of abandonment, of the issue of a Claim Form, or of a Writ Agreement or Writ Clause, discussed below. 19 Great Indian Peninsular Railway Company v. Saunders (1862) 2 B. & S. 266; Booth v. Gair (1863) 15 C.B. (N.S.) 291. 20 Kidston v. The Empire Marine Insurance Company (1867) L.R. 2 C.P. 357. 21 §24.17 of Miller, Marine War Risks (3rd edn). 22 (1878) 3 QBD 558. 23 Ibid at p.566. 24 Integrated Container Service Inc v. British Traders Insurance Co Ltd [1984] 1 Lloyd’s Rep. 154. 25 Ibid at p.158. 26 Ibid. 27 Ibid at p.162. 28 Ibid at p.161 per Griffiths L.J. 29 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523. 182 Sue and labour loss, would incur expense of an unusual kind”. The issue seems not to have been live in the Court of Appeal, though Stuart-Smith L.J. accepted a formulation consistent with the views of Rix J.30 In The “Brillante Virtuoso”,31 Flaux J. held that it was difficult to discern a clear ratio from the Integrated Container Service case, but that it was not necessary to resolve the issue on the facts before him, as the vessel was still in the grip of the peril and further loss was highly likely.32 The difference between Brett L.J. and Eveleigh L.J. remains unresolved as a matter of authority. 22.9 Since the insured property may continue to be at risk of loss for a considerable period, involving a significant burden, the question arises as to when the duty to act and the right to recover expenses come to an end. In the Kuwait Airways case,33 Rix J. applied the principles of marine insurance and held that notice of abandonment did not terminate the sue and labour engagement, but that the issue of a writ did do so.34 That is the time at which the parties’ rights as regards any constructive total loss are crystallised.35 In the Court of Appeal,36 Staughton L.J. declined to express a view on the conclusion reached by Rix J. because he did not consider it to be the relevant enquiry.37 22.10 In The B Atlantic,38 Flaux J. considered the position where notice of abandonment was declined, with the lead underwriter scratching the so-called “writ Clause” on the notice, so that the insurers agreed to put the owners in the same position as if a writ had been issued that day. He considered that at the time of a writ agreement the vessel would in many cases still be in the grip of the insured peril, such that it was in the interests of both parties that sue and labour expenses continue to be expended in mitigating the loss; and this was implicit in a writ agreement.39 Flaux J. returned to the topic in The Brillante Virtuoso,40 where there was a notice of abandonment and issue of a Claim Form without a writ agreement. He accepted that there may be exactly the same practical need for sue and labour expenses to be incurred after the Claim Form is issued (the vessel in that case still needed standby tugs) but that once a Claim Form is issued, the parties’ relationship is governed by the Civil Procedure Rules rather than by the contract of insurance.41 Effect of failure to sue and labour 22.11 The duty in section 78(4) to take reasonable measures to avert loss does not mean that if the agents of the insured are not reasonably careful throughout the transit, the 30 Ibid at p.614. 31 Suez Fortune Investments Ltd v. Talbot Underwriting Ltd (the Brillante Virtuoso) [2015] 1 Lloyd’s Rep. 651 at [288–296]. 32 Ibid at [296]. 33 Kuwait Airways Corporation v. Kuwait Insurance Co SAK [1996] 1 Lloyd’s Rep. 664. 34 Ibid at pp.696–697. In The B Atlantic, Flaux J. held that this aspect of the decision was obiter: [2015] 1 Lloyd’s Rep. 117 at [339]. 35 Polurrian Steamship v. Young [1915] 1 KB 922 at pp.927–928; Rickards v. Forestal Land, Timber and Railways [1942] AC 50 at pp.84–85. 36 [1997] 2 Lloyd’s Rep. 687. 37 Ibid at p.696. The right to sue and labour was held to have been lost at an earlier date, when the insurers admitted and paid the claim for US$300 million, the maximum ground limit under the policy. 38 Atlasnavios-Navegação Lda v. Navigators Insurance Co Ltd (the B Atlantic) [2015] 1 Lloyd’s Rep. 117. 39 Ibid at [343–345]. 40 Suez Fortune Investments Ltd v. Talbot Underwriting Ltd (the Brillante Virtuoso) [2015] 1 Lloyd’s Rep. 651. 41 Ibid at [303–304]. 183 Sue and labour insured cannot recover for anything to which their want of care contributes.42 That much is clear. However, there is an issue as to how the duty under section 78(4) to take measures to avert or minimize a loss is compatible with the principle in section 55(2)(a) that the insurer is liable for any loss proximately caused by an insured peril, even though the loss would not have happened but for the negligence of the master or crew. There are first instance dicta that breach of the section 78(4) duty gives rise to a claim for damages.43 However, in National Oilwell (UK) Ltd v. Davy Offshore Ltd,44 Colman J. held that breach of such duty did not sound in damages, but that an omission to act as a prudent uninsured could be the proximate cause of loss.45 In State of the Netherlands v. Youell,46 Phillips L.J. agreed, holding that section 55(2)(a) applied before and after a casualty, and section 78(4) only had significance in the rare case where negligence in failing to sue and labour displaces the prior insured peril as the proximate cause of the loss and can be said to break the chain of causation between peril and loss.47 However, this was not part of the ratio of the Court of Appeal’s decision, as Buxton L.J. declined to decide the point,48 and Butler-Sloss L.J. simply said that the appeal should be dismissed. In practice, the point is unlikely to be significant, as such negligence is usually a separate insured peril; indeed, section 78(4) appears never to have provided underwriters with a defence since the passing of the 1906 Act.49 22.12 In The Aliza Glacial, the Court of Appeal held obiter that the same approach applied to contractual sue and labour provisions.50 However, in The Grecia Express,51 the sue and labour provision in the Hellenic rules stated that in the event that the Owner commits any breach of his obligation, the Directors may reject any claim by the Owner arising out of the occurrence or reduce the sum payable by the Association in respect thereof by such amount as they may determine. Colman J. held that the contractual clause was not to be construed in the same way as section 78(4) and imposed a positive contractual duty.52 In The Silva, where the provision was materially identical to that in The Grecia Express, Burton J. was inclined to follow Colman J., but did not need to do so on the facts.53 Extraordinary expenses 22.13 Sue and labour expenses must be unusual and extraordinary. Examples of such expenses in the context of the Iran/Iraq War of 1980–1988 were described by Mr Miller 42 British & Foreign Marine Insurance Co Ltd v. Gaunt [1921] 2 A.C. 41 at p.65 per Lord Sumner; State of the Netherlands v. Youell [1998] 1 Lloyd’s Rep. 236 at 241 per Philllips L.J. 43 Astrovlanis Compania Naviera SA v. Linard (the Gold Sky) [1972] 2 Lloyd’s Rep. 187 at p.221 per Mocatta J.; Noble Resources Ltd v. Greenwood (the Vasso) [1993] 2 Lloyd’s Rep. 309 at pp.314–315 per Hobhouse J. 44 [1993] 2 Lloyd’s Rep. 582. 45 Ibid at p.619. 46 [1998] 1 Lloyd’s Rep. 236. 47 Ibid at p.245. 48 Ibid at pp.246 and 249. 49 Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 Lloyd’s Rep. 630 at [76]; State of the Netherlands v. Youell [1998] 1 Lloyd’s Rep. 236 at pp.244–245. 50 Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [58]. 51 Strive Shipping Corporation v. Hellenic Mutual War Risks Association (the Grecia Express) [2002] 2 Lloyd’s Rep. 88. 52 Ibid at p.160. 53 Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Silva) [2011] 2 Lloyd’s Rep. 141 at [48–49]. 184 Sue and labour in the Third Edition.54 The ordinary costs of maintaining and crewing a vessel are not sue and labour expenses, even if they prevent insured losses arising. However, where the insured vessel is detained, the costs of manning the vessel throughout the period of detention may be recoverable if they are not an ordinary manning expense, such as those incurred pursuant to charterparty obligations, but are incurred in order to mitigate the detention, so as to ensure that the vessel may sail promptly in the event of being released.55 22.14 In Royal Boskalis v. Mountain,56 a waiver of claims and release of a deposit were extracted by duress, by the seizure of a fleet of dredging vessels and their personnel. These were claimed as sue and labour expenses under a war risks policy. The argument that the sacrifice of claims and of a deposit could not be sue and labour expenses was rejected. Charges and expenses involve the disbursement of money or money’s worth, and this included the foregoing of a valuable claim.57 22.15 Where expenses are incurred both for the purpose of extricating the vessel from the insured peril and for some other purpose which is not sue and labour, the expenses are not apportioned between those purposes, but are all regarded as sue and labour expenses.58 It is only if the insurers can demonstrate that the relevant expenditure was incurred solely for the other purpose that the expenditure will not be recoverable as sue and labour. Salvage and general average 22.16 In Aitchison v. Lohre,59 it was held that a salvage liability was not a sue and labour expense, as it was not incurred through the efforts of the insured to preserve the property, but through the efforts of a third party who had not been engaged by or on behalf of the insured.60 Salvage by third parties not engaged by owners of the property in danger does still occur, but it is not common due to modern communications. Most salvage operations are contractual in nature. The 1906 Act reflects this decision, and excludes non-contractual salvage from the scope of sue and labour.61 22.17 In Royal Boskalis v. Mountain,62 Stuart-Smith L.J. said that it had never been doubted that if a salvor is engaged under Lloyd’s Open Form of Salvage Agreement, that underwriters are liable to indemnify the insured against the salvage award as a sue and labour expense.63 Phillips L.J. also noted that underwriters regularly indemnify insureds in respect of Lloyd’s Open Form (LOF) awards, and held that the claim failed in Aitchison 54 Miller, Marine War Risks, 3rd edn, §24.33- to 24.34. 55 N 38 at [355]. 56 N 29. 57 Ibid [1997] LRLR 523 at p.615 per Stuart-Smith L.J., at pp.636–637 per Phillips L.J. 58 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523 at p.647 per Phillips L.J.; ACE European Group v. Standard Life Assurance [2013] Lloyd’s Rep. IR 415 at [46–49] per Tomlinson L.J.; Atlasnavios-Navegação Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2015] 1 Lloyd’s Rep. 117 at [346] per Flaux J. 59 (1879) 4 App. Cas. 755. 60 Ibid at p.764 per Lord Blackburn. 61 Section 65(2). 62 N 29. 63 Ibid [1997] LRLR 523 at p.614. 185 Sue and labour because the salvors rendered their services as volunteers and not as agents engaged by the Master under contract, a distinction reflected in section 65(2) of the 1906 Act.64 22.18 In referring to LOF awards, the Court of Appeal was probably considering only a salvage award under article 13 of the Salvage Convention,65 and not an article 14 award, or a SCOPIC award. An article 13 award is the conventional award for saving the property from danger. Article 14 is special compensation in respect of damage to the environment, and was in practice short-lived. It was replaced in LOF by a contractual regime known as SCOPIC. Although its origin lies in environmental protection, the effect of the SCOPIC regime, when incorporated, is to provide salvors with an exception to “no cure no pay”, so that they may recover expenses plus an uplift even where the salvage is not conventionally successful, regardless of environmental issues. Agreeing to such terms may be the only basis on which salvors will undertake the otherwise speculative task of salving a casualty. In The Renos,66 the Supreme Court considered, in the context of a claim for constructive total loss, whether SCOPIC expenses were part of the cost of repair, and held that they were not, as they were directed at environmental damage rather than reinstatement of the vessel.67 However, this does not answer the question whether engaging a salvor on terms which includes SCOPIC is recoverable as a sue and labour expense, where engaging a salvor on such terms was reasonable. Illegality 22.19 Issues can often arise as to whether certain payments made to secure insured property from detention are irrecoverable as sue and labour expenses on the ground that they are tainted with illegality or against public policy. Examples are the payment of ransoms to pirates and of bribes to officials. In Royal Boskalis v. Mountain,68 a waiver of claims and release of a deposit were extracted by duress. The waiver and payment of the deposit were treated as ransom payments, and were in principle recoverable as sue and labour expenses, the conduct of the insured being lawful under the law applicable to the policy and under the law of the forum.69 22.20 In The Bunga Melati Dua,70 it was argued that as there could be no duty under section 78(4) to pay a ransom demand, as such a demand was unlawful to make even if not unlawful to pay, a detention which could only be ended by such payment should be treated as giving rise to no prospects of recovery, the possibility of a ransom being discounted. This was rejected as a non sequitur.71 64 Ibid [1997] LRLR 523 at p.633. 65 The Salvage Convention 1989 has the force of law: Merchant Shipping Act 1995, section 224 and Schedule 11. 66 Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc [2019] UKSC 29. 67 Ibid at [27]. 68 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523. In The Bunga Melati Dua, Rix L.J. observed that this part of the decision may strictly be obiter: [2011] 1 Lloyd’s Rep. 630 at [64]. 69 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523 at p.614 per Stuart-Smith L.J. and at p.636 per Phillips L.J. Pill L.J. at p.623 reserved his opinion on the question whether ransom payments were recoverable. Since the waiver of claims was unenforceable on account of the duress, there was no loss, and the claim failed. 70 Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 Lloyd’s Rep. 630. 71 Ibid at [72]. 186 CH A PT ER 23 Exclusions 23.1 The War and Strikes Clauses Hulls contain a number of important exclusions. First, there are exclusions of general effect in relation to nuclear weapons of war (Clause 4.1.1), war between the permanent members of the UN Security Council (Clause 4.1.2), and requisition or pre-emption (Clause 4.1.3). Second, there are exclusions which restrict the scope of cover for perils such as capture and seizure, arrest, restraint and detainment, namely: capture, seizure, arrest, restraint, detainment, confiscation or expropriation by or under the order of the government or any public or local authority of the country in which the vessel is owned or registered (Clause 4.1.4); and arrest, restraint, detainment, confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations (Clause 4.1.5). Finally, there are further general exclusions in relation to the operation of ordinary judicial process, failure to provide security or to pay any fine or penalty or any financial cause (Clause 4.1.6); and piracy (Clause 4.1.7). The exclusions for nuclear weapons and war between the major powers are not subject to comment here. Piracy is dealt with in Chapter 20. General approach to construction 23.2 The exclusions must be given a “business-like interpretation in the context in which they appear”.1 Since the Clauses are to be used worldwide, they must be given a wide meaning to the extent that they are intended to cover laws in force anywhere in the world, and cannot turn on niceties of local law.2 The draughtsmen are to be taken to have had in mind decisions of the courts on earlier editions of the clause which have given the wording a settled meaning.3 The burden lies on underwriters to bring themselves within the exclusion.4 In The Anita5 Lord Denning M.R. referred to a shifting legal burden, but 1 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 W.L.R. 882; [1971] 1 Lloyd’s Rep. 487 at p.492; Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [24] and [39]. 2 Sunport Shipping Ltd & Ors v. Tryg-Baltica International (UK) Ltd (The Kleovoulos of Rhodes) [2003] 1 Lloyd’s Rep. 138 at [12] and [38]. 3 Ibid at [28]. 4 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 W.L.R. 882; [1971] 1 Lloyd’s Rep. 487 at pp.492, 495; Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [24]. 5 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 W.L.R. 882; [1971] 1 Lloyd’s Rep. 487 at p.492. 187 Exclusions the modern approach is to regard the position as one in which the evidential burden shifts.6 It is an open question as to whether the exclusions are to be construed against underwriters on the basis of the contra proferentem rule. In The Aliza Glacial it was conceded in the Court of Appeal (without adverse comment) that if the task of the Court is to ascertain the extent of the risk in the light of the defined perils read together with the relevant exclusion, there is no room for the operation of that rule.7 However, in The Silva the rule was applied by Burton J. to the “financial cause” exclusion.8 In The B Atlantic the issue did not have to be resolved, but Hamblen J. suggested that there was force in the point that if underwriters have to bring themselves within the exclusion as a matter of fact, one would logically expect the burden to be on them to do likewise as a matter of construction.9 In the Supreme Court, Lord Mance said that what is required is “an exercise of construction of the particular wording, giving effect at each stage to the natural meaning of the words in their context.”10 Requisition (Clause 4.1.3) 23.3 The first event excluded is that of requisition. Requisition is typically something which occurs in time of war or hostilities involving an exercise of executive or military power.11 Many states have laws requiring their citizens or subjects to assist in times of national emergency, and to allow the authorities to use their property in the national interest. In the United Kingdom the Crown has the power by prerogative in times of emergency to requisition British ships.12 In Burma Oil Company (Burma Trading) Ltd v. Lord Advocate13 it was held that there was no general rule that the prerogative could be exercised, even in time of war or emergency, by taking property without paying for it. 23.4 The exercise of this prerogative power amounts to a restraint of princes.14 It has been exercised many times in recent history. Immediately before the outbreak of the First World War a Proclamation was issued stating that a national emergency existed, and authorizing the Lords Commissioners of the Admiralty to requisition and take up any British ship within the British Isles or the waters adjacent thereto. The requisitioning of a British ship outside British waters was held to be ultra vires the Proclamation by Bailhache J. in Russian Bank for Foreign Trade v. Excess Insurance Co Ltd.15 The prerogative 6 Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Silva) [2011] 2 Lloyd’s Rep. 141 at [4] per Burton J. 7 Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [37]. 8 Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Silva) [2011] 2 Lloyd’s Rep. 141 at [46(ii)]. 9 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2012] 1 Lloyd’s Rep. 629 at [26]. 10 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2019] A.C. 136; [2018] 2 Lloyd’s Rep. 1 at [40]. 11 Kuwait Airways Corp v. Kuwait Insurance Co SAK [1999] 1 Lloyd’s Rep. 803 at 815 per Lord Hobhouse. 12 The Broadmayne [1916] P. 64. A British Ship is defined by section 1 of the Merchant Shipping Act 1995. 13 [1965] A.C. 75. 14 In Russian Bank for Foreign Trade v. Excess Insurance Co Ltd Bailhache J. considered that the order had to be either lawful or accompanied by the use or threat of violence [1918] 2 KB 123. On appeal [1919] 1 KB 39, Scrutton L.J. expressed the view obiter that an ultra vires requisition may nevertheless still be a restraint of princes. 15 [1918] 2 KB 123. The point was not decided on appeal: [1919] 1 KB 39. 188 Exclusions power of requisition was exercised in the Suez crisis in 1956 and most recently in the Falklands War in 1982 by Orders in Council. These Orders in Council referred to British ships “wherever the ship may be”. The territorial scope of these Orders has not been challenged. 23.5 The current legislation is The Civil Contingencies Act 2004, which provides in Part 2, sections 20 and 22(3)(b) for emergency regulations to make provision of any kind that could be made by Act of Parliament or by the exercise of the Royal Prerogative, in particular to enable the requisition or confiscation of property (with or without compensation). Although the prerogative permits ships to be acquired by transferring title to the Crown, in practice it is sufficient for the Crown to requisition “for use”, often on terms set out in a charterparty, whilst leaving title and operations in the hands of their owners.16 23.6 There is no requisition if an authority merely directs a vessel to deviate to a specified port so that the cargo on board may be requisitioned if necessary, the vessel in fact not being employed for government purposes.17 Where a ship is prohibited from discharging, and the cargo is subsequently requisitioned and ordered to be discharged elsewhere, the initial detention is not a requisition, which requires the property to be taken possession of by, or put at the disposal of, the government.18 Mere negative prohibition is not a requisition. 23.7 There is an unresolved issue as to whether a ship can only be requisitioned by the flag-state, and a cargo can only be requisitioned by the State of which the owner is a citizen (or the company incorporated). In the Third Edition,19 Mr Miller described a case where a foreign vessel was “requisitioned” by Brazilian authorities in order to assist in a pollution incident and suffered physical damage as a result of being ordered to load and dispose of a dangerous cargo. The War and Strikes underwriters refused to pay the shipowner’s claim. Whilst it may be doubted whether a vessel can be requisitioned by a State other than the one in which it is registered,20 it is not clear what peril would encompass compliance with an order to undertake positive actions such as loading a cargo. The vessel was neither seized nor subject to the negative restrictions associated with arrest, restraint or detention. The question would only arise in the context of “requisition” amounting to an insured peril, such as war. In such a context, the justification for requisition (such as it is) would be a presumed common purpose between owner and flag-state in defeating an enemy. No such rationale exists between a State and a foreign vessel. 23.8 It should be noted that requisition, whether for title or for use, may terminate the insurance (Chapter 4). The position is different in the case of the two Through Transport Mutual Insurance Associations, where it merely suspends the insurance during the period of the requisition. It is again different in the case of the British Mutual War Risks Associations. Where it is requisition for use only, the insurance can continue. 16 As in The Broadmayne [1916] P. 64 and The Sarpen [1916] P. 306. In the Southern District Court of New York it has been held that requisition is a formal process, and does not include the informal ransacking of a vessel: Flota Merchante Dominicana C. Por. A, Owner of the “Santo Domingo” v. American Manufacturers Mutual Insurance Company [1970] A.M.C. Vol. II, 1678. 17 Bombay and Persia Steam Navigation Company v. The Shipping Controller (1921) 7 Ll.L.Rep. 226. 18 France Fenwick and Company Limited v. The King [1927] 1 K.B. 458. 19 Third Edition, paragraphs 21.23–21.24. 20 In the Gulf War (1990–1991) the UK chartered the foreign ships it required: Third Edition, paragraph 21.25. 189 Exclusions Pre-emption (Clause 4.1.3) 23.9 The second event excluded by Clause 4.1.3 is that of pre-emption. This is the right to purchase property. The right arose in the circumstances described by Lord Parker in The Zamora,21 as follows. During the Napoleonic Wars the British took the view that naval stores were absolute contraband and were lawful prize, even when carried in a neutral ship. Other States took the view that such stores were contraband only if destined for use by an enemy government, and if destined for use by civilians were not contraband at all. A compromise was reached whereby instead of condemning such stores they were purchased compulsorily from their neutral owners. This practice subsequently became part of international law. It is a right confined to naval stores. Exclusion for capture, etc., by the “home” government (Clause 4.1.4) 23.10 This exclusion applies to capture, seizure, arrest, restraint, detainment, confiscation or expropriation by or under the order of the government or any public or local authority of the country in which the vessel is owned or registered. There may be more than one State with the relevant connection to the vessel. First, a vessel may be registered by its owners in one State and by Bareboat Charterers in another State. Second, the exclusion also refers to “the country in which the vessel is owned”. Since registration is not ownership, this is potentially a different State. Although a clumsy phrase, it seems that the vessel is owned where its owner is located, in the domicile of an individual or the place of incorporation of a company. This may, in effect, be a requisition by the State of the owner of a ship which is registered elsewhere. In the Container Clauses, the exclusion refers to the country where the Assured have their principal place of business. Exclusion for quarantine regulations, customs or trading regulations (Clause 4.1.5) 23.11 This exclusion applies to arrests, etc.,22 in respect of quarantine, customs and trading regulations. The exclusion is not limited in its effect to the perils covered by Clause 1.2 (capture, seizure, etc.) and Clause 1.6 (confiscation or expropriation).23 The exclusion applies to other perils, such as malicious acts, where such an act has resulted in an arrest, etc., under relevant regulations; and it is not subject to any implied limitation that it does not apply where the infringement is due some other peril (such as malicious acts).24 Underwriters bear the burden of showing that the vessel was confiscated for a reason falling within the exclusion, but the insured would bear the burden of showing (if alleged) that the foreign court acted without jurisdiction and simply under political direction.25 21 [1916] 2 A.C. 77 at p.105. 22 Not unnaturally, it does not apply to capture. But nor does it apply to seizure. 23 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2019] A.C. 136; [2018] 2 Lloyd’s Rep. 1 at [32]. 24 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2019] A.C. 136; [2018] 2 Lloyd’s Rep. 1 at [33]. 25 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 Lloyd’s Rep. 487; [1971] 1 W.L.R. 882 at p.887 per Lord Denning M.R., citing Blackburn J. in Castrique v. Imrie (1870) L.R. 4 H.L. 414 at p.430: “… we must (at least till the contrary is clearly proved) give credit to a foreign tribunal for knowing its own law, and acting within the jurisdiction conferred on it by that law …” 190 Exclusions 23.12 The first part of the exclusion refers to an arrest, etc., “under” quarantine regulations, whereas the second part refers to arrest, etc., “by reason of” infringement of other regulations. As a matter of ordinary language, a detention “under” a regulation suggests that the regulation is the source of the power, whereas a detention “by reason of” infringement of a regulation suggests a causal link between an actual infringement and the detention. Consistent with this, a detainment “under” quarantine regulations does not require there to be any actual infringement of those regulations.26 However, Lloyd L.J. in The Wondrous considered that the difference in wording was just careless drafting.27 23.13 In The B Atlantic28 it was common ground that the exclusion did not apply if an infringement of customs regulations was not reasonably arguably a ground for the arrest, etc of the vessel as a matter of the relevant local law, and Hamblen J. agreed that it was unlikely that the exclusion would apply in such circumstances.29 In that case it was assumed, until the matter came before the Supreme Court, that the act of concealing drugs on board the vessel was a malicious act, it being argued that the proximate cause of the loss was the malicious act and not the detention. The Court of Appeal therefore considered whether the phrase “by reason of” involved a question of proximate cause.30 It was argued that “by reason of” asked a question as to “why” the vessel was detained, a question not identical to proximate cause.31 The Court of Appeal did not consider the how/why distinction to be useful, and concluded that the detention was a proximate cause of the loss and was undoubtedly “by reason of” the infringement.32 In the Supreme Court,33 the argument that the proximate cause was the malicious act rather than the infringement of customs regulations was rejected; the putative malicious act could not be sensibly distinguished from the infringement.34 As for the construction of the perils and the exclusion, there are three stages: the first stage is the identification of an insured peril, the second is whether the detention was the means by which the loss was incurred, and the third stage is to ask whether such detainment was by reason of any infringement of customs regulations.35 It is possible for a loss to be proximately caused both by the insured peril (such as a malicious act) and by a detainment within the scope of the exclusion.36 Whilst the general aim in insurance law is to identify a single real, effective or proximate cause of any loss, the correct analysis is in some cases that there are two concurrent causes, particularly where an exceptions clause takes certain perils out of the prima facie cover.37 23.14 The exclusion does not expressly identify by whom any infringement must be committed, but there is no implied implication that the infringement must be one committed by the insured itself or by its servants or agents.38 The clause is unnecessary to cater 26 Ikerigi Compania Naviera. SA v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 at p.571. 27 Ibid. 28 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2012] 1 Lloyd’s Rep. 629. 29 Ibid at [63]–[65]. 30 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2017] 1 W.L.R. 1303; [2016] 2 Lloyd’s Rep. 351 at [59]–[61]. 31 Ibid at [59]. 32 Ibid at [61]. 33 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2019] A.C. 136; [2018] 2 Lloyd’s Rep. 1. 34 Ibid at [41]. 35 Ibid at [41]. 36 Ibid at [42]. 37 Ibid at [43]. 38 N 28 at [34]–[47] per Hamblen J.; correctly not appealed [2019] A.C. 136; [2018] 2 Lloyd’s Rep. 1 at [50] per Lord Mance. 191 Exclusions for cases of smuggling by shipowners themselves.39 As for crew smuggling without the knowledge of owners, that is barratry and generally excluded by the conjunction of Clause 4.2 of the Institute War and Strikes Clauses Hulls Time with Clause 6.2.5 of the Institute Time Clauses Hulls, which covers barratry.40 Clause 6.2.5 is subject to a proviso, namely “that such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers”. However, in The B Atlantic, Lord Mance considered it improbable that the Institute War and Strikes Clauses Hulls Time were intended to pick up a narrow band of barratrous conduct, to which owners were not privy, but which they had failed to exercise due diligence to guard against.41 23.15 In The B Atlantic,42 the Supreme Court considered a series of scenarios in which the exclusion might be applied. The first was that of a “put-up job”, a scenario suggested by Lord Denning M.R. in The Anita.43 The scenario would involve a seizure on a knowingly false basis, without any smuggling taking place, or where the authorities planted drugs on board. Lord Mance considered that to be an obvious case, since there would be no customs infringement in fact.44 The second scenario involved a malicious third party planting drugs in order to blackmail the shipowners. The third scenario involved a third party planting drugs and then informing the authorities in order to get the vessel detained. Lord Mance considered these two examples to be indistinguishable, and suggested that “[t]he centrality of the intentional motivation to the causation of a loss may well be capable as a matter of causation of taking the loss outside the scope of the exception in Clause 4.1.5.” 45 23.16 Smuggling is an infringement of customs regulations within the meaning of the exception.46 Whilst detention for infringement of customs regulations does not necessarily involve smuggling,47 it is a paradigm case48 and more likely to lead to a prolonged detention and a deemed CTL49 than other less heinous infringements.50 39 N 33 at [50]. Lord Mance did not identify the reason for this. In the Court of Appeal, Christopher Clarke L.J. said that it would be contrary to public policy: [2017] 1 W.L.R. 1303; [2016] 2 Lloyd’s Rep. 351 at [37]. 40 N 33 at [50] per Lord Mance. 41 Ibid. 42 N 33. 43 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 W.L.R. 882; [1971] 1 Lloyd’s Rep. 487. 44 N 33 at [36]. 45 Ibid at [37]. 46 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 WLR 882, CA. 47 See e.g. Ikerigi Compania Naviera. SA v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 (lack of outward customs clearance due to charterers’ default in payment of sums due). 48 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2017] 1 W.L.R. 1303; [2016] 2 Lloyd’s Rep. 351, Court of Appeal at [36], citing The Kleovoulos of Rhodes and Fenton Atkinson L.J. in The “Anita” at 889. The Court of Appeal noted at [40] that smuggling may not involve a breach of customs regulations where the smuggling was intended to take place entirely within the territory of same state. 49 Institute Clause 3 provides that if the Assured has lost the free use and disposal of the vessel for a continuous period of 12 months (amended to six months in The B Atlantic) then for the purpose of ascertaining whether the vessel is a constructive total loss the assured shall be deemed to have been deprived of the possession of the vessel without any likelihood of recovery. 50 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2017] 1 W.L.R. 1303; [2016] 2 Lloyd’s Rep. 351, Court of Appeal at [37]. 192 Exclusions 23.17 The exclusion in respect of trading regulations was introduced in the aftermath of the Iran/Iraq War and as a result of the effect on vessels of international sanctions.51 It is to be construed as a general term and not as applying to any regulation which affects the insured in his trade.52 Regulations concerned with the management and conservation of fish stocks were therefore not trading regulations even though they impacted on the trade of fishing.53 Exclusion for “the operation of ordinary judicial process” (Clause 4.1.6) 23.18 The exclusion for “ordinary judicial process” in Clause 4.1.6 reflects Rule 10 of the rules of construction for the S.G. Form, as set out in the Schedule to the 1906 Act. Its origin lies in Finlay v. The Liverpool and Great Western Steamship Company,54 where a shipowner sought to defend a short delivery claim under a bill of lading by relying on a restraint of princes exception, a court having ordered the shipowner to deliver the missing goods to their true owner. Martin B. held that restraint of princes referred to “the forcible interference of a State or of the government of a country taking possession of the goods manu forti” and did not extend to the actions of a court. In the subsequent case of Crew Widgery & Co. v. Great Western Steamship Company,55 Field and Wills J.J. held that a restraint of princes exemption in a bill of lading did not apply to an arrest in respect of a collision claim. Then, in Miller v. The Law Accident Insurance Co56 the Court of Appeal overturned the decision of Bigham J. that a refusal to allow the landing of cattle was not restraint of princes because it was a matter of the ordinary municipal law. Vaughan Williams L.J. denied that there was any analogy between that case and that of arrest or detention of a ship to enforce the rights of a private individual.57 23.19 In line with these authorities, in The Anita, Mocatta J. said58 that the words “ordinary judicial process” … refer to the employment of Courts of law in civil proceedings. If a rationale be required for this, it is that in such cases the State is merely providing a service to litigants, rather than exercising its own power through the Courts for its own purposes. Confining the exclusion to “ordinary” judicial process would include the very common event of the arrest of ships for civil and commercial claims. The activities of Prize Courts are not “ordinary” judicial process. A state of war is not “ordinary”.59 In The Anita, Mocatta J. held that it was not “ordinary judicial process” where the act was that of an extraordinary military tribunal operating outside the normal judicial structure of the country.60 51 Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [30]. 52 Ibid. 53 Ibid at [31]. 54 (1870) 22 L.T. 251. 55 (1887) W.N. 161. 56 [1903] 1 K.B. 712. 57 Ibid at p.718. 58 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365 at p.377; not appealed [1971] 1 W.L.R. 882. 59 Sanday v. British and Foreign Marine Isnurance Co [1915] 2 K.B. 781 at pp.824–825. 60 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365 at p.378; not appealed [1971] 1 W.L.R. 882. 193 Exclusions 23.20 An example of the courts being used extraordinarily is The Silva,61 where the vessel was subject to an executory arrest at Port Suez in 2008 purportedly pursuant to part of a judgment entered in 1996 in the Port Said Court in respect of the grounding of a different vessel in Egypt in 1989. The relevant part of the judgment was liability for court dues and the arrest was at the instance of the court itself.62 As an attempt by the court to collect an unconstitutional contribution towards a fund for judges from an unconnected party it was not “ordinary judicial process” but an exercise of extortion under the veneer of court process.63 23.21 Confining the exclusion of ordinary judicial process to “civil” proceedings, as the definition64 of Mocatta J. does, would remove from its scope any criminal proceedings. Nevertheless, the exclusion goes on to refer to failures to pay fines or penalties, as noted below. Exclusion for “failure to provide security or to pay any fine or penalty or any financial cause” (Clause 4.1.6) 23.22 The exclusion for failure to provide security or to pay any fine or penalty or any financial cause comprises three categories; the first two are specific and the third is on its face potentially very broad. 23.23 The first category is a failure to provide “security”. Shipowners are commonly required to provide security for claims against a vessel in order to secure release from arrest or detention. The security may be in respect of commercial claims or in respect of claims by States, such as in respect of pollution. In order to fall within the exclusion, the security in question must be reasonable.65 If it was not reasonable for the owners to provide the surety demanded in respect of the vessel because the sum required exceeded the full value of the ship and would otherwise enable her to be treated as a constructive total loss, the exclusion would be inapplicable.66 23.24 The second category is a failure to pay any fine or penalty. Unlike ordinary judicial process, it would cover criminal matters, but would be limited to the ordinary process and not, for example, a fine or penalty imposed for political rather than purely legal reasons. 23.25 The third category is broadly stated as “any financial cause”. In The Wondrous, the vessel was unable to leave port as a result of not having paid the sums required before customs clearance could be granted, and it was held that it was detained due to a financial cause within the meaning of the exclusion.67 The Court of Appeal held that a 61 Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Silva) [2011] 2 Lloyd’s Rep. 470. 62 These comprised court costs and a contribution to the Judges’ Fund, for the health and welfare of the judges and their families, the latter fund being regarded as unconstitutional: Ibid at [7]. 63 Ibid at [42]–[43], [45]. 64 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365 at p.377. 65 Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [62] per Potter L.J. For an example, see Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2015] 1 Lloyd’s Rep. 117 at [324–334] per Flaux J. 66 Ibid. 67 Ikerigi Compania Naviera. SA v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.417 per Hobhouse J.; [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.573. 194 Exclusions financial cause does not have to be a matter for which the insured shipowners (as opposed to cargo interests) are responsible and the words are to be given their ordinary (and wide) meaning.68 23.26 Though the words are wide, they must be construed in their context, namely as an exemplar of exclusions of claims arising out of ordinary judicial process.69 In The Aliza Glacial, Toulson J. had said that the wide words must have some limitation, since in the case of terrorists seizing a vessel and demanding a large ransom, on a literal construction a loss due to refusal to pay would be a financial cause.70 In the B Atlantic, Flaux J. had sought to rely on the implied limit on “any financial cause” as supporting an implied limit on the exclusion for infringement of customs regulations.71 The Court of Appeal reversed this, and stated that The Aliza Glacial was a decision on causation, and did not involve any implied limitation on the scope of the exclusion.72 In the Supreme Court, Lord Mance confirmed that the phrase “any financial cause” is aimed at ordinary financial vicissitudes, and not at a refusal to pay (say) an outrageous terrorist demand, adding that “[t]he cause of the vessel’s loss would still be the terrorist activity”.73 This would seem to confirm the causation rather than construction analysis, so that the mere fact that the insured may be able to buy his way out of a situation created by a non-financial peril does not bring the exclusion into play. 68 Ikerigi Compania Naviera. SA v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.573, at p.576 per Nourse L.J., overruling Hobhouse at p.417 (vessel could not leave port as the exporters had not provided a foreign currency guarantee). 69 N 61 at [46(ii)]. 70 As noted by the Court of Appeal: Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [52]. 71 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2015] 1 Lloyd’s Rep. 117 at [254]–[255]. 72 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2017] 1 W.L.R. 1303; [2016] 2 Lloyd’s Rep. 351, Court of Appeal at [51]. 73 N 33 at [38]. 195 CH A PT ER 24 War risks and marine insurance legislation 24.1 Most marine insurance legislation applies to war risks policies as it does to other marine policies and, as such, is described throughout this work in the relevant places. This chapter deals with three distinct matters, namely the nature of the legislation and its effect on common law principles; the duty of fair presentation of the risk; and the control of risk management clauses, including insurance warranties. The Marine Insurance Act 1906: construction and effect on the common law 24.2 The 1906 Act took a very long time to reach the statute book. However, after more than a century as the primary statutory source, it was amended by the Insurance Act 2015 with effect from 12 August 2016. In addition to reforming key aspects of marine insurance law, the 2015 Act established a new procedure for contracting out of those reformulated statutory defaults. The applicable law is determined by the date of the policy. The English courts have not yet had to contend with policies made under the 2015 Act1 although cases have been decided under the corresponding changes to aspects of consumer insurance law under the Consumer Insurance (Disclosure & Representations) Act 2012, which came into force on 6 April 2013.2 The current period is therefore a transitional one, with the majority of disputes arising on the basis of policies agreed under the 1906 Act alone, but with the likelihood of disputes arising under policies issued under the 2015 Act. Which Act applies is of considerable legal significance not only because of the changes made to the substantive rules, but also in the nature of the legislation. 24.3 At the time that the Marine Insurance Bill was first introduced in 1894, moves were afoot to codify the common law and the law merchant that were founded upon the decisions of the judges, sometimes stretching over centuries.3 Codifying Acts had appeared on such matters as partnership, arbitration and sale of goods. The intention in the codification advanced by Sir Mackenzie Chalmers was to produce the existing law in a code contained in an Act of Parliament with as few changes as possible, except in instances where the existing case law had ceased to represent the public perception of what the law 1 The first case under the 2015 Act, Young v. Royal & Sun Alliance [2019] CSOH 32 was heard by the Outer House in Scotland on 03/04/19. 2 In particular, Southern Rock Insurance Co Ltd v. Hafeez [2017] CSOH 127; [2018] Lloyd’s Rep. IR 207 and Ageas Insurance Ltd v. Stoodley [2019] Lloyd’s Rep. IR 1. 3 An excellent account of the process is found in R Ferguson, ‘Legal Ideology and Commercial Interests: The Social Origins of the Commercial Law Codes’ (1977) 4 JLC 18. 196 War risks and marine insurance legislation ought to be. Another feature of the codifying Acts is that it is perfectly permissible to contract out of their provisions. The adoption of the Insurance Act 2015 changes these general principles, at least in those areas now governed by the new statute. First, it provides a specific regime for contracting out of its provisions which is prima facie more restrictive than the approach under the 1906 Act. Second, the 2015 Act was not generally codifying in nature but reforming in that it sought to rebalance certain duties and remedies. Interpretation of the 1906 Act as a codifying statute 24.4 The Marine Insurance Act 1906 was (in part) a codifying Act. This has an influence on the process of statutory interpretation, although this effect should not be overstated. Bennion states the rules as: (1) In the first instance, a codifying Act is to be construed in the same way as any other Act, without reference to the earlier legislation or case law. (2) If, however, real doubt arises as to its legal meaning: (a) … (b) in so far as the Act constitutes codification (with or without amendment) of common-law rules, relevant case law may be referred to. (3) Where a common law rule is replaced by an enactment that is not intended to codify the rule, the enactment should be construed without reference to earlier case law.4 24.5 The 1906 Act describes itself in its long title as a codifying Act. As stated in Bennion, the presumptions made about a statute of this kind only apply where there is real doubt as to the meaning of a provision. This is known as Lord Herschell’s rule, after his statement to this end in Bank of England v. Vagliano Bros: I think the proper course is in the first instance to examine the language of the statute and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of the enactment will bear an interpretation in conformity with this view.5 24.6 The willingness of the courts to look at case law from before the 1906 Act has varied. The Act is only a partial code, as section 91(2) makes clear: “The rules of the common law including the law merchant, save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to contracts of marine insurance”. In interpreting the meaning of the word “privity” in relation to unseaworthiness in section 39(5), Roskill L.J. in The Eurysthenes6 noted that the nature of the 1906 Act was not perfectly consistent, that the statute did more than simply codify: 4 D Bailey and L Norbury, Bennion on Statutory Interpretation (Lexis, 7th edn, incorporating 2nd suppl, 2019), [24.8]. 5 [1891] AC 107, 144–145. 6 Compania Maritima San Basilio SA v. The Oceanus Mutual Underwriting Association (Bermuda) Ltd, The Eurysthenes [1976] 2 Lloyd’s Rep. 171. 197 War risks and marine insurance legislation In certain respects, notably in s. 60, which deals with constructive total loss, the 1906 Act went further than simply to consolidate the pre-existing law. In that respect it altered it and did so in terms which “circumscribes completely the concept of constructive total loss” so as to leave no room for consideration of the antecedent common law concept of such a loss.7 But this very fact shows how dangerous it is, save within well recognized limits, to seek to ascertain the true meaning of a word or a phrase in a consolidating statute by research into earlier law, whether it be case law or statute law, unless there is real doubt what the language of the statute means.8 24.7 Important examples of the “real doubt” criterion are found in the House of Lords’ consideration of section 18(2) in Pan Atlantic.9 In determining the proper interpretation of the requirement of “influence” on the judgment of the prudent insurer, Lord Mustill (with whom Lords Goff and Slynn agreed) reviewed pre-1906 case law (notably, Ionides v. Pender)10 and historic texts11 although ultimately this evidence was not conclusive, and he favoured an outcome based on the natural wording of the statute.12 Similarly, in answering why the 1906 Act did not contain a specific requirement for inducement as a pre-condition for avoiding a policy for a failure to disclose a material circumstance, Lord Mustill undertook a careful review of the pre-Act texts and cases. In this situation, he was faced with the absence of a statutory provision on inducement, and the deletion (found in the draft Bill) of a specific reference in what became section 91(2) to the common law rules of fraud and misrepresentation applying unless inconsistent with the 1906 Act. Despite the removal of a specific reference to misrepresentation, Lord Mustill (and the other members of the House) held that the 1906 Act required the element of inducement in non-disclosure cases as in misrepresentation. Unlike the materiality issue, the absence of a provision makes it more difficult to argue that there was “real doubt” in determining the meaning of the statute as enacted, as the doubt only surfaces by comparison of the statute with the requirements in other parts of the law, and not on its face. 24.8 Recent litigation on section 53 of the 1906 Act, which governs the payment of premiums in marine policies, considered the use of pre-Act sources where the statute codifies commercial (rather than judicial) practice. In Eide UK Ltd v. Lowndes Lambert Group Ltd,13 the Court of Appeal was required to interpret section 53(2) of the 1906 Act. At first instance, the statute had been construed without reference to pre-Act sources. Phillips L.J. reversed this approach, on two distinct grounds.14 First, on the general observation that the 1906 Act was not a complete code and on this specifically referenced section 91(2). Second, on the basis that section 53 was describing a commercial practice in place at the time of the 1906 Act, and that this could be varied by agreement.15 24.9 The 1906 Act was not simply a codifying measure, and even where it sought to codify existing principle, it normally only created an incomplete code. Recent judicial 7 Citing Irvine v. Hine [1950] KB 555, 568 per Devlin J. 8 N 6 at 184. 9 Pan Atlantic Ins Co Ltd v. Pine Top Ins Co Ltd [1995] 1 AC 501. 10 (1873–74) LR 9 QB 531. 11 Primarily, J Duer, The Law and Practice of Marine Insurance, vol. II (1846), J Arnould, A Treatise on the Law of Marine Insurance and Average (2nd edn, 1850) and T Parsons, A Treatise on Maritime Law, vol. II (1859). 12 N 9 at 538. 13 [1999] QB 199. 14 At 206. 15 The principle of freedom of contract is enshrined in s. 87, MIA 1906. 198 War risks and marine insurance legislation practice is mixed, but the weight of authority is in favour of reviewing pre-1906 case law where there is ambiguity on the face of the statute, or where the statute can be considered incomplete by comparison with equivalent common law rules. The Insurance Act 2015: construction and effect on the common law 24.10 Unlike the Marine Insurance Act (MIA) 1906, the Insurance Act (IA) 2015 was not primarily intended to codify existing marine insurance practice. Indeed, the 2015 Act was largely focused on consumer and commercial domestic insurance, with the expectation that international risks such as marine and war risks would “contract out” of its provisions where appropriate to do so.16 Some parts of the 2015 Act are evidently intended to replicate the position under the 1906 Act, some codify changes in the common law position that have arisen subsequent to the 1906 Act, and others provide for an entirely novel position. An example of each approach is useful here: (1) Maintaining the 1906 Act The statutory test for whether a circumstance is material for the purpose of the pre-contractual duties of non-disclosure and misrepresentation is identical in section 18(2) MIA 1906 and section 7(3) IA 2015, whether it would “influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms”, thus preserving the authority of the House of Lords decision on the limits of materiality in Pan Atlantic.17 (2) Codifying Subsequent Case Authority The House of Lords in Pan Atlantic determined that the insured’s failure to disclose material circumstance was only operative where that omission induced the underwriter to enter into the agreement. This requirement was not found in the 1906 Act and represented an example of common law principles applying in the absence of specific provision in the 1906 Act. The requirement of inducement is now provided for in section 8(1) IA 2015 as a codification of that part of the Pan Atlantic decision. (3) Reforming the 1906 Act The remedy for breach of the pre-contractual duties under the 1906 Act was strict and unvarying: avoidance of the contract at the option of the innocent party. This has been substantially reformed in the IA 2015, with avoidance available only in certain limited circumstances, and a range of other proportionate remedies available to the court.18 The best approach to the 2015 Act is to take each provision on its own merits rather than assume some overarching legislative intent, such as codification or reform. Contracting out under the Marine Insurance Act 1906 and the Insurance Act 2015 24.11 The Marine Insurance Act 1906 contained no specific mechanism by which contracting parties could vary statutory defaults. The vast majority of the rules in the 1906 16 See Law Commission, Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment (Law Com No 353, 2014) at [11.33]. 17 N 9. 18 Sch 1, IA 2015. 199 War risks and marine insurance legislation Act are default rules which are simply made subject to contrary intent in the policy, and in many cases this is expressly provided for in the Act.19 24.12 The Insurance Act 2015 is different in nature and has a specific regulatory regime that governs “contracting out” clauses. For consumer insurance contracts (as defined by section 1, Consumer Insurance (Disclosure & Representations) Act 2012), any attempt by the contract to put the insured in a “worse position” than that stipulated by the Insurance Act 2015 is of no effect.20 More importantly for war risks policies, the provisions of the Insurance Act 2015 apply in non-consumer contracts unless the specific requirements for contracting out in sections 16–17 Insurance Act 2015 are satisfied. 24.13 For commercial lines, a “disadvantageous” term is one which puts the insured in a “worse position” than the default rule contained within the statute. For that contractual provision to have effect, two distinct tests must be met. First, under section 17(2) there is a “notice” requirement that: “the insurer must take sufficient steps to draw the disadvantageous term to the insured’s attention before the contract is entered into …” Second, under section 17(3), the term must be “clear and unambiguous as to its effect”. Two caveats must be borne in mind when considering the thresholds that these criteria set: (1) The expectations of “notice” and transparency of effect both scale, according to the characteristics of the insured and the nature of the transaction. In most war risks policies, with cover arranged by brokers and on behalf of sophisticated commercial parties, these requirements will be significantly reduced; (2) The “notice” requirement under section 17(2) is specifically subject to section 17(5), which removes the possibility of breach of that element “if the insured (or its agent) had actual knowledge of the disadvantageous term when the contract was entered into …” 24.14 The current published advice on drafting suggests making specific reference to the inapplicability of the rule provided for in the Insurance Act 2015 and making specific reference to the extent of any varied duty and/or remedy.21 This operates on the assumption that the level of clarity required varies less with the sophistication of the insured than the level of notice required. If correct, then whilst compliance with section 17(2) might readily be assumed because the broker was actively involved in the determining the scope of the war risks policy, an unclear term might be ineffective, even if the underwriter did not draft it or specifically request its inclusion. Utmost good faith, non-disclosure, misrepresentation and fair presentation of the risk under the MIA 1906 and IA 2015 24.15 It has been suggested that the insured’s duty to present the risk to the underwriter is of relative unimportance in war risks markets.22 This is part of a wider vision of war 19 The limits of contracting out of the 1906 Act are considered in J Davey, ‘Utmost Good Faith, Freedom of Contract and the Insurance Act 2015’ (2016) 27 ILJ 247. 20 S. 15, Insurance Act 2015. 21 D Kendall and H Wright, Practical Guide to the Insurance Act 2015 (Informa, 2017), Chapter 8, especially [8.18]–[8.23]. 22 See North Star Shipping Ltd v. Sphere Drake Ins Plc, The North Star [2006] 2 Lloyd’s Rep. 183 at [25]–[38] (CA). 200 War risks and marine insurance legislation risks cover as responding to events done to the insured’s property which were not within the control of the insured.23 However, at least one notable recent case arose in the context of a war risks policy (The North Star), and led to Longmore L.J.’s call for statutory reconsideration of the area. This justifies a review of the pre-contractual duties of the insured under the 1906 and 2015 Acts, not least to establish to what extent the result would be different under the new provisions. 24.16 The relative unimportance of the duty to fairly present the risk to the insurer prior to the formation of the policy was argued in expert evidence on the basis of two distinct reasons: first, that the majority of risks insured under a war risks policy operate outside of the insured’s control and are based on world events within the underwriter’s expertise. Second, that the moral hazard issue of the insured’s honesty is reduced by the subsidiary nature of the war risks policy, as the war risks underwriter would assume that the Hull & Machinery underwriter had investigated these issues. Evidence to this effect was given by an experienced former underwriter in The North Star but rejected by the Court of Appeal.24 The duty to disclose circumstances material to war risks should therefore be assumed to operate fully in these markets. The Court of Appeal recognised that the nature of the market was relevant to the likely reaction of underwriters to evidence relating to the character of the assured: In reality, given the low premium, high turnover nature of war risk business, although he would ask the broker, I doubt that a prudent underwriter would wish to undertake his own detailed enquiries. I expect he would decide not to take the risk, particularly if the market was firm from the underwriter’s point of view …25 Misrepresentation and non-disclosure under the MIA 1906 24.17 The pre-contractual duties on the insured to disclose material circumstances and to not make misrepresentations were found in section 18 and section 20 of the Marine Insurance Act 1906. The separate duty on the insured’s broker was imposed by section 19 MIA 1906 and is considered at paragraph 24.27. For policies issued after 12 August 2016, these provisions have been repealed and replaced by provisions in the Insurance Act 2015. 24.18 These duties are commonly viewed as examples of the general duty of utmost good faith imposed on both parties to the marine insurance contract by section 17 MIA 1906 as a codification of the principle established by Lord Mansfield in Carter v. Boehm.26 Section 17 has also been substantially amended by the 2015 Act. For the remainder of this section, it is assumed that the policy under consideration was agreed prior to the entry of the 2015 Act. Non-disclosure under the MIA 1906 24.19 Section 18(1) provided for a duty of pre-contractual disclosure of all material circumstances known to the assured prior to the formation of the contract, with the 23 See paragraph 24.53 in respect of the use of warranties and other risk management clauses in war risks policies. 24 See the evidence of Mr Posgate as a former underwriter in The North Star at [27]. 25 See the evidence of Mr Hall at [31], as expert witness for the insurers, which was accepted by the Court of Appeal. 26 (1766) 3 Burr 1905, 97 ER 1162. 201 War risks and marine insurance legislation underwriter entitled to avoid the contract ab initio if the duty is breached. Section 18(1) does not detail the precise limits of what ought to be disclosed by the insured, but extends it beyond actual knowledge by the statement that “the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him”. This led to considerable litigation on the limits of the insured’s knowledge, particularly in respect of corporate insureds. As will be seen, the equivalent provisions of the Insurance Act 2015 contain considerably more detailed principles by which to determine the knowledge of the insured and underwriter. Under the MIA 1906, the knowledge of the corporate insured is generally judged by the standard of “directing mind or will”, this being an application of the general principle that “[t]he extent of the knowledge of a company can only be determined by reference to the rule of law which makes the inquiry necessary”.27 Arnould supports the obiter comments of Staughton L.J. in PCW Reinsurers extending this to include the knowledge of those responsible for arranging the company’s insurance, and this better reflects the general principle that corporate knowledge is best assessed by a consideration of the reason for the enquiry.28 24.20 The next important qualification on the duty of pre-contractual disclosure is found in the limits of materiality. Failure to disclose a circumstance is only operative if it is material to the risks insured under that policy. Information must therefore be relevant to the calculation of the risks covered. In many policies this will include circumstances related to the physical risk to be faced by the insured property and to the character of the insured (the “moral hazard”). This latter element includes information related to the likelihood of the insured submitting an entirely fraudulent or exaggerated claim for recovery. An excellent example of the need for the circumstance to be relevant to the actual risks insured is found in The Elena G.29 The ultimate beneficial ownership of the yacht insured, as within the corporate group of Mr Goussinsky, a controversial Russian oligarch, was not disclosed to the underwriter. In judging materiality, David Steel J. found that the possibility of malicious attacks against the vessel as a means of harming the oligarch was not material to the placement of a marine risks policy. However, the decision might have been reversed if the policy were a standard war risks policy, insuring against attacks of that nature. The determination of materiality in each case is a question of fact under section 18(4) MIA 1906. 24.21 The specific test for materiality under section 18(2) was the subject of the House of Lords decision in Pan Atlantic. As noted in paragraph 24.10, both the 1906 Act and the Insurance Act 2015 share the definition of materiality: “Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk”. Three key elements emerged from the majority decision in Pan Atlantic. First, the reference to the “prudent insurer” in section 18(2) refers to a hypothetical reasonable insurer as personification of the market. As such it is a purely objective test and does not consider the actual underwriter to whom the risk was broked.30 Second, for a circumstance to “influence the judgment of a prudent insurer”, 27 PCW Syndicates v. PCW Reinsurers [1996] 1 Lloyd’s Rep. 241, 253 per Staughton L.J. 28 J Gilman, et al., Arnould’s Law of Marine Insurance and Average (Sweet & Maxwell, 19th edn, 2018), [16–06]. 29 [2001] 2 Lloyd’s Rep. 378. 30 The approach in Berger v. Pollock [1973] 2 Lloyd’s Rep. 442 to treat “prudent insurer” as a reference to both the actual and the hypothetical insurer, creating a mixed objective/subjective test for materiality was definitively rejected by the Court of Appeal in CTI v. Oceanus [1984] 1 Lloyd’s Rep. 476. 202 War risks and marine insurance legislation it need only alter the thought process of the prudent underwriter in its calculation of the risk. This is necessarily a speculative enquiry in which the reaction of the hypothetical underwriter to the risk placed is compared to that of the hypothetical underwriter where a legally compliant disclosure had been made. It need not change the final outcome. On this basis, a circumstance would be material if considered in its risk assessment by the prudent underwriter, even if that hypothetical being would ultimately offer the same terms and at the same price. Finally, the House of Lords determined that the section 18(2) formulation of materiality was an incomplete statement of the law. That is, there remained further common law requirements before a remedy could be claimed. This arose from the nature of the 1906 Act as a partial codification of the law of marine insurance, as described in paragraph 24.4. As the need for an effect on the actual underwriter was not settled when the 1906 Act was drafted, the statute left this issue for the common law to determine. The House of Lords was unanimous that for an underwriter to exercise its rights under section 18(1), it would need to establish that its own decision to enter into the contract was affected by the failure to make full disclosure. This requirement, of inducement, brought non-disclosure into line with the equivalent principles in misrepresentation. 24.22 Thus far the limits of section 18 have described the elements that the underwriter must establish to avoid the contract, namely that the information was within the knowledge of the insured (actual or constructive), that it was material and that it induced the actual underwriter to enter into the policy. A further series of limitations is provided in section 18(3), but these represent a series of heterogenous exceptions to the duty to disclose: (3) In the absence of inquiry the following circumstances need not be disclosed, namely: (a) Any circumstance which diminishes the risk; (b) Any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know; (c) Any circumstance as to which information is waived by the insurer; (d) Any circumstance which it is superfluous to disclose by reason of any express or implied warranty. Section 18(3)(a) should be considered as merely confirming the result of the application of the principles described above that a non-disclosure is only operative where it would prejudice the risk assessment made by the underwriter. A circumstance which reduces the risk insured ought to be disclosed as a matter of practice because it may reduce the premium, but the law does not require permit the underwriter to avoid the policy because the risk described was lower than the actual risk. Section 18(3)(b) is of greater significance in that it limits disclosable circumstances to those not generally known to underwriters, either as a matter of common knowledge or as part of their commercial functions. In war risks policies this is likely to significantly reduce the level of disclosure required, as war risks underwriters would be expected to be aware of the global political, economic and social tensions that raise the frequency and seriousness of war risks losses. Information particular to the vessel would nonetheless remain outside of the underwriter’s knowledge. 203 War risks and marine insurance legislation Section 18(3)(c) reiterates that the underwriter may waive the disclosure of specific circumstances and indeed, disclosure as a whole. Policies have been litigated outside of the war risks sector in which the duty of disclosure has been reduced to its lowest possible state by way of contractual waiver, and the courts have suggested that fraudulent non-disclosures by the insured can never be the subject of a waiver, and rarely in the case of statements by agents.31 Section 18(3)(d) states that a circumstance need not be disclosed if the subject of a warranty, whether express of implied. Under the 1906 Act, the underwriter would be discharged from liability by breach of warranty and so additional protection by way of pre-contractual disclosure was judged to be superfluous. As considered at paragraph 24.53, the default remedy for breach of a promissory insurance warranty was altered by section 10, Insurance Act 2015. For contracts made under the 2015 Act, the existence of a warranty on a matter would no longer render disclosure of related circumstances unnecessary. The modern application of section 18 MIA 1906 24.23 A detailed review of application of the Pan Atlantic interpretation of section 18 by subsequent courts is beyond the scope of this chapter. The recent decision of AXA v. Arab Insurance Group32 is nonetheless instructive. It concerned the placement of a reinsurance treaty covering marine energy risks in the 1990s. The risk was described as a new one, with no loss history, but it was in reality the relaunching of a product which had been unsuccessful under a previous underwriting team. The approach of the Court of Appeal shows the current approach of the English judiciary to the requirements of the 1906 Act during this transitional phase: 24.24 First, it should be noted that the courts have moved away from treating section 18 as requiring a review of each and every circumstance which might have been disclosed. Rather, the courts have considered the placement of the risk is a more holistic fashion, as to whether a “fair presentation of the risk” took place.33 This is best viewed as the combined effect of the section 18(1) duty to disclose and the section 18(3)(c) possibility of waiver. A fair presentation would be one which either provides all required material circumstances, or failing that, provides the underwriter with sufficient information to request further details. An insurer which fails to enquire further will normally be taken to waived its right to that further information. This, as is seen at paragraph 24.45, is reflected in the statutory formulation of the law under the Insurance Act 2015. 24.25 Second, the test for inducement has become increasingly sophisticated. It is not sufficient for the underwriter to merely show that it would not have entered into the policy on the terms agreed if full disclosure had occurred. The insured will be entitled to adduce evidence to show that it would have provided further explanatory and/or exculpatory evidence alongside the circumstances which were omitted, such that the underwriter would have made the same contract even after accounting for the omitted circumstances. 31 HIH Insurance & General Insurance Ltd v. Chase Manhattan Bank [2003] Lloyd’s Rep. IR 230 at [15]. 32 [2017] Lloyd’s Rep. IR 216. 33 Kerr L.J. was an early adopter of this phrase, as in CTI v. Oceanus [1984] 1 Lloyd’s Rep. 476. 204 War risks and marine insurance legislation 24.26 Finally, whatever the formal nature of section 18, the appellate courts have on occasion expressed the view that underwriters should not rely on the remedy of avoidance ab initio except where plainly justified. Males J. at first instance in AXA v. Arab Insurance Group34 noted the dicta of Staughton L.J. in Kausar v. Eagle Star Insurance Co Ltd: Avoidance for non-disclosure is a drastic remedy. It enables the insurer to disclaim liability after, and not before, he has discovered that the risk turns out to be a bad one; it leaves the insured without the protection which he thought he had contracted and paid for. Of course there are occasions where a dishonest insured meets his just deserts if his insurance is avoided; and the insurer is justly relieved of liability. I do not say that non-disclosure operates only in cases of dishonesty. But I do consider that there should be some restraint in the operation of the doctrine. Avoidance for honest non-disclosure should be confined to plain cases.35 This does not mean that section 18 will not be enforced according to the wording of the statute. But underwriters should be cognisant of judicial sentiment in marginal cases. The broker’s duty of pre-contractual disclosure under section 19 MIA 1906 24.27 Under section 19, Marine Insurance Act 1906 where insurance is arranged through an agent, there is an additional and equivalent duty of disclosure on the agent. As with section 18, the duty extends to the agent’s actual and to deemed knowledge, where an agent to insure. The dominant explanation of this provision at present is that this is not knowledge which is imputed to the principal, but a separate legal duty.36 The remedy for a breach of section 19 is not mentioned in the statute but is avoidance of the policy.37 This will often expose the agent to liability to the putative insured in contract and/or tort, for loss or diminution of cover. Misrepresentation under section 20 MIA 1906 24.28 The principles relating to misrepresentation codified in section 20 of the Marine Insurance Act 1906 generally reflect the position in general contract law and this section will focus on two important differences. First, in the treatment of representations of opinion where the interpretation of section 20(5) MIA 1906 differs from the common law position. Second, in the application of section 2(2) of the Misrepresentation Act 1967 to restrict the availability of avoidance ab initio as a remedy for misrepresentation. 24.29 The divergence between the common law and insurance law approach to misrepresentations of opinion can be seen in Economides.38 Under Smith v. Land & House,39 the 34 [2016] Lloyd’s Rep. IR 1. 35 [2000] Lloyd’s Rep. IR 154, 157. 36 See Arnould, n 28, [16.30]. 37 HIH Casualty & General Insurance Ltd v. Chase Manhattan Bank [2003] 1 Lloyd’s Rep. IR 230, [89] per Ld Hobhouse: … the insurer’s only remedy for non-disclosure and the insurer’s primary remedy for misrepresentation is the avoidance of the policy. The breach of duty on the part of the broker thus directly damages the position of the assured and, because it may lead to a claim over by the assured against the broker, only indirectly damages the position of the broker … 38 Economides v. Commercial Union [1998] QB 587. 39 Smith v. Land and House Property Corporation (1884) 28 ChD 7. 205 War risks and marine insurance legislation general contract law position is that a statement of opinion made by someone in a position of expertise generates an implicit secondary statement that the speaker has reasonable grounds on which to base that opinion. A negligent statement of opinion would, in those circumstances, be operative on the basis of the implied factual statement. Section 20(5), however, states that “a representation as to a matter of expectation or belief is true if it be made in good faith”. Economides (and subsequent case law) confirms that the effect of section 20(5) is to limit operative statements of opinion to those made without honesty. There is no implied statement that the speaker has evidence to support that statement. 24.30 There are no marine war risks cases applying the Economides decision, but it was relied upon in Rendall v. Combined Ins Co of America,40 a reinsurance case arising out of the 9/11 attacks. The reinsurers claim for misrepresentation focused on estimates given on the number of days of business travel during the insured period. Across a total of around 25,500 employees, this was set at 160,000 days on risk across the entire business. Creswell J. was faced with suggestions from counsel that the Economides decision was not of universal application, and perhaps unsuitable for commercial lines. He disagreed. It was necessary first to establish whether the representation was one of fact or “opinion or belief” to which s. 20(5) applied. Where the representation was of “opinion or belief”: In an insurance context one cannot, consistently with section 20(5) of the MIA 1906, find in a representation of expectation or belief, an implied representation that there are reasonable grounds for that belief (Economides supra Simon Brown L.J.). Once statute deems an honest representation as to a matter of expectation or belief to be true, there is no scope for inquiry as to whether there were objectively reasonable grounds for that belief. (Peter Gibson L.J. in Economides)41 There are no obvious grounds for limiting the interpretation of section 20(5) to consumer lines, and it should be assumed to apply universally. 24.31 The second key difference in the insurance context is the judicial unwillingness to use the discretion conferred under section 2(2) Misrepresentation Act 1967 to substitute a money award for the remedy of rescission. The clearest statement to this effect is found in Highlands Insurance Co v. Continental Insurance Co,42 where Steyn J. explained: Where a contract of reinsurance has been validly avoided on the grounds of a material misrepresentation, it is difficult to conceive of situations in which it would be equitable within the meaning of s.2(2) to grant relief from such avoidance.43 24.32 This section concludes with a review of the litigation in The North Star,44 which tested the limits of non-disclosure described above in the war risks arena. The vessel was insured on the basis of war risks clauses (1/10/83) and seriously damaged in an explosion whilst moored near Piraeus, resulting in a claim for a constructive total loss. The vessel was owned by a one ship company but for simplicity this account echoes the approach of 40 41 42 43 44 [2006] Lloyd’s Rep. IR 732. At [103]. [1987] 1 Lloyd’s Rep. 109. At 118. [2006] 2 Lloyd’s Rep. 183. 206 War risks and marine insurance legislation the court in treating the beneficial owners of the corporate group as the insured owners of the vessel. The underwriters denied liability on the grounds that the insureds were complicit in the damage to the vessel and/or that the policy was voidable on the grounds of non-disclosure. The litigation dealt with the second ground, and the Court of Appeal action was further limited by the restriction that the insured could not challenge the finding of inducement. The appeal was therefore primarily concerned with whether the undisclosed circumstances related to the character of the insureds were material. These were: (1) Pending criminal proceedings in Greece, which included allegations of dishonesty in respect of funds; (2) Civil proceedings in Panama, which involved allegations of fraud;Additional circumstances related to the valuation of the business and cancellation of a prior policy for non-payment of premium were not discussed in detail on appeal and were described by Waller L.J. as “very arguably not material”. Nothing more will be said of these, and the live issue was the failure to disclose allegations in ongoing civil and criminal legal actions. 24.33 As noted in paragraph 24.16, the Court of Appeal dismissed suggestions that the standard disclosure of material circumstances was not required (or at least, was much reduced) in the negotiation of war risks policies.45 The question then arose whether allegations as to the insured’s probity which were unproven at the time of placement of the risk were material, and if so, whether subsequent evidence showing the allegations to be groundless was relevant to the determination of the appropriate remedy for failure to disclose. 24.34 Waller L.J. noted that the disclosure of allegations had proved a difficult issue and one on which courts had taken different approaches. On one approach, allegations were immaterial, what mattered was the existence or not of the suggested misconduct. On this view, clandestine misconduct would be material, even if no public allegation of it had been made. Requiring disclosure of the allegation was therefore superfluous: the only occasion on which the allegation as an allegation must be disclosed is when it is not true … a conclusion so devoid of any merit that I do not consider that a responsible insurer would adopt it and nor do I.46 24.35 The contrary view, which was ultimately adopted by the Court of Appeal, in The North Star is that the existence of an unproven allegation is itself a circumstance which would normally be material as it would “raise doubts about the risk”.47 This mirrors the approach taken in Brotherton,48 and avoids putting on underwriters the need to prove that the allegations were accurate in order to be entitled to avoid the policy. Applied to the facts in The North Star, the underwriter was entitled to disclosure of the serious allegations made against the insured, even if unproven at the time of placement of the risk. This was not a costless allocation of responsibility, and Waller L.J. noted the likely effect on an insured against whom an untrue allegation had been made: 45 Paragraph 24.15. 46 At [5], quoting Reynolds v. Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep. 440, 460 per Forbes J. 47 At [8], quoting Phillips J. in Inversiones Manria SA v. Sphere Drake Insurance Co, Malvern Insurance Co and Niagara Fire Insurance Co, The Dora [1989] 1 Lloyd’s Rep. 69. 48 Brotherton v. Aseguradora Colseguros SA [2003] Lloyd’s Rep. I.R. 746. 207 War risks and marine insurance legislation The law in this area is, as others have recognised, capable of producing serious injustice. If every false allegation of dishonesty must be disclosed in all types of insurance, that may place some insureds in the position of finding it difficult to obtain cover at all, and will certainly expose them to having the rates of premium increased unfairly. I do not myself see it as a practical answer to say that exculpatory material can be produced, because unless the material is such as to prove beyond peradventure that the allegation is false, in which event the allegation seems to me no longer material, an underwriter is not likely to be prepared to take time sorting out the strength or otherwise of the allegation. In many instances he would be likely to take the view there is no smoke without fire and turn the placement down or at the very least rate the policy to take account of the allegation.49 24.36 In a series of first instance decisions,50 Colman J. sought to mitigate the effects of this allocation of risk by suggesting that the underwriter’s subsequent use of its remedy of avoidance of the policy would be curtailed in circumstances where the allegations were (at the time of the operation of the remedy) demonstrably untrue. This expansion of the doctrine of utmost good faith was innovative, but rejected by the Court of Appeal. If the criteria under section 18 were met, the underwriter was free to avoid the policy without any ongoing supervision or regulation by judicial process. 24.37 The additional comments provided in The North Star case by Longmore L.J. provide the backdrop to the subsequent reform of the law of pre-contractual disclosure. He noted that the court was bound by authority to reach the outcome given, but: It is gratifying to know that the Law Commission has published a Scoping Paper in preparation for a review of insurance contract law and it is much to be hoped that this area of the law will receive the Law Commission’s detailed consideration and that proposals emerging from that consideration will be enacted. Australia with its Insurance Contracts Act 1984 is well ahead of the United Kingdom in this field.51 The statutory reforms implemented as a result of the Law Commission review provide the focus for the remainder of this section. Misrepresentation and non-disclosure (“ fair presentation of the risk”) under the IA 2015 24.38 The changes to the pre-contractual duties of the insured enacted as a result of the Law Commission’s review of insurance contract law are limited in scope but of considerable significance. When compared to the 1906 Act, there are relatively few changes, but those that have been introduced—and the new remedial regime is the most obvious example—require careful attention. In respect of war risks insurance in particular, the effect of the statutory changes on market practice is likely to be limited. 24.39 The Law Commission project generated two distinct statutory regimes for pre-contractual duties: the Consumer Insurance (Disclosure & Representation) Act 2012 (known as CIDRA) which applies to consumer insurance contracts and the Insurance 49 At [17]. 50 Notably, in Strive Shipping Corp v. Hellenic Mutual War Risks Association (Bermuda) Ltd, The Grecia Express [2002] 2 Lloyd’s Rep. 88, 132–133. 51 At [54]. 208 War risks and marine insurance legislation Act 2015 for commercial lines.52 It is assumed for the purposes of this text that war risks policies are written on a commercial basis. 24.40 The fundamental principles regulating the flow of pre-contractual information under the Insurance Act 2015 mirror those under the Marine Insurance Act 1906. The entry into force of the 2015 Act repealed sections 18–20 MIA 1906 and made significant changes to section 17 MIA 1906. The applicable provisions are section 3 (duty of fair presentation), sections 4–6 (knowledge of the insured and underwriter), section 7 (supplemental) and section 8 (remedies, as detailed in Schedule 1). There are some important differences from the position under the 1906 Act and these are the primary focus of this section. 24.41 The obligations on the insured to disclose and to not misrepresent are merged into a single duty under section 3(1) to make a “fair presentation of the risk”. Section 3(3) describes a fair presentation as one: (a) which makes the disclosure required by subsection (4), (b) which makes that disclosure in a manner which would be reasonably clear and accessible to a prudent insurer, and (c) in which every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is made in good faith. 24.42 Section 3(3)(b) regulates, for the first time, the format of the information which is being disclosed. This provision reflects concerns regarding “data dumping”, by which insureds and their representatives could provide a huge quantity of unfiltered data and still comply with the standard used under section 18, MIA 1906.53 The statutory model includes expectations on the presentation of salient information and not simply the content of the bundle. 24.43 The description of the duty not to misrepresent mirrors that in section 20 MIA 190. In particular, it maintains the rule that statements of expectation or belief are not operative if made in good faith. The rule in Economides will continue to apply.54 24.44 The disclosure component of the duty of fair presentation is described in section 3(4), but then limited by section 3(5). This is the equivalent arrangement to sections 18(2), (3) in the Marine Insurance Act: (4) The disclosure required is as follows, except as provided in subsection (5)— (a) disclosure of every material circumstance which the insured knows or ought to know, or (b) failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances. 52 The definition of “consumer insurance contract” for these purposes is found in s. 1, CIDRA 2012 and requires the insured to be “an individual who enters into the contract wholly or mainly for purposes unrelated to the individual’s trade, business or profession”. All other contracts of insurance are non-consumer insurance contracts. 53 This was the evidence of David Hertzell, then Law Commissioner, to the Special Public Bill Committee on the Insurance Bill in Question 7, archived at https://services.parliament.uk/Bills/2014-15/insurance/documents.html. 54 See paragraph 24.29. 209 War risks and marine insurance legislation Subsection (5) provides the modern list of circumstances not judged to be material: (5) In the absence of enquiry, subsection (4) does not require the insured to disclose a circumstance if— (a) (b) (c) (d) (e) it diminishes the risk, the insurer knows it, the insurer ought to know it, the insurer is presumed to know it, or it is something as to which the insurer waives information. 24.45 What would be viewed under the MIA 1906 as information being waived by the underwriter arises in two distinct places in sections 3(4), (5). First, where a presentation only provides partial information on the risk but provides sufficient data for an underwriter to ask further question then the duty under section 3(4) is met. In these circumstances, the onus should shift to the underwriter to make further enquiries as it has been sufficiently put on notice of an issue. Second, there is the possibility of information being explicitly waived under section 3(5)(e). These provisions generally replicate the position taken by the courts in applying section 18 MIA 1906. 24.46 There are significant changes in the rules which identify the knowledge of the insured for the purpose of establishing which circumstances must be disclosed. For individual insureds, knowledge for the purposes of the duty to disclose under section 3(4) (a) is limited by section 4(2) to that known to the insured and to those responsible for the insured’s insurance. For corporate insureds, the relevant persons under section 4(3) are the insured’s senior management and those who are responsible for the insured’s insurance.55 For both individual and corporate insureds, the imputation of knowledge held by a person responsible for arranging insurance is subject to further restrictions where that knowledge is held confidentially.56 24.47 In respect of the knowledge of the insured, section 4(6) assumes that the risk has been investigated: “Whether an individual or not, an insured ought to know what should reasonably have been revealed by a reasonable search of information available to the insured (whether the search is conducted by making enquiries or by any other means)”. This would presumably extend beyond a search of the insured’s own databases (required under section 4(7)) and would encompass subscription to paid information services for corporate insureds. This goes beyond the current position under MIA 1906. The mechanism for identifying the corporate mind has also changed, and the senior management team is defined as “those individuals who play significant roles in the making of 55 This is defined in s. 3(8)(b): an individual is responsible for the insured’s insurance if the individual participates on behalf of the insured in the process of procuring the insured’s insurance (whether the individual does so as the insured’s employee or agent, as an employee of the insured’s agent or in any other capacity). 56 S. 4(4) provides: A n insured is not by virtue of subsection (2)(b) or (3)(b) taken to know confidential information known to an individual if— (a) the individual is, or is an employee of, the insured’s agent; and (b) the information was acquired by the insured’s agent (or by an employee of that agent) through a business relationship with a person who is not connected with the contract of insurance. S. 4(5) defines a person “connected with a contract of insurance”. 210 War risks and marine insurance legislation decisions about how the insured’s activities are to be managed or organised”.57 In complex corporate structures, as are often found in shipping, this would encompass those who have ownership of the vessel but also those charged with its management. 24.48 Section 5 defines the limits of the underwriter’s knowledge for the purposes of disclosure. This is primarily of importance due to the rule in sections 3(5)(b), (c), (d) that the insured need not disclose information that is either known to the underwriter, or that the underwriter ought to know or is taken to know. The most commercially significant limitation is in respect of presumed knowledge, which is defined in section 5(3) as “things which are common knowledge”, and “things which an insurer offering insurance of the class in question to insureds in the field of activity in question would reasonably be expected to know in the ordinary course of business”. This sets the standard as that of a reasonable war risks underwriter and will set a higher threshold on matters of global political tension than that of the average insurer. 24.49 The definition of materiality in the Insurance Act 2015, which was been the subject of considerable litigation (see paragraph 24.21), is unchanged from section 18(2) MIA 1906.58 Similarly, the requirement of inducement of the actual underwriter is maintained, but now as part of the statutory regime, under section 8(1). 24.50 The most significant legal change lies in the alteration of the remedies for breach. The standard remedy of avoidance is no longer the default remedy. Indeed, there is no default remedy under the current scheme. Section 8 creates a two-tier system for breach: those that are “deliberate or reckless” and those that are not. The burden of proof is on the underwriter to show the breach is at the higher level. Once the breach has been characterised, the appropriate remedy is determined by Schedule 1. For “deliberate or reckless” breaches, the remedy is avoidance and the underwriter need not return the premium.59 For all other breaches, the court must determine what the insurer would have done in the absence of the failure to make a fair presentation of the risk. Divergent views have been expressed on how this will operate in commercial markets. On one view the court would determine simply what changes to the bargain struck the underwriter would want to reflect the failure to make a fair presentation.60 On the other, the court would have to determine what the outcome would have been in light of the prevailing commercial circumstances at the time.61 If the outcome (however determined), was that the underwriter would not have underwritten the risk, then the remedy of avoidance is available. If the underwriter would have demanded a higher premium, then the claim is reduced to the extent that the premium was underpaid. If the underwriter would have insisted on amended terms (other than a variation in premium) then the policy is enforced as if those terms had been agreed. Negotiating a settlement between underwriter and insured where there has been a failure to present the risk fairly will be particularly difficult where the evidence is that a variation in terms would have been agreed. Undertaking this form of 57 S. 4(8)(c) IA 2015. 58 S. 7(3) IA 2015. 59 Under para. 2, Sch 1 IA 2015. 60 P MacDonald Eggers and Sir S Picken, Good Faith & Insurance Contracts (Informa, 4th edn, 2018), [16.21]. 61 J Davey, ‘Proportionality, Fair Presentation of the Risk & the Hypothetical Bargain: The Law Commission’s Remaking of Commercial Insurance Law’ (2019) LMCLQ 359. 211 War risks and marine insurance legislation statutory redrafting of the contract with full hindsight knowledge of a casualty that has occurred is likely to be challenging. 24.51 The doctrine of utmost good faith given effect to in section 17 of the 1906 Act has been of greater academic interest than of commercial effect. Under section 14, Insurance Act 2015 the remedy of avoidance is removed from section 17 and from any equivalent common law rule. The precise effect of this provision is open to question. The intention of the Law Commission was to render “utmost good faith” of interpretative assistance only, but it remains possible for a court to develop a common law rule with some remedy other than avoidance, for an example to support a claim in damages. Rules to this effect have been developed in other common law countries.62 24.52 The pre-contractual duties under the Insurance Act 2015 are a relatively gentle evolution from those found within Marine Insurance Act 1906. The remedies are much more complex and provide genuine uncertainty. It is possible for commercial parties to contract out of the new remedial regime, but would have to do so within the statutory framework set out in sections 16–17 of the 2015 Act. Warranties and risk management clauses 24.53 Lord Griffiths in the Vesta case said: It is one of the less attractive features of English Insurance Law that breach of a warranty in an insurance policy can be relied upon to defeat a claim under the policy even if there is no causal connection between the breach and the loss.63 The strictness of the remedy for non-compliance with insurance warranties led to clauses formerly classified as warranties being redesigned to have less severe consequences, and eventually to statutory reform by way of the Insurance Act 2015. 24.54 Warranties do not play a big part in war risks insurance. Since this is insurance against what other people do to the insured object, it is not surprising that their influence is very small on war risks insurance compared with the part that they play in the insurance against marine risks. However, war risks insurance has long contained a clause limiting the operation of the vessel within certain geographic boundaries. This clause was, for some time, referred to as the “Navigation Warranty” and the equivalent clause in a P&I policy generated the leading case on warranties in marine insurance prior to the entry into force of the Insurance Act 2015: Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd. (The Good Luck).64 Before moving to a review of this line of case law, it should be noted that this clause is no longer drafted as an insurance warranty. Navigation limits: the current contractual provisions 24.55 The key contractual restriction on the operation of the vessel in war risks insurance is the navigation limits Clause. The current version is entitled the Navigation Limitations 62 See Young v. Tower Insurance, [2016] NZHC 2956; [2017] Lloyd’s Rep. IR 605 as applied in Kilduff v. Tower Insurance [2018] NZHC 704; [2018] Lloyd’s Rep. IR 621. 63 Forsikringsaktieselskapet Vesta v. Butcher [1989] AC 852, 893–894. 64 [1988] 1 Lloyd’s Rep. 514, [1989] 2 Lloyd’s Rep. 238 (C.A.), [1991] 2 Lloyd’s Rep. 191 (H.L.). 212 War risks and marine insurance legislation for Hull War, Strikes, Terrorism and Related Perils Endorsement (JW2005/001A) and is routinely included in war risks policies. This creates a class of “Areas of Perceived Enhanced Risk” (APER) that insured vessels are not permitted to “enter, sail for or deviate towards”.65 These areas are updated by the Joint War Committee,66 which normally meets on a quarterly basis.67 The forerunners of this clause were often cast as promissory warranties. The current version is not a promissory warranty and contains a complex series of limits on cover offset by held covered clauses. The precise legal consequences of entering or navigating towards an enhanced risk area are complex will be subject to the changes in the 2015 Act. Clause 2 operates on the basis that a voyage is intended (or underway) which would breach the obligation in Clause 1 not to sail towards an APER, and provides mechanisms for renegotiating cover to avoid breach of Clause 1 and remedies for breach of Clause 1 if no successful variation of cover is made. Each element of the clause is considered in turn, before an overall assessment is given: 1. NAVIGATION PROVISIONS Unless and to the extent otherwise agreed by the Underwriters in accordance with Clause 2, the vessel or craft insured hereunder shall not enter sail for or deviate towards the territorial waters of any of the Countries or places, or any other waters described in the current List of Areas of Perceived Enhanced Risk (listed areas) as may be published from time to time in London by the Joint War Committee. Analysis Breach of this clause is not restricted to entering an APER, but would occur on sailing for (or deviating towards) a controlled region. This is important for determining the moment at which non-compliance commences. 2. BREACH OF NAVIGATION PROVISIONS (a) If the Insured wishes to secure continuation of coverage under this insurance for a voyage which would otherwise breach Clause 1, it shall give notice to Underwriters and shall only undertake such voyage if it agrees with the Underwriters any amended terms of cover and any additional premium which may be required by the Underwriters. Analysis This is a form of “held covered” Clause. The precise legal effect of these clauses varies considerably according to their terms, and each needs to be interpreted carefully. The clauses are considered in detail in Chapter 28. One crucial issue is whether the clause imposes additional duties (including to give notice) on the insured, or whether the clause is permissive in nature. Clause 2(a) provides the basis for the insured to maintain “continuation of coverage” but does not impose contractual obligations on the insured to take these steps. It operates “If the insured wishes to secure continuation of cover …”. Failure to 65 Cl 1, Navigation Limitations for Hull War, Strikes, Terrorism and Related Perils Endorsement. 66 This is given contractual effect: Cl 3, Navigation Limitations for Hull War, Strikes, Terrorism and Related Perils Endorsement. 67 The operation of the JWC is recorded at www.lmalloyds.com/lma/jointwar. 213 War risks and marine insurance legislation negotiate a variation in cover in advance to encompass the voyage concerned puts at risk “continuation of coverage”. There is no duty on the underwriter to offer extended cover.68 The mechanism for interrupting cover (and the possibility of further remedial action by the insured) is found in Clauses 2(b), (c), (d). (b) In the event of any breach of any of the provisions of Clause 1, the Underwriters shall not be liable for any loss, damage, liability or expense arising out of or resulting from an accident or occurrence otherwise covered under this insurance during the period of breach, unless notice of such breach is given to the Underwriters as soon as practicable and any amended terms of cover and any additional premium required by them are agreed. Analysis The immediate effect of Clause 2(b) is to act as a form of “suspensive condition”. There are two initial consequences for the underwriter’s liability. First, cover is suspended during the period of breach. As breach occurs when the vessel enters, sails for or deviates towards an APER, this period is not restricted to the period when the vessel is within the APER. Second, whilst the period of breach would normally end when the vessel exited the APER, cover does not immediately revert to its prior standard, as occurrences which arose during the period of breach but which only led to harms outside of that window would not be insured. The obvious example is a “hot pursuit” scenario derived from The Good Luck, where the vessel is attacked shortly after leaving the APER, but where the attack was motivated by its entry into the APER. These consequences for cover are subject to the further “held covered” extension provided that notice is given promptly and the insured agrees to any variation in terms required by the underwriter. Whilst the clause does not say so expressly, it would appear that an insured which notified “as soon as [was] practicable” a breach of Clause 1 would not attract the suspension of cover set out in Clause 2, even in the notice were given after the start of the breach. This, of course, assumes that mutually acceptable terms to vary cover are agreed. As above, the underwriter has no duty to offer cover. (c) The absence of prior notice shall not affect the cover under this insurance but it is a condition of this insurance that the Insured is bound to declare to the Underwriters all breaches of the provisions of Clause 1. (d) If Clause 2(c) is deleted, continuation of coverage under this insurance is conditional upon notice to the Underwriters being given prior to the vessel or craft entering the listed areas. Analysis Clauses 2(c) and (d) provide alternative consequences for a breach of Clause 1. Clause 2(c) is the default. Whichever clause is operative should be read as detailing the effect on the underwriter’s liability for the period after the breach of Clause 1 has ended. These 68 This was the approach adopted by Teare J. in Suez Fortune Investments Ltd v. Talbot Underwriting Ltd, The Brilliante Virtuoso [2019] EWHC 2599 (Comm) at [524]. There, it was considered (albeit obiter) that additional cover was agreed on the basis that the period outside of standard navigational limits did not exceed 48 hours and was for the purpose requested. 214 War risks and marine insurance legislation remedies are in addition to any limit on cover under Clause 2(b). Clause 2(d) is unambiguous, and states that prior notice of a vessel entering an APER is a pre-condition of continuation of coverage. Read alongside 2(b) this effectively removes the contractual mechanism for giving notice “as soon as is practicable” after the vessel has entered an APER. Notice must be given in advance. This would make prior notice of entry into or sailing (or deviating) towards an APER a condition precedent to the underwriter’s continuing liability under the policy. Clause 2(c) provides for a duty to give notice of any breaches of Clause 1 as a “condition” of the insurance. This duty is not made subject to any specific time limit for compliance and states that the lack of prior notice “shall not affect cover”. This part of the clause was considered in The Litsion Pride as “tend[ing] to emphasize that cover continues even in the absence of punctual information of the voyage” and that prior notice was not a condition precedent.69 The precise effect of this clause could be more clearly expressed, but makes greatest commercial sense as a pre-condition to the bringing of any claim under the policy that the insured has notified of all breaches under Clause 1. Notification of breaches at renewal would already be regulated by the duty of fair presentation of the risk. This part of 2(c) would have effect as a claims condition rather than as a restriction on liability for losses arising, as under 2(d). Both are significant restrictions on the underwriter’s liability for losses and are as commercially significant as the remedy in Clause 2(b) for substantive breaches of navigation outside of permitted limits. Clauses which imposing limits on an insured’s conduct and which are intended to control the level of risk transferred to the underwriter will be subject to the rules in the Insurance Act 2015 where the policy is issued on or after 12 August 2016. These are discussed in paragraph 24.73. 24.56 The precise effect of the Navigation Limitations clauses in their previous iterations was determined in part by the marine insurance legislation on risk management clauses, and in particular the law of insurance warranties. However, the effect of the legislation is diminished by the specific remedies provided for in the recent versions of the clauses, which reduces the need to classify the clause in order to discover the remedy for breach. Navigation limits as promissory warranties 24.57 Historically, the navigation limits clause above was often described as an insurance warranty. In light of the changes in both commercial practice and substantive law, this section on the nature of insurance warranties is much changed from previous editions. First, because war risks policies generally have relatively few clauses requiring the insured to deal with its property in a particular way. This is part of the general observation that war risks cover largely insures risks that arise independently of the insured’s conduct. The Navigation Limits are a rare counter example. Second, the strict rule for breach of promissory warranty has been repealed in respect of contracts made after 12 August 2016. 69 Black King Shipping Corporation and Wayang (Panama) SA v. Mark Ranald Massie, The Litsion Pride [1985] 1 Lloyd’s Rep. 437, 470. 215 War risks and marine insurance legislation It could be recreated by specific contract provision, but a detailed review of that position is undeserved. Despite these changes, an understanding of the position some 20 years ago is vital in order to appreciate the shifts in law and practice. Promissory warranties and the MIA 1906 24.58 The nature of a warranty in a marine insurance policy, whether for marine or war risks, was clearly stated in section 33 of the Marine Insurance Act 1906, which read: 33. Nature of Warranty (1) A warranty, in the following sections70 relating to warranties, means a promissory warranty, that is to say, a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts. (2) A warranty may be express or implied. (3) A warranty, as above defined, is a condition which must be exactly complied with, whether it be material to the risk or not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date. 24.59 The crucial provision was section 33(3), which detailed the remedy for breach. For contracts made after 12 August 2016, this has been repealed and replaced by the regime found in section 10, Insurance Act 2015. The remainder of this section reviews the position for contracts made prior to that date. In order to appreciate the judicial interpretation of section 33, it must be read alongside section 34(2), (3): (2) Where a warranty is broken, the assured cannot avail himself of the defence that the breach has been remedied, and the warranty complied with, before loss. (3) A breach of warranty may be waived by the insurer. 24.60 The precise effect of non-compliance with an insurance warranty prior to the House of Lords’ decision in The Good Luck was contested. On one view, the warranty operated akin to breach of condition in general contract law, enabling the underwriter to terminate the contract for breach, but requiring an election to do so.71 On the other, the term was akin to a condition precedent, and non-compliance with the clause meant that the insurer was no longer on risk. This would occur automatically and would not be dependent on an election being made. The express wording of section 33(3) suggested the latter position, but the wording of section 34(3) suggested that the underwriter could waive (by election) a breach of warranty. 24.61 Kerr L.J. in State Trading Corporation of India v. M. Golodetz Ltd favoured the automatic discharge model: 70 The sections relating to warranties are sections 33 to 41. 71 This was the view of May L.J. in the Court of Appeal: [1990] 1 QB 818. 216 War risks and marine insurance legislation Thus, the correct analysis of a breach of warranty in an insurance contract may be that, upon the true construction of the contract, the consequence of the breach is that the cover ceases to be applicable unless the insurer subsequently affirms the contract, rather than to treat the occurrence as a breach of the contract by the insured which the insurer subsequently accepts as a wrongful repudiation.72 24.62 The precise effect of a breach of warranty was confirmed by the House of Lords in The Good Luck.73 The owners of the Good Luck, Franicons, entered the ship for insurance in the Hellenic Association and also mortgaged her to the Bank of Nova Scotia. In accordance with normal practice, the Association, on the owners’ request, gave a letter of undertaking to the bank by which it undertook to tell the bank if the insurance ceased. Naturally, it was a matter of importance to the bank to know if the borrower was no longer insured for war risks. There were many facets to this case and, at first instance, Hobhouse J. found the Association liable in damages for failing to observe a “duty to speak”.74 This finding was unanimously reversed by the Court of Appeal, which entered judgment in favour of the Association, but this chapter can only be concerned with what the Court of Appeal had to say on the subject of warranties. 24.63 The directors of the Mutual War Risks Association had the power to give orders, prohibitions and directions that ships entered in the Association for insurance shall not go to “any port, place, country, zone or area” which has become so dangerous that the Association did not give insurance within it. The Rules of the Association contain the following provision, which in 1982 read as follows: Every insurance given by the Association shall be deemed to contain or shall contain a warranty by the owner that all such orders, prohibitions, directions … shall be acted upon and complied with by the insured ship … PROVIDED ALWAYS THAT: The breach of such warranty shall not operate to invalidate the insurance if the owner shall prove that such breach occurred without any personal fault or any want of due diligence on the part of the owner or managers of the entered [insured] ship or was committed in order to avoid loss by the risks insured by the policy. 24.64 Right at the start of the Iran/Iraq War in 1980, the directors of the Association had made a direction that ships entered in the Association were not to go to Bandar Khomeini or its approaches. On 6 June 1982, the Good Luck was hit by missiles whilst within the prescribed zone and suffered such severe damage that she subsequently became a constructive total loss. The bank contended that at the date of the attack, or very shortly afterwards, the Association knew that the insurance of the ship had ceased because of the breach of warranty in being in the neighbourhood of Bandar Khomeini at all, but it did not tell the bank. The Association contended that the insurance had not ceased (the issue of a constructive total loss only became clear much later), and that it was entitled to a reasonable time to make up its mind whether or not to regard the insurance as terminated. In the event, on 4 August 1982, the directors of the Association decided that the claim should not be paid; they did not, however, decide that the insurance should be terminated, but that it 72 [1989] 2 Lloyd’s Rep. 277, 287. 73 Bank of Nova Scotia v. Hellenic Mutual War Risk Association (Bermuda) Ltd, The Good Luck [1992] 1 AC 233. 74 [1988] 1 Lloyd’s Rep. 514. 217 War risks and marine insurance legislation should be left to run its normal course. The bank was advised of this decision on 5 August 1982. Unknown to the Association, the bank, between April and mid-July 1982, advanced further money to the owner, the Good Luck being part of the security, and this money was the basis of the damages awarded against the Association. 24.65 Had the insurance in fact ceased when the ship entered the prohibited zone on 6 June 1982? The Court of Appeal took as its baseline two well-established principles of law. First, in any contract, the breach of a condition, which is a term going right to its root, or the repudiation of a contract, by one party gives the other party an option. He may accept the position that the contract is at an end and sue for damages. Alternatively, he may disregard the breach or refuse to accept the repudiation, when the contract remains in full effect; in other words, he can hold the first party to his bargain. Second, in general insurance law (excluding marine insurance) the position appeared to have been settled, at least in the view of leading non-judicial sources.75 Another part of the judgment dealt specifically with the point at issue: We do not agree that the entry of a vessel into a PZ [prohibited zone] … in breach of warranty … has the effect automatically and without more of bringing the contract of insurance to an end. It entitles the insurer to treat the contract as at an end if he so chooses, but the matter is one for his choice. 24.66 Since on the facts there was no unreasonable delay on the part of the Association in making its decision, the Association would have been entitled, if it so chose, to wait until 4 August to decide whether it treated the contract as being at an end; had it done so, notification would then have had to be given to the Bank without delay. 24.67 The House of Lords76 reversed the judgment of the Court of Appeal and restored that of Hobhouse J. Lord Goff treated the statutory remedy as explicable on the basis of a contingent contractual promise (a condition precedent) rather than a promissory Clause (such as a condition): if a promissory warranty is not complied with, the insurer is discharged from liability as from the date of the breach of warranty, for the simple reason that fulfilment of the warranty is a condition precedent to the liability of the insurer.77 The basis for this was the fundamental nature of the promissory warranty in insurance law: This moreover reflects the fact that the rationale of warranties in insurance law is that the insurer only accepts the risk provided that the warranty is fulfilled. This is entirely understandable; and it follows that the immediate effect of a breach of a promissory warranty is to discharge the insurer from liability as from the date of the breach.78 On this basis, no possibility of “waiver” as such arises, as was mentioned under section 34(3) of the 1906 Act. The underwriter does not elect whether to affirm the contract or 75 76 77 78 Law Reform Committee Fifth Report (Conditions and Exceptions in Insurance Policies) (1957) (Cmnd. 62). [1992] 1 AC 233. At 262–263. At 263. 218 War risks and marine insurance legislation to bring liability to an end, it occurs automatically. Strictly speaking the insured would need to establish that the doctrine of promissory estoppel prevented the underwriter from relying on a breach of warranty. As was stated in HIH Casualty & General Ins Ltd v. AXA Corporate Solutions: In dealing with the law the judge started by recognising that where there is a breach of warranty there is no scope for traditional waiver by election because the insurer is automatically discharged from liability upon breach and therefore has no choice to make.79 24.68 Previous editions of this text expressed the view that the decision of the House of Lords in The Good Luck was incorrectly decided, as it favoured a strict interpretation of the statute over commercial practice. The current authors do not share that view, not least because the application of the doctrine of repudiatory breach to insurance contracts would not be unproblematic. In any event, market practice has shifted away from the use of insurance warranties and towards the suspension of liability. Notably, this remains a remedy which applies automatically in the event of non-compliance, and is not dependent on the underwriter becoming aware of the breach and actively bringing cover to an end. Risk management clauses under the MIA 1906 24.69 In previous editions, Michael Miller sought at this point to distinguish between true insurance warranties and other forms of risk management clause. What appears in paragraphs 24.70–24.72 is (largely) unamended text, as it remains a useful description of emerging market practice. However, later paragraphs then refine this distinction in order to enable a contrast to be drawn with the law as is stands under the Insurance Act 2015. 24.70 There is a practice in the London Market that exclusions from the cover given by the policy are prefaced by the words “warranted free of” or “from” followed by a number of instances where the policy does not give insurance cover. The marine policy on the S.G. Form was warranted free of the perils listed in the Free of Capture and Seizure Clause. Many instances will be noted in the cases referred to in this work that certain insurances are “warranted free of particular average” or of other matters which are not included in the insurance cover. These are not warranties at all and the statement that they are could be misleading. They are express exclusions from the insurance cover given by the policy. They cannot in any event fit the definition of a warranty given by section 33(1), not being promissory in character. It seems, however, from what Mocatta J. said in The Anita case80 that their true nature and the intentions that lie behind them are well understood by the courts, and that it is unlikely that the inaccurate description will lead to unforeseen results. Reference has also been made to the custom of the London Market in referring to visits to dangerous areas as “breaches of warranty” and the additional premiums charged for such visits as “breach of warranty premiums”. 24.71 The marine insurance market has for many years recognised ways of mitigating the strictness of the rule in section 33 as interpreted in The Good Luck. The most 79 [2003] Lloyd’s Rep. I.R. 1, [7]. 80 See paragraphs 1.15–1.16. 219 War risks and marine insurance legislation prominent historically was the “held covered” clause by which the insured could seek an extension of cover on the payment of an additional price and/or variation of cover. These clauses have been drafted in a variety of ways and are often of uncertain legal effect. They seek to capture a practice of renegotiation of cover in the light of changed circumstances but their precise effects have not been the subject to detailed litigation. They remain in use in war risks cover, not least in the “navigation limits” clauses. 24.72 Marine insurance policies have over time reduced the number of obligations on the insured classified as warranties in favour of the “exclusions” and policy limits discussed. Policies have also adopted bespoke remedies for non-compliance with policy terms, such as termination of cover the next time that the vessel is in port. Insurance warranties and risk management clauses under the IA 2015 24.73 The creation and operation of insurance warranties and other forms of risk management obligations is now regulated by sections 9–11 of the Insurance Act 2015. Section 9 has minimal impact on the marine war risks market, as it prohibits the creation of warranties by “basis of the contract” clauses, a practice not commonly used in the London market for marine policies. However, sections 10–11 are of considerable importance. 24.74 Section 10(1), (7) repeal the common law and statutory remedy for breach of insurance warranty established in section 33(3) MIA 1906 and as interpreted by the House of Lords in The Good Luck. The new default remedy for breach of insurance warranty is stated in section 10(2): An insurer has no liability under a contract of insurance in respect of any loss occurring, or attributable to something happening, after a warranty (express or implied) in the contract has been breached but before the breach has been remedied. 24.75 This broadly aligns the effect of a breach of insurance warranty with that of a “suspensive condition” as described in the non-marine case of Kler Knitwear.81 The underwriter is “off risk” for the period of non-compliance between breach and remedying the breach (if and when that occurs).82 However, the remedy is slightly wider than this, as section 10(2) also excludes liability for any loss attributable to an event occurring during that period of breach. Take a hypothetical example based on The Good Luck: a vessel enters a prohibited war zone in breach of warranty. The master realises his error and withdraws from the zone but is attacked by a hostile helicopter which pursues it out of the zone. The likely effect of section 10(2) is to relieve the underwriter from liability for damage to the vessel, even if it occurs outside the prohibited zone, as it is attributable to actions between the moment of breach and the moment of remedying the breach. This is very similar to the contractual remedy provided in the Navigation Limits clause discussed in paragraph 24.55. 81 Kler Knitwear Ltd v. Lombard General Insurance Co Ltd [2000] Lloyd’s Rep. IR 47. 82 Ss. 10(5), (6) Insurance Act 2015 provide for a statutory regime for remedying breach of warranty. 220 War risks and marine insurance legislation Section 10(3) lists a series of reasons why an insurance warranty would be inoperative, where: (a) because of a change of circumstances, the warranty ceases to be applicable to the circumstances of the contract, (b) compliance with the warranty is rendered unlawful by any subsequent law, or (c) the insurer waives the breach of warranty. 24.76 Sections 10(5), (6) IA 2015 provide the statutory basis for determining the moment at which the breach of warranty is remedied, something unfamiliar to the English courts, as De Hahn v. Hartley83 and section 34(2) MIA had specifically stated this to be legally irrelevant. There are two classes of breach, the general case (under section 10(5)) and warranties imposing a time limit for action. For the general class of warranties, remedying a breach occurs “if the insured ceases to be in breach of the warranty”. This new default favours the insured in breach of a major obligation but for a short period of time, but does little for the insured who is in breach of relatively trivial obligations but on a regular basis. Section 10 does not require a causal relationship between the breach of warranty and the loss that occurred. We will return to this issue in respect of section 11, in paragraph 24.78. 24.77 For warranties that require some action to be done (or not done) or some state of affairs to exist (or not) by a particular point in time the insured cannot never return to compliance. It will always have missed the deadline. For such clauses, the breach is taken as remedied under section 10(5) when: “the risk to which the warranty relates later becomes essentially the same as that originally contemplated by the parties”. A clause that required security training for crew traversing an area of increased pirate activity to be concluded within 90 days of the start of the policy would fall within this second class, if categorised as a warranty. More complex cases are likely to arise and trouble the courts. It is possible for commercial parties to contract out of section 10 IA 2015, subject to the “contracting out” provisions in sections 16–17 IA 2015, considered in paragraphs 24.12–24.14. 24.78 The potential ambit of section 11 is much wider. It is a complex clause, which underwent considerable change during the Law Commission consultation process. It has the potential effect of preventing an underwriter from limiting or discharging liability for a failure to comply with a risk management clause. This is an extraordinary intervention in commercial insurance markets. Moreover, the clause has no obvious mechanism for scaling the level of intervention so that sophisticated insureds receive a lower level of protection. 24.79 Section 11 provides: (1) This section applies to a term (express or implied) of a contract of insurance, other than a term defining the risk as a whole, if compliance with it would tend to reduce the risk of one or more of the following— (a) loss of a particular kind, (b) loss at a particular location, (c) loss at a particular time. 83 (1786) 99 ER 1130; 1 Term Rep. 343. 221 War risks and marine insurance legislation (2) If a loss occurs, and the term has not been complied with, the insurer may not rely on the non-compliance to exclude, limit or discharge its liability under the contract for the loss if the insured satisfies subsection (3). (3) The insured satisfies this subsection if it shows that the non-compliance with the term could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred. (4) This section may apply in addition to section 10. 24.80 Section 11 applies to clauses beyond insurance warranties. There are three key elements that define the ambit of the section: one positive, two negative: (1) Section 11 is restricted to clauses where “compliance” with the clause would alter the level of risk. This limits the kind of clause regulated by section 11 to those where an obligation is placed upon the insured, rather than where the contract reduces cover on the occurrence of some extraneous event; (2) Clauses which “define the risk as a whole” are outside the ambit of section 11. The navigation limits clauses restrict all liability under a war risks policy and would satisfy this requirement. Clauses which fall within this exclusion are not regulated by section 11, even if the final positive requirement are met; (3) Assuming neither (1) nor (2) exclude the operation of section 11, it regulates clauses which, if complied with, would restrict losses of a particular kind, location or time. This identifies the intended function of the clause, as a risk management clause. This could be a condition precedent, an insurance warranty or some form of condition. 24.81 Where the clause falls within section 11, the insured is able to prevent the underwriter from relying on breach of the clause in question to limit or deny liability where it can prove: “that the non-compliance with the term could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred”. 24.82 The precise nature of the test set out in section 11(3) is contested.84 It has been argued that this is a form of causal enquiry, although this is contrary to the Law Commission’s stated intention. The better view is that it is a mixed test of the expected function of the clause (set at the time of contracting) compared to the nature of the loss (set at the time of the loss, or once further information is available). This is not enough to resolve the uncertainties within section 11. It is not clear how specific the characterisation of the function of the clause should be, nor indeed the characterisation of the loss. A contractual clause requiring an annual security review might be designed specifically to control the risk of piracy at sea, but could in practice reduce the risk of malicious acts committed in port. 24.83 In sophisticated commercial markets, where the presence of specific contractual promises to reduce the level of risk are likely to be significant in setting the level of premium, a suitable response to the litigation risks inherent in section 11 would be to “contract out” of the clause entirely. This is not required where it is clear that all risk management clauses are of general application in that they define “the risk as a whole”. 84 The competing views are set out in R Merkin & O Gurses, ‘Insurance Contracts after the Insurance Act 2015’ (2016) 132 LQR 445, 465–466. 222 CH A PT ER 25 Total loss and notice of abandonment Actual and constructive total losses 25.1 Issues of total loss may have a character of their own in War Risks cases, and this chapter will focus on those features rather than aiming for a comprehensive treatment. The Marine Insurance Act 1906 addresses “Loss and Abandonment” in sections 55–78. 25.2 Section 56(1) provides that a loss may be either total or partial, and that any loss other than a total loss is a partial loss. Total loss is further divided by sub-section (2) into actual total loss and constructive total loss. 25.3 Section 57(1) states that there is an actual total loss in three situations: (i) where the subject matter insured is destroyed; (ii) where the subject-matter is so damaged as to cease to be a thing of the kind insured; or (iii) where the Assured is irretrievably deprived of the subject-matter insured. War risk examples are not difficult to find: the insured object is destroyed by sinking after a missile strike; it is so damaged that it ceases to be a thing of the kind insured when the explosion of a mine breaks the ship’s back and one half sinks; and the assured is irretrievably deprived of possession where his ship is captured by a belligerent and condemned by a Prize Court. In the context of marine insurance, the existence of a doctrine of constructive total loss has meant that the concept of an actual total loss has been applied more strictly.1 In The Bunga Melati Dua,2 cargo owners claimed that their cargo was an actual total loss, on the basis that they were irretrievably deprived of it, when the vessel carrying it was captured by pirates. The Court of Appeal rejected their arguments that piracy (like capture) created an automatic actual total loss and that, in any event, the law could not take account of the payment of a ransom in calculating the prospects of recovery. Seizure by pirates who habitually released vessels against payment of a ransom did not lead to an inference that the property was irretrievably lost, though such an inference could be made in different circumstances.3 Capture and seizure are by their nature perils which lead to intermediate cases, where there is a prima facie total loss, but the property may be restored to its owner.4 The test under section 57(1) is irretrievable deprivation, and 1 Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1 Lloyd’s Rep. 630 at [16]. 2 Ibid. 3 The Court of Appeal distinguished Dean v. Hornby (1854) 3 E & B 180, where pirates took a vessel for their own use, and recapture by the Crown did not restore the owners to possession: Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1 Lloyd’s Rep. 630 at [26–33] per Rix L.J. 4 Roux v. Salvador (1836) 3 Bing NC 266 at pp.285–286 per Lord Abinger C.B.; Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1 Lloyd’s Rep. 630 at [35] per Rix L.J. 223 Total loss and notice of abandonment essentially that is an inference of fact.5 If the property is restored after deprivation, the effect may nevertheless still be a constructive total loss (see paragraph 25.17). 25.4 Section 57(2) provides that in the case of an actual total loss, no notice of abandonment need be given.6 However, such notice is required where a constructive total loss is claimed. Where there is a valid abandonment, section 63(1) provides that the insurer is entitled to take over the interest of the insured in what remains of the subject-matter insured.7 It may not be an easy question to answer whether a total loss is actual or constructive and thus whether notice of abandonment is required. 25.5 Constructive total loss is a more complex concept. The basic concept is that there is a constructive total loss if a partial loss is financially equivalent to a total loss, even though it is not in physical terms a total loss.8 In the majority of cases the distinction corresponds to that between physical and mercantile impossibility.9 Section 60(1) contains a general definition, subject to any express provision in the policy,10 so that there is a constructive total loss in two situations: (i) where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing11 to be unavoidable; or (ii) because the subject-matter could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred. 25.6 That general definition is then followed in section 60(2) by three particular instances of a constructive total loss. Sub-section (2) supplements sub-section (1) and does not merely illustrate it.12 The three instances are: (i) Where the assured is deprived of the possession13 of his ship or goods by a peril insured against, and (a) it is unlikely that he can recover the ship or goods as the case may be,14 or (b) the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered; or 5 Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1 Lloyd’s Rep. 630 at [56] per Rix L.J. 6 Kaltenbach v. Mackenzie (1878) 3 C.P.D. 467 at p.471 per Brett L.J. (abandonment takes place at the time of settlement of the claim for an actual total loss). 7 See The WD Fairway [2009] 2 Lloyd’s Rep. 191 and The WD Fairway (no.3) [2009] 2 Lloyd’s Rep. 420. 8 Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019] UKSC 29 at [11]. It is also a constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable: s.60(1) of the 1906 Act. 9 Sir Mackenzie Chalmers, The Marine Insurance Act, 1906 (1907), p.86, cited by Rix L.J. in Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1 Lloyd’s Rep. 630 at [17]. 10 The Institute Time Clauses—Hulls contain provisions in Clause 19 relating to the constructive total loss. This provision is incorporated into the War and Strikes Clauses Hulls (Clause 2). 11 Although the Act refers to an actual total loss “appearing” to be unavoidable, it is an objective test: Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019] UKSC 29 at [12]. 12 Petros M. Nomikos Ltd. v. Robertson (1939) 64 Ll.L.Rep. 45 per Lord Wright at p.50; Rickards v. Forestal Land Co. Ltd. [1942] A.C. 50 per Lord Wright at p.84. 13 In section 60 “deprived of the possession” of the property has been given the broad meaning of being deprived of “the free use and disposal” of the property: Owners of the Bamburi v. Compton (The Bamburi) [1982] 1 Lloyd’s Rep. 312; Royal Boskalis Westminster NV v. Mountain [1997] L.R.L.R. 523. 14 Recovery has to be unlikely “within a reasonable time”: Polurrian Steamship Co. Ltd. v. Young [1915] 1 K.B. 922 at p.937 per Kennedy L.J.; Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden) (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 at p.87 per Lord Wright; Societe Belge S.A. v. London & Lancashire Insurance Co. (1938) 60 Ll.L.Rep. 225 at p.234; Irvin v. Hine [1950] 1 K.B. 55 at p.569. 224 Total loss and notice of abandonment (ii) In the case of damage to a ship, where she is so damaged by a peril insured against, that the cost15 of repairing the damage would exceed the value of the ship when repaired;16 or (iii) In the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival. 25.7 The complexity of section 60 reflected the common law, which the 1906 Act largely sought to codify. In the case of unvalued policies,17 which were previously common, there could be great uncertainty as to whether the cost of cure would exceed the value of the insured property. Modern policies are now almost always valued.18 Furthermore, the total loss provisions of the Institute Time Clauses—Hulls (Clause 19), as incorporated into the War and Strikes Clauses, provide that the insured value shall be taken as the repaired value. Election for a constructive total loss 25.8 The assured is not compelled to treat a casualty as a constructive total loss. Section 61 provides that where there is a constructive total loss the assured may either treat the loss as a partial loss, or abandon the subject matter insured to the insurer and treat the loss “as if it were an actual total loss”. The notice of abandonment is notice to the underwriters of this election between a partial loss and a constructive total loss.19 Unless notice is waived by the insurer or the circumstances are such that there would be “no possibility of benefit to the insurer if notice were given to him”, notice is a condition precedent to the assured’s right to claim for a constructive total loss.20 Such a notice is, however, not a condition precedent to the existence of a constructive total loss.21 The requirements and effect of such a notice, and of its acceptance or rejection, are dealt with in section 62. The election between partial loss and constructive total loss is a true election, though it differs from other cases of election, in particular in that it is irrevocable only if the abandonment is accepted by the underwriter.22 15 The cost of recovery and repair includes all such costs arising from the casualty, irrespective of the date of any notice of abandonment; costs incurred prior to the notice do not reduce the loss, and are therefore to be taken into account: Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019] UKSC 29 at [18–19]. However, the objective purpose of Scopic charges is not to enable the ship to be repaired, but to protect an entirely distinct interest of the shipowner, namely his potential liability for environmental pollution, and such charges are not relevant: Ibid at [25]. 16 The statutory definition states that in estimating the cost of repairs, no deduction is to be made in respect of general average contributions to those repairs payable by other interests, but account is to be taken of the expense of future salvage operations and of any future general average contributions to which the ship would be liable if repaired. 17 Defined by section 28 of the 1906 Act. 18 Defined by section 27 of the 1906 Act. 19 Kaltenbach v. Mackenzie (1878) 3 C.P.D. 467. 20 Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019] UKSC 29 at [5]. 21 Robertson v. Petros M. Nomikos Ltd [1939] A.C. 371 (recovery on a freight policy on the basis that the ship was a CTL, even though the shipowners had elected under the hull policy to treat the loss as partial). 22 N 20. 225 Total loss and notice of abandonment 25.9 Whilst the principle of indemnity requires that an insured who recovers for a total loss must cede to underwriters any remaining interest in the property insured,23 underwriters usually do not wish to take over responsibility for the property, which may result in a wreck removal order without the benefit of owners’ Protection and Indemnity Association cover. In practice the notice of abandonment is therefore simply rejected as a matter of course, with underwriters preferring to receive any salvage that may be obtained, pursuant to section 79(1).24 Abandonment 25.10 Although section 60(1) of the Act refers to an actual total loss “appearing to be unavoidable”, the question whether there has been a constructive total loss depends on the objective facts.25 So far as there are future or unknown facts, a reasonable assessment of the probabilities must be made, but the test does not depend on the opinion or predictions of the owner, however reasonable.26 One does not judge by the result, but from the probabilities as they would have appeared to a reasonable assured at the moment when he knew of his loss and could have given notice of abandonment, had notice been required.27 Although one may ask whether the prudent uninsured owner would repair, the factors to be taken into account are limited by the 1906 Act to a comparison between the cost of repair and the repaired value.28 The effect of an offer to abandon is that if the offer appears to have been properly made upon certain supposed facts, which turn out to be true, the assured has put himself in a condition to insist upon his abandonment; but it is not enough that the notice was properly given, upon facts which were supposed to exist at the time, if it turns out that no such facts existed, or that other circumstances had occurred which did not justify abandonment.29 Although the loss occurs at the time of the casualty, and includes any development of the damage thereafter, the loss must still be total at the time of notice of abandonment in order for the election to be valid.30 Strictly speaking, in determining the rights of the parties it is the circumstances at the time of the issue of the Writ, now the Claim Form, which matter.31 However, in practice underwriters agree at the time of rejection of a notice of abandonment to put the shipowners in the same position as though a Writ had been issued. Notwithstanding such an agreement, sue and labour expenses incurred thereafter may be recoverable.32 23 Roux v. Salvador (1836) 3 Bing. N.C. 266. 24 Houstman v. Thornton (1816) Holt N.P. 242. 25 N 11. 26 Ibid. 27 Rickards v. Forestal Land, Timber & Railways Company [1942] A.C. 50 at p.110 per Lord Porter. 28 Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019] UKSC 29 at [26]. 29 Bainbridge v. Neilson (1808) 10 East 329 at p.341 per Lord Ellenborough; n 11. 30 Hamilton v. Mendes (1761) 2 Bur 1198; Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019] UKSC 29 at [15]. 31 Ruys v. Royal Exchange Assurance Corporation (The Doelwyk) [1897] 2 Q.B. 135. The 1906 Act did not change this: Polurrian Steamship Co. Ltd. v. Young [1915] 1 K.B. 922; Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden) (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50. 32 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2015] 1 Lloyd’s Rep. 117 at [343]. 226 Total loss and notice of abandonment 25.11 In Hamilton v. Mendes,33 a ship was captured by a French privateer in the Seven Years War and then recaptured by a British man-of-war a few weeks later. The insured received notice of both at the same time, and purported to give notice of abandonment. Lord Mansfield held that he was only entitled to claim for a partial loss, as there had only been a short interruption to the voyage and no great expense incurred; there could be no vested right to abandon upon capture, since the insured had to make an election, and could not do so before advice was received of the loss.34 25.12 In Bainbridge v. Neilson,35 a ship was captured and a few days later recaptured. The insured received notice only of the capture, and gave notice of abandonment. He then received news of the recapture, and that the ship was safe, with minor expense being incurred, but persisted in the abandonment. It was held36 that the insured was not entitled to persist in his abandonment. Even though the notice had been genuinely made upon notice of capture, the true facts were that the vessel was safe and not lost. 25.13 In Roura & Forgas v. Townend,37 the insured had voyage chartered a ship to carry jute from Calcutta to Spain, and insured their anticipated profit against total or constructive loss of the vessel on its prior voyage to Columbo and then to the load port of Calcutta. The first news of the vessel was that it had been captured in the Indian Ocean by a German prize crew, and in their charge had stranded on the coast of Denmark. She was salved by her owner, and repaired, without notice of abandonment being given, her owner being uninsured. Roche J. held that there was a constructive total loss of the vessel, its return being unlikely, and the fact that it was restored to its owners before the insured brought their action was immaterial; restoration precludes recovery where it results in the loss of the insured being made good to him before action, and the restoration of the ship here did not make good the insured’s loss of profit on the voyage.38 25.14 In Bradley v. H. Newsom Sons & Co.,39 The Jupiter was in the course of a voyage with a cargo of timber from Archangel to Hull in October 1916. A German submarine surfaced and fired shots to force her to stop. The Master and crew were ordered to leave the ship and took to the boats. German officers boarded the ship and placed bombs on board to scuttle her. Explosions were heard from the ship and in the darkness it was assumed (wrongly) that she had sunk. The shipowners reported the sinking to the charterers. Shortly thereafter, the vessel was found, still afloat and barely damaged, and the Royal Navy beached her near to Leith. The charterers claimed to be entitled to take delivery of the cargo at that port without paying freight, on the basis that the shipowners had abandoned the voyage. The ship was in fact able to continue the voyage, and the cargo was delivered in Hull without prejudice to the charterers’ contentions. The House of Lords by a majority (Lord Sumner dissenting)40 held that there was no 33 (1761) 2 Bur 1198. 34 Ibid at pp.1210–1211. 35 (1808) 10 East 329. 36 Ibid at p.341 per Lord Ellenborough C.J. 37 [1919] 1 K.B. 189. 38 Ibid at p.196; Robertson v. Petros M Nomikos Ltd [1939] AC 371, 382–383 (Lord Wright), 395 (Lord Porter); Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019] UKSC 29 at [17]. 39 [1919] A.C. 16. 40 Lord Sumner (Ibid at p.36) said that the word “abandonment” raised special considerations of marine insurance law which were not in question. 227 Total loss and notice of abandonment abandonment. Lord Finlay L.C. said that for this purpose there must be abandonment without any intention to retake possession, and without any hope of recovery.41 On the facts, the vessel had not been abandoned, the master and crew simply leaving by force and then assuming that the vessel was lost. 25.15 In another carriage case, Court Line Ltd. v. The King,42 the Lavington Court was in convoy from the United Kingdom to the Middle East via the Cape of Good Hope with a cargo of military stores in 1942. She was struck by torpedoes and, fearing that she was going to be torpedoed again, the Master ordered the crew to take to the lifeboats. The Master expressed the view that, failing another attack, the ship would float for a considerable time and could be saved. She was still afloat when a warship returned, and the Master and some of his officers made an inspection. They concluded that provided the weather stayed fair, she could be towed to safety. Tugs were requested from Gibraltar, but the warship and the Master and crew of the casualty could not remain with her. Tugs found the casualty and towed her for 500 miles before she foundered. The shipowners claimed charter hire for the period of the towage, a clause in the charter providing that the hire ceased on a constructive total loss. Scott L.J. considered the different senses in which there could be abandonment under the 1906 Act, and distinguished between abandonment of the property by the Master and crew (as where a total loss seems inevitable) from abandonment of the property to underwriters by owners making an election to treat a loss as a constructive total loss.43 Du Parcq L.J. considered that the word “abandoned” in section 60(1) had only one sense, and referred to the shipowner or his agent giving up the property for lost, that is renouncing all their rights in the ship except the right to recover insurance.44 The Court of Appeal by a majority held that the vessel had not been abandoned within the meaning of section 60: the vessel was entrusted to the tugs being sent out by the Royal Navy, an actual loss did not seem inevitable and if the owners were out of possession, it was not unlikely that the ship would be recovered. Consequences of rejection of notice of abandonment 25.16 When underwriters refuse to accept notice of abandonment but agree to put the assured in the same position as though a Writ (now a Claim Form) had been issued, there is no change in ownership of the property insured as between insured and insurer. As between insured and third parties, it is an open question as to whether a person may divest himself of ownership by abandonment.45 The answer will depend on the context in which the question arises and the law of the place where abandonment takes place. Whether an owner is liable for wreck removal or for port or other charges is a different question to 41 Ibid at pp.24, 27. See also Viscount Haldane at p.32, Lord Parmoor at p.49 and Lord Wrenbury at pp.57–58. 42 (1945) 78 Ll.L.Rep. 390. 43 Ibid at pp.396–397. 44 Ibid at p.399. 45 The Douglas (1882) 7. P.D. 151, 160; The Utopia [1893] A.C. 492, 498; The Crystal [1894] A.C. 508, 519; Suart v. Merchants’ Mar Ins Co Ltd (1898) 3 Com. Cas. 312 at 314–315; Oceanic SN Co v. Evans (1934) 40 Com. Cas. 108 per Greer L.J. at 111; Blane Steamships Ltd v. Minister of Transport [1951] 2 K.B. 965 per Cohen L.J. at pp.990–991; Vandervell v. IRC [1966] Ch. 261 at 274 per Plowman J.; Smith v. MV “Ross Revenge” [2017] 2 Lloyd’s Rep. 288 at [13]. 228 Total loss and notice of abandonment whether (say) a salvor is entitled to keep long-sunken cargo for himself on the basis that it became res nullius by abandonment. Restoration 25.17 Where underwriters agree to put the insured in the same position as if an action had been brought (or an action has in fact been brought) the subsequent full recovery of the property by the insured has no effect on the claim for a total loss.46 However, where the property is restored, in part or in whole, before the action is brought, or deemed to be brought, the effect of that restoration is relevant as to whether there is no more than a partial loss. In principle, the test should remain the same, namely whether on the basis of all the circumstances, restoration included, there has been a total loss. With the passage of time, speculation as to the likelihood of recovery of the ship or goods will have been resolved in whole or in part. Nevertheless, a question may remain as to whether the property has been “recovered”. If there is a capture, followed by recapture, and the property is returned with only a short interruption and no great expense, there is no total loss.47 However, if a recapture puts the ship in such a position that the owner cannot get her without paying more than she is worth, there is a constructive total loss.48 In Lozano v. Janson,49 Lord Campbell C.J. said that if, before action brought, goods had been restored to the assured, or he had had the means of getting possession of them, under such circumstances as ought to have induced a prudent man to take possession of them, his claim could only be made for a partial loss.50 Where the cargo may be recovered by the insured taking steps to do so, including incurring expense, the test corresponds to the duty to sue and labour.51 Time for giving notice of abandonment 25.18 Notice of abandonment must be given with reasonable diligence after receipt of reliable information of the loss, but where the information is of a doubtful character the assured is entitled to a reasonable time to make enquiry.52 It may be difficult to determine whether the information is reliable or doubtful. Aside from the difficulty in ascertaining the nature of any physical casualty, additional difficulties arise in parts of the world where local authorities will not permit easy entry through their frontiers, or which are dangerous in a military or a political sense. Where ships are detained, it may not be immediately clear whether they have been seized or have otherwise suffered an insured peril of the War or Strikes insurance, and it is often very difficult to get a clear explanation for a ship’s detention.53 46 Ruys v. Royal Exchange Assurance Corporation (The Doelwyk) [1897] 2 Q.B. 135. 47 Hamilton v. Mendes (1761) 2 Bur 1198; Bainbridge v. Neilson (1808) 10 East 329. 48 Shepherd v. Henderson (1881) 7 App. Cas. 49 at p.71 per Lord Blackburn. 49 (1859) 2 E. & E. 160. 50 Ibid at p.177. 51 Rickards v. Forestal Land Co. Ltd. [1942] A.C. 50 per Lord Wright at p.96. 52 Section 62(3). 53 In the Third Edition of this work (paragraphs 27.48–27.49), Michael Miller gave an account of his personal experiences in obtaining reliable information in The Good Luck and in The Angolan cases. 229 Total loss and notice of abandonment 25.19 Questions arose in The Anita as to when notice of abandonment should be given so that it was not too early so that it had no meaning, and not too late so that it was ineffective. The shipowners had to prove that their ship was a constructive total loss because they had been deprived of possession and it was unlikely that they would recover them within a reasonable time (section 60(2)(i) of the Marine Insurance Act 1906). In The Anita,54 the vessel was detained by Vietnamese authorities on account of smuggling shortly after her arrival on 7 March 1966. After a hearing before a Special Court on 25 April, an order was made for the confiscation of the vessel. The vessel remained detained until August 1967, and four separate notices of abandonment were sent. Mocatta J. considered55 that the first notice given on 2 May was too early, but that as from the second notice, after six months of negotiations, it was unlikely that the shipowner would recover his ship within a reasonable time and the unlikelihood increased as time went on. In such cases it may be a matter of fine judgement by the assured as to when notice of abandonment must be given, with successive notices being advisable with each development in the situation. Given that underwriters are unlikely to accept any notice, this is unsatisfactory. However, there is no objection in principle to repeated notices, since a notice is merely an offer, which remains executory unless and until it is accepted.56 The 12-month Clause 25.20 Clause 3 of Institute War and Strikes Clauses Hulls provides that in the event that the vessel shall have been the subject of capture, etc.,57 and the assured shall thereby have lost the free use and disposal of the vessel for a continuous period of 12 months then for the purpose of ascertaining whether the vessel is a constructive total loss the assured shall be deemed to have been deprived of the possession of the vessel without any likelihood of recovery. 25.21 The Mutual War Risks Associations use a clause in a different form. The Hellenic Association’s Rule 3.14, for example. It reads: If an Owner is deprived of the free use and disposal of an Entered Ship by capture, seizure, arrest, restraint, detainment, confiscation or expropriation: 3.14.1 no claim for an actual or constructive total loss shall arise if such deprivation lasts for a period of less than 183 days (or such shorter period as the Directors may, in their discretion, decide); 3.14.2 if such deprivation lasts for a continuous period of 12 months, the Owner shall be deemed to have been deprived of the possession of the ship without any likelihood of recovery. 25.22 These clauses relieve the insured from having to prove that it is unlikely that he can recover the property. However, they do not excuse him from proving that he was deprived of possession, nor excuse him from giving notice of abandonment within the proper time if otherwise required. 54 Panamanian Oriental Steamship Corporation v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365; reversed [1971] 1 Lloyd’s Rep. 487. 55 Ibid at p.383. 56 Pesquerias y Secaderos de Bacalao de España S.A. v. Beer (1945–46) 79 Ll.L.Rep. 417 at p.433 per Atkjnson J.; not considered on appeal (1946–47) 80 Ll.L.Rep. 318 (C.A.); (1948–49) 82 Ll.L.Rep. 501 (H.L.). 57 The perils referred to are: capture, seizure, arrest, restraint, detainment, confiscation or expropriation. 230 Total loss and notice of abandonment Cases where notice of abandonment is not necessary 25.23 Section 62(7) provides notice of abandonment is unnecessary where, at the time when the assured receives information of the loss, there would be no possibility of benefit to the insurer if notice were given to him. Disproving any possibility of benefit is an onerous task. It is easier where there is nothing to abandon. One such situation is possibly where there is a loss of freight consequent upon the constructive loss of the vessel, as in Rankin v. Potter.58 It might be doubted whether this was an actual or constructive total loss with respect to the freight. However, in the Rankin case it was acknowledged that there might be a constructive total loss of freight with something to abandon, as where the cargo is saved and might be forwarded in a substituted vessel.59 The total loss of freight, a chose in action, is extensively discussed by Lord Wright M.R. in the Yero Carras case.60 More recent analysis of loss of freight and loss of earnings claims can be found in The Wondrous,61 and in The Capricorn.62 Missing ships 25.24 Sometimes ships simply go missing. Section 58 provides that where the ship is missing, and after the lapse of a reasonable time no news of her has been received, an actual total loss may be presumed. This does not answer the question as to whether the presumed total loss was on account of marine risks or war risks. There have been instances of insistence, usually at the behest of mortgagees, that a provision should be inserted in the war insurance that a missing ship should be treated as a war rather than a marine risk. In the absence of such a clause, the question remains. If the claim is on a marine policy with an f.c. & s clause, the insured need not prove that there was no capture or seizure, etc., and may recover on the basis of a presumption that the vessel foundered.63 If the claim is on a war risks policy, and it can be inferred that the ship would have reached an area where war risks were in operation, it may be concluded that the loss was by war risks.64 These are instances of ordinary inference rather than the operation of any presumption of law. 58 (1873) L.R. 6 H.L. 83 (1873) 2 Asp. 65. 59 Ibid at pp.102–103 per Brett J. 60 Yero Carras (Owners) v. London and Scottish Assurance Corporation Ltd. (The Yero Carras) (1935) 53 Ll.L.Rep. 131. See also Kulukundis v. Norwich Union Fire Insurance Society Ltd [1937] 1 K.B. 1; (1936) 55 Ll.L.Rep. 55. 61 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at pp.415–417 per Hobhouse J. 62 Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance Plc (The Capricorn) [1995] 1 Lloyd’s Rep. 622 at pp.637–641 per Mance J. 63 Green v. Brown (1743) 2 Str. 1199. 64 Munro, Brice & Co. v. Marten [1918] 2 K.B. 78; reversed on the facts [1920] K.B. 24. 231 CH A PT ER 26 Held covered The “family” of held covered clauses 26.1 War risks policies, in common with many types of insurance contract, often contain held covered clauses. In war risks insurance, these frequently appears in connection with entry to an area for which an additional premium is chargeable by the underwriter due to the prevailing political circumstances in the region. The current clause regulating the entry into an “area of perceived enhanced risk” (APER) is considered in Chapter 24. The effect of a “held covered” clause is to alter the legal consequences of non-compliance with policy limits, or other circumstances in which cover would be reduced. This family of clauses reflect market practice and their precise legal effect have troubled the courts. 26.2 We begin with a review of what the clauses are meant to achieve in practice, before moving to a detailed consideration of their legal effect. Generally, prior notice of entry is expected in order that the additional premium may be agreed, the underwriter may be put on notice when the extra risk of greater danger arises and there may be certainty in the relationship between the shipowner and the underwriter. There has long been the danger that the insured ship may enter such an area without the shipowner’s knowledge; in the past this has happened because there has been an accident on board and repairs are urgent, or because sick or injured seamen have to be landed for medical treatment ashore, or because the charterer requires the Master to load or discharge at a different port. News of this may not reach the shipowner in time for prior notice to be given. To guard against the shipowner losing his insurance cover inadvertently, an extra clause was added to ensure that his insurance will continue and a typical provision in the early twentieth century read: “Or held covered at a premium to be arranged.” These can be termed “simple held covered clauses”. 26.3 These clauses can lead to abuse because sometimes there is the temptation, to which some succumb, to enter an additional area and hope to slip in and out unobserved. If there was a casualty whilst within the APER area, the commonly held belief was that one is “held covered” and all that one had to do is to produce the premium to get the resulting claim paid. For the reasons which appear below, this belief is often profoundly mistaken. In response to those issues, a series of “complex held covered” clauses have developed, which are much less amendable to statements about their precise legal effect, and which require detailed legal analysis. Failure to give advance notice often requires the courts to resolve a series of interrelated questions: 232 H eld covered 1(a) Does the clause, properly interpreted, require the insured to give notice of entry into an APER, or is the clause merely permissive? 1(b) If the clause requires the insured to give notice, during what period must notice be given? 1(c) If the clause requires the insured to give notice, what are the legal consequences of a failure to give timely notice? 2(a) Is the underwriter required to provide extended cover and if so what is the effect of a failure to give timely notice on this duty? 2(b) If the underwriter is required to provide extended cover, how is any additional premium payable calculated? 3(a) If the clause permits the underwriter to insist upon amended cover (in addition to any increase in premium), how are amendments determined? 4(a) To what extent does the doctrine of utmost good faith apply to the process of notifying underwriters of entry into an APER and/or negotiation of additional premium and/or amended terms? “Simple” held covered clauses 26.4 The difficulties that these early clauses caused can be demonstrated by a brief review of the case law. In Greenock Steamship Co v. Maritime Ins Co, Ltd,1 the court was faced with a breach of the implied warranty of seaworthiness alongside a contractual clause stating: “Held covered in case of any breach of warranty, deviation, and/or any unprovided incidental risk or change of voyage, at a premium to be hereafter arranged”. The facts arose before the adoption of the Marine Insurance Act 1906, but the principles remain unchanged.2 The vessel left Montevideo with sufficient supplies of coal for the expected voyage, but these supplies proved to be insufficient in light of strong head winds and high seas. The master therefore ordered that parts of the ships fittings and cargo be used as fuel. The insured shipowner was unaware of the lack of seaworthiness due to insufficient bunkers for the voyage intended until after the vessel left port, and so no notice was given or additional premium negotiated. Bigham J. (at first instance) read the clause as fixing the underwriter with the obligation to insure those risks which were held covered, but on the basis of the information known to the parties at the time of the loss: … it entitles the shipowner, as soon as he discovers that the warranty has been broken, to require the underwriter to hold him covered. It also entitles the underwriter to exact a new premium commensurate with the added risk. But what is to happen if the breach is not discovered until a loss has occurred? I think even in that case the clause still holds good, and the only open question would be, what is a reasonable premium for the added risk? To answer this the parties must assume that the breach was known to them at the time it happened, and must ascertain what premium it would then have been reasonable to charge. If they cannot do it by agreement, they must have recourse to a Court of law. It is like the case of goods sold at a reasonable, though an unnamed, price. The sale is good, but the price has to be ascertained, either by agreement or at law.3 1 [1903] 1 KB 367, affd [1903] KB 657 (CA). 2 See ss. 39(1), (3) (seaworthiness) and ss. 31, 88 (reasonable premium) MIA 1906. 3 At 374–375. 233 H eld covered 26.5 On these facts, Bigham J. found that the reasonable premium which would be charged would be greater than the loss which eventuated and so the underwriter was not obliged to pay the claim. The process described in Greenock Steamship of “set-off” of the potential claim and the additional premium leaves unanswered the question of whether the underwriter could have recovered the excess. This is of vital importance where the vessel enters an APER and emerges unscathed, is the underwriter nonetheless entitled to its additional premium? As will be seen, these practical and legal difficulties were influential in the development of held covered clauses and judicial attitudes to them. 26.6 Subsequent cases considered the requirement of notice in respect of simple held covered clauses, and the effects of the doctrine of utmost good faith on the kinds of information required. The first of these is Hood v. West End Motor Car Packing Company4 where a motor car, in breach of the policy requirements that it should be loaded below deck, was shipped on deck. There was a “held covered” provision, stating “Held covered at a premium to be arranged, in case of deviation or change of voyage or of any omission or error in the description of the interest, vessel or voyage”. In the Court of Appeal Swinfen-Eady L.J. described the assured’s duty: … Notice must be given to the underwriters within a reasonable time after the facts have come to the knowledge of the assured, if he wishes to rely on this clause”5 to which Scrutton L.J. added: “It is an implied term of the contract that the assured shall give notice to the underwriters within a reasonable time after he knows of the omission or error.6 This was an application of the approach of the House of Lords in Thames & Mersey Marine Ins Co Ltd v. HT Van Laun & Co, that notice needed to be given within a reasonable period from the time the insured became aware of the issue.7 26.7 Donaldson J. commented in some detail on the likely time period within which notice must be given in Liberian Insurance Agency Inc. v. Mosse.8 There was a “held covered” clause in the policy that described the insured goods as “enamelware cups and plates” shipped in cases. Many of the goods were not cups and plates; some were touched up by overpainting; some were “seconds” bought at a cheap price; most seriously of all, a substantial part of the consignment was not even loaded in cases, but in cartons which gave less protection to their contents: If the assured is to take advantage of the held covered clause, he must give notice to underwriters expressly or impliedly seeking cover in accordance with the clause within a reasonable time of learning of the change of voyage or of the omission or error in the description. What time is reasonable will depend on the circumstances.9 26.8 No guidance on the length of time which is reasonable to suit every situation is possible, but Donaldson J. went as far as it is possible to go: 4 5 6 7 8 9 [1917] 2 K.B. 38. At 45. At 48. [1917] K.B. 48, 51. [1977] 2 Lloyd’s Rep. 560. At 566. 234 H eld covered Thus if the assured learns the true facts whilst the risk is still current, a reasonable time will usually be a shorter period than if this occurs when the adventure is already ended. If the assured learns the true facts when the assured property is in the grip of a peril, which is likely to cause loss or damage, a reasonable time will be short indeed.10 Held covered clauses, notice and the doctrine of utmost good faith 26.9 As seen above, the simple held covered clauses were interpreted as creating corresponding obligations on the underwriter to extend cover and on the insured to give reasonable notice and pay the additional premium. A further series of cases tested not the timing but the ambit of the insured’s duty to communicate the changed circumstances to the underwriter. In particular, courts began to explain the insured’s duty in relation to the doctrine of utmost good faith. Before reviewing these cases, it must be noted that these cases represent the highwater mark of this doctrine, and subsequent judicial and legislative interventions have much reduced its modern impact. Nonetheless, these are the leading authorities on held covered clauses, and must be reviewed before we reflect on the limiting effect of changes in the general principles of insurance law. 26.10 The assured’s duty was put more strongly by McNair J. in Overseas Commodities Limited v. Style.11 The insured goods were tins and their marks were queried by the underwriters. The French suppliers gave two separate and mutually contradictory explanations. Only the more favourable explanation was shown to the underwriters: “To obtain the protection of the ‘held covered’ clause, the assured must act with the utmost good faith towards the underwriters, this being an obligation which rests on them throughout the currency of the policy.” 26.11 Following the lead given by McNair J., Donaldson J. in Liberian Insurance Agency Inc. v. Mosse made it clear that the obligations contained in section 17 of the Marine Insurance Act 1906 were not simply obligations to be observed at the time that the insurance contract was made; they arose every time the “held covered” provision operated. In The Litsion Pride12 Hirst J. explained the reason for this and whilst he did not say so in so many words, it is clearly a matter within the contemplation of each party that: “… From a commercial point of view it seems to be most important that the underwriter should have available all the material facts which affect the fixing of an additional premium.” Simple held covered clauses: conclusions 26.12 The case law in the first half of the twentieth century viewed held covered clauses as mutually obligatory, with underwriters required to extend cover at a premium to be set by the agreement or by the Court, and insureds required to make full and timely disclosure of the circumstances requiring extended cover. The precise effect of failing to meet these requirements was not resolved, as the doctrine of utmost good faith, and in particular its application after the conclusion of the contract, was unsettled. Those issues arose in The Litsion Pride. 10 Idem. 11 [1958] 1 Lloyd’s Rep. 546. 12 Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald Massie (The Litsion Pride) [1985] 1 Lloyd’s Rep. 437. 235 H eld covered Complex held covered clauses 26.13 As Lord Sumption stated recently in the Supreme Court, the approach of Hirst J. in The Litsion Pride13 “has not fared well in subsequent decisions”.14 It is both the leading case on held covered clauses, and yet largely discredited in its explanation of the fundamental principles of insurance law. This requires detailed attention. 26.14 Black King were the ship’s owners, Wayang were the ship’s mortgagees and Mr. Massie was a representative underwriter of the War Risks Policy. The basic facts were fairly simple. Black King was a one-ship company among a group of similar companies forming the Macedonia Group. All the ships were mortgaged to S.H.L. of Lubeck except for Black King’s ship, the Litsion Pride, which was mortgaged to Wayang. She was insured on the S.G. Form with Institute War and Strikes Clauses attached. The additional premium mechanism extended to various areas, one of them the Arabian (Persian) Gulf north of latitude 24 north. The policy contained a complex held covered clause which Hirst J. divided for analytical reasons into parts (A) and (B) and that is followed here: 1.(A) T his coverage shall extend worldwide, but in the event of a vessel or craft insured hereunder sailing for, deviating towards, or being within the Territorial Waters of any of the Countries or places described in the Current Exclusions as set out below (including any port area that at the date of this notice constitutes part of such a country or place however it may hereafter be described) additional premium shall be paid at the discretion of insurers hereon. (B) Information of such voyage or deviation shall be given to insurers as soon as practicable, and the absence of prior advice shall not affect the cover hereon. In the event of the insured not requiring continuation of coverage for a vessel proceeding into or remaining within an excluded area, he shall so advise insurers hereon before the commencement of such voyage, deviation or period, and it shall be at the insurers’ discretion whether and on what terms the insurance shall be reinstated. 26.15 The factual background to this dispute was described recently by Lord Sumption: The Litsion Pride was insured against war risks on terms which required her owners to give notice as soon as practicable of her entry into specified war zones and to pay an additional premium. The owners traded her into a war zone without giving notice, dishonestly intending to avoid the payment of the additional premium if the vessel got out unscathed. When she was hit by a missile and sunk, they gave the required notice by a letter which they dishonestly backdated to a date before the vessel entered the war zone. The fraud was irrelevant to the merits of the claim, because the vessel was held to be insured under a held covered clause with or without prior notice 15 As in previous editions, this can be best explained in diary format. During the material time, the Iran/Iraq War was in its second year. Events took the following course: 13 [1985] 1 Lloyd’s Rep. 437. 14 Versloot Dredging BV v. HDI Gerling Industrie Versicherung AG, The DC Merwestone [2017] A.C. 1, [14]. 15 Idem. 236 H eld covered 1982 2 July The ship sails from Dunkirk with sugar for Iran. This means that she must enter the additional premium area, and at this stage, this fact is amply apparent to her owners. 4 July E.T.A. Bandar Abbas is notified for 26 July. During the war, ships bound for Iranian ports always called at Bandar Abbas either for discharge, or for orders and convoy to northern ports. 8 July Wayang raises the point that the ship is going to Iran and seeks confirmation that she is fully covered. They do not wish their name to be connected with the enquiry and they do not address their query to the owners. 14 July The enquiry is now addressed to the owners in Cyprus saying that the insurers had raised it, which is not so. The owners could infer that the underwriters already knew of the voyage. 21 July The charterers nominate Bandar Khomeini as the discharging port. This is presently the most dangerous port in Iran, being well within the range of the Iraqi helicopters and airforce bombers. Several ships have already been attacked. 27 July The ship reaches Djibouti. 2 August The ship crosses latitude 24 north. A letter bearing this date is prepared in the owner’s London office. Addressed to the brokers, it gives formal notice of the ship’s proposed visit to Persian Gulf. It is not dispatched and a junior employee is subsequently blamed for an oversight. 11 August The ship is hit by missiles launched from Iranian helicopters in the Khor Musa Channel, which is the entrance to Bandar Khomeini port. Her cargo of sugar catches fire, she grounds and is lost. Notice is given to the underwriters of the casualty. This is their first intimation that the ship is within the additional premium area. 12 August The 2 August letter is now given to the underwriters who see it for the first time. 26 August A writ is issued. 237 H eld covered Complex clauses: prior notice 26.16 The underwriters pleaded, consistent the approach taken to simple held covered clauses, that notice of entry within a reasonable time into the additional premium area was a condition precedent to extending cover and the shipowners had plenty of notice of the ship’s impending entry.16 Hirst J. felt that he could not so hold. This was not a clause that made no provision for notice, but an “extensive and elaborately drawn clause laying down a detailed series of stipulations as to notices for various purposes”.17 The parties had failed to include a term in the contract to the effect that the giving of notice was a condition precedent to continuing cover. His attention was drawn to the equivalent Rules of the Hellenic (Bermuda) Mutual War Risks Association which, at the time of the casualty, read: It is a condition of the insurance [given by the Association] … that the owner shall give prompt written notice … of the fact that the entered [insured] ship will enter, has entered or is in the additional premium area as soon as the owner knows of such fact. This was suggested to be a good example of an express provision that was totally lacking in the Litsion Pride’s “held covered” clause. On this point, he ruled against the underwriters although they won the case on other grounds. 26.17 The nature of this held covered clause, and the simpler variants that preceded it, in part reflected justified concerns that the shipowner, through no fault of his own, could become uninsured where entry to an additional premium area was made without notice first being given to the Association. At the time of drafting in the mid-1970s there was still the possibility of this happening. The earlier cases were concerned with ships which were very often out of contact with their owners. The miracle of modern communications had not then been achieved and some latitude had to be given by the courts based on an understanding that the owner could not always be expected to know just where his ship was or what she was doing. In the Hood case (paragraph 26.6) there was also a possible problem of communications in wartime. Modern telecommunications and ship tracking have much reduced this risk. There is now every reason for the shipowner to know just where his ship is and what it is currently doing. 26.18 The nature of the current complex clause was discussed in brief in The Brilliante Virtuoso.18 The analysis of Teare J. on this point is strictly obiter, but he did explain his reasoning. Counsel had argued that the effect of the current Clause 2 of the Navigation Provisions did not require actual agreement for cover to continue, only a potential agreement based on what would have been agreed if the insured had made a suitably detailed presentation of the facts. Teare J. found no express words in clause 2 to support this approach, but in any case noted that any potential agreement (as per Liberian Agency v. Mosse)19 was limited by the availability of a market by which a reasonable commercial rate could be calculated. On the facts of The Brilliante Virtuoso, no underwriter would have agreed extended cover at any price. 16 See paragraph 26.6. 17 N 14 at 469. 18 Suez Fortune Investments Ltd v. Talbot Underwriting Ltd, The Brilliante Virtuoso [2019] EWHC 2599 (Comm), [543]. 19 N 8. 238 H eld covered The doctrine of utmost good faith 26.19 Having determined that there was no contractual defence, Hirst J. determined that the continuing duty of utmost good faith had been breached by the insured’s failure to relevant information, finding “in accordance with commercial good sense that the insured is required to notify any relevant information available from time to time”.20 As to whether this required a single notification or a series of disclosures, Hirst J. stated: as part of the duty of utmost good faith, it must be incumbent on the insured to include within it all relevant information available to him at the time he gives it; and in any event the selfsame duty required the assured to furnish to the insurer any further material information which he acquires subsequent to the initial notice as and when it comes to his knowledge, particularly if it is materially at variance with the information he originally gave.21 This was viewed as applicable to any culpable misrepresentation or non-disclosure.22 The remedy under section 17 of the Marine Insurance Act 1906 was avoidance ab initio. As has been discussed in detail since this case, this would be disproportionate if it made the entire contract void ab initio, rather than negativing the additional cover provided by the “held covered” clause. 26.20 This view of the continuing duty of utmost good faith has not found favour with later courts. The House of Lords in The Star Sea rejected any suggestion that the continuing duty of utmost good faith at claims extended beyond any sanctioning of dishonesty or fraud. In specific reference to the approach in The Litsion Pride, Lord Hobhouse stated: The particular claim was only fraudulent in so far as the broker had not been truthful in dealing with the insurers at that stage. The reasoning adopted by Hirst J. has been criticised both by academic writers and by other judges in later cases. I consider that it should not any longer be treated as a sound statement of the law …23 26.21 In recent times, this reliance on a pure utmost good faith basis for the insured’s duties at the claims stage has fallen away as a source of controlling the insured’s dishonesty, with the “forfeiture” rule assuming precedence.24 In light of this, the modern position is that only fraudulent statements by which the insured seeks to recover an indemnity to which it is not entitled provide a defence under this common law rule. Underwriters that want greater protection should negotiate express contractual clauses to that effect. 26.22 For contracts agreed after the entry into force of the Insurance Act 2015, section 14(1) makes clear that the doctrine of utmost good faith no longer attracts the remedy of avoidance ab initio, and section 17 of the Marine Insurance Act 1906 is amended accordingly. 26.23 The decision in The Litsion Pride remains relevant to the likely construction of a complex held covered clause, but the discussion of utmost good faith is not good law. Unless the insured’s conduct meets the requirement for the underwriter to deny liability 20 21 22 23 24 At 512. Ibid. Ibid. [2003] 1 A.C. 469, [71]. See Versloot, n 14. 239 H eld covered on the basis that the claim is fraudulent, on the basis of current authority it will need to establish a contractual defence, such as the lack of timely notice. There remains open the question of whether, in some circumstances, the use of a held covered clause could constitute the making of an additional contract of insurance, so as to trigger the pre-contractual duty of fair presentation of the risk found in section 18 of the Marine Insurance Act 1906 and its successors, rather than the post-contractual duty found in section 17. 26.24 As conclusions the following are suggested: (1) In the absence of an express provision, the giving of notice under the “held covered” clause is not a condition precedent, either to the continued insurance cover of the insured ship, or to the insurance cover whilst she is in the additional premium area. It needs an express provision to make it so. (2) In the absence of an express provision, notice must be given within a reasonable period, that is reasonable in all the circumstances after the insured shipowner becomes aware, or ought to have become aware, of the position of his ship. (3) The earlier cases allowed considerable latitude to the insured in giving notice, because of the greater difficulty of communications at the time. With the increasingly greater efficiency of modern communications, this latitude will be reduced—always provided, of course, that some event such as a war does not intervene to hinder communications. (4) Recent high-level authorities have cast considerable doubt on earlier suggestions that communications between insured and underwriter in respect of a held covered clause attract the doctrine of utmost good faith as a post-contractual duty. The current (slight) preference is for the rules relating to fraudulent claims to regulate this exchange of information. 240 CH A PT ER 27 Wilful misconduct and fraudulent claims 27.1 In order to maintain the expected level of losses, marine insurance law and practice developed a range of rules to control the insured’s behaviour during the period when the underwriter is on risk. This chapter is concerned with those rules that restrict the insured’s ability to bring about losses by deliberate or reckless conduct. The application of the rules has been less frequent in war risks insurance, as marine risks underwriters are more likely to face “scuttling” losses and the like, but war risks underwriters have defended claims before the courts, and these are reviewed in this chapter. 27.2 Historically, marine insurance relied in this regard on the “wilful misconduct” rule, whereby losses proximately caused by the insured’s deliberate or reckless actions were treated as outside the limits of cover. In more recent years, the courts have developed (and sometimes discarded) alternative mechanisms, including the continuing duty of utmost good faith and the forfeiture rule for fraudulent claims. These rules are not mutually incompatible, but vary in their requirements for application and remedy. What unites them is that in each case the underwriter will have a near total defence to liability to a claim connected to the misconduct and that this defence will normally be based on a principle of public policy rather than contractual choice. Each rule is reviewed in turn, before a consideration of their cumulative effect. As much of this chapter is concerned with culpable behaviour by the insured, we begin with a review of the standard and burden of proof. Proof of wilful misconduct and scuttling 27.3 Allegations of criminal and/or fraudulent conduct by the insured have serious consequences. If proven, there are likely to be long-term implications for the individuals concerned and their business interests. Criminal charges may follow, and there is the possibility of proceedings for contempt of court, where evidence is not given honestly. Where the allegations are not substantiated, there is a serious risk of reputational harm, and in some circumstances, the underwriters may face action for defamation. In light of these pressures, the courts have developed a detailed process for considering allegations of fraud. 27.4 The standard and burden of proof in the war risks insurance context was restated by Teare J. in The Brilliante Virtuoso.1 He drew extensively on the approach he had adopted 1 Suez Fortune Investments Ltd & Piraeus Bank AE v. Talbot Underwriting Ltd & Ors, The Brilliante Virtuoso [2019] EWHC 2599 (Comm), [60]. 241 W ilful misconduct and fraudulent claims in The Atlantik Confidence litigation,2 an iteration of the approach taken by Aikens J. in The Milasan.3 These are best presented as a series of seven related points of principle: (1) The burden of proving scuttling to support a defence of wilful misconduct or fraudulent claim falls on the underwriter. The standard of proof is the “balance of probabilities”, but the evidence required to satisfy the court mist reflect the seriousness of the accusations made, and will “fall not far short of the rigorous criminal standard”;4 (2) There is no presumption of innocence, but the court should give “due weight” to the effects of finding that the insured acted fraudulently and criminally; (3) It is not usually possible to find direct evidence of scuttling, and the Court will consider all “relevant indirect and circumstantial evidence” in making its decision; (4) The insurer will not normally be able to establish a complete narrative in how the scuttling occurred, and it is no bar to the underwriter’s claim that “parts of the canvas remain … blank”;5 (5) The question for the court is whether the facts proved are sufficiently unambiguous to establish complicity; (6) The previous good character of the insured is not a bar to a finding of complicity; (7) Proof of motive is not required, but may assist in demonstrating “dishonesty in fact”. In concluding, Teare J. adopted the guidance of the court in McGregor v. Prudential in respect of the overall standard of proof to be met: “even strong suspicion of the plaintiff’s guilt is inappropriate” and that the court need be satisfied that complicity is “the only probable conclusion”.6 Wilful misconduct in war risks insurance 27.5 The Marine Insurance Act 1906, by way of section 55(2)(a), establishes that losses proximately caused by wilful misconduct are not recoverable. This is a rare example of a mandatory provision of the Act, and is not subject to contrary intention in the policy. The nature of this rule means that it is primarily concerned with the insured’s conduct up to the moment of the loss, and less obviously concerned with the insured’s conduct post-loss, for example, in the presentation of the claim. The wilful misconduct rule is therefore temporally limited. The other doctrines under review also have temporal limits of one form or another, but can often be invoked for actions after the casualty, and are superior in that regard. The rise in alternative bases for denying the claim is a contributing factor in the decline in use of the wilful misconduct defence, although it remains active. The Court of 2 Kairos Shipping and another v. Enka 7 Co. LLC and others, The Atlantik Confidence [2016] 2 Lloyd’s Reports 525, [7]. 3 Brownsville Holdings Ltd v. Adamjee Insurance Co, The Milasan [2000] 2 Lloyd’s Rep. 458, [28]. 4 This is not the place for a detailed critical analysis of this position, but see J Hjalmarsson, ‘The Standard of Proof in Civil Cases: An Insurance Fraud Perspective’ (2013) 17 IJEP 47. 5 Citing Michalos v. Prudential Insurance, The Zinovia [1984] 2 Lloyd’s Rep. 264, 273 per Bingham J. 6 McGregor v. Prudential [1998] 1 Lloyd’s Rep. 112, 114–115. 242 W ilful misconduct and fraudulent claims Appeal in The Gold Sky7 noted the prevalence of such cases in the early decades of the twentieth century, and their sharp decline thereafter.8 Recent years have seen the return in the use of the defence, notably in cases where the claimant is an innocent co-insured, such as a bank. 27.6 It is useful at this point to take a modern example of scuttling. In The Brilliante Virtuoso, Teare J. found that the owner of the vessel had conspired with the master, the chief engineer and the co-ordinator of the salvage operation to permit armed men to enter the vessel in an apparent piratical attack by armed men masquerading as security guards.9 The extensive fire damage created a constructive total loss of the vessel, and a potential claim for US$77million. The claim by the owner was struck out in earlier proceedings for failure to provide documents required in disclosure, and for lying to the court in those proceedings.10 The removal of the owner as claimant left the court to determine the remaining claims from the bank in its own interest as co-insured and from the mortgagee indemnity insurance underwriter who had partly indemnified the bank (by way of subrogation). As Teare J. stated: The mere fact that the Owner is disabled from claiming by reason of his wilful misconduct does not disable the Bank from claiming. However, in order to make a successful claim the Bank has to show that the loss was caused by an insured peril.11 Wilful misconduct as a contractual exclusion or public policy rule 27.7 Section 55(2)(a) is stated as an example of the application of the general principle of proximate cause stated in section 55(1) and discussed in Chapter 28. It reads as follows: The insurer is not liable for any loss attributable to the wilful misconduct of the assured, but, unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against, even though the loss would not have happened but for the misconduct or negligence of the master or crew. 27.8 The effect of section 55(2)(a) requires some explanation. Underwriters are only liable for losses proximately caused by insured perils, and it is extremely unlikely that the intended effect is simply to prevent insurers from expressly insuring this kind of cause. The generally agreed interpretation is that section 55(2)(a) excludes losses even if the wilful misconnect is only an indirect rather than the proximate cause of the loss.12 This wider causal test was stated in Trinder, Anderson & Co v. Thames & Mersey Mar Ins Co,13 and drew its inspiration from a similar approach to loss indirectly caused by unseaworthiness.14 7 Astrovlanis Compania Naviera SA v. Linard, The Gold Sky [1972] 1 Lloyd’s Rep. 331, 333–334. 8 A rare exception is Continental Illinois National Bank & Trust Co. Of Chicago And Xenofon Maritime SA v. Alliance Assurance Co. Ltd, The Captain Panagos DP [1989] 1 Lloyd’s Rep. 33. 9 N 1 at [473]–[477]. 10 As described at [18]. The “strike out” proceedings are reported at [2016] EWHC 1085 (Comm). 11 At [479]. 12 J Gilman, et al., Arnould’s Law of Marine Insurance and Average (19th edn & supp, 2018), [22.56] 13 [1898] 2 QBD 114. 14 Thompson v. Hopper (1856) 6 El & Bl 937, 119 ER 1113. 243 W ilful misconduct and fraudulent claims This rule derives from two distinct but interconnected principles, one of construction, the other of public policy. First, insurance policies generally cover fortuities and not events certain to occur. This assists the court in interpreting contractual language and especially the limits of insured perils. Second, as a matter of public policy, insureds ought not to be able to recover where the cause of the loss is their own wrongdoing. This is a version of the contractual ex turpi causa rule. It reflects the risk of moral hazard. As noted in The Brilliante Virtuoso, the wilful misconduct of the insured is a personal bar to recovery and does not, of itself, prevent a claim by an innocent co-insured.15 27.9 Judicial comments have stated that wilful misconduct is a rule of construction and not public policy, and vice versa.16 It is better understood in modern times as a rule of public policy that also informs contractual interpretation rather than simply one of contractual allocation of the risk, but there is no consensus on this. 27.10 The courts have long recognised that wilful misconduct and other public policy doctrines may overlap. In The Michael, Kerr J. noted that many non-marine policies included specific clauses that deprived the insured of the benefit of the policy where the claim was tainted by fraud, and that this principle applied even in the absence of a specific clause to that effect.17 Wilful misconduct: deliberate actions, gross negligence and recklessness 27.11 As considered in earlier editions of this text, the extent to which an act is considered “wilful” is a key limit on the doctrine. Deliberate misconduct by the insured, such as an order to scuttle the vessel, is self-evidently wilful. The use of this as a defence to a claim is limited by the difficulty of making and proving such an allegation. The case law on whether reckless or grossly negligent actions constitute wilful misconduct require greater analysis. 27.12 First, it should be noted that for section 55(2)(a) to apply the action must be both wilful and amount to misconduct. Not all deliberate actions are misconduct. Second, many of the cases discussing non-deliberate wilful misconduct are concerned with the vessel being sent to sea in a potentially unseaworthy state. Third, the decisions are primarily to be found in other common law jurisdictions. The cumulative effect on English law must be read in light of that wider context. 27.13 Section 55(2)(a) has received relatively little judicial consideration but there are two cases of interest which will serve as examples of “wilful misconduct”, particularly because they demonstrate that actual intention to cause the loss is not a necessary element. They also indicate that “recklessness” may be sufficient to amount to “wilful misconduct”. The first is the American case of Orient Insurance Company v. Adams,18 where a ship was released from its berth by the master’s order without prior verification that the 15 At [489]. See Samuel v. Dumas [1924] AC 431, 445–446. 16 For a recent statement that it is a matter of policy, see C A Blackwell (Contractors) Ltd v. Gerling Allegemeine Versicherungs AG [2008] Lloyd’s Rep. IR 529 per H.H.J. Mackie at [49], for the contrary see Beresford v. Royal Insurance Co Ltd [1938] AC 586, 595 per Lord Atkin. For a detailed academic commentary on the fortuity requirement in insurance, see H Bennett, ‘Fortuity in the Law of Marine Insurance’ (2007) LMCLQ 315. 17 Piermay Shipping Co SA v. Chester, The Michael [1979] 1 Lloyd’s Rep. 55. On the facts, no fraud by the insured was found and the Court of Appeal upheld the judgment on that basis: [1979] 2 Lloyd’s Rep. 1. 18 123 U.S. 67 (1887). 244 W ilful misconduct and fraudulent claims steam engine had sufficient pressure to navigate. Harlan J., for the US Supreme Court, affirmed the approach of the lower court, holding “… the misconduct of the master, unless affected by fraud or design, would not defeat a recovery on the policy”.19 This sets the limits of wilful misconduct as requiring intent, or reckless conduct,20 but does not include negligence. 27.14 The second is a decision of the Supreme Court of Queensland, Wood v. Associated National Insurance Company Ltd, The Isothel.21 The Isothel was a fishing vessel which left port in May, 1981, with a crew of four, the skipper who was part owner and the only person on board qualified to manage the boat, and three fishermen, none of whom could navigate her or even use the radio. Shortly after sailing, the bilge pump was found not to be working, and the boat was anchored in a position which was unsafe in any winds blowing from north of east. There was no danger at the time because the wind was in the south-east although it was rising. The skipper went ashore to get help, and together with his father, another part-owner, repaired the bilge pump and also did some repairs to the main engine which needed attention. Both men then returned ashore leaving the boat anchored and in the charge of an unskilled crew. 27.15 During the next two days the skipper visited the beach opposite the position where the boat was anchored. On the second day, it was raining and he could not even see the boat. Although well aware from the weather forecasts that the wind was backing to the north-east and a storm was expected from that quarter, he made no attempt to return to the boat but spent the night at home. In the subsequent storm, the anchor line parted, the crew abandoned the boat, and she was driven onto the rocks and became a total loss. The trial judge found that there was no intention to cause her loss, but that the plaintiffs had recklessly disregarded the consequences of their conduct to such an extent that they were guilty of “wilful misconduct”. This finding, which was based upon section 61(2)(a) of the Marine Insurance Act 1909 (Commonwealth), which is in the same terms as section 55(2)(a) of the Marine Insurance Act 1906, was upheld on appeal. 27.16 More recently, the Supreme Court of Canada determined the limits of wilful misconduct under the relevant Admiralty rules for the limitation of liability22 alongside the marine insurance doctrine. Peracomo Inc v. Telus Communications Co,23 concerned the actions of Mr Vallée, the operator of the fishing vessel Realice. The appellant company was the vehicle through which Mr Vallée owned the boat. Having caught his fishing gear on a submerged fibre optic cable, he cut through the cable with an electric saw. He believed at the time that the cable was no longer in use. In fact, it was live and his actions caused nearly CAN$1 million in damage. The majority decision was delivered by Cromwell J., and found that the appellant lost the protection of the insurance policy through reckless conduct within the statutory definition of wilful misconduct.24 The Supreme Court catalogued the evidence used to support this finding at first instance: the charts on board the 19 At 73. 20 At 72. 21 [1985] 1 Qd R 297. Noted at R Salter, ‘Marine Insurance- Wilful Misconduct of the Assured’ (1985) LMCLQ 415. 22 Art 4, Convention on Limitation of Liability for Maritime Claims 1976. 23 Peracomo Inc v. Telus Communications Co, the Realice [2014] 2 Lloyd’s Rep. 315. 24 The relevant provision of Canadian law is s. 53(2) MIA, SC 1993, namely: “an insurer is not liable for any loss attributable to the wilful misconduct of the insured”. 245 W ilful misconduct and fraudulent claims vessel were significantly out of date; the existence of cable had been publicised, and the skipper relied on his memory of a map glimpsed in a museum. 27.17 The Supreme Court explained its reasoning for the finding of wilful misconduct on the basis of underwriting: A loss caused by the insured’s wilful misconduct is not the product of a fortuitous event or an accident and is therefore not within the scope of the insured risks. The purpose of the wilful misconduct exclusion, therefore, is to draw a line between the sorts of perils that are insured and the sorts that are not.25 27.18 The test to be applied extended wilful misconduct beyond the deliberate acts which characterised scuttling cases, and out to “conduct exhibiting reckless indifference in the face of a duty to know”.26 This formulation was subject to a powerful dissent from Wagner J. He interpreted wilful misconduct as requiring subjective recklessness: the actual appreciation and deliberate running of a risk.27 On his reading of the facts, Mr Vallée had a sincere belief that the cable was not live when he cut it and this meant it was not wilful misconduct. 27.19 The closest English law has to these authorities is Papadimitriou v. Henderson.28 The Ellenico Vouno was insured for a voyage on the S.G. Form with Institute War and Strikes Clauses attached. There was a warranty in the policy that the ship was not to go to a Spanish port or a Spanish possession in the Mediterranean and was not to carry arms, ammunition, or instruments of war, but this was not to exclude cars, trucks, benzene, coal, coke “or similar”. From the outset, it was appreciated by all concerned, including the underwriters, that this was a risky venture, because the goods were to be carried from the USSR, the principal supporter of the Republican Government of Spain, for that government’s use. The Spanish Navy had mostly declared for General Franco, and the Nationalists in the Spanish Civil War always had a strong naval force at their disposal. 27.20 The better view, surveying the approach of the authorities explored above, is that this would fall short of “wilful misconduct” as the skipper was not indifferent to loss, and was pursuing commercial objectives (releasing his gear from an entangled submarine cable), albeit negligently. Underwriters routinely insure the negligent operation of routine tasks, and can frame appropriate exclusions. Forfeiture rule in war risks insurance 27.21 Where the conduct of the insured is demonstrably fraudulent, underwriters may deny liability on the basis of the forfeiture rule. In the absence of a fraudulent claims clause,29 what constitutes a fraudulent claim under this rule remains a matter for the courts, but the Insurance Act 2015 now provides an extended series of statutory remedies 25 At [51]. 26 In support of this proposition, Cromwell J. cited a series of Canadian motor accident cases and P Cane, ‘Mens Rea in Tort Law’ (2000) 20 OJLS 533. 27 Citing Thomas Cook Group Ltd v. Air Malta Co Ltd [1997] 2 Lloyd’s Rep. 399, 408 and D Damar, Wilful Misconduct in International Transport Law (Springer, 2011), pp.272–273. 28 (1939) 64 LlLL Rep. 345. 29 The standard war risks policies do not routinely include a fraudulent claims clause, unlike many non-marine insurance policies. 246 W ilful misconduct and fraudulent claims for fraudulent claims provided the contract was agreed after 12 August 2016. This section will review the limits of the doctrine before assessing the remedies at both common law and under the statute. The limits of “ fraudulent claims” for the purposes of forfeiture 27.22 The past two decades have seen considerable litigation on the limits of the “forfeiture rule” in insurance contract law. Much of this litigation has been concerned with establishing the necessary elements required for a claim to be considered fraudulent, and make available the remedy. This rule is also temporally constrained in that it only applies to fraudulent conduct prior to the issue of proceedings, after that the rules of the court replace those of the contract.30 As with wilful misconduct, an entirely dishonest claim is considered fraudulent. Where the insured has conspired to bring about the loss, such as in a scuttle, any potential claim is forfeit. In these circumstances, this remedy adds relatively little to the contractual position, as the insured would not normally be able to show a loss within the perils insured under the contract, and/or the insurer would be able to defeat the claim on the basis of wilful misconduct. More difficult are cases where there is an honest claim which could have been presented, but which has become tainted by fraudulent conduct in the manner of its presentation. Where the fraudulent conduct occurs after the casualty, it is more difficult for the underwriter to assert that wilful misconduct was part of the causal narrative of the loss, and it is more likely that the forfeiture rule alone will govern the outcome. 27.23 There are three established (but not exhaustive) categories of conduct that fit this model of a claim which is true in part. First, the insured might seek to embellish its claim by recovering more than its contractual entitlement. This form of exaggerated claim has been held to constitute a fraudulent claim, subject to certain limited caveats. Claims of this nature are likely to be relatively rare in war risks. Second, the insured might seek to fraudulently persuade the underwriter that it had complied with policy limits when it had in fact broken them. This is often referred to as “suppression of a defence” and would often involve the submission of documents known to be untrue. As noted in Chapter 26, there have been allegations of this kind of behaviour in war risks, notably with breach of navigation limits and the giving of notice under a held covered clause. Finally, there is the category of “fraudulent devices”, which involves the use of false evidence to support a claim that is otherwise honest. This latter category was the subject of the litigation in the Supreme Court in The DC Merwestone.31 27.24 An exaggerated claim will normally constitute a fraudulent claim, and the entirety of the claim will be forfeit. Litigation on these facts has arisen in non-marine insurance cases, where the level of indemnity due under the contract has to be estimated more frequently. This is less common in marine insurance as the constructive total loss device (and established principles for assessing repair costs) minimise the opportunity for insureds to inflate the value of an otherwise honest claim. For the claim to be fraudulent, the level of exaggeration needs to be “material”32 and the inflation of the claim must be 30 Versloot Dredging BV v. HDI Gerling Industrie Versicherung AG, The DC Merwestone [2016] 2 Lloyd’s Rep. 198 at [67], Manifest Shipping v. Uni-Polaris, The Star Sea [2003] 1 AC 469, [77]. 31 N 30. 32 Galloway v. Guardian Royal Exchange (UK) Ltd [1999] Lloyd’s Rep. IR 209 applying the decision in Orakpo, n 33. 247 W ilful misconduct and fraudulent claims dishonest.33 In Gottlieb,34 a claim for repairs to a house insured against damage from burst pipes were inflated by the inclusion of fraudulent elements, including replacement housing costs. The level of materiality required should not be overstated, it means that the fraud should not be inconsequential. In Galloway,35 an honest claim for around £16,000 was inflated by the invention of a further loss of £2,000. The claim was held to be fraudulent. 27.25 There are few cases which have turned purely on the suppression of a potential defence. In most cases, the insured has also inflated the claim, or made some other false assertion. The closest analogue is The Litsion Pride.36 As considered in Chapter 26, the owners undertook a voyage into an active area of hostilities, without notifying the insurer under the held covered clause. After the loss occurred, the owners produced a letter, apparently dated before the voyage, in which they instructed the broker to arrange extended cover. The letter, which purported to have been sent in advance of entry into the additional premium area, was found to be an attempt to deceive the underwriter and to generate a more favourable attitude to the claim.37 This is not strictly speaking suppression of a defence, but an attempt to persuade the underwriter to waive its rights. Moreover, on the facts the lack of prior notice was not fatal to reliance on the held covered clause. Nonetheless, the facts would not need to be altered dramatically to have an example of an attempt to disguise a breach of policy limits. No such discussion occurred in The Litsion Pride, as it was argued on the basis that the conduct constituted a breach of the continuing duty of utmost good faith. That doctrine is considered at paragraph 27.34. 27.26 The final form of post-casualty fraud has troubled the courts the most in recent times, the “fraudulent device”. In these cases, the insured has a good claim but seeks to embellish its evidence in order to obtain a better or quicker settlement. The claim is otherwise good, and the underwriter does have a prima facie contractual duty to indemnify the insured. Prior to the decision of the Supreme Court in The DC Merwestone,38 any fraudulent statement made in support of the claim was treated as material providing it met the criteria established by Mance L.J. (as he then was) in The Aegeon: … the courts should only apply the fraudulent claim rule to the use of fraudulent devices or means which would, if believed, have tended, objectively but prior to any final determination at trial of the parties’ rights, to yield a not insignificant improvement in the insured’s prospects—whether they be prospects of obtaining a settlement, or a better settlement, or of winning at trial.39 27.27 The DC Merwestone concerned a complex set of facts stemming from the poor maintenance and operation of a cargo vessel. Prior to leaving Klaipeda in cold weather, the deck pump was used to clear ice from hatches. The pump was not properly emptied of water, and subsequently froze, cracking its housing. This caused water to enter the bow thruster room. The seawater was able to make its way aft because the watertight 33 Orakpo v. Barclays Insurance Services Co Ltd [1995] LRLR 443, 451. 34 AXA General Insurance Ltd v. Gottlieb [2005] Lloyd’s Rep. I.R. 369 35 N 32. 36 Black King Shipping Corporation and Wayang (Panama) SA v. Massie, The Litsion Pride [1985] 1 Lloyd’s Rep. 437. 37 At 507. 38 N 30. 39 Agapitos v. Agnew (The Aegeon) [2002] 2 Lloyd’s Rep. 42, [45] per Mance L.J. 248 W ilful misconduct and fraudulent claims bulkheads had not been properly sealed when cables where run through them. After several hours at sea, water emerged into the engine room. Attempts to pump the area clear failed due to poor operation of the pumps. Eventually, the engine room flooded causing substantial damage to the engine and parts. 27.28 In progressing the claim, one of the vessel’s owners asserted that the crew had ignored a bilge alarm shortly before the casualty, as a false positive. Crucially, the owner stated in writing that he had spoken to the master for corroboration of this chain of events. This was untrue, he had not received corroboration at the time. 27.29 The extent to which this admittedly false representation was material to the claim was challenged before the Supreme Court, with Lord Sumption making clear that the test developed by Mance L.J. unduly favoured the underwriter. In cases where the insured had only sought to claim what it was contractually entitled to, the law took a less strict approach to fraudulent evidence used in support of the claim. The replacement test was stated as follows: “although a lie uttered in support of a claim need not have any adverse effect on the insurer … it must at least go to the recoverability of the claim on the true facts”.40 27.30 One crucial difference between the test suggested by Lord Mance and that adopted by Lord Sumption is the timing of the measured effect. Lord Mance is interested in the effect of the lie on the process of negotiations, and whether it would deliver a strategic advantage to the insured. By contrast, Lord Sumption’s approach is to ask whether the final outcome would be changed, whether the lie (if believed) would change the judicial decision. 27.31 The above discussion should not obscure the fact that underwriters are well placed to negotiate express contractual clauses to ensure certainty in respect of fraudulent claims. The litigation in The DC Merwestone could readily have been avoided by the adoption of a simple clause, such as that in the International Hulls Clauses 2003. The forfeiture remedy at common law 27.32 Where the forfeiture rule applies, it deprives the insured of the benefit of the entire claim, even if good in part.41 It was thought not to affect earlier, honest claims. The position was not settled in respect of subsequent honest claims. The forfeiture remedy under the Insurance Act 2015 27.33 Section 12 of the Insurance Act 2015 provides for a series of statutory remedies in the event of a fraudulent claim. An adapted version of the same remedies is found in section 13 for group policies. The primary remedy is that in section 12(1)(a), (b): the right not to pay the claim, or to recover “any sums paid by the insurer to the insured in respect of the claim” as appropriate. This mirrors the common law remedy of forfeiture. Section 12(1)(c) provides for a new remedy, the right to treat the contract as terminated. Unlike termination for breach of condition, this is not simply effective from the moment of election, but terminates the contract “with effect from the time of the fraudulent act”. 40 N 30 at [36]. 41 See Gottlieb, n 34. 249 W ilful misconduct and fraudulent claims Section 12(2) provides the statutory scaffolding for this remedy, making clear that termination has the effect of putting the underwriter “off risk” for any loss occurring after the fraudulent act, without any requirement to return premium. Under sections 12(3) and (4), rights and obligations relating to losses or claims made or notified before the fraudulent act are unaffected. The continuing duty of utmost good faith in war risks insurance 27.34 Hirst J. in The Litsion Pride suggested that the duty of utmost good faith continued in full effect for information provided during the claims process.42 As Lord Sumption noted in The DC Merwestone: ‘His decision has not fared well in subsequent decisions’43 and Lord Hobhouse in The Star Sea suggested it was not good law.44 The precise limits of the doctrine of utmost good faith are uncertain, but much more limited than suggested by Hirst J. The most likely result is that the continuing duty will not catch any case likely to reach the courts that would not otherwise fall under either the wilful misconduct or forfeiture rules. The window for any such litigation to challenge the status quo is limited. Section 14 of the Insurance Act 2015 repealed the statutory remedy of avoidance for breach of the duty of utmost good faith in section 17 of the Marine Insurance Act 1906, and any common law analogue. Any extension of the utmost good faith doctrine would only apply to contracts made before the 2015 Act came into force. Cumulative effect 27.35 Of the rules considered in this chapter, the wilful misconduct doctrine has the potential to have the widest ambit, at least if the approach of the Canadian courts in The Realice were followed. Whilst the fraudulent claims rule and the more recent iterations of the continuing duty of utmost good faith probably require some form of subjective dishonesty or deceit, wilful misconduct, on The Realice approach, might not. However, this lack of convergence is a further reason to reject the approach in The Realice as only requiring objective recklessness to establish wilfulness: i.e. that a reasonable person of the class would have appreciated the risk. It would be better for the rules to all be limited to intentional or subjectively reckless conduct. This provides a consistent degree of culpability. Assuming that English law confirms that position, there would then be a reasonably convergent approach to remedies. Unless varied by express contractual term, the contract is not voidable ab initio, either for wilful misconduct or fraudulent claims. The primary rule is that the claim is not recoverable by the insured. This is a personal bar to recovery in wilful misconduct, and a fraudulent claim would similarly not affect the rights of innocent co-insureds within a group insurance policy under section 13, Insurance Act 2015. The right to terminate the policy is novel to the forfeiture rule under the Insurance Act 2015, and there is a strategic advantage in the use of that doctrine. 42 N 36. 43 N 30 at [14]. 44 Ibid at [71]. 250 CH A PT ER 28 The proximate cause 28.1 It is a fundamental principle of English law that the assured who seeks to establish a claim, or the underwriter who seeks to contest it, must first establish the facts of the casualty, and then show that the facts bring the casualty within the bounds of an insured peril, or in the case of the underwriter, within the bounds of an exclusion. These principles are too well known to need emphasis here, and a reader who desires to look into this aspect of the matter more closely will find the principles admirably explained by the learned authors of Arnould (19th edn), Chapter 22, particularly with regard to marine insurance. 28.2 Many people find it difficult to accept that a war risks case presents anything more than the usual challenge of determining the proximate cause. There will of course be no difficulty where a missile strikes the ship, or a shell hits it. The surrounding circumstances and the damage speak for themselves. But it is not always so easy where there is a fire in the cargo. Was this caused by spontaneous combustion, or was it caused by sabotage? The difficulties are exacerbated when the ship is sunk in deep water and cannot readily be examined without huge expense. Particular difficulties will be found with oil cargoes, where the risk of explosion in the tanks is always a high one. Was the proximate cause inherent in the cargo or the gases which it gives off? Or was there some incendiary device in the tanks? Mines are, curiously enough, difficult to blame with absolute certainty for some casualties as will be seen in other parts of this work. They are rarely seen, and the modern type of mine lies on the bottom of the sea where it is well out of sight. 28.3 Although the new type of war risks insurance tries to name the event itself as the insured peril, and concentrates less than before on the motives of people, these will inevitably arise where there are cases of detention. Lastly, evidence depends on that most imponderable of elements in all litigation, the factual and expert witnesses, and the effect they create on the court. The tests to be applied to establish the proximate cause are clear enough, but the results in court can never be regarded as a foregone conclusion. 28.4 Considered below are the aspects of proof which are most likely to be of concern to the assured or to the underwriter concerned with a war risk casualty. Three particular aspects are dealt with: 1. The modern position on proximate cause generally (§28.6 to §28.13). 2. War Risk cases: (a) Several things happen more or less at once. What caused the casualty? Is it an insured peril or is it an exclusion? (b) A casualty happens but its cause cannot be established with any certainty. 251 T he proximate cause 28.5 Given the subject of this book, and the availability of more detailed general texts covering the topic, the focus here is on cases in which issues arose concerning proximate loss in the context of a dispute about the operation of a war risks policies. However, it is necessary to stray outside this field from time to time to ensure the law is accurately related. Proximate cause generally 28.6 The Marine Insurance Act 1906 contains in section 55(1) a succinct encapsulation of the importance of establishing the proximate cause: Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against. 28.7 As Lord Brandon explained in The Popi M,1 a Judge must be satisfied on the evidence that [an event] is more likely to have occurred than not. If such a Judge concludes … that the occurrence of an event is extremely improbable, a finding by him that it is nevertheless more likely to have occurred than not, does not accord with common sense. That is especially so when it is open to the Judge to say simply that the evidence leaves him in doubt whether the event occurred or not, and that the party on whom the burden of providing that the event occurred lies has therefore failed to discharge such burden. In Ide v. ATB Sales Ltd,2 Thomas L.J. explained at §6 As a matter of common sense it will usually be safe for a judge to conclude, where there are two competing theories before him, either of which is improbable, that having rejected one it is logical to accept the other as being the cause on the balance of probabilities. That, despite first appearances perhaps, is not in conflict with The Popi M, because as Longmore L.J. later explained in ACE European Group Ltd v. Chartis Insurance UK Ltd3 of the passage from Ide v. ATB: “Of course the judge has to be satisfied that the second theory is, on the balance of probabilities, correct”. 28.8 Generally speaking, unless the policy provides otherwise, the event which constitutes the “proximate cause” of the loss needs to have occurred during the currency of the policy (cf. the loss to which it gives rise).4 28.9 In describing the test of the proximate cause of the casualty, judges have used different expressions (and have given some warnings) as to how the proximate cause or the excluded risk is to be established. The modern approach is to focus with precision on establishing the proximate cause in a flexible manner in contrast to the historically more linear or temporal approach that was previously taken5. It was the House of Lords decision 1 [1985] 2 Lloyd’s Rep. 1 (HL) at 7 col 2. 2 [2008] EWCA Civ 424. 3 See ACE European Group Ltd v. Chartis Insurance UK Ltd [2013] Lloyd’s Rep. IR 485 at §35. 4 Kelly v. Norwich Union Fire Ins Society Ltd [1990] 1 W.L.R. 139 at 149. 5 See for example the approach advocated for by Lord Esher in Pink v. Fleming (1890) 25 QBD 396, which no longer represents the law. See also Lord Mance’s explanation of the prior approach in The Cendor MOPU [2011] 1 Lloyd’s Rep. 560 (SC) at §49. 252 T he proximate cause in Leyland Shipping Co v. Norwich Union Fire Insurance Society6 which changed the tide (see at 363). The case concerned a vessel which had been torpedoed by a German submarine, and which then sank a few days after having been brought into harbour. The question for the Court was whether the owners were entitled to recover from the insurers in respect of the total loss of the vessel under a time policy of marine insurance, but subject to the f.c. & s. Clause (ie. “warranted free … from all consequences of hostilities or warlike operations whether before or after declaration of war”). 28.10 The House of Lords held that the proximate (or “dominant” per Lord Dunedin at 363, “efficient” per Lord Shaw)7 cause of the vessel’s sinking was having been torpedoed—and thus the owners were not entitled to recover under their policy. Lord Dunedin explained in the context of needing to determine if the loss fell within the main policy of the f.c. & s. Clause exception, the moment that the two clauses have to be construed together it becomes vital to determine under which expression it falls. The solution will always lie in settling as question of fact which of the two causes was … the dominant cause of the two.8 The Supreme Court recently confirmed, not that there was any doubt, that the approach in Leyland is the right approach to proximate cause in The Cendor MOPU.9 In re Etherington and the Lancashire and Yorkshire Accident Insurance Co10 is an old example of a case in which a cause anterior in time (within cover) was held to be the proximate cause of a loss notwithstanding the accrual of a later potential cause (which was excepted) that was lighted upon in The B Atlantic litigation.11 28.11 What, then, is the proximate cause of a loss? When The B Atlantic reached the Court of Appeal,12 Christopher Clarke L.J. explained “the search is for what is sometimes expressed as the proximate or operative, and sometimes as the dominant or effective, cause. The difference adjectives … all seek to identify what even or events have the necessary causative potency”.13 28.12 The question of what is the proximate cause (whichever of the variously used adjectives one has in mind) is a question to be “answered applying the common sense of a business or seafaring man”, and not “the subtlety of the legal mind”: Bingham L.J. in T M Noten BV v. Harding.14 See also Galoo Ltd v. Bright Grahame Murray,15 eschewing a simplistic reliance on the “but for” test.16 28.13 Whilst the Court might seek to ascertain one single real or effective proximate cause of any loss, there may on occasions be two (or more) concurrent proximate causes: 6 [1918] AC 350. 7 At 370–371. 8 At 363. 9 [2011] 1 Lloyd’s Rep. 560 (SC) at paragraph 19. 10 [1909] 1 KB 591. 11 See paragraph 25 of the Court of Appeal’s judgment [2017] 1 WLR 1303 and paragraph 48 in the Supreme Court [2019] AC 136. 12 [2017] 1 WLR 1303. 13 See paragraph 23. 14 [1990] 2 Lloyd’s Rep. 283 at 286, 287 and 289. 15 [1994] 1 WLR 1360 at 1373 to 1375 per Glidewell L.J. 16 See further Lord Greene M.R. making a similar point in the context of a war risk dispute in Athel Line Limited v. Liverpool & London War Risks Insurance Association Limited [1946] KB 117 at 122. 253 T he proximate cause The B Atlantic (SC).17 If there are two proximate causes, one of which is covered and the other is specifically excluded, the loss is not recoverable under the policy: John Cory & Sons v. Burr;18 Wayne Tank and Pump Co Ltd v. Employers Liability Assurance Corporation Ltd;19 The Miss Jay Jay;20 The Cendor MOPU;21 The B Atlantic (SC).22 However, recovery is not precluded if there are two proximate causes, but only one is an insured peril if the other cause, albeit not within the scope of the policy, is not specifically excluded: see e.g. The Miss Jay Jay.23 Several things happen more or less at once 28.14 In Green v. Elmslie,24 The Fly was bound from Exeter to London. She was insured only against “capture”. She was driven by a high wind over to the French coast where a French privateer captured her. The underwriters contended her loss was due to perils of the seas which was not insured. Lord Kenyon C.J. found the case too clear to admit of argument. On any other coastline she would have been perfectly safe. She had suffered “capture” and the underwriters had to pay. 28.15 In Livie v. Jansen,25 The Liberty was bound from New York to London. A letter, saying that she would sail in spite of the American embargo, was seen by the underwriters when the insurance was placed, and this led to the insurance being given but “warranted free from American condemnation”. In December 1808, laden with valuable cargo, she was waiting in New York for a suitable opportunity to elude the embargo. This opportunity was thought to occur on the night of 15 January 1809, and, with a pilot on board, she took a proper course for the open sea. Ice drove her ashore on Governors Island where she was badly damaged. Next day, the U.S. Customs seized her and managed to refloat her. Lord Ellenborough C.J. held: It all depends on what was the proximate cause. If partially damaged before, and later totally lost, prior damage does not give rise to a claim against the underwriters. The total loss was the event which gives rise to a claim but it was an excepted peril. The proximate cause was held to be the American seizure, and judgment was thus entered for the underwriters. 28.16 Hahn v. Corbett26 was a case in which cotton goods were loaded on to the Mary for carriage from London to Maracaibo. They were insured against perils of the seas, but the insurance was “warranted free of capture and seizure”. The cotton was consigned to those who had espoused the revolutionary cause during the South American Wars of Independence. On 17 September 1822, the ship arrived off the Gulf of Maracaibo and the next 17 18 19 20 21 22 23 24 25 26 [2019] AC 136 at §43 per Lord Mance. (1883) 8 App Cas 393 per Lord Blackburn. [1974] QB 57 per Lord Denning M.R. at 67 and Cairns L.J. at 69 (obiter). [1987] 1 Lloyd’s Rep. 32. A paragraph 11 per Lord Saville. At §49 per Lord Mance. At 37 col 1 per Slade L.J. (1784) 1 Peake 278. (1810) 12 East 648. (1824) 2 Bing. 205. 254 T he proximate cause day, being unable to get a pilot, she anchored near the bar. She drifted into shoal water, ran aground and was lost. The Master asked Fort San Carlos for help only to find that, unbeknown to him, the Royal Forces of the King of Spain had recently recaptured it from the rebels. He and the crew were put in jail and the Spanish authorities treated the ship and cargo as prize. All the cargo, both the damaged and undamaged cargo, was removed and seized by the Spanish authorities. 28.17 Best C.J. distinguished this case from the Livie case. There the ship and the goods were only damaged by perils of the seas. In the Green case, the ship was driven, undamaged, over to the French coast and there captured. In the Hahn case, however, the ship was destroyed by the grounding, nine miles off the coast, and the goods were as good as lost before the Spaniards took them, not to save them but to appropriate them. Judgment was rightly given for the owners of the goods. 28.18 The facts of Cory & Son v. Burr27 are set out in Chapter 12. The barratrous agreement made by the Master led to the ship being seized by the Spanish revenue authorities. The seizure was held to be the cause of the loss, not the misdeeds of the Master. Leyland Shipping Company Limited v. Norwich Union Fire Insurance Society Ltd.28 The facts 28.19 In Leyland Shipping altogether nine judges in the High Court, the Court of Appeal and the House of Lords could agree that the torpedo and not the subsequent foundering was the proximate cause of her total loss. Those that expressed an opinion on proximate cause did so in different terms, which are interesting to note. 28.20 In January 1915, the Ikaria was on the last stages of a voyage from South America to Le Havre. She was torpedoed by a German U-boat, and brought into the port of Le Havre. A few days later, however, she sinks in the outer harbour, a total loss. She was insured for marine risks on the normal S.G. Form with the f.c. & s. Clause attached which warranted that the policy was free from: “The consequences of hostilities or warlike operations”. 28.21 On these facts, the shipowners sued for a total loss caused by perils of the seas, pleading that there was a novus actus interveniens. The underwriters defended the suit, pleading that the loss was caused by hostilities and that there was an unbroken chain between the torpedoing and the total loss. When the case reached the House of Lords, Lord Dunedin gave firm guidance: Yet I think the case turns on a pure question of fact to be determined on commonsense principles. What was the cause of the loss of the ship? I do not think that the ordinary man would have any difficulty in answering she was lost because she was torpedoed. and: The solution will always lie in settling as a question of fact which of the two causes was what I would venture to call (though I shrink from the multiplication of epithets) the dominant cause 27 (1881) 8 Q.B.D. 313. 28 N 6. 255 T he proximate cause of the two. In other words, you seek for the causa proxima, if it is well understood that the question of what is proxima is not solved by the mere point of order in time. 28.22 Lord Shaw of Dunfermline reinforced Lord Dunedin: The cause which is truly proximate is that which is proximate in efficiency. That efficiency may have been preserved although other causes may meantime have sprung up which have yet not destroyed it, or truly impaired it and may culminate in a result of which it still remains the real efficient cause to which the event can be ascribed. Where various factors or causes are concurrent, and one has to be selected, the matter is determined as one of fact, and the choice falls upon the one to which may be variously ascribed the qualities of reality, predominance, efficiency. 28.23 In more recent times comes the case of Bayview Motors Ltd. v. Mitsui Marine and Fire Insurance Co. Ltd.29 Bayviews were motor dealers on the Island of Providenciales in the Turks and Caicos Islands. They bought ten pick-up trucks from Toyota. The voyage from Japan to the Turks and Caicos Islands is tortuous in the extreme with no deep water port which ocean-going ships can enter to discharge such cargo. The arrangement was that the cargo should be discharged at Santo Domingo in the Dominican Republic, and then transhipped onto a smaller ship for carriage to its destination. The Bills of Lading did not specify that the trucks were a transhipment cargo, although Toyota wrote and cabled to the customs authorities in Santo Domingo in an attempt to correct this oversight. The trucks were insured by Mitsui on an “all risks” basis, although Clause 12 contained an exclusion, “Warranted free of capture, seizure, arrest, restraint or detainment and the consequences thereof”. 28.24 The first five trucks arrived at Santo Domingo on 11 August 1997, to be joined by the other five on 14 September 1997. They were put into a customs compound. Ignoring the communications from Toyota, the Customs took the view that Santo Domingo was their final destination. Bayview protested vigorously, and there then followed a sequence of appointments not kept, letters unanswered and telephone calls not returned. Eventually on 5 April 1998, the Chief of the Customs wrote a letter declaring that as the trucks “had not been transhipped [sic] within the time allowed by the customs regulations, they would be treated as abandoned”. This meant that they would be sold locally to pay the customs duties. 28.25 Mitsui rejected Bayview’s claim on the grounds that the trucks had been “seized”. The High Court dismissed this argument, preferring the view that the Dominican customs authorities were guilty of a complex and fraudulent plot to steal the trucks and convert them to their own use. Judgment was entered in Bayview’s favour. On appeal the Court of Appeal (with Tuckey L.J. giving the leading judgment) confirmed this view and dismissed Mitsui’s appeal. “Seizure” may not have been covered by their policy, but theft certainly was. A casualty happens but its cause cannot be established 28.26 This chapter has so far dealt with the problems of two possible insured perils both of which are known. This last part will deal with a situation which is all too 29 [2003] 1 Lloyd’s Rep. 131. 256 T he proximate cause common with war risk insurance, where the cause of the casualty is not known for certain and has to be deduced from what facts can be established, or at any rate inferred as the probable cause. Where there are two policies covering different insured perils, and the possible cause of the loss is likely to fall on one or other of the two policies, a serious problem can arise for the assured. If he sues each underwriter separately, the views formed by two different judges of what actually happened might well be opposed, and might each separately decide that the proximate cause was not insured by the one policy which was presently before the court. His only safe course is to sue both underwriters in the same proceedings, so that one judge can form a view on what the facts were on the balance of probabilities, and then proceed to decide which policy (or neither policy) should respond. This involves the risk of paying the costs of the successful underwriter, which could be very substantial, and it can only be hoped that, in the case of a shipowner, his Freight, Demurrage and Defence Association will stand behind him and meet the resulting bill. 28.27 Given the nature of seafaring, it is scarcely surprising that this problem has arisen on scores of occasions. An early case is Green v. Brown.30 The Charming Peggy sailed from North Carolina bound for London. She was insured with a warranty in the policy against captures and seizures. She disappeared without trace. The underwriters insisted that because of the capture and seizure clause the owners must prove that the loss was due to other causes. Lea C.J. instructed the jury, however: “All that is required is the best proof that the nature of the case admits of which plaintiff has given”. The jury found for the plaintiff. 28.28 To move to more recent history, Munro Brice & Co. v. War Risks Association Limited and Others31 is a typical case where the loss of the ship may have been due to perils of the seas and was equally likely to have been caused by a war risk. The shipowners would obviously have preferred to win against the war risks underwriters, who gave insurance for £5,460 for: “Risks of capture, seizure and detention of King’s enemies, or consequences of hostilities and warlike operations by or against the King’s enemies” whereas the marine underwriters gave insurance for £1,500 for perils of the seas. Their policy contained the f.c. & s. Clause. The cargo of timber, which also belonged to Munro Brice, was insured against war risks by the Crown. 28.29 The ship left a Mexican Gulf port on 21 March 1917. She was fully loaded with timber and had the usual deck cargo, but there was no suggestion that she was overloaded, or was unsafely loaded in any way or was not well-found. She was never heard of again. In the High Court, Bailhache J. found as a fact that the sinkings of timber ships were “definitely known” although of course some had disappeared without trace after being attacked. He remarked that to succeed on the War Risks Policy the court would have to be satisfied “beyond reasonable doubt” that the ship had been torpedoed: The difficulty in the case is to get the [ship] within the danger area. If that difficulty were overcome I would have no hesitation in finding that she was sunk there by a war peril although nothing is definitely known. 30 (1743) 2 Str. 1199. 31 [1918] 2 K.B. 78. 257 T he proximate cause 28.30 Bailhache J. was later overruled by the Court of Appeal that adopted a radically different approach when reversing Bailhache J.’s judgments, and ordering the war risk underwriters to pay for the loss of both ship and cargo. The cases reached the court under the names of Munro Brice & Co. v. F. W. Marten (the hull claimant) and Munro Brice & Co. v. The Crown (the cargo claim)32 and were heard together. Bankes L.J. gave the unanimous judgment of the court, Scrutton and Atkin L.J.J. simply concurring. He began: [Counsel] says, of course, as in every case of circumstantial evidence, that it is a question of weighing the probabilities; but it is not enough to say (when you find on one side a bare possibility not amounting even to a probability and on the other side you find a series of probabilities which ought to carry conviction to a reasonable mind) that there is a bare possibility which has not been excluded, and therefore no definite conclusion ought to be arrived at. 28.31 Bankes L.J. went on to explain what he meant. Bailhache J. had found that the ship might have reached the U-boat danger area. She had met with bad weather, but she ought to have coped with that. There was, therefore, “just the possibility” that something may have happened. Bankes L.J. reasoned Now I ask myself, is that a sufficient justification for refusing on the balance of probabilities to arrive at a conviction that the real cause of this vessel foundering was that she did reach the submarine area and was torpedoed? 28.32 The Court of Appeal quoted with strong approval the judgment of Roche J. in Compania Maritima of Barcelona v. Wishart33 which Bailhache J. had doubted. This is another case of doubt whether the Pelayo was lost by perils of the sea or enemy action: At all events, my own conclusion upon the facts is that the Pelayo was not torpedoed, was not mined, and that the facts and probabilities strongly point to her loss being a loss by foundering through the action of wind and sea. The line between surmise and legitimate inference is not easy to draw. But although in this case demonstration and certainty are not unobtainable, the law allows, and ever demands, that an inference shall be drawn from such facts as point to a conclusion. 28.33 On the strong authority of the Court of Appeal, it would seem that the clearest explanation of how to proceed in such matters comes from Roche J., that every known fact should be considered and a conclusion reached in a commonsense way. It is tempting to think that the technical approach adopted by Bailhache J. in the Munro Brice34 case must be correct. However, as the Court of Appeal subsequently showed, it is not safe to take too literally Bailhache J.’s guidance where the defendant underwriter produces a plausible explanation for the loss of the ship. 28.34 The problem was taken one stage further when the Court of Appeal had to consider the loss of the Arnus in Compania Naviera Martiartu v. The Royal Exchange Assurance Corporation.35 The ship left Vivero on 26th April 1921. A proper course would have 32 33 34 35 (1920) 2 Ll.L.Rep. 2. (1918) 23 Com.Cas. 264; (1918) 14 Asp.M.L.C. 298. Munro Brice & Co. v. F. W. Marten, Munro Brice & Co. v. The Crown (1920) 2 Ll.L.Rep. 2. [1923] 1 K.B. 651. 258 T he proximate cause taken her clear of the Armen Rock Light, Ushant and Penmarsh Point. On the night of 27 April, the 2nd Officer, who was on watch, saw what he described as floating wreckage about 75 yards long and 24 yards wide about two feet above the water. It looked like a hull or a large raft and seemed to pass clear of the ship down the port side. He heard no noise and felt no shock. The night was fine and clear with a smooth sea. The ship subsequently sank in deep water, settling down by the head. The crew abandoned the ship three hours before she finally sank, and were all picked up by fishing boats. The plaintiffs’ case was that she hit this wreckage, stripping off the bilge-keel causing damage to the plates of the ship’s side. The defendant’s case was that the Chief Engineer had admitted seawater deliberately by opening a valve in the valve box in the boiler room, and further opening a sea inlet. This admitted water to a ballast tank whose port manhole cover was loose or open. The watertight doors failed to stop the water from passing to the cross bunker and from thence into the fore part of the ship, which accounted for her sinking by the head. Moreover, the owners had connived in all of this. 28.35 In the High Court, Bailhache J. found for the shipowner. The judge formed an unfavourable impression of the Chief Engineer but a favourable opinion of the 2nd Officer. This was an error, because the 2nd Officer gave his evidence on commission and was never before the court. The judgment concluded: I agree that in a case of this kind when a ship goes to the bottom of the sea in calm weather on a fine night, although it is enough to make a prima facie case against the underwriter to say she is at the bottom of the sea, yet very little evidence shifts the burden on to those claiming against the underwriters and imposes upon them the obligation of showing what the particular peril was that sent her to the bottom of the sea, apart of course from the seawater. 28.36 The underwriters appealed. The Court of Appeal asked shipowner’s counsel what would be the result if the court was left in doubt whether or not the shipowners had made out their case. He answered that the court must then fall back on the presumption that, the ship being a seaworthy and properly found ship, she was lost by an unascertained peril and that the peril was covered. This answer did not find favour with the court. Bankes L.J. said: This contention is, in my opinion, quite untenable having regard to the facts of this case. If the assured makes out a prima facie case, as the (shipowner) in the present case did, then unless the underwriters displace their prima facie case the assured is no doubt entitled to rely upon the presumption. On the other hand, if the prima facie case, which was the foundation on which the presumption was rested, fails because the underwriters put forward a reasonable explanation of the loss, the superstructure falls with it. If both the assured and the underwriters put forward an explanation of the loss, the loss is not unexplained in a sense which would admit of the presumption, merely because the court is unable to say which of the two explanations is the correct one. 28.37 Bankes L.J., as were the other judges, was quite certain that the ship had been scuttled and he felt that the trial judge had been influenced by the unfortunate misapprehension of the 2nd Officer’s evidence. The shipowners may have established that the loss of the vessel was due to a peril covered by the policy; on the other hand, the underwriters had advanced a perfectly reasonable and tenable defence which, on the evidence, he preferred. Scrutton L.J. did not wish to discuss the burden of proof but: 259 T he proximate cause … In my present view, if there are circumstances suggesting another cause than a peril insured against was the dominant or effective cause of the entry of the sea water into the ship … and an examination of all the evidence and probabilities leaves the court doubtful what is the real cause of the loss, the assured has failed to prove his case. and, when distinguishing The Charming Peggy:36 … When there is evidence on each side suggesting the real cause the court must determine on a balance of probabilities, as in every case of circumstantial evidence, and not be deterred from finding in favour of the stronger probabilities by the fact that some remote possibility exists the other way. 28.38 Eve J., sitting in the Court of Appeal, agreed, and the court allowed the appeal. Subsequently Scrutton L.J.’s dictum was unanimously approved by the House of Lords in Rhesa Shipping Co. S.A. v. Fenton Insurance Co. Ltd., Rhesa Shipping Co. S.A. v. Herbert David Edmunds (The Popi M).37 28.39 Mitrovich Bros. & Co. v. Merchants Marine Insurance Company Ltd.38 was a case very similar to the Munro Brice cases, except that the plaintiffs sued the marine and the war risks underwriters in separate actions. On 14 January 1917, the French iron sailing ship General de Boisdeffre sailed from Mejillones in Chile with a cargo of nitrate for Brest. She was never heard of again. The voyage should have taken five months and the question arose whether she had been lost by perils of the seas or had been torpedoed by a U-boat almost within sight of her destination. Either was perfectly possible. 28.40 First, it was necessary to round Cape Horn. No evidence was given to the court of the weather conditions round the Cape at the time. Most of the gales come out of the west or south-west, and these would have been favourable to her; there is the world of difference between running before a gale and beating up into it. In August 1917 some fishermen found a barrel off Penmarsh, which was way off her course for Brest, of the type which was used in lifeboats. It did not have the name of the ship to which it belonged upon it, as all lifeboat equipment is supposed to have, and 30 hours later, in the same area, a coat was found with a seaman’s book in the pocket. The coat was identified by the seaman’s parents as belonging to their son, a seaman on the ship. Rowlatt J., when invited to decide that the ship had been lost by perils of the seas in the approaches to the English Channel, was deeply sceptical and declined to do so. He found it particularly difficult to accept that the coat could have remained afloat for a minimum of 30 hours, and considered that if the ship had been in the area at all, then it was more likely that she had been torpedoed by a U-boat. The war risks insurance was placed in France, and it appears from the scanty details in the report that the French war risks underwriters had successfully denied liability. 28.41 United Scottish Insurance Company Ltd. v. British Fishing Vessels Mutual War Risks Association Ltd. (The Braconbush)39 was a case between two insurance companies, because the plaintiff had issued an “all risks” insurance policy to the owners of the Braconbush and had reinsured its war and strikes liabilities with the defendant. On 29 January 36 37 38 39 Green v. Brown (1743) 2 Str. 1199. [1985] 2 Lloyd’s Rep. 1; [1985] 1 W.L.R. 948; [1985] 2 All E.R. 712 (H.L.). (1922) 12 Ll.L.Rep. 451 (1923) 14 Ll.L.Rep. 25. (1945) 78 Ll.L.Rep. 70. 260 T he proximate cause 1942, the Braconbush, whilst one mile off Duncansby Head, suffered a casualty which was variously described as an underwater explosion or an underwater noise. This ripped open her hull, and in spite of efforts made to beach her with the assistance of another fishing boat, she sank in deep water. The crew all survived. There were two possibilities, and both were considered as likely to have caused her loss. Did she hit some underwater wreckage, or did she hit a drifting float which had broken adrift from the German minefields in the North Sea? These floats were laid around the peripheries of the German minefields, and, with a small explosive charge, seem to have been intended to give warning to any German ship off her proper course that she was straying into a minefield. Against a strong hulled ship, they would have done no damage. Against a ship with a frailer hull such as a fishing boat, they could prove fatal. 28.42 Atkinson J. reviewed the law on burden of proof, clearly feeling it was well described in the Munro Brice case. He quoted with approval the dictum of Bankes L.J. on probabilities and possibilities and that of Roche J. in the Wishart case, and added further that of Atkin L.J. in the Munro Brice case: The plaintiffs had to establish that the claim which they made was made out by the facts. To do so it was not necessary that they should produce witnesses who saw the war risk operating … what you want is to weigh probabilities, if there be proof of facts sufficient to enable you to have some foothold or ground for comparing and balancing probabilities at their respective value, the one against the other. 28.43 He also noted what Scrutton L.J., in the same case, had to say on how individual judges will react when quoting another case: … two learned Law Lords in the minority were of the opinion that the three in the majority were guessing, and the three learned Law Lords in the majority were of the opinion that they were drawing a reasonable inference from the facts proved … 28.44 In the Braconbush case, Atkinson J., having reviewed all the evidence that was available at great length, came to the conclusion that the most likely explanation for the loss of the ship was an explosive float and gave judgment for the plaintiffs. 28.45 Finally, the dictum of Mr. Sherlock Holmes, taken from The Sign of Four, is “When you have eliminated the impossible, whatever remains, however improbable, must be the truth.” However sound this may or may not be for criminal investigation, it cannot be acceptable in a civil case which turns on the balance of probabilities. Lord Brandon, who gave the unanimous judgment of the House of Lords, made this very clear in Rhesa Shipping Company S.A. v. Herbert David Edmunds and Others (The Popi M)40 when he actually quoted this dictum.41 28.46 On 5 August 1978, the Popi M was in the Mediterranean bound on an easterly course and off the coast of Algeria. The weather was fine and the sea was calm. There was a sudden inrush of water into the engine room and the ship sank. There were two plausible reasons advanced for this, that she had suffered a failure of her hull plating, or 40 [1985] 2 Lloyd’s Rep. 1. 41 A point made again by Popplewell J. in European Group Ltd and Others v. Chartis Insurance [2012] Lloyd’s Rep. IR 603 at §77. 261 T he proximate cause that she had had a collision with a submarine. In the High Court, Bingham J. rejected the evidence that the hull plating had failed, even though she was an elderly ship, and was scarcely convinced that she had been in collision with a submarine, although such collisions were not unknown during the days of the Cold War. This led him to accept, that on the balance of probabilities, the collision with the submarine was the more likely and this justified a finding that the ship was lost by perils of the seas. The Court of Appeal, although it ventured the opinion that the collision with the submarine was most unlikely, upheld the judgment. 28.47 The House of Lords, however, reversed the judgments of the lower courts, and gave judgment in favour of the underwriters. Too close attention to the two theories had led them away from the third possibility, that neither theory was right. In this case, the shipowners had failed to discharge the burden of proof of explaining what was the actual peril of the sea which had caused the loss of the ship, and in such a case they were not entitled to judgment. Scrutton L.J. had explained it in the Martiartu case in the following terms: … if there are circumstances suggesting that another cause than a peril insured against was the dominant and effective cause of the entry of the seawater into the ship … and an examination of all the evidence leaves the Court doubtful what is the real cause, … the assured has failed to prove his case. 28.48. More recently, in Ace European Group Ltd v. Chartis Insurance UK Ltd42 Popplewell J. provided a detailed recitation of the doctrine of proximate cause, and the question of proof where there are two improbable causes considered in The Popi M and later in Ide v. ATB Sales Ltd43 by Thomas L.J. In Ace European, the issue was whether certain “50/50” clauses were engaged, the clauses providing that each of two insurers of the risk were to pay 50% of the loss if “after proper investigation it is not possible to ascertain whether the cause of such Damage happened prior to termination of the marine adventure of subsequently” or “where it is not possible to establish if the loss or damage was caused before or after arrival of the goods at the job site or store or place”.44 Having cited widely from paragraphs 3, 4 and 6 of Thomas L.J.’s judgment in Ide v. ATB where The Popi M had been considered, Popplewell J. held the clauses would be engaged if either (1) there was such uncertainty that it was not possible to reach any conclusion as to when the relevant damage occurred or (2) one theory was so improbable that even if the other theory was ruled out, it could not as a matter of common sense be described as more likely than not to have occurred.45 Conclusion on proximate cause 28.49 As a conclusion, it must be said that whether or not a particular casualty comes within the terms of an insured peril, or an excluded peril, must turn upon the facts of any 42 [2012] Lloyd’s Rep. IR 603 at paragraphs 77 to 83. The Judge’s approach to causation was approved of on appeal by Longmore L.J.: [2013] Lloyd’s Rep. IR 485. 43 N 2. 44 See paragraph 82. 45 See paragraph 82. 262 T he proximate cause case, upon the evidence which is available, and the conclusions that can be drawn from them. Strangely, war risk cases usually pose extremely difficult questions in all these fields. The facts do not always present themselves in an understandable form, and considerable extra investigation is necessary. Even when this is done, an analysis of the result does not always point to a definite conclusion. It therefore frequently happens that inferences have to be drawn to supplement that which is definitely known and can be established. It does seem that the most that can be done is to take the situations which are most likely to arise where there is a question of a war risk casualty, and discuss the situations against the background of the decided cases. This is what this chapter has attempted to do. 263 CH A PT ER 29 Cargo War and Strikes Clauses Introductory 29.1 Unlike ships, cargo is insured for War and Strikes under two separate sets of clauses, the War Clauses and the Strikes Clauses. Institute War Clauses (Cargo) 29.2 The War Clauses (Cargo) cover war, etc. (Clause 1.1), capture and seizure, etc. (Clause 1.2), but notably only arising from risks covered under Clause 1.1, derelict mines, etc. (Clause 1.3) and general average and salvage charges incurred to avoid or in connection with the avoidance of loss from a risk covered (Clause 2). The perils are considered elsewhere: war, etc. is considered in Chapters 6–10; capture and seizure, etc. are considered in Chapters 11–14; and derelict mines, etc. are considered in Chapter 15. Institute Strikes Clauses (Cargo) 29.3 The Strikes Clauses (Cargo) cover damage caused by strikers, etc. (Clause 1.1), any terrorist or any person acting from a political motive (Clause 1.2), and general average and salvage charges incurred to avoid or in connection with the avoidance of loss from a risk covered (Clause 2). The perils are considered elsewhere: strikers, etc. is considered in Chapter 16; terrorism is considered in Chapter 18; and political motives are considered in Chapter 19. 29.4 These Clauses do not cover all of the perils excluded from the Marine Clauses. In particular, they do not cover the pure economic loss to which an industrial dispute may give rise. Nor is physical loss or damage to the cargo due to delays caused by strikes, etc. insured by the Cargo Strikes Clauses (or for that matter by the new Cargo Marine Clauses). Exclusion Clauses 29.5 Both the War Clauses (Cargo) and the Strikes Clauses (Cargo) exclude wilful misconduct of the Assured (Clause 3.1), loss damage or expense caused by delay, even though the delay be caused by a risk insured against (Clause 3.5), loss damage or expense arising from insolvency or financial default of the owners, managers, charterers or operators of the vessel (Clause 3.6), and any claim based upon loss of or frustration of the 264 Cargo War and Strikes Clauses voyage or adventure (Clause 3.7). There is also an exclusion in respect of unseaworthiness of vessel or craft, unfitness of vessel, craft, conveyance container or liftvan for the safe carriage of the subject-matter insured, where the Assured or their servants are privy to such unseaworthiness or unfitness, at the time the subject-matter insured is loaded therein (Clause 4). 29.6 Both the War Clauses (Cargo) and the Strikes Clauses (Cargo) contain exclusions in respect of nuclear weapons. The War Clauses refer to “hostile” use, but the Strikes Clauses do not contain such a qualification. The test of a nuclear weapon may be a non-hostile use. 29.7 The Strikes Clauses (Cargo) contain two extra exclusions not found in the War Clauses (Cargo), namely: 3.7 loss damage or expense arising from the absence shortage or withholding of labour of any description whatsoever resulting from any strike, lockout, labour disturbance, riot or civil commotion … 3.10 loss damage or expense caused by war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power. Duration—War Clauses 29.8 Duration of the insurance cover is different between the Cargo War Clauses and the Cargo Strikes Clauses, and this is explained by the Waterborne Agreement, a marine market agreement which provides that certain types of war risks can only be covered whilst the insured object is afloat.1 29.9 The Cargo War Clauses provide cover only from the time that the insured goods are loaded onto “an oversea vessel” until they are discharged from “an oversea vessel” at the port of discharge or until the expiry of 15 days, counted from midnight of the day of “arrival”, whichever shall first occur. If only part of the goods are loaded, or remain on board, then only that part is insured. An “oversea vessel” is defined as a vessel carrying the insured goods between ports on a sea-passage. “Arrival” is defined as “anchored moored or otherwise secured” at a berth or place within the harbour area; if however that is not available, “arrival” is complete, and the 15 days begin to run, when the vessel reaches the waiting area. That is the general principle, which is contained in Clause 5.1. To this general principle there are a number of exceptions to allow for the character of a sea voyage and the necessities that arise from any disruption of it so far as the Waterborne Agreement will allow. War risks for cargo differ considerably from the duration of cover for marine risks, where there is standard cover from warehouse to warehouse. 29.10 The first of these exceptions (Clauses 5.1.3 and 5.1.4) provides that the insurance reattaches, or begins to run again, when the vessel sails from the port of discharge without having discharged the insured goods and continues until the insured goods are discharged at the final or substituted port of discharge, or 15 days after the vessel’s arrival (as defined 1 See: www.lloyds.com/help-and-glossary/glossary-and-acronyms?Letter=W. 265 Cargo War and Strikes Clauses above) thereat, whichever shall first occur. It is important to note that this reattachment requires that prompt notice is given to the underwriters and that an additional, or further, premium is paid if this is required. 29.11 The second exception, contained in Clauses 5.2 and 5.3, provides for the situation where the oversea vessel discharges the insured goods for transhipment at an intermediate port, or discharges them there as a port of refuge. The insurance continues only for 15 days after arrival (as defined above), but will reattach when the insured goods are loaded onto an on-carrying oversea vessel or an aircraft. If they are carried onwards by sea, the insurance continues on the conditions of the Cargo War Clauses. If however they are carried onwards by aircraft, then the current Institute War Clauses (Air Cargo) will apply. Here there is an exception to the rule that the insured goods will only be insured whilst afloat; during the 15 days, the insurance remains in force whilst the insured goods are at the discharge port. If the contract voyage is terminated at another place other than the contracted destination, then the insurance cover terminates on discharge, but can reattach again on shipment onto an on-carrying vessel, and can also reattach if the original vessel continues her voyage. Again it is important to note that such reattachment requires that prompt notice is given to the underwriters and that an additional, or further, premium is paid if this is required. 29.12 The third exception, contained in Clause 5.4, provides that the insurance against the risks of “mines and derelict torpedoes” is extended to any period whilst the insured goods are on board craft in transit to or from the oversea vessel, but this is limited to a period not exceeding 60 days following discharge from the oversea vessel. This period can, however, be extended by agreement. It is to be noted that here insurance is given for “mines”, unqualified by the word “derelict” as is the insurance for mines in Clause 1, whereas “torpedoes” are so qualified. There is no apparent reason for this. The difficulties posed by the word “derelict” are discussed in Chapter 15. 29.13 The fourth, and last, exception, contained in Clause 5.5, provides that the insurance cover remains in force during a deviation by the oversea vessel from the contract of carriage, or the exercise by her of any liberty granted by its terms. Yet again it is important to note that prompt notice must be given to the underwriters and that an additional, or further, premium is paid if this is required. 29.14 Clause 6 provides that, where the assured changes the destination of the insured goods, they will be “held covered at a premium and on conditions to be arranged subject to prompt notice being given to the underwriters”. Clause 7 states: “Anything contained in this contract which is inconsistent with Clauses 3.7, 3.8 or 5 shall, to the extent of such inconsistency, be null and void.” Duration—Strikes Clauses 29.15 The Strikes Clauses follow a very different and very much clearer pattern, being free of the complications of the Waterborne Agreement. Nevertheless, strikes risk cover may not exactly match any marine risks cover in this respect. 29.16 Clause 5 provides the general rule that the insurance commences from the time that the goods begin their journey, which may be inland, and continues until they reach their destination, which may also be inland. There is a maximum time limit of 60 days after discharge. If after discharge they are to be sent to a different destination, then the 266 Cargo War and Strikes Clauses insurance ceases at the time that the journey to that other destination begins. It does, however, remain in force during delay beyond the control of the assured, and this includes any deviation or other action by the shipowner exercising the liberties given to him by the contract of carriage. It does not remain in force indefinitely. The maximum time limit and other termination provisions still apply, and there is a further condition contained in Clause 6. 29.17 Clause 6 provides that if the contract of carriage is terminated, or the journey of the goods is otherwise terminated short of their destination, then the insurance will also terminate “unless prompt notice is given to the underwriters and continuation of cover is requested when the insurance shall remain in force, subject to an Additional premium if required by the Underwriters”, until the insured goods are delivered to their destination, or are otherwise disposed of as may be agreed. There is again a limit of 60 days from the time the insured goods reach their original, or other, destination. 29.18 Clause 7 simply provides that when the agreed destination is changed by the assured, he is to be “held covered” at a premium and on conditions to be arranged subject to prompt notice being given to the underwriters. Duration—notices 29.19 The Cargo War Clauses and the Cargo Strikes Clauses contain an array of notice provisions in various forms. It is not clear why they are not standardized, nor is it clear whether they are “conditions precedent” to the insurance, as they do not describe themselves as such. They are all in the nature of “held covered” clauses, as to which see Chapter 26. Minimising losses and waiver 29.20 Clauses 11 (minimizing losses) and 12 (non-waiver) are in the same form in both the Cargo War Clauses and the Cargo Strikes Clauses. In The Vasso,2 it was held that a minimizing losses clause had no role in defining the scope of the primary cover, substantially conforms to sue and labour in section 78 of the 1906 Act, and was not a condition precedent. Reasonable despatch 29.21 Clause 13 of both the Cargo War Clauses and the Cargo Strikes Clauses state that: “It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances within their control.” 29.22 This is a somewhat general provision, stated to be “a condition of this insurance”. It is potentially applicable to minimizing losses (see Clause 11), to the giving of notice under the Duration provisions (see paragraph 29.19), and also potentially amounting to a warranty as to delays in transit. In the Litsion Pride,3 it was argued at first instance that similar wording in the Rules of the Hellenic (Bermuda) Mutual War Risks Association constituted 2 Noble Resources Ltd v. Greenwood (the Vasso) [1993] 2 Lloyd’s Rep. 309 at p.313 per Hobhouse J. 3 Black King Shipping Corporation v. Massie (the Litsion Pride) [1985] 1 Lloyd’s Rep. 437. 267 Cargo War and Strikes Clauses an express “condition precedent”, and that a notification requirement in respect of entering A.P. areas was also to be construed as such. That argument was rejected, but without considering the reasonable dispatch clause. The provision remains unconstrued by the English courts. Commentators agree that it is probably not a warranty, but disagree as to whether it applies pre- or post-casualty.4 4 See J Dunt, Marine Cargo Insurance (Informa Law from Routledge, 2nd edn, 2015), paras 11.34–11.40 and J Gilman et al., Arnould’s Law of Marine Insurance and Average (Sweet & Maxwell, 19th edn, 2018), paragraphs 19–67. 268 CH A PT ER 30 Containers 30.1 Containers are insured in the London Market by the Institute War and Strikes Clauses Containers—Time. Containers may also be insured on mutual terms, with cover that is similar to the Institute Clauses cover. 30.2 The Institute insured perils and principal exclusions for containers are identical or similar in wording to the clauses used to cover ships and need little further separate comment. In the exclusion for capture and seizure, etc., by or under the order of a government or any public or local authority, the relevant country is not that of the vessel’s registration, but of the country where the Assured have their principal place of business. There are additional exclusions for shortage or withholding of labour, for insolvency or financial default.1 30.3 The Container Clauses end with a Schedule which consists of a series of boxes in which are entered details such as the type and size of the containers which are insured, their identification marks, their value, and the agreed Deductible. The details entered in the box “Sea and Territorial Limits (which are deemed to include normal flying routes between these Sea and Territorial Limits)” describe the geographical area within which the containers are insured. Clause 6 defines the scope of the insurance. 30.4 Clause 6.1 provides that the containers are insured only whilst on board an oversea vessel,2 (including whilst on deck) or on board an aircraft, within the sea and territorial limits specified in the Schedule. Clause 6.4 reinforces this by excluding loss, etc., arising whilst the container is not on board an oversea vessel or an aircraft. There are two exceptions to this general rule. First, the insurance for the risks of “mines and derelict torpedoes, floating and submerged” is extended by Clause 6.2 whilst the containers are on board any vessel or craft (i.e. not necessarily an oversea vessel). Second, the insurance for strikers, terrorists and persons acting from a political motive is extended by Clause 6.3 whilst the containers are on board any vessel or craft or whilst ashore, including whilst loading and unloading, except for loss or damage arising out of war, etc. 30.5 Where containers leave the agreed scope of the insurance, there is no held covered provision in the Container War and Strikes Clauses (whereas there is such a clause in the Marine Clauses). This is because of the Waterborne Agreement, a market understanding which restricts war risk cover for goods to the time whilst they are on the vessel. 1 See Integrated Container Service Inc v. British Traders Insurance Co Ltd [1984] 1 Lloyd’s Rep. 154, where the assured recovered sue and labour expenses arising from the insolvency of their container lessee. 2 Deemed to mean a vessel carrying the container from one port or place to another where such voyage involves a sea passage by that vessel. 269 CH A PT ER 31 War risk insurance in time of war Note for the Fourth Edition This chapter considers the arrangements between the United Kingdom government and the insurance industry for State support for the marine (and aviation) war risks market in the event of the outbreak of war. The Act of Parliament under which this operates (the Marine and Aviation Insurance (War Risks) Act 1952) and the 1988 Reinsurance agreements remain in place.1 What follows is the expert analysis provided by Michael Miller in the previous edition. He begins by explaining the lack of progress in bringing about much needed reforms since the Second Edition in 1994. Note from the previous author There was great concern in 1913 that British merchant ships would be attacked by the powerful German High Seas Fleet. There was equal concern in 1939 that they would be similarly attacked by the large German U-Boat fleet, and during the Cold War (1950 to 1995–2000) that they would be subject to the attentions of the very powerful navy of the USSR. There was always the danger that the Cold War would become “hot” and result in actual hostilities between NATO and the Warsaw Pact countries. Now that the Cold War is over there is no powerful navy left in the world which might be expected to attack British merchant ships, and the question arises if it is any longer necessary to have a form of contract with Her Majesty’s Government whereby the Secretary of State can bring the non-Queen’s Enemy Risks insurance to an end by issuing a General Premium Notice and so substituting for it the Queen’s Enemy Risks insurance. Unquestionably Her Majesty’s Government will require British (and perhaps foreign) ships in support of such military operations as it undertakes and will either have to give them insurance or pay for the insurance which they themselves effect. The South Atlantic War (1982) to eject Argentina from the Falkland Islands is the example which springs to mind, and nobody can say whether or not there will be others. It is only prudent to have an insurance scheme in place which is ready for instant use, but it will be very different from that which presently exists. The publication of the Third Edition cannot wait until this is in place and much work will have to be done before it is. It may be helpful to have a 1 The most recent statement of the current position is found in the annual report to Parliament, of which the most recent is: Dept for Transport, Marine and Aviation Insurance (War Risks) Fund Account 2016–17 (HC843, 2018). 270 War risk insurance in time of war chapter which describes the Queen’s Enemy Risks insurance as it presently is, and to this end [this chapter] is reproduced from the Second Edition.2 31.1 Under the Notice of Cancellation and Automatic Termination of Cover Clause, war risk insurance provided by the Institute War and Strikes Clauses attached to the MAR Form and most of the Mutual War Risks Associations terminates upon the hostile detonation of a nuclear weapon of war, or the outbreak of war between the United Kingdom, the United States of America, France, the Union of Soviet Socialist Republics and the People’s Republic of China (Chapter 4). The reasons why this happens are given in Chapter 3 on “The premiums”. This does of course open a yawning gap in the insured shipowners’ insurance cover, and the purpose of this chapter is to discuss how it is to be filled to the extent that it is possible to do so. 31.2 At paragraph 3.2, the point is made that the risk is so huge that only governments, or combinations of governments, have the necessary capacity to provide such insurance. The schemes of individual governments vary enormously in the scope or range of the insurance which they offer. The United States has a scheme, referred to generally as “The Binder” which gives ships insurance when they are taken into the service of the State during wartime. Norway, Denmark and France have similar schemes, whilst ships put into NATO’s service will be insured by the Interallied Insurance Organization. A discussion in depth will concentrate upon the British scheme, which Canada has copied in most of its essential details. 31.3 Governments have different priorities than do commercial underwriters. The exercise of the Royal Prerogative of Her Majesty to requisition British ships carries with it the obligation to pay for their use, and to make good or pay for damage which they suffer whilst they are compulsorily in her service. The requisitioning laws of various countries are not necessarily the same in every respect, and, as an example, a difference can readily be seen in Robinson Gold Mining Co. and Others v. Alliance Insurance Co.3 There the Republic of South Africa, as it existed on the outbreak of the Boer War, was obliged to pay for requisitioned cattle and wagons only; the owners of all other requisitioned property had the right to share in any booty which the Republic, if victorious, might have captured from its enemies during the course of the war. If there was no booty, then there would be no compensation. In addition, a government has a natural desire to make sure that merchant ships, if lost, should be replaced, or if damaged repaired, in the national interest so that they can continue to carry the sinews of war and the country’s seaborne trade. If a government is unable to ensure that this is possible, then it probably cannot prosecute the war. 31.4 Immediately before the First World War, His Majesty’s Government desired that the loss of or damage to merchant ships should be dealt with on insurance principles. This had several advantages. Marine insurance principles were already well developed, the compensation for lost merchant ships would be limited to their insured values, which were readily ascertained, or if the government desired, controlled, and the scheme could be virtually self-financing by charging premiums. 31.5 The resources of the State were behind the scheme, but it was always intended that the necessary funds should be raised from premiums without calling for a subvention 2 This appeared as Chapter 41 in previous editions. 3 [1901] 2 K.B. 919; [1902] 2 K.B. 489. 271 War risk insurance in time of war from the taxpayer. Another vital consideration was that money to replace a lost ship or to repair a damaged one would be available immediately, and thus make possible the prompt replacement or the repair in the national interest. The government asked the London Group of War Risks Associations (The London Group) (see paragraph 2.6) to prepare a scheme. Out of this, the concept of insurance of King’s (Queen’s) Enemy Risks (in Canada referred to as the Canada Engaged Risks) was born. The London Group added the necessary extra insured perils to its insurance, known as the King’s Enemy Risk, and His Majesty’s Government reinsured them. These are insured perils to be contrasted with the other insured perils which the London Group covers which are discussed earlier in this work; these are not reinsured by Her Majesty’s Government, there being no element of the Sovereign’s enemies being involved, and they are therefore known as the NonQueen’s Enemy Risks. 31.6 From that date to this, the London Group has insured King’s (Queen’s) Enemy Risks and His (Her) Majesty’s Government has given them reinsurance in proportions which have varied between 75% and 100%. Loss or damage suffered by merchant ships in both World Wars was paid for by this arrangement, primarily by the London Group which was reinsured by His Majesty’s Government. Whilst, as we shall see, this insurance arrangement is continually operative, there have been three occasions since the Second World War when it has had real meaning; the Korean War (1950–1953), the Anglo-French invasion of Egypt (1956) and the Falklands War, sometimes referred to as the South Atlantic War (1982). On all occasions, merchant ships were requisitioned or chartered to support the military to carry troops and all that troops need to fight a war. On each occasion, His, or latterly Her, Majesty had “enemies”. 31.7 The complaint has often been raised, with more eloquence than reason, that shipowners have been unduly favoured by this scheme. During the First World War, the damage to civilian property in the United Kingdom was trivial, mostly resulting from some ineffectual Zeppelin raids, which nevertheless caused great alarm, and a bombardment by the German High Seas Fleet on coastal towns in the early days of the war. There was one very important exception to this general statement—the loss of and damage to merchant ships was very substantial. Those whose property was damaged by the exercise of the Royal Prerogative were compensated under the Indemnity Act 1920, some of whose workings are described at paragraph 11.66. In World War II when a considerable amount of damage was done to civilian property, particularly by bombing, there was a war damage scheme which also operated on insurance lines, and householders paid premiums for the cover which it afforded. 31.8 There have, during the course of the years, been several updatings of the enabling Act, which gives the Secretary of State (formerly the Minister) for Transport the statutory powers which he needs to enter into a Reinsurance Agreement, and of the Reinsurance Agreement itself. The current enabling Act is the Marine and Aviation Insurance (War Risks) Act 1952. This Act is now well out of date, and moves are afoot for a further updating so that Her Majesty’s Government can give reinsurance for the latest forms that war risk insurance has taken in the past 40 years since 1952. Nevertheless, the Act does give the Secretary of State a great number of the powers which he needs for the basic essentials of the Reinsurance Agreement. The Act deals with cargo and aircraft as well as ships, but so far as merchant ships are concerned, the following characteristics are the most interesting. 272 War risk insurance in time of war 31.9 The Secretary of State may give reinsurance for war risks at any time in respect of a British ship, but for a ship other than a British ship he may afford such reinsurance only “during the continuance of any war or other hostilities in which Her Majesty is engaged or arise after any such war or hostilities in consequence of things done or omitted during the continuance thereof” (section 1(1)). 31.10 There is a definition of “war risk” (section 10) but no definition of a “British ship” for the purposes of the Act. This expression, strange as it may seem, is one of the most elusive terms known to the law. It is true that the Act allows ships of India and the Republic of Ireland to be considered as “British ships” (section 10(2)) but this is not of much help nowadays. In 1952 it did not matter particularly, because British-owned ships were, with few exceptions, registered in the United Kingdom and could be described as “British ships”, loose as the term is. Nowadays many British-owned ships are registered for a variety of reasons under other flags. But from a practical proposition, Her Majesty’s Government will depend upon their availability in time of war. They cannot be described as “British ships” in any sense of the expression. Even registration in the United Kingdom cannot be regarded as a totally reliable guide when the very odd case of The Polzeath4 is considered. There, the Registrar of British ships in King’s Lynn raised the question whether the ship was entitled to be registered as a British ship. She was owned by a British company with some British and some German directors, but the main shareholder was a German living in Hamburg. He was in the habit of sending instructions in the most peremptory form on the minutest details to the British directors, and, after the First World War broke out, continued doing so through neutral Dutch intermediaries. It was held by Bargrave Deane J. that the ship was not entitled to be registered as a British ship and she was accordingly struck off the register. Bearing in mind the great variety of shareholdings from all over the world which make up the ownership of British companies owning British-registered ships, the question raises itself just how far registration by itself is, in the absence of an express provision, a reliable guide as to what is or what is not a “British ship” for the purposes of an Act which gives no definition for its own purposes. 31.11 Until the Act can be amended, the Secretary of State and the London Group have done what it is possible to do to resolve the position with the following definition: “British ship—A ship registered in the United Kingdom, the Isle of Man, any of the Channel Islands or any British Colony.” This seeks to make registration alone the test; once a ship is accepted for registration in any one of these places, she can, for the purposes of the Queen’s Enemy Risks Rules and Her Majesty’s Government Reinsurance Agreement, be considered as a British ship, at least as long as this registration lasts. The Rules also contain a warranty that she shall remain so registered, so that if she is removed from the register for any reason, the insurance position is clear to all concerned. 31.12 This position is not entirely satisfactory and will not be so until this definition, or something similar, can be incorporated into a new enabling Act. For the present, so long as Bermuda and Gibraltar remain colonies, ships registered in these territories can be considered as “British ships”. Ships registered in places which were once colonies, but now no longer are, such as Hong Kong, Singapore and the Bahamas, cannot be regarded as British ships. Their problems are dealt with by the Reinsurance Agreement. 4 [1916] P. 117. 273 War risk insurance in time of war War risks are defined by the Act (section 10(1)) as: War Risks means risks arising from any of the following events that is to say, hostilities, rebellion, revolution and civil war, from civil strife consequent on the happening of any of those events, or from action taken (whether before or after the outbreak of any hostilities, rebellion, revolution or civil war) for repelling an imagined attack or preventing or hindering the carrying out of any attack, and includes piracy. 31.13 As will be seen from Chapters 6 to 21, this definition falls well short of the commercial war risk cover as it has now developed. In 1952 it was quite adequate to describe the war risk cover which was excluded from the marine policy by the Free of Capture and Seizure Clause, and which was insured by the War Risk Policy. At the time of writing, over 40 years later, it no longer serves this purpose. The development of the commercial war risk cover has far outstripped it, and in any case war risks insurance is no longer given on the basis of the Free of Capture and Seizure Clause (Chapter 1). It does, however, define the insured perils for which the Secretary of State can presently give reinsurance cover, and he is not permitted to step beyond the defined boundaries, fixed as they are by statute. 31.14 Nevertheless, a considerable amount of important insurance cover can be given by the London Group and reinsured by the Secretary of State. The insured perils are set out in Rule 2.A of the London Group’s Rules, and begin with a condition precedent that they: “… must have arisen out of war or other hostilities involving the United Kingdom.” 31.15 In respect of the entered ship’s hull and machinery, the insured perils are: War or any hostile act by or against a belligerent power; Capture, seizure, arrest, restraint or detainment and the consequences thereof or any attempt thereat; Mines, torpedoes, bombs or other weapons of war, including derelict mines, torpedoes, bombs or other derelict weapons of war. These insured perils have all been discussed in earlier chapters and they bear the same meaning for Queen’s Enemy Risks as they do for the non-Queen’s Enemy Risks; there is no difference. 31.16 If the entered ship is captured, seized, arrested, restrained or detained then: (i) Her running expenses are recoverable except for the first seven days. (ii) Likewise the expenses attending her capture etc. and her release and restoration are recoverable. Included under this head is damage to property which she may have caused during her capture, etc. for which her owner may be legally liable. (iii) There is also a 90-day rule, which applies to insured perils under the nonQueen’s Enemy Risk cover. This detention cover is subject to the same limitations as the cover which applies to insured perils for non-Queen’s Enemy Risk cover. 31.17 Third party liability (Protection and Indemnity) cover is given for: (i) Collision damage to another ship. (ii) Removal of wreck, including the lighting or marking of a wreck, provided that the entered ship was wrecked by one of the insured perils for which the hull and machinery are insured. The Queen’s Enemy Risk cover has its own sue and labour provision. 274 War risk insurance in time of war 31.18 These are the same insured perils which have been insured for many years by the Queen’s Enemy Risk cover, and they have been found in two world wars to represent the most immediate risks to a merchant ship in wartime. As has been remarked already, they do not include all the risks which are now included in the commercial war risk cover but the Secretary of State does not have power to reinsure the insured perils which have made their way into war risk insurance since 1952. This gave rise to problems concerning the ships which accompanied the Task Force to the Falkland Islands (1982). The shipowners, who had obligations to their shareholders, and sometimes to their mortgagees as well, to maintain their insurance to the fullest extent that was possible, would have had to take out extra cover to insure these extra insured perils at a very heavy additional premium. In the event, Her Majesty’s Government had extra powers which were pertinent to the Falklands War alone, so that it could by a separate agreement give reinsurance cover for the insured perils which fell outside the description of “war risks” contained in section 10(1) of the enabling Act. Since Her Majesty’s Government was also able to give reinsurance for 100%, a satisfactory position could be reached that the ships could be insured by the London Group, and reinsured by Her Majesty’s Government, without any premium at all. Nevertheless the whole matter emphasised the need for an extension of the Secretary of State’s powers under the enabling Act. 31.19 There is a further rule which is intended to permit the Secretary of State to give reinsurance for ships that are “requisitioned and chartered ships” for periods outside hostilities in which Her Majesty is engaged. Ships, for instance, required to rescue British subjects from Aden or Beirut could be insured under the Rules which insure non-Queen’s Enemy Risks, but this would entail a sizeable, perhaps huge, additional premium which the Secretary of State would have to pay. He might prefer to give reinsurance himself and so avoid this substantial cost. The Rule itself is presently not of much help because of the limitations which the current enabling Act put upon the Secretary of State, both as to the amount of insurance he is able to give and the ships he is able to insure during a period when Her Majesty is not engaged in hostilities. It is hoped that with a new enabling Act, this Rule can be extended to a meaningful extent, so that the Secretary of State can fulfil a natural desire when such occasions arise. The reinsurance agreement 31.20 Turning now to the Reinsurance Agreement itself, the agreement between Her Majesty’s Government and the London Group at the time of the Falklands War was dated 18th February 1954. It followed the same format as the two Reinsurance Agreements used during the two world wars, and it was for such a similar conflict that it was framed. Drawn up in 1913 in haste, and starting from nothing, it was a notable achievement in its time. During both world wars, there was a strong element of practice which grew up in its interpretation and use. This expertise had all disappeared by 1982, both within Her Majesty’s Government and the London Group, and the obscure drafting of the Agreement led to arguments, invariably inconclusive, on its meaning. In a matter as important and as far reaching as this, it was scarcely satisfactory that its meaning should not be readily apparent. Work on clarifying the Agreement was already projected by the London Group in 1980, but no substantial progress had been made before the Falklands War. Immediately afterwards, there was common agreement between Her Majesty’s Government and the London Group 275 War risk insurance in time of war that a more easily comprehensible Agreement should be used. Another feature which was regarded as being impractical was the necessity to issue special policies to all ships in wartime, which would have led to huge administrative difficulties and all the inconvenience which would have resulted. In addition, the existing Agreement was entirely unsuitable for the modern type of “war” (see Chapter 6). Now that the London Group uses Certificates of Entry and Rule Books, which unlike the previous annual policies last throughout the time each ship is entered for insurance in one of the Associations of the London Group, surely a better way could be found. The Queen’s Enemy Risks could be identified in a special section of the Rule Book so there could be no doubt as to what the insured perils were and equally no doubt that they were wholly separate from the non-Queen’s Enemy Risks for which the Secretary of State gives no reinsurance. Once this was done, then they could be reinsured by quite a short Reinsurance Agreement which simply stated that it reinsured them, and contained the necessary ancillary details for this purpose. 31.21 This sensible suggestion found ready acceptance and was fairly simple of achievement. As has already been remarked, the Queen’s Enemy Risks are in a special section of the Rules and a new Reinsurance Agreement, which took effect on 18th February 1988, was drafted. Known as “Agreements concluded under section 1(1) of the Marine and Aviation Insurance (War Risks) Act 1952, between certain shipowners’ Mutual Insurance Associations and the Secretary of State for the Reinsurance of British and other Ships against War Risks”, it is a public document which is obtainable from Her Majesty’s Stationery Office. Among its most important provisions are those set out below. The reinsurance: Clauses 1 to 3 31.22 The Secretary of State reinsures the London Group for 95% in respect of Queen’s Enemy Risks, and the Group makes no changes to its Rules which affect his interest without his consent. The reinsured ships: Clauses 4 to 5 31.23 The Secretary of State gives reinsurance for British ships (as described above) and such other ships as he is prepared to accept for reinsurance in wartime only, when Her Majesty is engaged in hostilities. Primarily this is intended for British-owned flagged-out ships where the Governments of those flags will permit them to take part in any hostilities, and whose owners will sign a letter of commitment that they will be made available to Her Majesty. On these two conditions being fulfilled, Her Majesty’s Government will give the shipowner a certificate of acceptability which will enable the Mutual War Risk Association of his choice to give Queen’s Enemy Risk cover in wartime when Her Majesty is engaged in hostilities. This certificate may be withdrawn by the Secretary of State if later these conditions cease to be fulfilled. Insured values: Clauses 6 to 8 31.24 The old method of assessing the insured values on building costs, and making allowances for depreciation, no longer pertains. Since 1972, there has been an agreement with Her Majesty’s Government, now enshrined in these clauses, that marine insurance 276 War risk insurance in time of war values for which each ship is insured for total loss under the marine policies shall be the insured values for the purposes of the Reinsurance Agreement. There are elaborate arrangements in the Reinsurance Agreement, and also in the Rules, for querying the insured value of any individual ship, and if necessary taking disputes to arbitration. Also there are arrangements to keep under review, and if necessary to control, insured values which may rise in times of crisis. Conversion into sterling: Clauses 9 to 11 31.25 For non-Queen’s Enemy Risks the Associations accept ships for reinsurance in a variety of currencies. In wartime, the ships are only insured in sterling, so after a General Premium Notice all values have to be converted into sterling and any further entries accepted by the London Group have to be accepted in the same currency. The reinsurance premiums: Clauses 12 to 14 31.26 No reinsurance premiums are payable until a General Premium Notice (where ships are exposed to Queen’s Enemy Risks generally) or a Special Premium Notice (where ships are exposed to Queen’s Enemy Risks in a limited area only) is issued by the Secretary of State. Ninety-five per cent of Queen’s Enemy Risks premiums are payable to the Secretary of State who determines what the premiums are to be after consultation with the London Group. General premium notices: Clause 15 31.27 The Secretary of State determines: • The premium period and any subsequent premium period after its expiry. • The advance and supplementary Queen’s Enemy Risk premiums. The Queen’s Enemy Risk premiums only become payable when each ship’s “Get you Home” insurance cover comes to an end. The Queen’s Enemy Risk premiums may be payable pro rata for broken periods. The London Group may, with the Secretary of State’s consent, make a separate charge for other expenses which are primarily administrative charges. Special premium notices: Clause 16 31.28 The former method, where Queen’s Enemy Risks were likely to arise in a limited area, and where that area was to be subject to Queen’s Enemy Risk premiums for any visiting ship, is no longer used. The Secretary of State may require additional premiums to be payable to such visits in the same way as additional premiums are charged for nonQueen’s Enemy Risks cover. Consultation: Clause 17 31.29 The Secretary of State and the London Group will consult each other throughout and seek the other’s guidance on matters pertaining to General Premium Notices and to Special Premium Notices. 277 War risk insurance in time of war Settlement of claims: Clauses 18 to 21 31.30 The Secretary of State’s consent is needed before acceptance of any claims for Queen’s Enemy Risks. Where the directors have a discretion whether or not to accept a claim, they must first have the Secretary of State’s consent to accept it. Disputes: Clause 31 31.31 Formerly all disputes had to be submitted to arbitration. Since the Arbitration Act 1979, it is nearly impossible to appeal from an Arbitrator’s Award. Since any disputes are likely to be of the most complex nature, and concern highly complicated matters of law, it seems that the highly skilled and experienced judges of the High Court are better able to resolve them. Furthermore, there is a well-settled chain of appeals to the Court of Appeal, and if necessary to the Supreme Court, which never presents a substantial difficulty. Disputes under the Reinsurance Agreement between the Secretary of State and the London Group are therefore to be dealt with by the courts. Likewise disputes between the London Group and the insured shipowners on the terms of the Rules are to be dealt with similarly. 31.32 To this general rule there is but one exception. Disputes over the insured values of individual ships are to be dealt with by arbitrators. In court, a judge could only form a view on such matters with the help of expert witnesses. It is considered far better that such expert witnesses should themselves deal with the matter in a judicial capacity. Commencement and termination: Clauses 33 to 35 31.33 The Reinsurance Agreement commenced on 20 February 1988. It can be terminated on 20th February in any year on three months’ notice by either side. 31.34 The remaining clauses deal with the administrative arrangements which are necessary between the parties to such a Reinsurance Agreement and, in a brief synopsis of a complex Agreement, need not be mentioned here. 31.35 A brief description of the effects of this Reinsurance Agreement and the Rules must be given. The Queen’s Enemy Risk insurance and its reinsurance are continuous even in time of peace. No Queen’s Enemy Risk premium is charged for the insurance in peacetime, and indeed there is no reason for this as long as Her Majesty has no enemies. It lies where it is, dormant but able to take effect immediately that it is required. A war then starts involving Her Majesty. The London Group’s war risk insurance does not include the Notice of Cancellation and Automatic Termination of Cover Clause, so that, unlike the London Market, the insurance given by the Rules continues unless or until the Secretary of State, considering that the time has now arrived to start charging premiums for the reinsurance, issues a General Premium Notice. This is a document, stating that from a future date (which may be no more than the next few hours) Queen’s Enemy Risk premiums will be charged for reinsurance provided between certain specific dates, known as a Premium Period. This is a decision which rests with the Secretary of State alone, although it is contemplated that he would consult with the London Group before taking such a step. 31.36 A General Premium Notice has a much greater effect than simply stating that premiums have now got to be paid to the Secretary of State by the London Group, and 278 War risk insurance in time of war charged by them to their shipowner members. It has the additional effect of bringing to an end all the non-Queen’s Enemy Risk insurance given by the London Group, leaving only the Queen’s Enemy Risk insurance. This termination of non-Queen’s Enemy Risks insurance does not take effect immediately. The non-Queen’s Enemy Risk insurance continues in respect of each individual entered (insured) ship until she has reached a safe and friendly port and for three days thereafter. Some ships, of course, may never achieve this if they are trapped in hostile ports which they never succeed in leaving; they would become the first casualties of war. The modern war being what it is, it is quite possible that the directors may wish to give non-Queen’s Enemy Risk insurance, which is outside the scope of the Reinsurance Agreement with Her Majesty’s Government, once more, either in whole or in part and if necessary upon special terms. They have the power to do this for what periods and for what areas of the world they see fit, on the basis of mutual contributions or fixed premiums. The reinsurance with His Majesty’s Government during both world wars was given on the basis that His Majesty would probably be engaged in a global conflict. As has already been stated, the four wars in which the UK has been involved since the Second World War5 have all been very local in nature and have not been “wars” in the previous and traditional sense. Local and limited in extent they may have been, but they have also been very savage in nature with plenty of opportunity for sinking or damaging merchant ships within a limited area. On none of the four occasions did the Secretary of State, or his predecessor, the Minister, consider it necessary to issue a General Premium Notice. Had he done so, the provision of non-Queen’s Enemy Risk insurance for the rest of the world which was not affected by the fighting would have been necessary. 31.37 A recent example comes readily to mind with the Falklands War (1982). The Secretary of State might have found it necessary to issue a General Premium Notice. If he had done so, the non-Queen’s Enemy Risk insurance would have come to an end, a procedure which is more appropriate to a global conflict rather than the more limited war that it was always expected to be. War risks could arise in other parts of the world quite independently of the Falklands War. The directors of the London Group have power, if they see fit, to restore the non-Queen’s Enemy Risk insurance subject to special conditions if these are appropriate. Had this step been necessary during the Falklands War, one obvious special condition would have been the exclusion of the area of the fighting of the war, which would have had to be geographically and precisely defined, so that the insurance would be given worldwide except for this area. The necessary powers are contained in Rule 5.B of the Rule Book and provide a quick and easy method of restoring insurance. It may be necessary to restore non-Queen’s Enemy Risk insurance even in the event of a global conflict, but again Rule 5.B contains the necessary powers for this purpose should the directors wish to use them. 31.38 In the previous pages, the author has attempted to give a concise description of an immensely complex agreement, and it can only be hoped that the reader will regard it as a general guide only, and use it to assist understanding of the insurance arrangement that is provided, and of the documents that give it effect. 5 Korean War (1950–1953); Anglo-French invasion of Egypt (1956); Falklands (South Atlantic) War (1982); Gulf War (1990–1991). 279 War risk insurance in time of war The NATO war risks insurance scheme Introductory 31.39 The Cold War lasted from the Berlin Blockade in June, 1948, until it effectively came to an end with the tearing down of the Berlin Wall and the Reunification of Germany in October, 1990. During the period of the Cold War, the North Atlantic Treaty Organisation was dedicated to one purpose only—to deter, and if deterrence failed, to repel, an attack by the East European Powers of the Warsaw Pact. Its constitution forbade it from undertaking any offensive operations, and, during the whole period of the Cold War, it was purely defensive in its nature. The 16 Member Nations who formed the Alliance are shown in Table 31.1. 31.40 The Treaty of Ottawa 1951 required that if any Member Nation of this Alliance should be attacked, then the other Member Nations would come to her aid. 31.41 At first the threat was seen as that of a land invasion by the numerically vastly superior armed forces of the East, but by the late 1960s the nature of the threat had changed considerably. By this time, thanks to the genius of Admiral Gorckov, the Soviet Union had built up a huge ocean-going fleet to which could be added the contingents of its allies. The submarine force was very strong, and those with memories of the Battle of the Atlantic, when the U-boats very nearly won the Second World War for Germany, could be under no illusions what this portended. If this was not enough, Admiral Kidd, CINCLANT (C.-in-C., North Atlantic) himself proclaimed in a television programme that the initial losses in ships would be “A hell of a lot”. NATO’s armed forces in Europe, and Europe’s civilian population, depended on re-supply from North America and, to a lesser extent only, from the rest of the world. This meant huge numbers of ships, and if the ships were now in danger of attack or destruction, any war between NATO and the Warsaw Pact could be lost at sea. It is not generally realised how acute was the danger to the West during the late 1970s and early 1980s. Besides the political and military chiefs and some journalists, there were few people who appreciated how great it was. Among these were the author, and then only because he was privileged to render some services to NATO. It was only the firm resolve shown by the West, such as the stationing of cruise missiles in Western Europe in 1982 and 1983, which persuaded the West’s potential opponents that NATO was too tough a nut to crack. Even then, the danger only decreased by slow degrees, and NATO could not afford to drop its guard. 31.42 If then the danger to the ships was so extreme, and NATO could not hope to win a war without them, insurance became an important question. As will be seen from Table 31.1 NATO Founder Members Belgium Canada Denmark Federal Republic of Germany France Greece Iceland Italy Luxembourg Netherlands Norway Portugal Spain Turkey United Kingdom United States of America 280 War risk insurance in time of war Chapters 3 and 4, the commercial war risks insurance would come to an end on the outbreak of a war such as a war between NATO and the Warsaw Pact, and it was most questionable if the commercial market was in any position to give war risks insurance during such a conflict. Damaged ships would need to be repaired and lost ships replaced, and this meant money. Some members of the Alliance had comprehensive insurance arrangements with their shipowners such as the United States, the United Kingdom and Canada; other Member States had less comprehensive schemes, whilst some had none at all. Some states had large fleets and only a small population. With such a small tax base, they had no hope of financing a scheme such as the British. And yet their ships were vital to the Alliance. 31.43 Out of these considerations was born the concept of a NATO insurance scheme which would be financed on the mutual principle. It was very probably the first time in history that a military and defensive alliance has undertaken marine insurance. The decision was taken, with the approval of the Council of Ministers, that such insurance should be given by a body formed specially for the purpose, the Interallied Insurance Organisation (I.I.O.); the I.I.O. should be a NATO Civil Wartime Agency (N.C.W.A.); the United Kingdom should be the host country and should provide the Secretariat; the Planning Board for Ocean Shipping (P.B.O.S.) should delegate the task of the necessary planning in peacetime to its subordinate body, the Shipping War Losses Working Group (S.W.L.W.G.); the S.W.L.W.G. should report to the Planning Board, and could look for assistance to the Senior Civil Emergency Planning Committee (S.C.E.P.C.). It should liaise with other planning groups and departments of NATO, both civil and military. This may sound all very bureaucratic, but in an organisation as large as NATO, it is essential to establish firm lines of communication. Anyway, NATO was full of very friendly people from all the Member Nations of the Alliance who were always anxious to help. It was never difficult to have dealings with them. First stage—1970 to 1982 31.44 After a false start in the late 1960s, the S.W.L.W.G. began its deliberations in May 1970. It was attended by delegations from most of the Member Nations of the Alliance under a Chairman provided by Greece. Admiral Pagonis was a Coastguard Admiral (the Greek Coastguard, like the U.S. Coastguard, uses naval ranks), and his civil service experience was invaluable. The delegates themselves were either senior civil servants or senior military or naval officers with a few commercial people. The Secretariat, provided by the United Kingdom, was in attendance. To this gathering was added two Technical Advisers, Mr. N. F. Ledwith and the author, to give advice on the management and organisation of a mutual insurance organisation. Later Mr. W. A. Wilson joined the Group, and remained with it until his death in 1986. 31.45 This was the pattern of meetings throughout. Over a long period of time, people came and went, Mr. G. P. Bisbas, also of Greece, took over the Chairmanship on the Admiral’s sudden and untimely death in 1976, and remained until his retirement in 1987. Then Mr. P. Michelet of Norway took the Chair, and held it until the Group’s meetings came to an end in 1992. 31.46 To those coming fresh from commerce, the early meetings, although always friendly and courteous, were strange affairs. They naturally took on a civil service character on an international plane. Civil service is a profession of its own, and it had its own rules of conduct, methods, courtesies, and etiquette, and if these were strange to 281 War risk insurance in time of war commercial eyes, they were at least consistent, and (eventually) productive of positive and well thought-out results. It was the way that they reached their goals that was unnerving. The Council Chamber rang with denunciations on some point or another, and even now, nearly 25 years later, the Summary Record (the minutes) contains some ferocious reading. The natural conclusion was that agreement was not possible, and that it would never be possible to get an insurance scheme on its feet. Then the Admiral would disappear for a few days, and quite suddenly ring up to say that all was now arranged; the dissenters to the proposal had agreed with it all along! He had been to the various capitals, and spoken with people in the privacy of their own offices, and now he came back with agreement. At the next meeting, an issue which had previously raised so much heat was not even mentioned, or if it was, it was simply to record a formal reservation, which would, in the course of time, be equally formally removed. 31.47 It must not be thought from all this that the proceedings of the S.W.L.W.G.’s meetings were disorderly, unbusinesslike, or lacking in method. Such things were simply not in the nature of the delegates, and in any event, an experienced Chairman and an immensely professional Secretariat kept things going properly and smoothly. It needs to be stressed that the delegates were engaged on a huge and unfamiliar task which, even if it puzzled them, they attacked with resolution and gusto. They were engaged in putting together the biggest marine insurance organisation which the world had ever seen, which would have to function without any experience of its own workings (apart from a few training exercises) right from the start of any conflict. One day it would be a paper plan, and the next day it could be operational. This was a daunting enough proposition in itself. Added to that, it would be a huge marine underwriter without even any capital, reinsurance, or any of the other factors on which marine insurers usually rely. 31.48 Agreements in NATO can only be reached unanimously, and this was productive of much delay. It meant that any proposal of the S.W.L.W.G. had to be agreed unanimously before it could be submitted to the Planning Board for formal adoption. Unanimity was a drawback, but in a body such as NATO it was a very necessary safeguard without which NATO could not function at all. Some amelioration was found in the “silence” procedure; a proposal, usually after some discussion, would be circulated with a note attached saying that if there were no objections by set date, then unanimous agreement would be presumed. This worked very well, because if there were objections, they would be clearly identified and were thus open for discussion and persuasion one way or the other. In course of time the Chairman, the delegates, the Secretariat, and the Technical Advisers all came to know each other well, and with acquaintance came respect, and with respect came trust. The earlier dramas became a thing of the past, and much consultation took place between various individuals, the only proviso being that the Secretariat and the Chairman were kept informed of what was happening. 31.49 The following problems were identified as being matters of prime interest: 1. The terms and conditions on which insurance should be given, or, in other words, the Policy of Insurance. This was a major priority. 2. The charge of premiums and the method of underwriting. This too was a major priority. 3. The legal standing of the I.I.O. It had to have a corporate existence within the host country, the United Kingdom, which meant incorporation which was complete to the standards required by English law. 282 War risk insurance in time of war 4. The Terms of Reference of the I.I.O. These took the place of the Memorandum in an English company, and set out the powers which were intra vires. 5. The Basic Principles of the I.I.O. These were its Articles of Association, and governed its internal workings. 6. The valuations of the ships, or their insured values (I.V.). On these depended the charge of premiums and the measure of compensation for any loss through an insured peril. 7. The structure of the I.I.O. It needed a board, a Chief Executive, and departments. 31.50 The form of policy was settled quickly, being based on the S.G. Form with the additions necessary for wartime. At least if a war started suddenly, the insured perils and the excluded risks were clearly identified. Likewise the charge of premiums was soon settled, although on a basis which nobody was entirely happy with. The legal standing, which should have been easily resolved, turned out to be a thorny subject and one which initially defied easy resolution. It was eventually resolved in a way which seemed strange to the eyes of an English lawyer. First of all, the Terms of Reference had to be drawn up and approved by the Council of Ministers. Since the Council had many better things to do than plough through pages of turgid wording, the Terms had to be brief. It was no easy matter for an international body to draw up a document which covered no more than two and a half sides of A4 notepaper on such complex matters, but it was eventually done, and the great day arrived when it was returned, signed by the Secretary-General to signify the approval of the Council of Ministers. Armed with this, it was then possible to get the I.I.O. incorporated by Statutory Instrument under the powers given by Parliament in the Act which ratified the Treaty of Ottawa 1951. It was all very strange, but it worked. 31.51 Of all the other matters mentioned in the above list, the most intractable was that of valuation. No reliance could be placed on the Marine Insurance Values which were sufficient for the British War Risks scheme. These values, on an international plane, varied enormously even between similar ships. This is not surprising, because Marine Insurance Values reflect what a ship is worth to her owner, and such variable factors as taxation need to be considered. Equity between the Member Nations of the Alliance was vital, and thus a uniform method had to be devised. The only way that this could be achieved was by means of a set tariff which took into account a vessel’s age, type, equipment and a host of other details. This, with great difficulty, was agreed. 31.52 Besides the matters set out in the list, the S.W.L.W.G. was called upon to consider a mass of other things, all of which needed to be thought about. Some of these were not, strictly speaking, within its remit. It was, however, one of the many think-tanks of NATO, and we all were dedicated to helping each other. In one way and another, we were all engaged in the business of deterrence, and if the S.W.L.W.G. had a big and puzzling remit of its own, then so did many of the other think-tanks whose aims and tasks were similarly dedicated. The basis of the insurance scheme, like all good ideas, was a simple one. As always, the devil lay in the detail. 31.53 Finally, all was ready, and in 1982 the S.W.L.W.G. was able to report that it had fulfilled its remit. It had to report however, that it was already out of date. The form of commercial war risks policy had changed as had the method of underwriting among the mutual insurance associations. The Group felt that NATO should have the advantages which each offered. It therefore recommended that the existing scheme should be adopted 283 War risk insurance in time of war so that there was something in existence should a war suddenly begin, but that the Group should bring it up to date. This recommendation was accepted. The whole process had to begin again. Second stage—1982 to 1992 31.54 An important thing happened in 1980. Up to that time, the considerations of the Group were, with rare exceptions, classified. This posed problems in a commercial office; even the secretaries who typed out and handled the mass of paper that was involved had to be cleared for security, and this involved prying into private lives which was not always welcome. There was a lighter side, and there are some amusing stories of Customs Officers determined to pry into briefcases which contained classified documents, and delegates and others being equally determined that they should do no such thing. In 1980, General Hackett, who had himself been a Major NATO Commander (M.N.C.), published his book, The Third World War. It contained much classified material, some of which could be recognised, but it was obvious from the forewords, and the acknowledgements from many senior civil servants and military officers from every Member Nation of the Alliance, that he not only had permission to write the book, but encouragement as well. From this time on, the perception of NATO was that not everything should remain behind closed doors. The doings of the military had of course to remain secret, but if the vast preparation of NATO to repel an attack could become known in general terms, this would add greatly to the primary aim of deterrence. Here the considerations of the S.W.L.W.G. and its sister groups had a part to play. If on their humble level such detail was being considered, then the potential opponents had so much more to fear from NATO’s military teeth. Details of their planning could not of course be published to all and sundry, but there was no objection to their existence and their remits being matters of general knowledge. 31.55 During the second stage, there was a mass of subordinate matters which needed a lot of time and very close attention, but the main priorities were: 1. An up-to-date form of policy, which reflected the form used by the commercial market. 2. Methods of underwriting which reflected the new methods used by the Mutual Associations. 3. The structure of the I.I.O. and the responsibilities of its executives and its departments. 4. An improved valuation scheme. 5. Improved Basic Principles. The policy 31.56 This was agreed on a format which bore a close resemblance to the Institute War and Strikes Clauses Hulls—Time 1.10.83 to which were added clauses suitable for a NATO conflict. Again it set out the insured perils and the excluded risks in an easy-to-read format. Ships would come on risk when their Member Nations had requisitioned them and placed them at the disposal of the Defence Shipping Authority (D.S.A.). They would come off risk when they were removed from the D.S.A. for any reason, or were lost. 284 War risk insurance in time of war Methods of underwriting 31.57 It was thought necessary to keep the premium periods very short—no longer than a month to keep a close eye on the scale of losses, which in the early part of any conflict were likely to fulfil Admiral Kidd’s worst expectations in ample measure. Premiums, fixed by the Chief Executive, would be surcharged onto the freight and would thus be payable by the users. If, as was more likely to be the case than otherwise, particularly in the early part of the conflict, there was a deficit for the premium period, then there would be a supplementary premium. This would not be charged to the Member Nations, but would be carried forward to the next, or a subsequent premium period. The later premium periods were more likely to be properly in balance, but this depended on the Alliance’s naval forces gaining the upper hand at sea; if they failed to do this, then the war would be lost in any event. Structure 31.58 At the top, there was the Board of Directors, presided over by a Chairman who was to be elected by the Board. Each Member Nation had the right to appoint one director, and, if it wished, an alternate director as well. 31.59 Next came the Chief Executive and his Deputy. Their responsibilities included fixing the length of the premium periods and assessing the rates of premium for each. They were also responsible to the Board for the smooth running of the I.I.O. 31.60 Under them would come the Departments: The Valuation Department to assess the insured values of the ships in accordance with the tariff. The Claims Department to handle the claims and to keep records, premium period by premium period, of the losses which had been paid, and the estimated losses which had been suffered but which were not yet paid. They were required to make an allowance for claims Incurred But Not Reported (I.B.N.R.), the bane of any underwriter’s life. The Financial Department to handle the huge amounts of money coming into the I.I.O.’s hands. The General Service Department to service the organisation, keep its data, and look after its security. The Legal Staff to handle the disputes involving the I.I.O. and the myriad legal problems which such an organisation could be expected to attract. The Regional Offices to act as agents in all parts of the world. 31.61 Whilst the I.I.O. was a Mutual Association, its members were the Member nations of the Alliance. They were not the individual shipowners; the Member Nations would be responsible to them, having requisitioned their ships for service with the D.S.A. As such, it was highly desirable that the I.I.O. should follow the normal practice of NATO and divide up the various offices and posts between the Member Nations who would nominate suitable persons to fill them. These would be the International Staff, or the “Chiefs”. The “Indians” would be supplied by the host country, the United Kingdom. They too, like 285 War risk insurance in time of war office staffs everywhere, had a vital role to play, but they would look to their respective International Staff of their Departments for the necessary guidance and control that is always required. The improved valuation scheme 31.62 This was by far the most difficult problem. The valuation was to be on the basis of replacement cost less depreciation for age. Ship building prices could be expected to fluctuate considerably, particularly in wartime, and frequent adjustments would be necessary. A tariff system would result in similar ships having insured values which were very similar to each other, but even so it was inevitable that there would be anomalies which would have to be adjusted. Some ships were so specialised that they had to have their own insured values, and this gave rise to considerable problems. In general, the depreciation rate was to be calculated at a rate of 7% per annum over 18 years for ships of 20,000 grt or more, and over 20 years for ships of lesser size. After 18 (or 20) years, no further depreciation would take place of the residual values. The improved basic principles 31.63 These needed immense care to work out, and the initial proposals worked out by the French Delegations went to no fewer than ten revises. 31.64 When the welcome order to stand down was given in 1991, the second scheme was ready in all respects except for some details of the valuation scheme which needed some further time to resolve. But now it was only ready to put on the shelf, where it currently is, “just in case”. There was no point in continuing, because NATO had fulfilled its primary role of deterrence. No NATO soldier had ever found it necessary to fire a shot in anger. It is not going too far to say, that even on its lowly level, the S.W.L.W.G. had played its tiny part in the vast web of deterrence. 31.65 Would the I.I.O. have worked? The answer has to be it would have worked because it would have to have worked. No doubt many of the details of its planning in peacetime would have had to be changed, and many short-cuts would have been made, to meet the exigencies of wartime. As has been remarked earlier in this work, it is much easier to change something which is planned and structured than something which has no recognisable form. Was all this vast labour necessary? Thankfully, it was never put to the test. Do those engaged in this labour resent that it was, in the event, all wasted labour? This cannot be, because those who, like the author, had experience of the Red Army after the Second World War, could never share the comfortable thesis of remote and ineffectual dons who wrote, lectured and taught, that it was better to be “red than dead”. All armies of occupation behave badly, but in this respect the Red Army was in a class of its own. It was a loathsome organisation. 31.66 It was heartening to see that deterrence was in fact working. At the “Shipping Under Fire” Seminar in Athens in 1987, Admiral Shea of the United States Navy roundly declared “The Soviets must understand that the West is resolute.” Perhaps this was going a little far where some people were concerned. Unknown to the Admiral, the first two rows were occupied by Soviet journalists. The effect was gratifyingly electric. 286 War risk insurance in time of war The South Atlantic War 1982—the Gulf War 1991 31.67 During the early stages of the Falklands Conflict, when the Task Force was being assembled, the question arose of the War Risks insurance for the ships which had been requisitioned and chartered to support the Task Force. Whilst the United Kingdom was engaged in the hostilities, there was no question of the Cancellation and Automatic Termination of Cover Clause operating because Argentina was not one of the nations named within it (Chapter 4). Thus insurance was still available from the commercial market. There was another reason why this clause would not have operated; the merchant ships all flew the British Flag, and were thus entered in the British Mutual War Risks Associations. These Associations do not include the clause within their Rules. 31.68 Her Majesty’s Government was much disturbed to find that the Additional Premiums charged by the commercial market were initially quoted at 8% per month. If the war had continued for a year, as seemed not impossible at the time, then the Crown would, after the year had passed, have paid the full insured value of the ships without having purchased them and acquired ownership of them. The Mutual War Risks Associations therefore offered the Queen’s Enemy Risks insurance which was given by their Rules, and reinsured by the Crown. If the Crown would increase the amount of reinsurance which it gave to the Associations to 100%, the Associations were prepared to give the Queen’s Enemy Risks insurance to the shipowners without premium provided that no premium was charged to the Associations. The Crown, having a faith that it could afford the merchant ships substantial naval and military protection, which was borne out by the event, accepted the offer, being particularly insistent that the Associations would handle the claims. This gave the Associations no problems, and they were able to give advice whether the War Risks insurance or the respective ship’s Protection and Indemnity insurance should bear any particular claims. There were some of both. 31.69 Only one merchant ship was lost, the Atlantic Conveyor which was struck by an Exocet missile. Unlike the ships which were struck by similar missiles in the Iran/Iraq War, the Atlantic Conveyor sank. Her insured value, which was paid by her Mutual War Risks Association and reimbursed by the Crown, was sufficient to pay for a replacement built in a Korean yard. For political reasons, the Government supplemented the insurance monies so that the replacement could be built in a British yard. The Monsunen was also reported to have been scuttled by the Argentines. In fact, they had immobilised her by winding a wire around her propeller and beaching her in Choisel Sound. She was refloated by the Royal Navy, and was pressed into service; television reports showed her carrying Gurkha troops. The author saw her in 1991 in Port Stanley proudly wearing a smart new coat of green paint. Some ships were damaged, notably a tanker which was hit by a bomb dropped onto her foredeck from an Argentine aircraft. It went over the side without exploding. There were also some near misses; the Canberra, discharging troops and equipment in San Carlos Water, was nearly hit by a missile. 31.70 There were some cases of death and injury to merchant seamen. The most distressing cases involved the Chinese seamen on the Sir Lancelot and the Sir Galahad; these being Royal Fleet Auxiliary ships, they employed merchant seamen. The death and injury claims concerned the War Risks insurance, because they were suffered from the bombing of the two ships whilst they were engaged in landing the Welsh Guards. Difficult questions were posed by the merchant seamen who suffered trauma from 287 War risk insurance in time of war their experiences, and needed long periods of medical treatment. These were not young highly trained naval seamen, trained to face war and all that war involves. They were middle-aged merchant seamen who normally pursued a peaceful calling. These claims were settled by the War Risks insurance and by the Protection and Indemnity Associations as the circumstances of each individual case indicated without any proceedings being necessary. There was one case where there could be no doubt that the Protection and Indemnity insurance should respond, and it duly did. After the hostilities were over, the Royal Artillery wanted to take home a captured Argentine artillery piece to add to their collection at their Headquarters in Woolwich. The ship’s Master agreed to carry it on deck, and it was delivered alongside by two Royal Artillery bombardiers. It was then for the first time found to be loaded. The bombardiers, unhelpfully, disappeared, and the Third Engineer undertook to unload it. There are various safe ways of unloading an artillery piece, and they do not include the blowlamp which he took to the task. The inevitable happened, and he lost three fingers. 31.71 When in August 1990, the Iraqis invaded Kuwait, a huge land force was assembled in Saudi Arabia, and a considerable armada was gathered together with a correspondingly large air force. At first, the purpose of these armed forces was defensive, to prevent the invasion of Saudi Arabia, which seemed an imminent possibility. In November 1990, when it became clear that the Iraqis intended to defy the Security Council’s resolutions to leave Kuwait peaceably, the purpose of this force became offensive with the aim of ejecting them and of freeing Kuwait by military means. This involved enormous preparation, and the assembly of yet more armed forces to make sure this offensive purpose could be achieved. Whilst these armed forces came from a great number of nations, the main burden of finding them, and of transporting them to Saudi Arabia, and of keeping them supplied with all that they needed, fell upon the United States of America. This meant a great number of merchant ships had to be acquired by charter. 31.72 The United States Government was neither surprised nor dismayed that the freight market rose when it started to charter the ships it required; it did not object to a 15% rise in freight rates which it regarded as reasonable. It was greatly incensed by the rise, as its officials put it, of 500% in the war risks insurance rates. The Gulf was an Additional Premium area from the time of the Iran/Iraq War, and with the vast amount of tonnage in the Gulf to meet these military requirements, the underwriters were fully justified in taking a pessimistic view, particularly as Iraq was known to be amply supplied with weapons of the latest patterns. The United States therefore decided to take the burden of the War Risks insurance itself, which it could do by using “The Binder”. This only needed the President’s signature to become operative, and since it was reasonable to conclude that the armed forces of the United States and its Allies were in a position to supply a very substantial degree of protection to the merchant ships, President Bush duly signed it. From then on, the United States gave war risks insurance to the merchant ships which she chartered to carry her troops and all their equipment to the scene of operations. 31.73 Things did not go entirely smoothly. The Binder had last been used in the Korean War some 40 years before. War Risks insurance had progressed considerably in the meantime, and the amount of the insurance which it provided was woefully inadequate by modern standards. Representations were made to the US Department of Commerce, and it says much for the open-minded way in which the Department responded to these pleas that their insurance should be brought up to date. Once this was done, the insurance which 288 War risk insurance in time of war was given by The Binder was satisfactory. In fact, the War Risks casualties during the entire war were confined to ships which were in Kuwait Harbour at the time of the Iraqi invasion. 31.74 There are lessons to be learnt from these two wars, and to some extent they are contradictory. The commercial underwriters have to take a pessimistic view of a great deal of loss and damage being suffered by the ships to whom they give insurance in such events as the South Atlantic and the Gulf wars. They would be failing in their duty to their members or their shareholders if they did otherwise. Their insurance and their premium structures are really geared to isolated war risks casualties, although they will allow this to be stretched to include events such as the Iran/Iraq War. The line should really be drawn where large numbers of merchant ships are supporting military and naval operations; whilst they are willing to give insurance in such cases, they have to charge substantial premiums for it. This tends, quite unfairly, to show them up in a bad light. Where governments are engaged in such operations, and have reason to be confident that they can protect the merchant ships, at least to a very substantial degree, then they are justified in taking themselves the burden of the War Risks insurance of the ships, whether this is done by way of reinsurance, as in the British case, or directly as the Americans did. No figures are available to show how much money was saved to the British taxpayer, but it must have been considerably more than the amounts paid for the casualties. The U.S. Department of Commerce’s figure is $500 million. Whatever the figure, it must be very substantial. 289 I N DEX Abandonment, 22.5, 25.10–25.15 actual total loss, 25.5 capture, 11.20–11.21, 11.28, 25.11 constructive total loss, 11.53, 20.36, 25.13, 25.8 definition, 25,15 freight, 25.23 by master and crew, 25.14, 25.15, 27.15, 28.34 MIA 1906, 25.15 partial loss, 11.16, 20.36, 25.8, 25.11 to underwriters, 11.21, 11.26, 11.30, 11.43, 11.47, 11.48, 12.34, 25.15 See also Notice of Abandonment Actual total loss, 25.2–25.3 abandonment, 25.5 and capture, 11.37, 11.40, 20.34 of cargo, 11.19, 25.3 MIA 1906, 20.35 missing vessels, 25.24 piracy, 20.32–20.33, 20.35, 20.38, 20.40, 25.3 and seizure, 20.22–20.33 Additional expenses Institute Additional Expenses Clause (Cargo War Risks), 4.17–4.20 Institute War Clauses Cargo, 4.17–4.20 insurance, 3.26, 4.35 See also Additional War Risk Premiums (AWRP) Additional Premium Areas, 3.26, 3.29 designation of areas, 3.8 non-QER coverage, 4.39 Queen’s Enemy Risks, 31.28, 31.68 unsafe ports and places, 3.13–3.16, 3.19–3.21, 4.44, 13.30, 24.70 voyage charter cases, 3.26–3.27, 3.30 Additional War Risk Premiums (AWRP), 3.16–3.17 breach of warranty premiums, 3.12 responsibility for payment of, 3.16–3.27 special terms and conditions, 3.8 seven days’ notice for, 3.8, 3.10, 3.14 time-charter cases, 3.18–3.25 voyage charter cases, 3.26–3.27, 3.30 Advisory, Conciliation and Arbitration Services (ACAS), 16.11 Afghanistan War 2002, 6.41, 18.27 Aircraft, 12.24–12.26 Air India Boeing 747, 18.29 bombings by, 6.27, 6.30, 31.69 cargo on, 29.11, 30.4, 31.8 Lockerbie, 18.29 hijacking, 18.25 seizure, 18.15, 12.25 American Civil War, 14.3–14.5 Angary, 4.32 Areas of Perceived Enhanced Risk (APER), 24.55, 26.1, 26.3 Arrest, 13.2. See also Arrest, restraint or detainment Arrest, restraint or detainment, 11.73, 13.1, 13.28, 31.16 12-month Clause, 13.33–13.35 consequences or attempts, 14.1–14.6 frustration Clause, 13.24–13.27 by “home” government, 23.10 illustrative cases, 13.11–13.14, 13.29–13.32 Mutual War Risks Associations, 13.28 and the use of force, 13.15–13.22 Automatic Termination of Cover, 4.30–4.31 AWRP. See Additional War Risk Premiums (AWRP) Baltic and International Maritime Council (BIMCO), 3.28 Bandar Khomeini, 24.64, 26.15 Barratry, 12.16, 12.18, 12.19, 12.20, 12.22, 12.39, 12.41–12.43, 20.4, 20.24 The Binder, 31.2 Blockade, 11.31, 13.4 Blocking and trapping insurance, 3.22 Boer War, 12.28 Bombs, 15.1–15.19 290 I N DEX in the Falkland Islands War, 6.27 See also Detonations; Nuclear weapons Breach, remedies for, 24.50 Breaches of warranty, 3.11 Canada, 10.7, 19.39, 27.16, 31.2, 31.5, 31.42 Canada Engaged Risks, 31.5 Cancellation and Automatic Termination of Cover Clause, 3.3, 4.1–4.8, 4.7, 4.11–4.12, 4.16, 4.20, 4.24, 4.34 cancellation on seven days’ notice, 4.9 cargo stored afloat, 4.16 cargo—additional expenses, 4.17–4.20 cargo—strikes, 4.21–4.23 cargo—war clauses (general cargo), 4.17–4.20 cargo—war clauses (special cargo), 4.17–4.20 Combined Group of War Risk Clubs, 4.38–4.41 containers, 4.13–4.15 Hellenic war risks club, 4.44–4.46 hostile detonation of any nuclear weapon of war, 4.10 mutual associations, 4.37 outbreak of war between Five Permanent Members of the Security Council, 4.24–4.32 requisition, 4.33–4.36 ships and freight, 4.11–4.12 UK war risks, 4.42–4.43 Capture, 21.1, 25.3, 31.16 apprehension of, 11.47–11.62 consequences or attempts, 14.1–14.6 by “home” government, 23.10 hull, freight and cargo clauses, 11.4–11.8 illustrative cases, 11.17–11.40 meaning of, 11.12–11.16 origin of capture and seizure perils, 11.1–11.3 and piracy, 20.4 piratical, 20.36–20.38 prize and search cases, 11.63–11.73 as proximate cause, 28.14, 28.16, 28.17 and recapture, 25.12 and recovery, 20.39–20.40 and seizure, 1.9–1.11, 19.36 vs. seizure, 11.9–11.11 unlikelihood of recovery, 11.41–11.46 See also Piracy; Seizure Cargo additional expenses, 4.17–4.20 clauses, 11.8, 12.45, 18.4–18.5, 22.1 insurance of, 15.17–15.19 stored afloat, 4.16 Cargo Strikes Clauses, 4.21–4.23, 29.1, 29.3–29.7 duration of coverage, 29.15–19.19 minimising losses and waiver, 29.20 reasonable despatch, 29.21–29.22 special cargoes, 4.21 Cargo War Clauses duration of coverage, 29.8–29.14, 29.19 general cargo, 4.17–4.20, 29.1–29.2 minimising losses and waiver, 29.20 reasonable despatch, 29.21–29.22 special cargo, 4.17–4.20 Cause. See Proximate cause Charterparties cancellation of, 6.7 and payment of AWRP, 3.16–3.27 and seizure, 12.8 China (People’s Republic of China) border dispute with USSR, 4.32 invasion of India, 4.31 in the Nuclear Club, 4.2 war with Japan, 6.7, 6.8, 6.9, 12.9 Civil commotions, 8.1, 8.5, 8.40, 9.3, 16.1, 17.21–17.29 characteristics of, 17.37 in other common law jurisdictions, 17.30–17.35 exclusion of, 1.17 See also Riots Civil disorder, 9.1–9.4 Civil disturbances, 16.1 Civil strife, 9.1–9.4, 11.8 Civil wars, 6.4, 7.1–7.15, 11.8 American, 14.3–14.5 courts’ decisions, 7.11, 7.12 in Lebanon, 5.10, 7.4–7.11, 7.15 and public international law, 7.12 scale of conflict, 7.13–7.14 Spanish, 6.12–6.17, 12.34 and the Spinney’s (1948) Ltd. case, 7.4–7.11, 7.15 test points for, 7.13 and treason, 7.12 vs. war, 7.12 Clandestine theft, 20.15 Combined Group of War Risk Clubs, 2.8, 4.38–4.41, 4.43 Committee of London War Risk Underwriters, 2.2 Confiscation, 21.1–21.2 by “home” government, 23.10 risk of, 3.4 Constructive total loss, 11.42 and abandonment, 22.9, 25.10, 25.23 captured vessel as, 11.19, 11.53, 12.13, 13.32, 20.24, 20,35, 25.13, 25.17, 25.20, 25.21 291 I N DEX claiming of, 11.52 compared to actual, 25.1–25.7 of a damaged vessel, 24.32, 24.64, 27.6, 27.24 defined, 11.42, 12.4 Detainment Clause, 13.33, 13.35 election for, 25.8–25.9 exclusion for failure to provide security, 23.23 of goods, 13.22, 13.26, 20.32, 20.33 in MIA 1906, 24.6 recovery of, 11.44 sinking as, 19.11, 22.18, 25.15 Container Clauses, 23.10 War and Strikes Clauses, 30.1–30.5 Containers, 30.1–30.5 insurance of, 4.13, 15.15–15.16 Contracting out, 24.22–24.14 CONWARTIME 2013 Clause, 3.28–3.29 Crimean War, 12.11 Criminal liability, 5.6–5.19 Customs infringement, 21.1 Customs regulations, 19.36, 23.11–23.17, 23.26 Cyber Attack Exclusion Clause, 5.14 Cyber warfare, 5.11–5.15 Data dumping, 24.42 Deprivation of possession, 12.44, 12.46, 13.32, 25.3, 25.19, 25.22 Derelict, defined, 15.4 Desert Shield, 6.29 Desert Storm, 6.29 Detainment, 13.1, 13.7–13.10. See also Arrest, restraint or detainment Detainment Clause, 13.33, 13.35 Detonations, 1.25 of bombs, 10.4 of nuclear weapons, 4.10, 4.15, 4.22, 4.23, 4.45 practice or accidental, 4.19, 4.22 See also Bombs; Mines; Nuclear weapons Disappearance of ship, 28.27, 28.29, 28.39–28.40 Domestic disturbances, 17.32 Dreadnought (Massie), 1.14 Duty of Assured clauses, 22.1, 22.2 Easter Rising, 7.2 1812 War (U.S./U.K.), 11.25 Embargo, 11.32, 12.8, 13.2, 13.4, 13.8, 13.12–13.14, 28.15 Entered ships, 25.21, 31.15–31.17 Exclusion clauses, 1.27, 14.3, 29.5–29.7 for capture, etc. by “home” government, 23.10 for containers, 30.2, 30.4 Cyber Attack Exclusion Clause, 5.14 for failure to provide security, 23.22–23.26 “free of capture and seizure,” 1.9–1.11, 1.18, 11.2, 11.37 general approach to construction, 23.2 for malicious acts, 1.27 for “ordinary judicial process,” 23.18–23.21 pre-emption, 23.9 for quarantine regulations, customs or trading regulations (Clause 4.1.5), 23.11–23.17 requisition (Clause 4.1.3), 4.35, 23.3–23.8 riots and civil commotions, 1.17 strikes, 1.27 use of computer or electronic system in launching weapons or missiles, 5.14 war risk perils, 1.15 warlike operations, 1.17–1.19, 10.1 Explosive detonations. See Detonations Expropriation, 21.1–21.2 by “home” government, 23.10 Falkland Islands (South Atlantic War), 6.22–6.27, 31.6, 31.18, 31.20, 31.67–31.70, 31.74 Fashoda incident, 1.15 F.C. & S. Clause (Freedom of Capture and Seizure Clause), 1.8–1.26, 6.1, 12.28–12.29, 13.24 history of, 1.8–1.10, 1.8–1.26, 1.17–1.20 versions of, 1.16–1.24 war risk cases on “consequences,” 14.2 50/50 clauses, 28.48 Fiji Islands, 8.37–8.38, 17.35 Fines, failure to pay, 23.23 Fire on ships, 1.29 Fish stock management and conservation, 23.17 Force, 13.15–13.23 Forfeiture rule, 27.21 at common law, 27.32 under IA 2015, 27.33 limits of fraudulent claims, 27.22–27.31 France, 31.2 in the Gulf War, 6.30 in the Nuclear Club, 4.2 Franco-Prussian War, 11.31 Fraudulent claims, 26.24, 27.1–27.2 Fraudulent devices, 27.26 Freight clauses, 11.7 French Navy, 11.53 French Revolution, 8.7 Frustration Clause, 13.24–13.27 Germany citizens as agents of, 10.4–10.8 292 I N DEX declaration of war by UK, 6.19 Imperial German Navy, 1.14 naval ambitions of, 1.14 Global claims limit, 5.14 Good faith, 24.15–24.16, 24.51, 26.19, 27.34 Gordon riots, 8.9, 8.14, 17.22 Granwood, 1.25 Greece, 31.44, 31.45 terrorism on cruise ship, 18.29 Green clearance, 11.65 Gulf of Aden, 20.7, 20.8 Gulf of Guinea, 20.4, 20.7 Gulf War, 6.28–6.32, 12.24–12.26, 31.71–31.74 Held covered clauses, 3.15, 26.1–26.3 complex, 26.13–26.15 complex (prior notice), 26.16–26.18 and doctrine of utmost good faith, 26.9–26.11, 26.19–26.24 simple, 26.4–26.8 simple (conclusions), 26.12 Hellenic War Risk Association, 3.23–3.24, 4.44–4.46, 24.62 Hijacking, 10.13, 18.15, 20.39 Hostile acts by or against a belligerent power, 10.1–10.13 Hostilities, 6.1, 6.3, 14.4. See also War Hull clauses, 11.5–11.6, 22.1 India invasion by USSR, 4.31 nuclear weapons in, 4.3 Indiscriminate violence, 19.43 Indonesia, 20.7, 20.8 Inducement, 24.25 Institute of London Underwriters, 2.1 Insurance fraud, 20.18 Insured perils, 5.1, 31.15, 31.18 approach to interpretation of, 5.3–5.5 capture as, 11.17–11.40 for future conflicts, 5.11–5.15 insurrection, 8.39 military and usurped power, 5.4 vs. “risks covered,” 5.2 piracy, 20.14, 20.43 rebellion, 8.39 revolution, 8.39 riot, 17.9–17.10 role of criminal and public international law when interpreting, 5.6–5.10 war as, 1.14–1.16, 1.28, 6.42 warlike operations, 5.4 Insurrection, 8.23–8.27, 8.29, 8.34, 8.36, 8.38, 10.13, 11.8, 17.28 definition of, 8.6, 8.24, 8.27 vs. rebellion, 8.39 Interallied Insurance Organization (I.I.O.), 31.2, 31.43 International Maritime Bureau’s Piracy Reporting Centre, 20.7 Iran, 4.3, 13.30, 15.13, 18.29, 26.15 shipping lines, 3.21, 3.22, 3.25 Iran-Iraq war, 1.16, 13.30, 15.13, 22.13, 23.17, 24.64, 26.15, 31.69, 31.72, 31.74 Iraq Desert Storm/Desert Shield, 6.29–6.30 invasion of Kuwait by, 6.29 perils of war in, 6.32 UN inspection of, 6.31 Japan, 6.7, 6.8, 6.9, 12.9 Jettison, 11.58, 11.59, 14.6 King’s Enemy Risks, 31.5, 31.6. See also Queen’s Enemy Risks Korean War, 6.21, 31.6 Kosovo, 6.33–6.40 Krigsforsikringen for Danske Skibe, 2.8 Kuwait, 6.29–6.32 Kuwait Airways, 12.24–12.26 Labour disturbances examples of, 16.11–16.12 lock-outs, 1.24, 16.1, 16.3, 16.9 persons taking part in, 16.10, 16.12 See also Strikes and Strikers Lebanon, 5.10, 7.4–7.11, 7.15 Lock-outs, 1.24, 16.1, 16.3, 16.9 London Group, 31.5, 31.6, 31.10, 31.14, 31.18, 31.20 London Steamship Owners Mutual Insurance Association Limited, 2.8 Looting, 6.15, 7.11, 7.15, 8.34, 8.36, 8.38, 9.3, 17.8, 17.34, 17.35, 20.28 Loss of earnings insurance, 3.22 Loss or damage to property caused by barratry, 12.20 caused by capture, 11.40 caused by derelict mines, torpedoes, bombs, and weapons of war, 1.24, 15.1–15.19 caused by explosions or weapons, 1.24, 1.25 caused by fire, 11.60–11.61 caused by hostilities, 1.24, 4.26 caused by insurrection, 8.25–8.26 caused by jettison, 11.58, 14.6 caused by looting, 8.37 caused by perils of the seas, 11.39, 14.5 by piratical seizure, 20.32–20.42 caused by unseaworthiness, 27.8 293 I N DEX insurance for mines and other weapons, 15.10 caused by use of computer or electronic system in launching weapons or missiles, 5.14 See also Actual total loss; Constructive total loss; Partial loss; Total loss Malice and malicious acts, 19.1–19.4 examples, 19.39–19.43 fire, 1.29 intentional harm, 19.41 malicious damage and related perils, 19.36–19.38 political motives for, 19.40–19.43, 19.43 proof of complicity, 19.35 specific intent and non-marine insurance cases, 19.28–19.32 “targeted malice” test, 19.8–19.10 as targeted or wanton vandalism, 19.5–19.34 test in The B Atlantic, 19.17–19.26 “wider” test, 19.11–19.16 See also Piracy Malicious Acts Exclusion, 1.27 Malicious Damage Clause, 1.26 MAR Form, 15.4–15.5, 31.1 history of, 1.5–1.7, 1.27–1.30 with Institute War and Strikes Clauses, 2.4 Marine Insurance Values, 31.51 Marine Policy, 15.4, 15.12 Marine risks, 1.28 as separate from war risks, 1.14–1.16, 1.20–1.21, 1.28 Market Reform Contract, 2.3 Materiality, 24.21, 24.49 Military or usurped power, 8.2, 8.8–8.21, 8.23, 8.39–8.40, 17.28 Military tribunals, 23.19 Mines damage to cargo caused by, 15.17–15.19 damage to containers caused by, 15.15–15.16 derelict, 15.1, 15.3, 15.4, 15.7, 15.9–15.13, 15.15–15.19, 29.2, 29.12, 30.4, 31.15 difficulty tracing, 15.11, 28.2 exclusion of, 15.2, 15.4, 15.9, 15.19 laid in peacetime, 15.8 limpet, 19.42 loss due to, 1.24, 15.13 Missing ships, 25.24 Mob violence, 17.18 Mutiny, 8.35, 8.37, 12.9, 12.39, 17.28, 17.35, 20.24 Mutual War Risks Associations, 1.25, 2.6–2.10, 4.37, 4.38, 13.28, 16.5, 18.29, 19.39, 24.63, 31.1 and the 12-month Clause, 25.21 Napoleonic Wars, 11.25, 23.9 National Pact of 1943, 7.6 NATO Civil Wartime Agency (N.C.W.A.), 31.43 NATO war risks insurance scheme, 4.44, 31.39–31.43 First stage (1970 to 1982), 31.44–31.53 improved basic principles, 31.63–31.67 improved valuation scheme, 31.62 methods of underwriting, 31.57 the policy, 31.56 Second stage (1982 to 1992), 31.54–31.55 structure, 31.58–31.61 Navigation Limitations for Hull War, Strikes, Terrorism and Related Perils Endorsement, 24.55–24.56 as promissory warranties, 24.57 Non-Queen’s Enemy Risks, 31.5, 31.16, 31.19 Notice of Abandonment cases where not necessary, 25.23 consequences of rejection of, 25.16 instances when given, 11.17, 11.21, 11.23, 11.26, 11.27, 11.28, 11.29, 11.30, 11.31, 12.34 refusal of, 11.34, 11.43, 11.48, 11.51, 11.53, 13.21, 25.9, 25.10 and sue and labour agreement, 22.9 time for giving, 11.33, 25.18–25.19 and total or partial loss, 20.36, 20.38, 22.10, 25.4, 25.8, 25.10–25.13 Notice of Cancellation and Automatic Termination of Cover Clause, 31.1 Notice of Cancellation Clause (Clause 6.1), 3.9, 3.12, 3.9 Nuclear Exclusion, 1.27 Nuclear weapons, 4.1–4.3, 4.6, 4.10, 4.11, 4.12, 4.15, 4.22, 4.23, 4.32, 4.39, 31.1 Open registers, 2.9 Partial loss, 11.27–11.29, 20.36, 22.2, 25.2, 25.5, 25.8, 25.11, 25.17 Particular charges, 22.2 People’s Republic of China. See China (People’s Republic of China) Perils of the seas, 1.9. See also Marine risks Persian Gulf Wars, 13.30 Piracy, 12.2, 12.23, 12.36, 12.38, 25.3 actual total loss, 20.35 anti-piracy measures and marine insurance, 20.31 capture and recovery, 20.39–20.40 294 I N DEX characteristics of, 20.43 and damage to the vessel, 20.18 definitional issues, 20.9–20.13 definitions of, 20.5 examples of losses by, 20.41–20.42 as exclusion, 1.18 incidences, 20.7–20.8 as insured peril: cargo cover, 20.3 as insured peril: Hull & Machinery cover, 20.1–20.2 limits of the peril, 20.4–20.6 location, 20.4, 20.7–20.8, 20.14, 20.43 method, 20.15–20.22 nature and timing of loss, 20.32–20.34 piratical capture and loss, 20.36–20.38 for ransom, 20.13, 22.19 risk of, 3.4 on a river voyage, 20.10–20.11, 20.14 seizure for political motive, 20.26–20.30, 20.43 and strangers/crew/passengers, 20.23–20.25, 20.43 vs. terrorism, 20.12, 20.43 unsuccessful, 20.16, 20.21 Piracy Reporting Centre, 20.7 Premiums additional premiums and their calculation, 3.6–3.15, 4.39 background, 3.1–3.5 breach of warranty premiums, 3.11 CONWARTIME 2013 Clause, 3.28–3.29 on Hull and Machinery (Persian Gulf), 3.21, 3.24 refund on, 3.23, 3.25 VOYWAR 2013 Clause, 3.30 See also Additional War Risk Premiums (AWRP) Privity, 24.6 Prize and search cases, 11.63–11.73 Prize Court cases, 11.18, 11.34, 11.37, 11.38, 11.41, 11.43, 11.63, 11.65, 11.67, 11.68, 11.70, 20.38, 23.19, 25.3 Promissory warranties, 24.57–24.83 Property damage claims, 18.18 Protection and Indemnity Associations, 2.6 Proximate cause, 5.1, 14.2, 28.1–28.5 of a casualty, 5.5 cause of casualty cannot be established, 28.26–28.48 conclusion on, 28.49 generally, 28.6–28.13 several things happen at once, 28.14–28.25 war as, 8.4 Public international law, 5.6 Quarantine, 23.11–23.12 Queen’s Enemy Risks, 31.5, 31.6, 31.11, 31.17, 31.18, 31.20–31.21 and the Reinsurance Agreement, 31.22–31.38 Ransom, 20.17, 20.32, 20.33, 20.34, 22.19, 22.20 and piracy, 20.13, 22.19 Rebellion, 10.13, 11.8, 17.28 definition of, 8.6–8.7, 8.23, 8.39 Reinsurance Agreement, 2.5, 31.8, 31.11, 31.12, 31.18, 31.20–31.21 Clauses 1 to 3, 31.22 Clauses 4 to 5 (reinsured ships), 31.23 Clauses 6 to 8 (insured values), 31.24 Clauses 9 to 11 (conversion into sterling, 31.25 Clauses 12 to 14 (reinsurance premiums), 31.26 Clause 15 (general premium notices), 31.27 Clause 16 (special premium notices), 31.28 Clause 17 (consultation), 31.29 Clauses 18 to 21 (settlement of claims), 31.30 Clause 31 (disputes), 31.31–31.32 Clauses 33 to 35 (commencement nd termination), 31.33–31.38 Requisition, 4.33–4.36, 21.1, 23.3–23.8 exclusion for acts of, 4.35 in the Hellenic war risks club, 4.46 in times of civil unrest, 6.14–6.15 for title or use, 4.41 Restoration, 25.17 Restraint, 13.1, 13.3–13.6, 13.13, 13.15, 13.22 of princes, 13.11–13.14, 13.20–13.21, 13.24, 13.31 See also Arrest, restraint or detainment Reverse burden Clause, 17.23 Revolution, 11.8, 17.28 definition of, 8.6–8.7, 8.39 Riots, 8.1, 8.40, 16.1, 17.1, 17.4–17.7 characteristics of, 17.36 defined, 17.2–17.3 exclusion of, 1.17 as insured peril, 17.9–17.10 in other common law jurisdictions, 17.30–17.35 physical proximity of participants, 17.24 as public order offence, 17.8 Risk management clauses, 24.53–24.54 under IA 2015, 24.73–24.83 under MIA 1906, 24.59–24.72 Risks duty to disclose, 24.22 fair presentation of, 24.15–24.16, 24.41, 24.44 295 I N DEX investigation of, 24.47 misrepresentation of, 24.15–24.16, 24.17–24.18, 24.28–24.54, 24.43 non-disclosure of under MIA 1906, 24.17–24.18, 24.19–24.22 pre-contractual disclosure of, 24.27, 24.37 Robbery at sea. See Piracy Royal Navy, 11.53 Russian Revolution, 8.7 Russo-Japanese War, 11.37, 11.51 Sabotage, 8.29, 12.24, 19.26, 28.2 Salvage charges for, 6.12, 11.19, 11.22, 22.2, 22.4, 29.2, 29.3 of cargo, 11.28 payment of, 11.15, 11.21, 25.9 and scuttling, 27.6 as sue and labour expense, 22.16–22.18 by third parties, 22.16 in war, 6.27 SCOPIC, 22.18 Scuttling, 6.16, 12.44, 12.45, 13.25, 19.26, 25.14, 27.1, 27.3–27.4, 27.6, 27.11, 27.18, 27.22, 28.34–28.37, 28.37, 31.69 proof of, 27.3–27.4 Searches in port, 11.64 Seaworthiness, 26.4 Security, failure to provide, 23.22–23.23 Seizure, 11.68, 11.73, 20.29–20.30, 21.1, 22.14, 28.25, 31.16 by those on board, 12.36, 12.39–12.46 vs. capture, 11.9–11.11 consequences or attempts, 14.1–14.6 on a false basis, 23.15 by “home” government, 23.10 illustrative cases, 12.8–12.26 meaning of, 12.1–12.7 and piracy, 12.23, 12.36, 12.37, 20.3, 20.4, 25.3 for political motive, 20.26–20.30 and the presence of force, 12.27–12.32 as proximate cause, 28.15, 28.16, 28.18 public or private ends, 12.33–12.35 of the ship by those on board, 12.36–12.42 See also Capture; Piracy Senior Civil Emergency Planning Committee (S.C.E.P.C.), 31.43 Seven Years’ War, 11.17, 25.11 S.G. Form (Ships/Goods Form), 6.1, 11.57, 12.33, 12.34, 12.37, 12.45–12.46 history of, 1.2–1.4, 1.7, 1.27–1.30 sue and labour, 22.1 Shipping War Losses Working Group (S.W.L.W.G.), 31.43, 31.44, 31.47, 31.48, 31.52–31.53 Ships, requisitioned and chartered, 31.19 Siege, 11.31, 13.4 Sino-Japanese War, 6.7, 6.8, 12.9 Smuggling, 12.16, 12.17, 23.16 Somalia, 20.4, 20.8, 20.13, 20.32 South Africa, 8.29, 12.45, 17.30, 31.3 Spanish Civil War, 6.12–6.17, 12.34 casualties, 6.15–6.16 courts’ decisions, 6.17 facts, 6.13–6.14 Standard Steamship Owners Mutual War Risks Association Limited, 2.8 Strikes and Strikers, 16.3, 16.5–16.8 defined, 16.6, 16.8 strikes, riots and civil commotions clauses, 12.45 sympathetic, 16.7 Strikes Exclusion, 1.27 Strikes risk Clause, 16.1–16.4 Sue and Labour Clause, 11.52, 22.1, 25.17 commencement and duration of, 22.7–22.10 effect of failure to sue and labour, 22.11–22.12 extraordinary expenses, 22.13–22.15 illegality issues, 22.19–19-22.20 irrecoverable expenses, 22.4 in Queens’ Enemy Risk, 31.17 salvage and general average, 22.16–22.18 Suez Canal, 3.13 Terrorism, 1.29, 19.41 9/11 attacks, 6.41, 18.13, 18.18, 18.21–18.24, 24.30 as contractual term, 18.2–18.3 definition of in marine insurance policies, 18.4–18.7 in insurance-related litigation, 18.13–18.28 and malicious acts, 19.43 maritime, 18.1 and piracy, 20.4, 20.12, 20.43 prior claims related to, 18.29 related to acts of war and armed conflict, 18.2 risk of, 3.4, 3.13 statutory definitions of, 18.7–18.12 typology of actions, 18.8–18.9 Third party liability, 31.17 Time Clauses, 1.25, 1.27, 15.3 Cargo clauses, 21.1 Hulls (Clause 19), 25.7 Hulls and piracy, 20.2 Hulls, Freight, and Containers, 1.2, 21.1 “Inchmaree” Clause (Clause 7), 1.25 new additions, 1.27 Torpedoes, 15.1–15.19, 30.4. See also Detonations Total loss 296 I N DEX actual vs. constructive, 25.1–25.7 due to mine explosion, 25.3 due to missile strike, 25.3 See also Actual total loss; Constructive total loss; Loss or damage to property Trade union litigation, 16.1 Trading regulations, 21.1, 23.11–23.17 Treason, 7.12, 8.9–8.10, 8.12, 8.13, 8.20, 8.39, 17.22 Treaty of Ottawa, 31.40, 31.50 12-Month Clause, 13.33–13.35 U-Boats, 11.65, 28.20, 28.31, 28.39, 28.40, 31.41 Underwriters liability of, 19.38 London market, 2.1–2.5 Mutual Associations, 2.6–2.10 United Kingdom and the Falklands Conflict, 6.22–6.27, 31.67 in the Gulf War, 6.30, 6.31f in the Nuclear Club, 4.2 war risks, 4.42–4.43 wartime insurance, 31.2–31.19 United Nations conventions, 4.29 Five Permanent Members of the Security Council, 4.2, 4.11, 4.24–4.32, 4.28, 4.30, 4.40, 31.1 inspection of Iraq by, 6.30 and the Kosovo conflict, 6.33, 6.35, 6.37, 6.39 Security Council, 6.21 United Nations Conference on Trade and Development (UNCTAD), 1.22, 1.27 United States American Civil War, 14.3–14.5 The Binder, 31.2 exclusion of civil commotion, 17.31 in the Gulf War, 6.30, 6.31 in the Nuclear Club, 4.2 Unseaworthiness, 24.6, 27.8, 29.5 USSR border dispute with China, 4.32 in the Nuclear Club, 4.2 Utmost good faith doctrine, in MIA 1906, 27.34 Vandalism, 19.5, 19.21, 19.26 Venezuela, 19.6, 20.8 Violent disorder, 17.5 Violent theft, 20.4 VOYWAR 2013 Clause, 3.30 War 9/11 attacks, 6.41, 18.13, 18.18, 18.21–18.24, 24.30 1812 War (U.S./U.K.), 11.25 American Civil War, 14.3–14.5 Anglo-French invasion of Egypt, 31.6 Boer War, 12.28 casualties, 6.15–6.16 civil war, 6.4, 6.12–6.16, 7.1–7.15 condition of animus belligerendi, 6.10–6.11 conflict in Kosovo, 6.33–6.40 Crimean War, 12.11 cyber warfare, 5.11–5.15 definition of, 4.29, 6.2–6.12 Falkland Islands (South Atlantic War), 6.22–6.27, 31.6, 31.18, 31.20, 31.67–31.70, 31.74 First Gulf War, 6.28–6.32, 12.24–12.26, 31.71–31.74 Franco-Prussian War, 11.31 French Revolution, 8.7 between Greece and Turkey, 11.43 as insured peril, 1.14–1.16, 1.28, 6.1 Iran-Iraq war, 1.16, 13.30, 15.13, 22.13, 23.17, 24.64, 26.15, 31.69, 31.72, 31.74 between Italy and Turkey, 11.43 key principles from case law, 6.43 Korean War, 6.21, 31.6 Napoleonic Wars, 11.25, 23.9 Persian Gulf Wars, 13.30 possible world war, 3.1–3.3, 4.28 revolution, rebellion, and insurrection, 8.1–8.40 Russian Revolution, 8.7 Russo-Japanese War, 11.37, 11.51 Seven Years’ War, 11.17, 25.11 Sino-Japanese War, 6.7, 6.8, 12.9 Spanish Civil War, 6.12–6.16, 12.34 Vietnam War, 10.12 World War I, 11.53, 11.64–11.66, 31.7 World War II, 6.18–6.20, 11.69, 12.44, 31.6, 31.7 See also Civil disorder; Hostile acts War and Strikes Clauses, 1.2, 1.6, 1.27, 2.4, 2.5, 2.9, 8.2, 8.29, 13.24, 13.30, 16.19, 31.1 Automatic Termination of Cover, 4.30–4.31 Cancellation and Automatic Termination of Cover Clause, 3.3, 4.7, 4.8, 4.11–4.12, 4.16, 4.20, 4.24, 4.34, 4.44 Cargo, 4.17, 29.1–29.2, 29.5–29.7 Cargo—special cargoes, 4.17 Cargo—Strikes, 4.25 Cargo—War, 4.25 Container Clauses, 4.25, 4.36 Containers—Time, 4.13, 30.1–30.5 exclusion of losses caused by nuclear weapons, 4.6, 4.10, 4.11, 4.12, 4.15, 4.22, 4.39 Freight, 4.11, 4.25, 4.35 297 I N DEX Hulls, 4.25, 4.36, 25.7 Hulls—Time, 4.11, 4.24, 4.35 Hulls, 12-month Clause (Clause 3), 25.20–25.22 loss or damage caused by derelict mines, torpedoes, bombs and weapons of war, 15.1–15.19 Malicious Damage Clause, 1.26 War Compensation Court, 11.66 War Exclusion, 1.27 War insured perils, 1.28 as separate from marine risks, 1.14–1.16 War Risk Insurance aviation, 5.3 blocking and trapping, 3.22 CONWARTIME Clause, 3.28–3.29 deleted clauses, 1.3 development of, 1.8–1.26 exclusions, 1.9–1.11 forfeiture rule, 27.21–27.33 Iranian, 3.25 loss of earnings, 3.22 peacetime, 3.2, 3.3 underwriters, 2.1–2.10 VOYWAR Clause, 3.28, 3.30 See also Exclusion clauses War Risk Insurance in time of war, 31.1–31.18 Gulf War, 31.71–31.74 NATO war risks insurance scheme, 31.39–31.66 reinsurance agreement, 31.20–31.38 South Atlantic War, 31.67–31.70 War risks as separate from marine risks, 1.14–1.16, 1.20–1.21, 1.28 defined, 31.12, 31.13 on land, 2.9 restraint, 1.17 War Risks Policy, 15.12 “all risks,” 28.41 Clause 1.1, 15.6–15.7, 15.8 Clause 1.1.3, 15.9 Clause 1.3, 15.9 Clause 1.4, 15.6–15.7, 15.8 Clause 1.5, 15.6–15.7, 15.8 Clause 6.1 (Notice of Cancellation Clause), 3.9, 3.12, 3.15 Clause 6.1.2, 15.9 Clause 7, 4.13 Clause 7.1.2, 15.9 Clause 18.3, 15.9 Clause N4, 3.22 F.C. & S. Clause (Freedom of Capture and Seizure Clause) liability for damage caused by mines, 15.13 Malicious Damage Clause, 1.25–1.26 MAR Form, 1.5–1.7, 1.27–1.30 See also S.G. Form (Ships/Goods Form); F.C. & S. Clause (Freedom of Capture and Seizure Clause) Warlike operations, 6.1, 6.3 exclusion of, 1.17–1.19, 10.1 Warranties, 24.53–24.54 breech of, 3.12 under IA 2015, 24.73–24.83 promissory, 24.57–24.83 War-related perils, 18.25–18.26 Warsaw Pact, 31.39, 31.43 Waterborne Agreement, 29.8, 30.5 Wilful misconduct, 27.2, 29.5 as contractual exclusion or public policy rule, 27.7–27.10 cumulative effect of, 27.35 deliberate actions, gross negligence and recklessness, 27.11–27.20 proof of, 27.3–27.4 in war risks insurance, 27.5–27.20 World War I, 11.53, 11.64–11.66, 31.7 World War II, 6.18–6.20, 11.69, 12.44, 31.6, 31.7 298

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