[2006] Vol. 2
LLOYD'S LAW REPORTS
COURT OF APPEAL
29 June 2006
____________________
TALBOT UNDERWRITING LTD
v
NAUSCH, HOGAN & MURRAY INC
(THE "JASCON 5")
[2006] EWCA Civ 889
Before Lord Justice WALLER,
Lord Justice MOORE-BICK and
Lord Justice RICHARDS
Insurance (marine construction risks) - Brokers instructed by
owners to take out insurance covering repair of vessel with
repairers as co-assured - Slip policy not naming repairers Whether repairers parties to insurance under insuring clause or by
reason of doctrine of undisclosed principal - Whether trust of policy
in favour of repairers - Whether existence of undisclosed principal
a material fact requiring disclosure - Whether insurers induced Whether duty of disclosure or breach of duty waived - Whether
assured and repairers suffering loss by reason of any breach of duty
by brokers - Whether loss proximately caused by delay or by
insured peril - Marine Insurance Act 1906, section 55(2)(b).
This was an appeal against the judgment of Cooke J, dated 31
October 2005, on a trial of preliminary issues on the construction of a
policy of insurance, based on agreed facts, arising out of an assigned
claim against the defendant brokers for failing to obtain insurance
cover in accordance with their instructions.
The vessel Jascon 5, an offshore pipelay construction barge, was
owned by CPL, part of the Sea Trucks group of companies. The vessel
was built in China and in March 2003 was towed to Sembawang's
shipyard in Singapore, where the completion, outfitting,
commissioning and testing of the vessel was to take place under a
completion contract between CPL and Sembawang on 5 October
2002. Clause 15.1 of the contract stated that Sembawang "shall be
responsible for, and indemnify and hold harmless [CPL] from all
claims, losses, damages, and expenses resulting from and/or arising
out of. . . Loss or damage to or loss of use of [CPL's] equipment,
property or assets. . ." Under clause 15.7.5 Sembawang was required
to take out ship repairer's insurance for an amount of not less than
US$5,000,000 per incident, occurrence or event, covering all of its
operations including contractual liabilities. This was not done. Clause
15.12 of the contract imposed an obligation on CPL to arrange
builders all risk insurance which included Sembawang as an additional
co-assured and under which the insurers waived any right of recourse
against Sembawang. It did not require Sembawang to be named as
co-assured. The work commenced in March 2003.
195
In May 2003 brokers NHM were instructed by Mr Roomans of CPL
and Sea Trucks to place a builders' all risks policy in respect of the
vessel, which policy was to include Sembawang as a co-assured. Mr
Roomans, CPL and Sea Trucks were authorised by Sembawang in this
regard by the completion contract, and Sea Trucks and CPL intended
to include Sembawang as co-assured. The vessel was insured with a
final contract value of US$70,800,000. The risk was placed with the
claimants in London (40 per cent), in Norway (35 per cent) and Russia
(25 per cent) under a builders risks policy negotiated by brokers NMB
on the instructions of NHM. The policy, in the form of a slip policy,
named as the assured Sea Trucks "and/or Subsidiary, Affiliates,
Associated and Interrelated Companies and/or Joint Ventures as may
be required as their respective rights and interest may appear". The
slip policy also contained the following provision:
Including Assured, interest of Mortgagees (and Notices of
Assignment in respect thereof), Loss Payees, Additional Assureds
and Waivers of Subrogation as may be required.
The insurers were not informed that Sembawang was intended to be a
co-assured under the policy until after 14 October 2003.
On 14 October 2003 the vessel sustained flooding in various
compartments, including the generator room, whilst the vessel was
being refloated after drydocking at Sembawang's shipyard.
Sembawang incurred expense by way of the cost of repair of the
vessel. Sembawang made a claim on the London insurers under the
policy but the claim was refused on the ground that Sembawang was
not an assured under the policy.
On 28 April 2004 a settlement agreement was entered into between
Sembawang and CPL with respect to Sembawang's inability to recover
its loss from the London insurers. Without any admission of liability,
CPL agreed to pay Sembawang the sum of US$850,000 in full and
final settlement. CPL, with Sembawang's assistance, was to recover
any losses in relation to the claim from relevant third parties including
NHM and the London insurers, with all recoveries enuring to CPL's
benefit.
On 26 July 2004 an assignment agreement was entered into between
the London insurers, CPL, Sea Trucks and Sembawang. Under this
agreement CPL, Sea Trucks and Sembawang assigned to the London
insurers all their claims against NHM for failure to take out insurance
in the name of Sembawang, entitling the London insurers to sue in
their respective names. In consideration of that, the London insurers
agreed to pay CPL and Sembawang the sum of US$501,252.80,
amounting to 40 per cent of the adjusted figure. In the event of any
recovery from NHM, the first US$501,252.80 was payable to the
London insurers, the next portion up to a maximum of £75,000 being
payable to the London insurers in respect of costs incurred and the
remainder being payable to CPL/Sembawang. The agreement also
provided as follows:
Except as provided herein, [the London Insurers] hereby waive and
fully and finally settle all existing rights, benefits, interests and
claims they may have under the BAR Policy and/or by way of
subrogation
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against CPL and ST and SSPL [Sembawang] save that any
outstanding premiums. . .remain due and owing . . .
The present action was a claim by the London insurers under the
assignment agreement against NHM for failure by NHM to obtain a
policy which expressly named Sembawang as co-assured. NHM
argued that the London insurers were wrong in refusing to pay since
Sembawang was an assured under the slip policy. NHM also
contended that the compromises agreed between CPL, Sembawang
and the London insurers were agreements which CPL and Sembawang
should never have concluded.
The following preliminary issues arose for decision:
1. Was Sembawang a co-assured under the builders' risks policy?
2. Was Sembawang a beneficiary of a trust in respect of the London
insurers' promise of an indemnity under the builders' risks policy?
3. Was CPL and/or Sea Trucks obliged to disclose the fact that
Sembawang was an intended beneficiary and, if so, did the insurers,
by reason of the terms of the builders' risks policy, waive disclosure?
4. If the insurers were entitled to avoid the builders' risks policy,
did they lose that entitlement by either (a) entering into the
assignment agreement of 26 July 2004 with CPL, Sea Trucks and
Sembawang, or (b) commencing the present action and serving the
statements of case?
5. Was there a real prospect that the insurers were entitled to
succeed in their allegation that they had the right of avoidance?
6. If Sembawang was a co-assured or the beneficiary of a trust, was
it irrelevant to the claim against NHM that the insurers were entitled
to avoid the policy?
7. Was there a real prospect that the London insurers would
succeed in their claim for damages on the grounds that NHM failed
to place the builders' risks policy which expressly named
Sembawang as a co-assured and/or to ensure that Sembawang was
identified as a co-assured on the face of the builders' risks policy
with sufficient or any clarity?
8. Did Sembawang suffer no loss as a result of any alleged breach
of duty on the part of NHM?
9. Did CPL suffer no loss (by way of a liability to Sembawang for
breach of the completion contract) for breach of the insuring
obligation as a result of breach of duty on the part of NHM?
10. Was there a real prospect that the insurers would succeed in
their argument that losses were excluded from cover under section
55(2)(b) of the Marine Insurance Act 1906 in that the loss was
proximately caused by delay?
-Held, by QBD (Comm Ct) (COOKE J) that the preliminary issues
would be answered in favour of the insurers.
(1) The insurance was not, on its proper construction, an insurance
for the benefit of Sembawang.
(a) Sembawang did not fall with the description "Associated and
interrelated companies and/or Joint
196
Ventures" in the assured clause in the slip policy. Sembawang was
neither an associated company nor a joint venture.The only legal
relationship between CPL/Sea Trucks and Sembawang was the
Sembawang outfitting contract. The assured clause set out specific
named entities and then referred to additional unnamed entities with
various types of relationship to them. The overall colour of the
adjectives used suggested a familial relationship or the sharing of a
common enterprise. A "Joint Venture" was a legal arrangement
whereby two or more entities carried out a business activity under
some form of common control or management or at least shared a
common aim and common interest in pursuing a common enterprise.
The Sembawang contract was not a joint venture in that sense
because all the work was to be done by Sembawang and there was no
profit sharing arrangement or common control or management of any
kind. There was no joint enterprise in the accepted sense of those
words and it would not be apposite to call the relationship a "Joint
Venture". If it was, any contract for the repair of a ship, car or
motorbike could be so named.
(b) Sembawang was not an "Additional Assured" for the purposes
of the words "Including Assured, interest of Mortgagees (and
Notices of Assignment in respect thereof), Loss Payees, Additional
Assureds and Waivers of Subrogation as may be required" in the slip
policy.
(i) The inference to be drawn from reference to "interest" was that
persons identified in this provision did not become parties to the
insurance but that their interests were included in the sense of being
accepted by insurers for payment, "as may be required", alongside
the assured and additional assured.
(ii) The slip referred expressly to Sembawang, not in the context of
an assured or potential assured but merely in the context of the
location and duration of the risk. If the outfitters were such an
obvious insured, it was inevitable that they would have been
included as a class, if not by name, had there been any intention that
they should be included. The insurance was deliberately framed
essentially as a group cover, with limited "add ons" for joint
ventures, mortgagees and loss payees.
(iii) The words "as may be required" could not be read so as to
admit persons outside the class which defined the limits which the
parties agreed, when addressing their minds to the subject, for the
entities to which cover was to be afforded. This clause in the
conditions section of the slip could not fundamentally change the
identity and character of the assured, as defined, being intended only
to be a qualification and explanation of the provisions in it. The
clause could not be construed as conferring an option on the part of
the known assureds to add new policy beneficiaries without the
agreement of the insurers. If Sembawang could be added as an
"Additional Assured" by CPL, with a waiver of subrogation, without
the agreement of the insurers, there would have to be a provision for
communication of that so that the
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The "Jascon 5"
insurers knew who it was that was covered. Since there was no
requirement for insurers' agreement to the incorporation of
"Additional Assureds" as beneficiaries under the policy, it was
highly unlikely that the insurers would, by the terms of the policy, be
accepting any additional assureds involving an increase in risk or a
change in the nature of the risk. The "Additional Assureds" in the
clause referred to those entities that fell within the second half of the
assured clause but could not be parties to the insurance at inception
because they were not in existence at the time of subscription to the
slip, or because they only subsequently fell into the categories listed
and required cover.
(c) Sembawang was not an undisclosed principal.
(i) A contract of marine insurance was not an exception to the
general rule that an undisclosed principal might sue on a contract
made by an agent within his actual authority. The question was
whether the named contracting part to the insurance acted as agent
for the unnamed principal. The agency of the placing broker was not
relevant if he was not a party to the insurance, since it was the party
to the insurance who in fact was acting as agent for the undisclosed
principal. Since the principal was, by definition, undisclosed or
unidentified, as the case may be, it was the intention of the party to
the contract and his authority to act for that principal, when
concluding the contract through his subagents, which mattered.
(ii) This was a case where it could properly be said that the terms of
the insurance contract prevented Sembawang, as an undisclosed
principal, from taking its benefit. The insurance was drafted to cover
the interest of the Sea Trucks group, together with any joint ventures
into which the members of that group might enter, as the terms of the
assured clause showed. That was the express limitation given to the
assured and the conditions of the slip policy did not have the effect
of extending the definition of the assured, save insofar as the insurers
agreed to take into account derivative interests and further assureds
who fell into the same categories as those in the assured clause. The
failure to include Sembawang, whether by name, or by including a
category of "builders/outfitters" in a policy which was designed to
cover the ship during the period of outfitting was highly significant.
If there was no intention to cover Sembawang directly in the policy,
that intention could not be circumvented by an application of the
doctrine of the undisclosed principal. The very terms of the slip
policy militated against this and prevent the operation of such a
contrivance.
(2) Sembawang was not a beneficiary of a trust in respect of the
London insurers' promise of an indemnity under the builders' risks
policy. It was an essential part of any trust of the kind suggested that
there should be a promise of which Sembawang was the beneficiary
and of which CPL or some other assured was the trustee. It was
impossible to construe the contract as containing a promise in its
favour. Since Sembawang
197
was neither a party to the slip policy as an undisclosed principal, and
did not fall within the category of "Assured" or "Additional Assureds"
there was no basis upon which CPL could be, or declare itself to be, a
trustee of a promise by the London insurers to pay Sembawang. The
only promises to pay operated in favour of those who were properly
within the definition of the "Assured" or were mortgagees, loss
payees, or "Additional Assureds".
(3) On the hypothesis that Sembawang was entitled to intervene as
an undisclosed principal, it was self-evident that, as a matter of
principle, disclosure was required of anything which was material in
relation to the intervention by an undisclosed principal. This might
relate to the characteristics of the entity concerned or to the role or
function fulfilled by that entity or to any of the other wide range of
circumstances which could influence the insurers' judgement. The role
of the undisclosed principal as the builder and the fact that subrogation
rights might be affected, were both capable of being material facts for
this purpose. It was necessary to see whether a fair presentation had
been made.
(4) If Sembawang was an undisclosed principal, the London insurers
had waived their right to avoid.
(a) In order to affirm, there had to be not only knowledge of the
facts not disclosed and knowledge that the non-disclosure gave rise
to a right to avoid but there had also to be an unequivocal
communication to the recipient by words or conduct that an informed
choice had been made to affirm the contract of insurance. The
communication itself or the circumstances had to demonstrate
objectively or unequivocally that the party affirming was making an
informed choice.
(b) It was impossible to see how the London insurers could lose any
entitlement to avoid by affirmation by reason of entering into the
assignment agreement, commencing the present proceedings or
serving their statements of case. Throughout the whole period,
London insurers had maintained that there was no contract with the
yard in a context where it was recognised that, if there was insurance
for CPL and Sembawang, the insurance would be composite not
joint. Recognition of the validity of a contract with CPL was
therefore neither here nor there and the assignment agreement
specifically contained a denial of any insurance contract with
Sembawang. At no time was the existence of the contract with
Sembawang ever accepted or affirmed.
(c) If Sembawang was an undisclosed principal to the insurance
agreement, the waiver by the London insurers in the assignment
agreement of all existing rights operated as a matter of contract with
Sembawang to waive any rights which may have existed in respect
of any such insurance, including the right to avoid.
(5) There was a real prospect that the insurers had the right to avoid
the policy.
(a) There was plainly an issue as to the materiality of the
non-disclosure and issues as to inducement. Although there was no
direct evidence from the fourth underwriter of the London insurers,
on a
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The "Jascon 5"
summary judgment application where three underwriters give
evidence of inducement, it was legitimate for the court to infer that
there was an arguable case upon inducement for the fourth. Although
there was no presumption of law that an insurer was induced to enter
into a contract by a material non-disclosure, the facts might however
be such that it was to be inferred, even in the absence of evidence
from him.
(b) The allegation that the London insurers had waived their right
to avoid by failing to give notice of avoidance in the event that they
were wrong on their primary case that Sembawang was not a party to
the insurance, raised issues of fact and arguments in relation to a
hypothetical situation which could be determined on a summary
judgment basis without full evidence and testing of that evidence.
For summary judgement purposes the evidence so far adduced was
sufficient to show that the London insurers had realistic prospects in
succeeding on these issues.
(6) If Sembawang was an undisclosed principal or the beneficiary of
a promise of cover, then the fact that the London insurers could and
would have avoided for material non-disclosure of the intention to
include Sembawang as a co-assured and of the existence of authority
in Sea Trucks and/or CPL to do so would make no difference to the
claim as framed.
(7) The duty of a broker was, so far as possible, to obtain insurance
coverage which clearly and indisputably met its clients' requirements.
If NHM, through NMB, did not obtain cover which, as a matter of
law, clearly did include Sembawang as co-assured, without room for
significant debate, this represented a failure to act with due care and
skill in the placement of the insurance.
(8) The argument that Sembawang suffered no loss by reason of any
breach of duty on the part of NHM would be rejected.
(a) The suggestion that Sembawang was exempt from liability to
CPL in respect of the damage to the vessel by reason of the
requirement for CPL to take out insurance for Sembawang under
clause 15.12 failed to take account of the other provisions of the
contract. Under clause 15.1 the primary obligation upon Sembawang
was to indemnify CPL and hold it harmless and to undertake full
responsibility and liability for loss or damage to the barge caused by
its negligence. The scheme of the contract was plain: if damage
occurred to the vessel as a consequence of Sembawang's negligence,
it was automatically in breach in failing to hold CPL harmless and it
was required to remedy that forthwith.
(b) There was nothing to the point that Sembawang might have
sued CPL for breach of clause 15.12. Sembawang were in breach of
their own obligation to take out ship repairer's insurance under clause
15.7.5 and CPL would have a cross-claim.
Although CPL could have made a monetary claim against
Sembawang in respect of the damage to the vessel, then even if
Sembawang would have been entitled to set off its own claim for
CPL's breach of article 15.12, (ignoring its own breach of article
15.7.5) no such claim was actively made by CPL.
198
Thus Sembawang, in accordance with the terms of the contract,
fulfilled its primary responsibility to repair the vessel and thus
suffered loss and damage. Sembawang's liability to do so was not
exempted by the insurance provisions at all although Sembawang
would, had the slip policy named it as an assured, have been able to
recover under it.
(c) The argument that CPL suffered no loss (by way of a liability to
Sembawang for breach of clause 15.12 of the completion contract) as
a result of any alleged breach of duty on the part of NHM, because
CPL had the right to sue the London insurers under the slip policy,
would be rejected. CPL did not incur any loss in relation to the cost
of repair inasmuch as Sembawang bore it under the terms of the
Sembawang contract. CPL was never liable to reimburse
Sembawang for the repair costs under the terms of the policy
although it could arguably have been liable to Sembawang for failure
to obtain the insurance that article 15.12 required. A claim for failure
to insure was not covered by the "All Risks" policy. CPL therefore
suffered no direct loss in relation to the cost of repair but faced a
claim from Sembawang in respect of its breach of article 15.12. CPL
paid US$850,000 to Sembawang in full and final settlement of that
claim under the settlement agreement. That is a sum which it would
never have had to pay if NHM had not failed to obtain a slip policy
in which Sembawang were named as a co-assured. CPL had
recovered sums from the London insurers under the assignment
agreement which still left a shortfall against the sum it has paid out
to Sembawang.
(9) Both Sembawang and CPL alleged that they had incurred costs
and expenses as a result of NHM's breach and, to the extent that these
were established, they were in principle recoverable.
(10) There was a real prospect that the London insurers would be
able to establish that two items of repair costs - "yard extended project
management" (item L) and "yard extended general services and
facilities", representing the actual costs of repairs or supervision of
repairs alone (project management costs and the cost of general yard
services and facilities over the period of repair) - were costs of repair
rather than proximately caused by delay and thus not excluded under
section 55(2)(b) of the Marine Insurance Act 1906. There was no
doubt that the damage to the vessel caused delay in the completion of
the work because of the need to carry out repairs. It was inevitable that
if repairs had to be done, there were not only costs of labour and
materials in effecting the work itself but project management costs in
the shape of planning and supervision of the repairs and the provision
of yard services which were calculated on a time basis. This did not
mean that they were costs of delay or amount to a "loss proximately
caused by delay"
The insurers appealed against the judge's rulings on issues (1), (3),
(8) and (9).
-Held, by CA (WALLER, MOORE-BICK and RICHARDS LJJ), that the
appeals would be dismissed
(1) Sembawang was not a co-assured under the builders' risk policy.
(a) On the true construction of the slip Sembawang was not an
"additional assured" by reason of the
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words "Including Assured, interest of Mortgagees (and Notices of
Assignment in respect thereof), Loss Payees, Additional Assureds
and Waivers of Subrogation as may be required". The clause was to
be read as referring to additional clauses which were to be included
in the policy if required by the assured. The parties presumably had
some "Additional Assureds" clause in mind, but, although they had
ample opportunity to do so, NHM had not attempted to identify any
specific form of wording that might fall within that description,
much less one that would automatically entitle Sembawang to claim
as an assured under the policy without any prior notification to the
insurers (see paras 21 and 22);
-Glencore International AG v Alpina Insurance Co Ltd [2004] 1
Lloyd's Rep. 111, National Oilwell (UK) Ltd v Davy Offshore Ltd
[1993] 2 Lloyd's Rep. 582, referred to.
(b) Sembawang was not entitled to enforce the contract as an
undisclosed principal.
(i) The doctrine of undisclosed principal had been held to apply a
contract of marine insurance. In the present case Sea Trucks and CPL
were authorised to obtain builders' all risks insurance on the vessel
on behalf of Sembawang and at all material times they both intended
to include Sembawang as a co-assured under the policy. NMB were
not aware that Sembawang was to be included as a co-assured and
did not intend that it should be a party to the contract, but, since
NMB was merely acting as an agent to place the insurance, that was
not sufficient to prevent Sembawang from enforcing the contract as
an undisclosed principal. What mattered was the authority and
intention of the person in whose name the contract was made (see
paras 25 and 26);
-Small v UK Marine Mutual Insurance Association [1897] 2 QB 42,
Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 545,
Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199,
considered.
(ii) The mere identification, whether by name or description, of
certain persons as assureds was not sufficient of itself to demonstrate
an unwillingness on the part of the insurer to contract with any other
person. If it were otherwise, the principles under discussion would
have no application at all to contracts of insurance. Each case was to
be decided by reference to the terms of the contract in question and
the circumstances in which it came to be made, and due regard
should be had to the consideration that if the courts were too ready to
construe written contracts as contradicting the right of an undisclosed
principal to intervene it would go far to destroy the beneficial
assumption in commercial cases. However, in the present case the
omission of any reference to Sembawang or its sub-contractors was
not neutral but was to be regarded as a positive indication that the
insurers were not willing to contract with Sembawang. The judge
had been right to attach particular significance to the omission of
Sembawang from the categories of assureds set out in the slip. When
a vessel entered a shipyard for completion and
199
fitting out the persons most immediately interested in her safety were
the owner and the shipyard. Other parties with commercial interests
in her might also be adversely affected if she suffered loss or damage
and it was not surprising, therefore, to find that the assureds in the
present policy included other companies within the same group as
the owner and even joint venturers. In this context the absence of any
reference to the shipyard and its sub-contractors was striking,
particularly when it was borne in mind that their inclusion as
co-assureds would have a significant effect on the insurers' rights of
subrogation and therefore on the risk. This was a case in which the
terms of the contract by implication excluded any right on the part of
Sembawang to sue on it as an undisclosed principal (see paras 27, 35
and 36);
-Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB
545, Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199,
applied; National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2
Lloyd's Rep. 582, North Atlantic Insurance Co Ltd v Nationwide
General Insurance Co Ltd [2004] Lloyd's Rep IR 466, O'Kane v
Jones, The Martin P [2004] 1 Lloyd's Rep. 389, referred to.
(2) In many cases the identity of the undisclosed principal would be
a matter of indifference to the insurer, but it would be surprising if that
were so in the case of Sembawang since its right to be treated as a
co-assured would be likely to affect the insurers' ability to pursue a
claim against it in the name of CPL (see para 41);
-dicta in Glasgow Assurance Corporation Ltd v William Symondson
and Co (1911) 16 Com Cas 109, 119-120, explained.
(3) Sembawang suffered loss as a result of the alleged breach of duty
on the part of NHM, as Sembawang would have had the right to
recover under the policy.
(a) The broad scheme was that Sembawang and CPL each assumed
responsibility for personal injury, loss and damage resulting from its
own negligence, including loss of or damage to the barge itself and
any materials or equipment in the care or control of the yard.
Sembawang agreed to procure at its own expense certain insurances
of the sort that could be expected to provide cover against the kinds
of losses and liabilities contemplated in clauses and undertook to add
CPL to those policies as a co-assured. CPL undertook to arrange a
builder's all risks insurance for the benefit of both parties with a
waiver of subrogation rights against all assured. If these provisions
had been fully performed both parties would have had the benefit of
any relevant insurance cover, as far as possible, and in the event of
an insured loss the insurer would not have been entitled to claim
against one party in the name of the other. In the light of these
provisions there was some force in the submission that the parties
intended that in the event of loss of or damage to the vessel or the
completion work they should have recourse to insurance and should
not be entitled to make claims against each other (see paras 54 and
55);
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-Mark Rowlands Ltd v Berni Inns Ltd [1986] QB 211, Scottish and
Newcastle plc v GD Construction (St Albans) Ltd [2003] Lloyd's Rep
IR 809, Co-operative Retail Services Ltd v Taylor Young Partnership
Ltd [2001] Lloyd's Rep IR 122, considered.
(b) However, it did not follow that Sembawang, which as a
co-assured would have been entitled to make a claim under the
builder's all risks insurance, would not have been entitled to retain
the proceeds of the policy in order to recover the cost of making
good the damage. Its entitlement to receive payment of the contract
price, 90 per cent of which was payable on practical completion,
depended upon the satisfactory performance of all its obligations and
on its ability to hand the vessel over to CPL in the condition required
by the contract. All the equipment that had been installed under the
contract remained at its risk until that time and it had no choice but
to replace, repair or clean it as necessary in order to meet those
requirements. That was all work which it had to do at its own
expense. Sembawang had an insurable interest in the vessel as a
whole (including the hull) and it would have been entitled to recover
the cost of making good the damage in order to obtain payment
under the contract (see para 56).
(c) The sum for which Sembawang should have been insured under
the policy was US$1,253,332, and Sembawang had received
US$850,000 from CPL under the settlement agreement. Sembawang
had suffered a net loss of US$403,132 together with any associated
costs and expenses (see para 73).
(4) CPL suffered loss as a result of the alleged breach of duty on the
part of NHM.
(a) CPL's failure to ensure that Sembawang was covered as
co-assured rendered CPL liable in damages to Sembawang, because
Sembawang would have been entitled to recover under the policy
(see para 61).
(b) CPL was not entitled to recover the proceeds of the policy
irrespective of NHM's breach. While it was true that CPL had
sustained loss at the very moment that the flooding occurred and was
entitled to recover a full indemnity in its own right, the insurers were
entitled to the benefit of any rights held or received by CPL which
diminished the loss. In the present case there was nothing to suggest
that Sembawang carried out the repairs to the vessel with any
intention other than to complete the work under the contract and
obtain payment of the price. In those circumstances it was impossible
to say that Sembawang did not intend to make good the loss in
respect of which CPL was entitled to claim from the insurers. By the
time a claim was made CPL had not incurred a loss that could be
recovered from the insurers (see paras 61 and 66);
-Firma C-Trade SA v Newcastle Protection and Indemnity
Association, The Fanti; Socony Mobil Oil Co Inc and others v West
of England Ship Owners Mutual Insurance Association (London)
Ltd, The Padre Island (No. 2) [1990] 2 Lloyd's Rep. 191, referred to;
Castellain v Preston (1883) 11 QBD 380, Colonia Versicherung AG
v Amoco Oil Co [1997] 1 Lloyd's Rep. 261, applied; Burnand v
Rodocanachi
200
(1882) 7 App Cas 333, Merrett v Capitol Indemnity Corporation
[1991] 1 Lloyd's Rep. 169, distinguished.
(c) Had it been possible for CPL to make a claim against the
insurers for the full sum insured, it would have been bound to
account to Sembawang for the cost of making good the damage and
would thereby have satisfied any claim that Sembawang had against
CPL for failing to insure (see para 68);
-Lonsdale & Thompson Ltd v Black Arrow Group plc [1993] Ch 361
(d) CPL had paid Sembawang US$850,000. It had received
US$510,252 from the insurers. CPL had accordingly suffered a net
loss of US$348,748 together with any associated costs and expenses
(see para 73).
____________________
The following cases were referred to in the judgment:
Assicurazioni Generali v Arab Insurance Group [2003] Lloyd's
Rep IR 131;
Boston Fruit Co v British & Foreign Marine Insurance Co
[1905] 1 KB 637;
Browning v Provincial Insurance Co of Canada (1873) LR 5 PC
263;
Burnand v Rodocanachi (1882) 7 App Cas 333;
Castellain v Preston (1883) 11 QBD 380;
Colonia Versicherung AG v Amoco Oil Co [1997] 1 Lloyd's Rep.
261;
Co-operative Retail Services Ltd v Taylor Young Partnership Ltd
[2001] Lloyd's Rep IR 122;
Dixey & Sons v Parsons (1964) 192 EG 197;
FNCB Ltd v Barnet Devanney (Harrow) Ltd [1999] Lloyd's Rep
IR 459;
Firma C-Trade SA v Newcastle Protection and Indemnity
Association, The Fanti; Socony Mobil Oil Co Inc and others v
West of England Ship Owners Mutual Insurance Association
(London) Ltd, The Padre Island (No. 2) [1990] 2 Lloyd's Rep.
191;
Glasgow Assurance Corporation Ltd v William Symondson and
Co (1911) 16 Com Cas 109;
Glencore International AG v Alpina Insurance Co Ltd [2004] 1
Lloyd's Rep. 111;
Insurance Corporation of the Channel Islands v Royal Hotel Ltd
[1998] Lloyd's Rep IR 151;
Les Affreteurs Reunis v Walford [1919] AC 801;
Levy v Spyers (1856) 1 F & F 3;
London and North Western Railway Company v Glyn (1859) 1 El
& El 652;
Lonsdale & Thompson Ltd v Black Arrow Group plc [1993] Ch
361;
Marc Rich v Portman [1996] 1 Lloyd's Rep. 430;
Mark Rowlands Ltd v Berni Inns Ltd [1986] QB 211;
[2006] Vol. 2
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The "Jascon 5"
Marine Sulphur Queen, The [1970] 2 Lloyd's Rep. 285;
Merrett v Capitol Indemnity Corporation [1991] 1 Lloyd's Rep.
169;
Moonacre, The [1992] 2 Lloyd's Rep. 501;
Mumford Hotels Ltd v Wheeler [1964] Ch 117;
National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd's
Rep. 582;
North Atlantic Insurance Co Ltd v Nationwide General
Insurance Co Ltd [2004] Lloyd's Rep IR 466;
O'Kane v Jones, The Martin P [2004] 1 Lloyd's Rep. 389;
Powles v Innes (1843) 11 M & W 10;
Prudential Staff Union v Hall [1947] KB 685;
Rayner v Preston (1881) 18 Ch D 1;
St Paul Fire & Marine Insurance Co Ltd v McConnell Dowell
Constructors Ltd [1995] 2 Lloyd's Rep. 116;
Scottish and Newcastle plc v GD Construction (St Albans) Ltd
[2003] Lloyd's Rep IR 809;
Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199;
Small v UK Marine Mutual Insurance Association [1897] 2 QB
42;
Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB
545;
Tomlinson (Hauliers) Ltd v Hepburn [1966] AC 451;
Waters v Monarch Fire and Life Assurance Co (1856) 5 E & B
870.
____________________
Gavin Kealey QC and Charles Kimmins, instructed by Russell
Ridley & Co, for the claimants; Julian Flaux QC and Peter
MacDonald Eggers, instructed by Eversheds, for the
defendants.
Thursday, 29 June 2006
____________________
JUDGMENT
31 October 2005
Mr Justice COOKE:
Introduction
1. The parties agreed and the court ordered, on 29 July 2005,
that there be a trial of preliminary issues by reference to the
parties' contentions as set out in their respective statements of
case, on the basis of
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COOKE J
specified documents, agreed assumed facts and the facts
admitted in the statements of case, all without prejudice to other
issues raised by those statements of case.
2. For the purposes of this judgment I shall refer to the
claimants as the London insurers, to the defendants as NHM, to
the London placing brokers as NMB and to the shipyard
responsible for outfitting the pipe laying barge, Jascon 5, as
Sembawang. The London insurers sue in the capacity of
assignees of the causes of action of CPL (an admitted assured
which gave instructions to NHM as its brokers) and of
Sembawang (the ship repairers who, through the agency of CPL
sought to obtain insurance via NHM), in contract and tort. They
make no claim in their capacity as insurers.
3. The assumed facts are as follows:
(1) The vessel Jascon 5 ("the vessel") was an offshore
pipelay construction barge, which was owned by CPL. CPL
was part of the Sea Trucks group of companies.
(2) The vessel was built in China.
(3) In March 2003, the vessel was towed from China to
Sembawang's shipyard in Singapore, where the completion,
outfitting, commissioning and testing of the vessel was to take
place. The said work was commenced in March 2003 and was
to be carried out pursuant to the completion contract entered
into between CPL and Sembawang on 5 October 2002
(Appendix 1). The only legal relationship between
Sembawang and CPL and/or Sea Trucks was constituted by
the completion contract and the fact that Sembawang was
undertaking works in respect of the vessel at its shipyard.
(4) In May 2003, NHM was instructed by Mr Roomans of
CPL, Sea Trucks and Roomans Eneli Flynn Brokers Ltd to
place a builders' all risks policy in respect of the vessel, which
policy was to include Sembawang as a co-assured.
(5) Mr Roomans, CPL and Sea Trucks were authorised by
Sembawang and intended to place builders' all risks insurance
on behalf of Sembawang and to include Sembawang as a
co-assured.
(6) The vessel was insured with a final contract value of
US$70,800,000. The risk was placed in London (to the extent
of an order of 40 per cent), in Norway (35 per cent) and Russia
(25 per cent).
(7) The London insurers (for their 40 per cent order)
subscribed to the builders' risks policy (Appendix 2) in respect
of the vessel on various dates between 21 and 27 May 2003
respectively. The risk in London was placed by Newman
Martin & Buchan ("NMB") on the instructions of NHM.
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(8) At all material times, Sea Trucks and CPL intended to
include Sembawang as a co-assured under the builders' risks
policy as required by the completion contract.
(9) The claimants contend that, unless the contrary can be
said by reason of the terms of the builders' risks policy, NMB
did not entertain an intention that Sembawang would be
covered as a co-assured under the builders' risks policy.
(10) NHM contends that NMB intended that Sembawang
would be covered as a co-assured under the builders' risks
policy.
(11) Unless the contrary can be said by reason of the terms of
the builders' risks policy, the London insurers were not
notified that Sembawang was intended to be a co-assured
under the builders' risks policy until after 14 October 2003.
(12) The claimants contend that, unless the contrary can be
said by reason of the terms of the builders' risks policy, the
London insurers (at the time of or after their agreement to the
builders' risks policy) did not entertain an intention that, or
specifically agree that, Sembawang would be covered as a
co-assured.
(13) NHM contends that, by reason of the terms of the
builders' risks policy, the London insurers intended or agreed
that Sembawang would be covered as a co-assured.
(14) On 14 October 2003, during the period covered by the
builders' risks policy, the vessel sustained flooding in various
compartments, including the generator room, whilst the vessel
was being refloated after drydocking at Sembawang's
shipyard.
(15) Sembawang incurred expense by way of the cost of
repair of the vessel.
(16) Sembawang has not acknowledged liability, nor has
been held liable, to incur the said expense.
(17) Sembawang made a claim upon the London insurers
under the builders' risks policy, in respect of the London
market's order of 40 per cent, but the claim was refused by the
London insurers on the ground that Sembawang was not an
assured under the builders' risks policy.
(18) The London insurers did not avoid the builders' risks
policy.
4. The specified documents referred to are as follows:
(i) The Sembawang Completion and Outfitting Contract
dated 5 October 2002 (the Sembawang contract).
(ii) The builders' risk policy (the slip policy).
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(iii) The settlement agreement dated 28 April 2004 between
CPL and Sembawang.
(iv) The assignment agreement dated 26 July 2004.
(v) Steege Kingston's 3rd report dated 20 May 2004.
5. The issues to be determined are:
(A) Co-assured issue
(1) Was Sembawang a co-assured under the builders' risks
policy on the grounds set out in sub-para 7(7) of the amended
defence and counterclaim?
(2) Was Sembawang a beneficiary of a trust in respect of the
London insurers' promise of an indemnity under the builders'
risks policy as alleged in para 7(8) of the amended defence and
counterclaim?
(B) The non-disclosure issue
(3) Assuming the relevant facts which may be relied on by
the claimants in support of their allegation of non-disclosure of
the circumstances alleged in para 6(d) and/or para 7 of the
amended reply and defence to counterclaim,
(1) Was CPL and/or Sea Trucks obliged, as a matter of law,
to disclose the said circumstances?
(2) Did the London insurers, by reason of the terms of the
builders' risks policy, waive disclosure of the said
circumstances?
(4) If the London insurers were entitled to avoid the builders'
risks policy as alleged in para 6(d) and/or para 7 of the
amended reply and defence to counterclaim, did the London
insurers lose the entitlement to avoid by reason of (a) their
entering into the assignment agreement dated 26 July 2004
with CPL, Sea Trucks and Sembawang and/or (b) their
commencement of the proceedings and/or the service of
statements of case herein?
(5) Is there a real prospect that the London insurers would
succeed in their allegation that they would have avoided the
builders' risks policy if they were entitled to avoid the policy
by reason of non-disclosure of the matters alleged in para 6(d)
and/or para 7 of the amended reply and defence to
counterclaim?
(6) If the court answered "yes" to question 1 above but only
on the grounds set out in para 7(7)(b)(iii) of the amended
defence and counterclaim or if the court answered "yes" to
question 2 above, would it be irrelevant to the claim against
NHM if the London insurers were entitled to avoid, and would
have avoided, the builders' risks policy as alleged in para 6(d)
and/or para 7 of the amended reply and defence to
counterclaim?
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(C) Paragraphs 13(6), 15 and 21A of the Re-Amended
Particulars of Claim
(7) Is there a real prospect that the London insurers would
succeed in their claim for damages on the grounds that NHM
failed to place the builders' risks policy which expressly
named Sembawang as a co-assured and/or to ensure that
Sembawang was identified as a co-assured on the face of the
builders' risks policy with sufficient or any clarity?
(D) The no loss issue
(8) Did Sembawang suffer no loss as a result of any alleged
breach of duty on the part of NHM on any of the grounds set
out in para 9(1) of the amended defence and counterclaim?
(9) Did CPL suffer no loss (by way of a liability to
Sembawang for breach of clause 15.12 of the completion
contract) as a result of any alleged breach of duty on the part
of NHM on the grounds set out in para 16C of the amended
defence and counterclaim?
(E) The delay issue
(10) Is there a real prospect that the London insurers will
succeed in their claim for items L and/or M referred to in
Steege Kingston's third report dated 20 May 2004, or are they
excluded from cover under the builders' risks policy pursuant
to section 55(2)(b) of the Marine Insurance Act 1906?
6. Issues 5, 7 and 10 are effectively summary judgment points
taken by NHM and evidence was permitted in relation to these
issues with the result that statements were served by both the
London insurers and NHM, all of which I take into account.
Reference is made in this judgment to documents other than
specified documents for this reason. Issues arose between the
parties because some of the evidence adduced by NHM also set
out background to the issues of construction of the slip policy in
dispute, and the London insurers wished to adduce evidence to
counter that. I ruled that the issues should be determined in
accordance with the terms of the order made at the Case
Management Conference, since the parties had, after
considerable thought, and with a view to saving costs, decided
to eschew extrinsic evidence, save as set out in that order, for
the purpose of the arguments on construction and points of law
arising out of the appended documents.
7. Paragraph 7(2) contained a saving provision, should the
court be unable to answer any preliminary issue on the basis of
the material before it, with an invitation to answer the question
to the extent possible, identifying facts which would have to be
proved at trial for the issue to be determined in a particular way.
Paragraph 7(3) contained another saving provision should
further evidence
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COOKE J
come to light later which might change the position. I expressed
the view that the saving might have to apply to evidence
available to the parties now, but ruled out for the purposes of
this hearing, but made no ruling on that.
8. The insurance which was obtained by NMB on the
instructions of NHM, took the form of a slip policy which was
subscribed by the London insurers on dates between 21 and 27
May 2003 after quotations had been given by the leader on
earlier dates. The relevant parts of the slip read as follows:
TYPE: MARINE HULL
FORM: MAR91/SLIP POLICY
ASSURED: SEA TRUCKS (NIGERIA) LIMITED and/or
DIESEL POWER (NIGERIA) LIMITED and/or DOPLHIN
OFFSHORE (NIGERIA) LIMITED and/or WALVIS
(NIGERIA) LIMITED and/or WEST AFRICAN DRYDOCK
LIMITED and/or Subsidiary, Affiliates, Associated and
Interrelated Companies and/or Joint Ventures as may be
required as their respective rights and interest may appear.
PROJECT/PERIOD: Attachment hereon with effect from 21
May 2003 whilst at Sembawang Shipyard, Singapore,
undergoing completion, outfitting, commissioning and testing
during period of approx 6½ months, expected final
delivery date after sea trials, mid January 2004.
VESSEL: "JASCON 5".
INTEREST: HULL AND MATERIALS etc, MACHINERY
OUTFIT etc, and everything connected therewith nothing
excluded. Sum Insured: Hull Value & Equipment:
US$21,000,000.
Final Contact Value: US$70,800,000.
CONDITIONS: Institution Clauses for Builders' Risks 1 June
1988 (C1.351). Institution War Clauses Builders' Risks 1 June
1988 (C1.349). Institution Strikes Clauses Builders' Risks 1
June 1988 (C1.350).
Including Assured, interest of Mortgagees (and Notices of
Assignment in respect thereof), Loss Payees, Additional
Assureds and Waivers of Subrogation as may be required.
Any amendments and/or agreements and/or alterations and/or
increases (not exceeding written line) or decreases in value to
be agreed slip leading underwriter only and to be binding on
all others hereon subject to adjustment of premium at expiry.
9. The underlying problem which gives rise to this litigation is
that the slip policy which incorporated the Institute Clauses for
Builders' Risks made no mention of the outfitting yard,
Sembawang in circumstances where, it is common ground, CPL
had agreed with Sembawang that Sembawang
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should be included as a co-assured and had instructed NHM
accordingly. NHM's cover note to CPL referred to the insured
as "Sea Trucks Group and/or Sembawang Shipyard PTE
Limited Singapore and/or Contractors and/or subcontractors for
their respective rights and interests". Whilst this clearly
reflected the insurance placed in other markets (Scandinavia
and Russia), the issue arose as to whether or not it correctly
reflected the 40 per cent placement in the London market. The
London insurers maintained that they never agreed to insure
Sembawang and in their pleadings referred to the slip policy
and to a letter from NMB dated 24 December 2003, in which
NMB corroborated the London insurers' case that they had been
shown a 13-page fax of 23 October 2002 which expressly
referred to insurance taken out by Sembawang in the shape of a
Ship Repairers' Legal Liability insurance for an amount of $5
million any one accident. In another NMB letter of 14 January
2004, relied on by NHM in its rejoinder, NMB repeated this and
stated that NMB did not have a copy of the Sembawang
contract, nor any information relating to any individual assured
or waiver of subrogation requirements at the time of placement,
and that it had not been asked for any such information by
insurers.
10. The same letter of 14 January referred to a letter of 13
January 2004, in which Mr Parsons, of NMB who effected the
placement with London insurers stated, after the issue had
arisen and NHM had contended that Sembawang was covered
by the part of the slip policy which referred to "Additional
Assureds":
(A) It is my recollection that at the time of placing this Policy
of insurance, the issue of Additional/Co-Assured requirements
to the Policy was not contemplated by either party (meaning
NMB or Talbot).
(B) We can only restate our previous comments that this
Policy of insurance includes a facility for Additional Assured
and Waivers of Subrogation to be included, as may be
required. It is under this provision that the Assured is
exercising the requirement to name Sembawang pursuant to
contract between the parties.
11. Although the only agreed facts are as set out in the
assumed facts referred to in para 3 above there appears thus to
be some measure of agreement between the parties, by
reference to NMB's stated position on these aspects. The formal
position is however that the London insurers have alleged that
NMB had no intention to obtain cover for Sembawang and had
not been instructed to do so. This was denied by NHM, who
relied on the additional assureds wording in the slip policy,
whilst maintaining that the intention of NMB was irrelevant
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COOKE J
and that it was only the intention of CPL and Sembawang
which mattered.
12. The evidence of Mr van der Linden of NHM is that he
understood the cover note which he received from NMB as
showing that insurance had been arranged which was apt to
include Sembawang under the "Additional Assured" clause in
the policy. Thus, notwithstanding the difference between the
slip policy and the NMB cover note on the one hand and
NHM's cover note and the placement in the Scandinavian and
Russian insurance markets on the other, NHM maintains that
Sembawang was covered and that its cover note was accurate.
13. Paragraphs 9-13 of the assumed facts effectively state that
unless the form of the slip policy dictates otherwise, neither
NMB nor the London insurers can be taken to have had any
intention that Sembawang should be insured, an inference that,
at least on the current material, appears to me to be inevitable.
In the absence of any other evidence, it seems that the inference
to be drawn from all of this (and from the NMB January letters
and the form of policy wording in particular) is that NMB and
the London insurers were never told expressly that cover was
required for Sembawang, as the outfitting yard. If NMB and the
London insurers had been told expressly, it seems that
Sembawang's name would have appeared as an insured in the
slip policy and in the NMB cover note. In fact, the cover note
issued by NMB to NHM reflected the terms of the slip policy,
with the assured defined in the manner of the slip and with the
conditions set out in the same way as in the slip, including
"Additional Assured and Waivers of Subrogation as may be
required".
14. It is unnecessary to set out in any detail the terms of the
correspondence which passed between CPL and NHM but it is
clear that NHM was given the relevant pages of the Sembawang
contract which set out the insurance obligations of both CPL
and Sembawang. Between 9 October 2002 and the date of
placement, there were exchanges of faxes (at intervals) between
NHM and CPL about CPL's requirements for insurance of the
pipe laying barge whilst on tow from China to the Sembawang
yard and whilst at the yard. It was on 23 October 2002 that
NHM sent NMB the fax to which I have already referred, which
included a reference to Sembawang's Ship Repairer's Legal
Liability insurance in the sum of $5 million any one accident
and enclosed parts of the outfitting contract which set out the
barge description and design criteria.
15. On 6 November, Mr Roomans of CPL/Sea Trucks group
referred Mr van der Linden to the terms of article 15 of the
outfitting contract and the insurances there referred to and
enclosed copies of
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the relevant pages "to enable you to obtain the required
coverage in accordance with the contract requirements". The
fax promised to send the attachments via mail also. In a fax of
10 January 2003, Mr van der Linden stated that he had copies of
the liability and insurance articles of the Sembawang contract
which he had received on 13 November and referred to article
15.12 requiring CPL to arrange a builders' risk insurance whilst
the vessel was at the yard, "naming Sembawang. . .as
Co-Assured". The subsequent e-mails and faxes between them
referred to the need to name Sembawang as additional assured
or co-assured, including the e-mail in which Mr van der Linden
referred to the meeting at which he was instructed to place the
insurance at best possible terms with immediate effect.
16. Whilst the matter proceeded before me on the basis set out
at the Case Management Conference, on assumed facts only,
the facts as set out here appear to be uncontroversial or unlikely
to be controverted and are of some importance in the context of
the summary judgment applications.
17. It will be necessary, later in this judgment, to refer to the
terms of the Sembawang contract in more detail but for current
purposes it is enough to set out the terms of article 15.12 which
is headed "Policies of Insurance Procured by the Company"
(CPL):
The Company shall arrange Builders All Risk Insurance
which shall include the Contractor [Sembawang] as an
Additional Co-Assured and shall be endorsed to require the
underwriters to waive any rights of recourse including in
particular, subrogation rights against all Assured thereunder.
Liability for deductibles thereunder shall be for the account
of the contractor.
18. The contract requirement therefore was for CPL to arrange
insurance which included Sembawang as co-assured with a
waiver of subrogation rights but did not expressly require
Sembawang to be named. Although I have heard no evidence of
oral discussions and instructions, the correspondence made it
clear that what CPL/Sea Trucks wanted was for Sembawang to
be named. It goes without saying that this was not a matter
about which CPL or Sembawang wished there to be any doubt,
room for argument or scope for litigation. NHM were engaged
to achieve the insurance of CPL and Sembawang on the terms
discussed.
19. Arguments did however arise in that regard on the wording
of the slip policy when, on 14 October 2003, the vessel and her
equipment and machinery were damaged by flooding at the
yard. The evidence before me (which is limited) is that the
damaged occurred when the drydock was being
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COOKE J
flooded following work to the thrusters. As the drydock was
flooded, it was noted that the vessel gained a port list and
almost all of the forward compartments ahead of frame 140
were then found to be flooded with damage to numerous
mechanical and electrical systems, damage to exposed
insulation on the bulkheads and deposition of muddy sediment
in the tanks and open pipe work. It seems that sea suction
valves on the forward sea crossover line in generator room
number 1 had been left partially open. To compound this, four
blanks were found to be missing on the portside strainer and
several pipe stubs were open where sections of generator pipe
were missing. Flooding of the generator room caused an
increase in the forward draft of the vessel and brought the
shipside access openings and the box cooler openings located at
void spaces number three and four down to water level.
Seawater then flowed through these openings into the void
spaces and, through incomplete pipe work and bulkhead pipe
penetrations, into adjacent compartments.
20. Sembawang carried out all the necessary repair work
which delayed completion of the contract but the London
insurers refused to admit any claim by Sembawang on the basis
that it was not an assured under the terms of the slip policy.
21. It appeared to all those involved, other than NHM, that the
problem had been caused by NHM's failure to obtain a policy
which expressly named Sembawang as a co-assured. NHM
maintained and still maintain that the London insurers were
entirely wrong in refusing to pay since Sembawang was an
assured under the slip policy. NHM also contend that the
compromises agreed between CPL, Sembawang and the
London insurers were agreements which CPL and Sembawang
should never have concluded. The compromises took the form
of a settlement agreement dated 28 April 2004 between
Sembawang and CPL and an assignment agreement between
the London insurers, CPL, Sea Trucks and Sembawang dated
26 July 2004.
22. The settlement agreement of 28 April 2004 recited the past
history which had led up to the settlement. It referred to the
Sembawang contract of 5 October 2002 and to article 15.12
under which CPL agreed to arrange "Builders' All Risks"
insurance including Sembawang as an additional co-assured
with the necessary waiver of subrogation. It referred to the
flooding incident and to the London insurers' refusal to pay
Sembawang's claim for remedial work because it was not a
named co-assured. The proportion of Sembawang's losses
applicable to the London market's 40 per cent share of the total
was referred to as "SSPL's Claim", which could well be the
subject of further adjustment. Without any admission of
liability, CPL agreed to pay Sembawang the sum of $850,000 in
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full and final settlement of SSPL's claims. CPL, with
Sembawang's assistance, was to recover any losses in relation to
SSPL's claim from relevant third parties including NHM and
the London insurers, with all recoveries enuring to CPL's
benefit. This was a full and final settlement between CPL and
Sembawang with respect to SSPL's claim (and, by clear
inference, to any failure by CPL to obtain insurance as required
by article 15.12) and any claims arising under clause 15.7.5,
which provided for Sembawang to obtain ship repairers'
insurance in an amount of not less than $5 million per incident,
occurrence or event. Each waived all rights and claims against
each other in respect of these matters.
23. In the assignment agreement of 26 July 2004, the history
was again recited, including the London insurers' refusal to pay
because of its contention that Sembawang was not an assured.
The proportion of Sembawang's losses was referred to as
$1,253,132.00 after adjustment. CPL, Sea Trucks and
Sembawang absolutely assigned to the London insurers all their
claims against NHM and/or its agents for failure to take out
insurance in the name of Sembawang, entitling the London
insurers to sue in their respective names. In consideration of
that, the London insurers agreed to pay CPL and Sembawang
the sum of $501,252.80, amounting to 40 per cent of the
adjusted figure. Provision was made for application of any
proceeds of pursuing claims against NHM, the first $501,252.80
being payable to the London underwriters, the next portion up
to a maximum of £75,000 being payable to the London insurers
in respect of costs incurred and the remainder being payable to
CPL/Sembawang. Except as provided by the agreement, the
parties fully and finally settled all rights and claims that they
might have under the slip policy or by way of subrogation, save
for payment of any outstanding premium.
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The issues
Venture" within the meaning of the "Assured" clause,
(ii) because it was an "Additional Assured" within the
meaning of the policy,
(iii) because Sea Trucks and/or CPL were authorised to place
the insurance on behalf of Sembawang by reason of article
15.12 of the Sembawang contract.
25. In para 3 of the assumed facts for this hearing, the parties
have agreed that the only legal relationship between
Sembawang and CPL and/or Sea Trucks was constituted by the
Sembawang contract and the fact that Sembawang was
undertaking works in respect of the vessel at its shipyard.
Paragraph 5 of those assumed facts relates that Mr Roomans,
CPL and Sea Trucks were authorised by Sembawang and
intended to place builders' all risk insurance on behalf of
Sembawang and to include Sembawang as a co-assured.
Furthermore, assumed fact 8 states that at all material times
they intended to include Sembawang as a co-assured as required
by the Sembawang contract.
26. Paragraphs 9 and 10 of the assumed facts show that there
is an issue as to whether NMB entertained an intention that
Sembawang would be covered as a co-assured but in reality, on
the current state of the pleadings, it does not appear that there is
any contention that NHM instructed NMB to obtain cover for
Sembawang as such and paras 11-13 of the assumed facts
require the court to proceed on the basis that, unless the terms
of the slip policy dictates otherwise, the London insurers are to
be taken as being ignorant of any intention on the part of others
that Sembawang should be a co-assured and as having no such
express intention themselves.
27. In short, NHM reply upon the express terms of the slip
policy, and nothing else, as showing that, as a matter of law
there was not only an intention to cover Sembawang as a
co-assured but that this intention was achieved.
(A) The co-assured issue
Associated and interrelated companies and/or joint ventures
Issue 1
28. NHM's case is that Sembawang was an "Associated
Company" or a "Joint Venture" with Sea Trucks and/or CPL. It
is said that the association or joint venture contemplated by the
assured clause is not one which requires there to be a subsidiary
ownership or group affiliation, because such companies are
covered by the words "Subsidiary" and "Affiliates". The
association or joint venture does not therefore require any
element of co-ownership or corporate relationship. It is then
said that the association or joint venture may be established by a
commercial contract such as the Sembawang contract which
provided for the fitting
Was Sembawang a co-assured under the builders' risk policy on
the ground set out in sub-para 7(7) of the amended defence and
counterclaim?
24. Paragraph 7(7) of the amended defence and counterclaim
avers that Sembawang was a co-assured under the slip policy
because Sea Trucks and/or CPL intended to include
Sembawang as a co-assured under the policy on three
alternative bases:
(i) because Sembawang was an "associated" and/or an
"interrelated" company and/or a "Joint
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out of a newly built vessel in a context where the insured
marine adventure or its analogous equivalent under section 2 of
the Marine Insurance Act is the exposure to building risks. Thus
a ship builder and a ship owner can be said to be "associated" or
in a "joint venture" when engaged in a common enterprise, and
there is for this purpose a "community of interest".
29. In this context NHM relied upon O'Kane v Jones, The
Martin P [2004] 1 Lloyd's Rep. 389 at paras 124-127 where
Richard Siberry QC, sitting as a deputy judge held that, on the
facts, a ship-owner qualified as a "affiliated and/or associated
company" of the manager of its ship, in circumstances where
the manager had entered into an insurance of the vessel under
the terms of a management agreement. Under that agreement, it
contracted to manage the vessel and to fulfil extensive
responsibilities in relation to maintenance, equipping, repair,
survey, classification, crewing, provisioning, operation and
navigation of the vessel. It was not given possession or the right
to possession of the vessel but the provisions gave the manager
considerable control over the vessel and its operation. On the
request of the owners, the managers were to provide or procure
the provision of "special management services" which included
the arrangement of insurances.
30. The slip described the assured as "ABC Maritime as
managers and/or affiliated and/or associated companies for their
respective rights and interests". In the context of a ship's
manager obtaining insurance cover, it may be that the
ship-owner can, on given facts, be held to be an "associated
company". The deputy judge drew particular attention to the
close relationship of the ship-owner and the manager of its ship.
I do not think that this decision assists me much however on the
wording of the slip policy, where the clause contains other
terms and the factual situation is very different. I do gain some
assistance from The Marine Sulphur Queen [1973] 1 Lloyd's
Rep. 88, a decision of the US District Court for the Southern
District of New York where it was held that, in an open cargo
policy negotiated by time charterers, the expression "the
Assured and/or affiliated and/or associated and/or allied
Companies and/or corporations" did not include the demise
charterers who had time chartered the vessel to the named
policy holder. Their relationship was described as being "a
simple and arms length contractual one as evidenced by the
charter-party" (page 299). Some importance was placed on the
need for some element of "control" of one entity over the other
or some "stake in the ownership" of the other, when speaking of
these terms and the notion of a "Joint Venture" (see footnote
72).
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COOKE J
31. Given the assumed fact that the only legal relationship
between CPL/Sea Trucks and Sembawang was the Sembawang
outfitting contract, I am unable to see how Sembawang can
bring itself within the wording of the assured clause. The clause
sets out specific named entities and then refers to additional
unnamed entities with various types of relationship to them.
The overall colour of the adjectives used suggests a familial
relationship or the sharing of a common enterprise. Mr
MacDonald Eggers did not persist in arguing that Sembawang
could be an "interrelated company" and focused on the word
"associated". This word is sandwiched between others which
plainly have a familial ring to them (including "interrelated")
and the expression "associated company" is one which is
well-known in other contexts, including statutory contexts
where an element of common ownership or control is required.
The expressions used are intended to cover members of the Sea
Trucks group.
32. A "Joint Venture" is a legal arrangement whereby two or
more entities carry out a business activity under some form of
common control or management or at least share a common aim
and common interest in pursuing a common enterprise. The
Sembawang contract was not a joint venture in this sense
because all the work was to be done by Sembawang and there
was no profit sharing arrangement or common control or
management of any kind. There was no joint enterprise in the
accepted sense of those words and it would not be apposite to
call the relationship a "Joint Venture". If it was, any contract for
the repair of a ship, car or motorbike could be so named.
33. For this purpose it is nothing to the point that the insurance
was to cover the barge whilst in the process of repair. The cover
operated against a variety of risks being an "All Risks Policy",
including those risks which related to builders' work and the
usual fortuities covered by ordinary marine policies.
34. In my judgment it is clear that, absent a familial
relationship, absent some element of common ownership, and
absent some degree of control or common enterprise,
Sembawang does not come within the wording of the assured
clause. An arms length commercial contract in the shape of a
ship building or outfitting contract does not give rise to the
necessary type of relationship between Sembawang which is
required by this clause. The "Assured" is essentially the Sea
Trucks group and any joint ventures into which its members
had entered. The insurance covers the group in respect of
Jascon 5 and the various insurable interests which members of
that group might have in it by
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virtue of ownership, possessory, chartering, maintenance,
management or other such rights and obligations.
Additional assured
35. The first point to be noted is that the provision in which
the words "Additional Assured" appears is separate from the
"Assured" clause. It forms part of the conditions to the slip
policy which incorporates various institute clauses, a provision
for various amendments to be agreed with the leading
underwriter and other miscellaneous provisions such as a
brokers' cancellation clause. The assured has been defined in
the assured clause whilst this provision, in the conditions,
appears to qualify that. Included amongst those referred to are
the interests of mortgagees who have a proprietary interest in
the barge and loss payees who would be considered assignees
of the right to the proceeds of claims under the policy or
beneficiaries of the trust of a promise by the insurers to make
payment of claims to them. In each case, some notice in
practice would be required for them to receive direct payment
of the proceeds of the insurance. It is noteworthy that the
reference is to "interest of mortgagees (and notices of
assignment in respect thereof) [and] loss payees". The inference
to be drawn from this reference to "interest" is that, in the same
way as loss payees do not become parties to the insurance, nor
do the mortgagees. Their interests are however included in the
sense of being accepted by insurers for payment, "as may be
required", alongside the assured and additional assured.
36. It is significant, in my judgment, that the slip policy makes
reference to the Sembawang shipyard as the location where the
works are to be done in the period covered by the insurance.
The subscribers were made aware of the location of the barge
and of Sembawang's involvement. It is argued that there was a
limited category of potential additional persons who could have
an insurable interest in the barge. The only possible candidates
for insurable interests, were said by NHM to be members of the
Sea Trucks group, their assignees, mortgages and the builders/
outfitters. Who else can the additional assured clause have in
mind, it is said, if not Sembawang? This argument works
against NHM, in my view.
37. Express reference is made in the slip policy to Sea Trucks
and its group members which include CPL. Express reference is
made to the interest of mortgagees and to loss payees. Yet there
is no reference in the context of the assured clause or in the
provision in the conditions to Sembawang or to
builders/outfitters as a category of assureds. The slip refers
expressly to Sembawang but not in the
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context of an assured or potential assured, but merely in the
context of the location and duration of the risk. If the outfitters
were such an obvious insured, it appears to me to be inevitable
that they would have been included as a class, if not by name,
had there been any intention that they should be included. In my
judgment, this insurance was deliberately framed essentially as
a group cover, with limited "add ons" for joint ventures,
mortgagees and loss payees. If builders are such an obvious
category (and they are) in policies of this kind, it is almost
inconceivable that there would be no reference to them by name
or class in the context of assureds.
38. The question arises as to whether the words "as may be
required" provide any assistance to the meaning of "Additional
Assured". Those words appear both in the assured clause and in
this condition. They are unlikely to carry different meanings in
those two clauses, which are plainly interrelated.
39. NHM contends that the words "as may be required" mean
"as required" or "intended" by the already described assureds,
namely Sea Trucks and CPL. This requires no notification of
any requirement to the insurers. If so, according to NHM, they
simply allow the existing assureds to add further assureds as
they feel they need to, whether such additional assureds fall
within the wording of the assured clause or not. On this footing
the words "Additional Assureds" mean persons additional to the
wholesale definition in the assured clause, namely persons who
fall outside the range of the specified names and the categories
referred to in the latter half of the clause. Without any
agreement on the part of the insurers, persons additional to
these can be covered by the policy, provided they have some
insurable interest.
40. Alternatively, NMH contend that the phrase "as may be
required" refers merely to the contract requirement to obtain
insurance for others which falls on assureds who do fall within
the definition in the assured clause. This would then permit the
addition of Sembawang because article 15.12 of the
Sembawang contract "required" CPL to obtain insurance for it.
41. Neither of these constructions can, it seems to me, be right,
since they provide for the addition of strangers to the Sea
Trucks group, falling outside the careful definition of the
assured, without any agreement on the part of the insurers or
any need for any notification to insurers. The assured clause
was, on the construction which I have held to be correct, clear
in defining the assured as the members of the Sea Trucks group
and joint ventures into which they had entered. The ambit of
this policy cannot simply be extended at will by the insured to
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incorporate persons it would like to have covered without any
reference to the insurers, even if they do have an insurable
interest.
42. I do not consider, as was argued, that the words "as may be
required" in the conditions, when read with (or contrasted with)
"as may be required as their respective rights and interest may
appear" in the assured clause, have the same effect as the very
wide form of words in the SG form of marine policy, as held in
many authorities. There is a specific definition of the "Assured"
in this particular slip policy which allows for insureds beyond
those named but only in the form of a specified class of
potential insureds. In these circumstances the words cannot be
read so as to admit persons outside that class which defines the
limits which the parties agreed, when addressing their minds to
the subject, for the entities to which cover was to be afforded.
This clause in the conditions section of the slip cannot, in my
judgment, fundamentally change the identity and character of
the assured, as defined, being intended only to be a qualification
and explanation of the provisions in it.
43. In Glencore International AG v Alpina Insurance Co Ltd
[2004] 1 Lloyd's Rep. 111 there was an open insurance cover
for goods in transit which were automatically insured as soon as
the policy holder acquired an interest in them. It was an "all
risks" policy. Additionally however, "if required" goods in
storage and blending prior to shipment or after final discharge
could be included in the cover at additional premium rates
which were set out. This latter element was a form of
facultative/obligatory cover which the insured could elect to
take and in those circumstances, it was conceded and the judge
held that a requirement for such cover had to be communicated
to the insurers. Without a communication of some kind there
was no means of telling whether the insured wished to invoke
his right to obtain cover for goods in storage. The learned judge
also held that communication had to take place before a loss
was incurred since the element of risk is fundamental to a
contract of insurance and some unequivocal step of some kind
attaching the risk to the cover had to be taken before the insured
knew of the loss.
44. Here, it was argued that there was a similar option on the
part of the known assureds if there was some form of
entitlement to add new policy beneficiaries. If Sembawang
could be added as an "Additional Assured" by CPL, with a
waiver of subrogation, without the agreement of the insurers,
there would have to be a provision for communication of that so
that the insurers knew who it was that was covered. In those
circumstances the words "as may be required" could be
construed as meaning notification of the requirement to
insurers. In such a case this notification would have to take
place
209
COOKE J
before any loss was claimed, in exactly the same way as set out
in the Glencore decision. On this footing Sembawang would
have no claim under this policy in respect of the flooding
incident because no notification was given prior to that incident.
45. Since, however, there is no requirement for insurers'
agreement to the incorporation of "Additional Assureds" as
beneficiaries under the policy, it appears highly unlikely that
the insurers would, by the terms of the policy, be accepting any
additional assureds involving an increase in risk or a change in
the nature of the risk. It is noteworthy that there is no increase
in risk in the case of mortgagees or loss payees whose interest
in the subject matter is derivative from that of the owners/the
named Assureds and their related companies who will have
proprietary or commercial interests in the vessel. The Sea
Trucks group is recognisably different from the entity
responsible for carrying out work to a vessel in which members
of that group have, proprietary, possessory or contractual
interests relating to its commercial use. A ship yard which is
responsible for the repairing work and against which rights of
subrogation would ordinarily fall to be exercised in the event of
damage caused by its negligence, is a different proposition. The
community of interest of those in the group can be seen in
contrast to that of Sembawang, which would often be liable to
them for damage sustained by the vessel whilst at its yard.
46. In my judgment, the provision in the conditions must be
read together with the assured clause. The assured clause
provides for the named entities to be beneficiaries of the
insurance and also for entities which fall within the categories
listed in the latter half of the clause "as may be required as their
respective rights and interests may appear". Self-evidently,
although there must in practice be some notification of any
unnamed entity which wishes to claim (when it claims) and
which the latter half of the clause covers, I do not consider that
this is the meaning of the words "as may be required". These
words, when combined with the words "as their respective right
and interests may appear", simply mean as needed and cover all
entities within the categories described where their interests in
the vessel require cover.
47. Similarly, in the provision in the conditions, the words
must have similar meaning, but without the reference to their
respective rights and interests, which is significant in suggesting
that a further category of assureds is not envisaged beyond the
categories already listed in the assured clause. When the
assured clause has specifically listed the categories of potential
assureds, there is no room for the suggestion that the insurers
would give the assureds carte blanche to add whomsoever they
wished. It cannot be that new persons outside those
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categories are to be added, without the insurers agreement.
48. In such circumstances, there appear to me to be two
realistic possibilities:
(i) Either the "Assured" in this provision refers to the named
assured in the assured clause, with the words "Additional
Assureds" referring to those in the second half of that clause,
or
(ii) As I consider is the case, the "Assured" in this provision
refers to the whole range of assureds referred to in the assured
clause which has defined that term as including named and
unnamed entities within the classes outlined, and the words
"Additional Assureds" here refer to those entities that fall
within the second half of the assured clause but cannot be
parties to the insurance at inception because they are not yet in
existence at the time of subscription to the slip, or because
they only subsequently fall into the categories listed and
require cover.
49. Whichever construction is correct, Sembawang are not
included and if the latter construction is correct, as I consider to
be the case, this slip policy makes provision in the area to which
Colman J refers at page 596 of the report of National Oilwell
(UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd's Rep. 582 (NOW
v DOL), to which I refer later in this judgment.
50. The effect is to include as beneficiaries of the slip policy,
the named assureds, their subsidiaries, affiliates associated and
interrelated and/or joint ventures, whether existing or future - ie
present and future members of the Sea Trucks group and their
joint ventures - and those who take derivative title from them in
the shape of legal or equitable assignments, mortgages and loss
payees clauses. In each case although notification must be given
when claims are made so that insurers know to whom they must
pay a claim and against whom they have waived any rights of
subrogation, this is not a matter for which the wording
expressly provides here.
51. The idea that Sembawang could be insured in the way
suggested by NHM, not being specifically identified as an
assured or able to fit within a class mentioned in the slip, but
then incorporated as an assured by means of the wording in
relation to "Additional Assured", appears to me to be
inconsistent with the slip as a whole and its emphasis on group
coverage. Moreover, if the evidence establishes that the insurers
were informed, by virtue of their receipt of the fax of 23
October 2002 or otherwise, that Sembawang had a $5 million
ship repairer's legal liability policy this would present a very
strong additional factor in construing the policy against it and
NHM. The insurers would be proceeding on the basis that they
had valuable
210
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rights of subrogation against Sembawang which had a valid
legal liability policy which would respond in the event of
negligence on its part, even if Sembawang (a substantial entity)
could not.
52. The idea that insurers would agree to cover Sembawang
under either the assured clause or the conditions clause on
CPL's unilateral decision to include Sembawang, in such
circumstances, appears to me to be fanciful. The presentation of
information about Sembawang's own legal liability policy
strongly militates against the idea that Sembawang could be
insured without an express reference to it in the slip policy
itself.
53. Moreover, if Sembawang could be incorporated in the
insurance in the manner that NHM suggest, is it to be said that
all subcontractors could likewise be incorporated? There would
be no contractual requirement on CPL to do so but if there was
an entitlement to bring in additional assureds for commercial
reasons, there is no reason why there should be a restriction to
an entity such as Sembawang, merely because of a direct
contractual relationship, as opposed to any other entity in any
way involved in the construction work at the Sembawang yard,
with duties owed to the assured. Other entities involved in work
on the vessel would equally have insurable interests.
54. In my judgment therefore, NHM cannot bring Sembawang
within the slip policy wording as an "Assured" or as an
"Additional Assured".
Undisclosed principal
55. The general position was stated by Lord Denning MR in
Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB
545 at 555 where he said:
A person may enter into a contract through an agent whom
he has actually authorised to enter into the contract on his
behalf. . .where an agent has such actual authority and enters
into a contract with another party intending to do so on behalf
of his principal, it matters not whether he discloses to the other
party the identity of his principal, or even that he is contracting
on behalf of a principal at all, if the other party is willing or
leads the agent to believe that he is willing to treat as a party to
the contract anyone on whose behalf the agent may have been
authorised to contract. In the case of an ordinary contract, such
willingness of the other party may be assumed by the agent
unless either the other party manifests his unwillingness or
there are other circumstances which should lead the agent to
realise that the other party was not so willing.
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56. This general principle has been held to be applicable to
Marine Indemnity Insurance contracts by Lord Lloyd and his
fellow members of the Privy Council in Siu Yin Kwan v Eastern
Insurance Co Ltd [1994] 2 AC 199 at page 210, where he said
that no case had been cited which decided or even suggested
that a contract of insurance was an exception to the general rule
that an undisclosed principal might sue on a contract made by
an agent within his actual authority. He referred to Browning v
Provincial Insurance Co of Canada (1873) LR 5 PC 263 in
support of the proposition that this principle was not wholly
dependent upon the wide words of the SG Form. The Privy
Council decided that there was no sufficient ground to
distinguish between contracts of marine insurance and
mercantile contracts generally.
57. What is also clear from a run of authorities which, for the
most part, are concerned with persons who fall within the wide
wording of the SG Form, is that it is the agency of the named
contracting party to the insurance which is determinative in
deciding whether or not a person who claims to be an
undisclosed principal, or an unidentified principal, can take the
benefit of the contract. Whilst, at first blush, it might be thought
that what matters is the agency of the placing broker, this is not
the case if he is not party to the insurance, since it is the party to
the insurance who in fact is acting as agent for the undisclosed
principal. Since the principal is, by definition, undisclosed or
unidentified, as the case may be, it is the intention of the party
to the contract and his authority to act for that principal, when
concluding the contract through his subagents, which matters.
58. Thus in Boston Fruit Co v British & Foreign Marine
Insurance Co [1905] 1 KB 637 where the policy was expressed
to be effected by the brokers John Holman on the instructions of
Messrs R Craggs & Sons, who were agents for the owners, the
wording was wide enough to include the plaintiffs but it was
held that Craggs had no intention to effect the insurance on the
plaintiffs' behalf and that this prevented a claim by the plaintiff
as undisclosed principal. The court made it plain that it was not
the intention of John Holman which mattered but that of
Craggs. The decision was upheld by the House of Lords.
59. Equally, in Small v UK Marine Mutual Insurance
Association [1897] 2 QB 42 a ship was insured on the
instructions of a Mr Wilkes and his co owners through the firm
Carlsen & Co where Mr Wilkes had mortgaged his shares in the
ship to Mr Small. Mathew J found that Mr Wilkes intended to
enter into the insurance to cover both his interest as
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COOKE J
mortgagor and that of Mr Small as mortgagee but he had not
communicated that intention to Carlsen & Co. He found that the
latter's intention mattered not a whit and that what counted was
Mr Wilkes' intention when he instructed them to insure.
60. In National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2
Lloyd's Rep. 582, Colman J, after a review of the authorities set
out three principles as follows:
(1) Where at the time when the contract of insurance was
made the principal assured or other contracting party had
express or implied actual authority to enter into that contract
so as to bind some other party as co-assured and intended so to
bind that party, the latter may sue on the policy as the
undisclosed principal and co-assured regardless of whether the
policy described a class of co-assured of which he was or
became a member.
(2) Where at the time when the contract of insurance was
made the principal assured or other contracting party had no
actual authority to bind the other party to the contract of
insurance, but the policy is expressed to insure not only the
principal assured but also a class of others who are not
identified in that policy, a party who at the time when the
policy was effected could have been ascertained to qualify as a
member of that class can ratify and sue on the policy as
co-assured if at that time it was intended by the principal
assured or other contracting party to create privity of contract
with the insurers on behalf of that particular party.
(3) Evidence as to whether in any particular case the
principal assured or other contracting part did have the
requisite intention may be provided by the terms of the policy
itself, by the terms of any contract between the principal
assured or other contracting party and the alleged co-assured
or by any other admissible material showing what was
subjectively intended by the principal assured.
61. This was followed by a further paragraph to which I have
already made reference earlier in this judgment in the context of
persons who could not be ascertained at the time of the policy
but who subsequently fell into the class of persons referred to in
it. That read as follows:
I would only add that it is unnecessary to consider on the
facts of the present case what is the position where, at the time
when the contract of insurance was entered into, the alleged
co-assured could not be ascertained as a member of the class
referred to in the policy, but only
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qualified for membership at a later stage or where at the time
of the policy it was only intended to insure all persons in the
class or who might in future qualify as members of the class,
although it would then have been impossible to identify the
alleged co-assured as such. These are difficult points
considered in Arnould, Marine Insurance 16th ed, para 243. I
express no view on whether privity of contract could be
established in such cases.
62. In the present case paras 5 and 8 of the assumed facts
recite that CPL and Sea Trucks were authorised by Sembawang
and intended to place the insurance on its behalf and to include
it as co-assured. On this basis, NHM contends that, whether or
not Sembawang fell into the class of co-assureds described in
the slip itself, it was entitled to step in and take the benefit of
the contract as undisclosed principal. The London insurers
argue that the terms of the slip policy do not allow for this and
run an argument similar to that which was put forward and
rejected in Siu (ibid).
63. Lord Lloyd there held that the insurance contract was an
ordinary commercial contract and that the entity claiming to be
undisclosed principal could sue unless its agents should have
realised that the insurers were unwilling to contract with anyone
other than themselves, and that Courts should not be too ready
to construe written contracts as contradicting the right of an
undisclosed principal to intervene as this would go far to
destroy the beneficial assumption in commercial cases to which
Diplock LJ had referred in Teheran-Europe (ibid). In Siu, the
Privy Council held that there was nothing in the terms in the
proposal form or policy which expressly or by implication
excluded the right of the undisclosed principal to take the
benefit of the contract of insurance.
64. In my judgment this is one of those cases where it can
properly be said that the terms of the insurance contract prevent
Sembawang, as an undisclosed principal, from taking its
benefit. The reasons which I have already given in relation to
the construction of the slip policy apply with equal force here.
The insurance was drafted to cover the interest of the Sea
Trucks group, together with any joint ventures into which the
members of that group might enter, as the terms of the assured
clause show. That was the express limitation given to the
assured and I have found that the wording in the conditions of
the slip policy do not have the effect of extending the definition
of the assured, save insofar as the insurers agreed to take into
account derivative interests and further assureds who fell into
the same categories as those in the assured
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clause. The failure to include Sembawang, whether by name, or
by including a category of "builders/outfitters" in a policy
which was designed to cover the ship during the period of
outfitting is, as I have already found, highly significant. If there
was no intention to cover Sembawang directly in the policy, it
appears to me that the intention cannot be circumvented by an
application of the doctrine of the undisclosed principal. The
very terms of the slip policy militate against this and prevent the
operation of such a contrivance.
65. Thus, the terms of the slip policy does satisfy the fifth
principle of the summary of the law on undisclosed principals
given by Lord Lloyd in Siu (ibid) where he said:
The terms of the contract may, expressly or by implication,
exclude the principal's right to sue and his liability to be sued.
The contract itself, or the circumstances surrounding the
contract, may show that the agent is the true and only
principal.
66. In the words of Diplock LJ, the insurers did manifest their
unwillingness to contract with Sembawang and the
circumstances were such that CPL, through their subagents who
placed the cover and had direct contact with the insurers (NMB)
should have realised that the insurers were not so willing.
67. I have not of course heard any evidence of market practice
or understanding, nor any direct evidence as to the information
given to the insurers but once again point out that, if it is shown
that the insurers received a copy of the fax of 23 October 2002
which stated that Sembawang had its own ship repairers' legal
liability insurance, that circumstance in itself not only provides
a foundation for saying that the insurers did not intend to
contract with Sembawang but also that they would be
unwilling, and obviously unwilling, to do so with the
consequent loss of subrogation rights, as it would have
appeared to them. There is, in my judgment, plainly a sharp
distinction to be drawn between ship owners and their
derivative interests on the one hand when the vessel is
undergoing work at a ship builder's yard and the interest of the
ship builder on the other, so far as insurers are concerned. As
Mr Kealey QC pointed out for the London insurers, their
interests would be seen as being in competition, one with the
other, unless the policy was broked on a joint assured basis,
since the possibility of a claim by ship owners (and the insurers
by way of subrogation) against the ship builders would be
obvious.
68. Thus, the very fact that the insurance was not, on its proper
construction, an insurance for the
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benefit of the builders here provides a strong reason for
disapplying the doctrine of an undisclosed principal in the shape
of the builders, it being plain that there is the possibility of a
loss of subrogation rights and consequent impact on the
premium which would be charged. The issue thus bears some
relation to the issues of non-disclosure which fall to be
determined as issues 3-6.
Issue 2
Was Sembawang a beneficiary of a trust in respect of the
London insurers' promise of an indemnity under the builders'
risks policy as alleged in para 7(8) of the amended defence and
counterclaim?
69. This issue only arises if Sembawang was not a co-assured
under and therefore a party to the slip policy. Nonetheless, it is
an essential part of any trust of the kind suggested that there
should be a promise of which Sembawang was the beneficiary
and of which CPL or some other assured was the trustee. The
basis for such causes of action appears in Les Affreteurs Reunis
v Walford [1919] AC 801 where there was an express provision
for a commission of 3 per cent on the estimated gross amount of
hire to be payable to the broker in a charter-party between
owners and charterers.
70. I have already found that Sembawang was not an assured
within the meaning of the contract and in those circumstances it
is impossible to construe the contract as containing a promise in
its favour. Since Sembawang was neither a party to the slip
policy as an undisclosed principal, and does not fall within the
category of "Assured" or "Additional Assureds" there is no
basis upon which the principles of the Walford case can apply.
CPL could not be, nor declare itself to be, a trustee of a promise
by the London insurers to pay Sembawang, since the only
promises to pay operated in favour of those who were properly
within the definition of the "Assured" or were mortgagees, loss
payees, or "Additional Assureds".
71. A trustee holds property for a third party and can sue to
protect an asset owned by him in law but owned in equity by
the beneficiary. There is no difference in the subject matter held
by the trustee in law and that owned by the beneficiary in
equity. Where CPL claims under the insurance however, it
claims for its own interest and on the insurers promise to it, not
on any promise made for Sembawang's benefit in respect of its
interest which is separate, albeit related. If Sembawang's
interest was not insured, there could be no trust of a promise to
pay in respect of it in its favour.
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(B) The non-disclosure issues
Issues 3-6:
3. Assuming the relevant facts which may be relied on by the
claimants in support of their allegation of non-disclosure of the
circumstances alleged in para 6(d) and/or para 7 of the
amended reply and defence to counterclaim,
(1) Was CPL and/or Sea Trucks obliged, as a matter of law, to
disclose the said circumstances?
(2) Did the London insurers, by reason of the terms of the
builders' risks policy, waive disclosure of the said
circumstances?
4. If the London insurers were entitled to avoid the builders'
risks policy as alleged in para 6(d) and/or para 7 of the
amended reply and defence to counterclaim, did the London
insurers lose the entitlement to avoid by reason of (a) their
entering into the assignment agreement dated 26 July 2004 with
CPL, Sea Trucks and Sembawang and/or (b) their
commencement of the proceedings and/or the service of
statements of case herein?
5. Is there a real prospect that the London insurers would
succeed in their allegation that they would have avoided the
builders' risks policy if they were entitled to avoid the policy by
reason of non-disclosure of the matters alleged in para 6(d)
and/or para 7 of the amended reply and defence to
counterclaim?
6. If the court answered "yes" to question 1 above but only on
the grounds set out in para 7(7)(b)(iii) of the amended defence
and counterclaim or if the court answered "yes" to question 2
above, would it be irrelevant to the claim against NHM if the
London insurers were entitled to avoid, and would have
avoided, the builders' risks policy as alleged in para 6(d)
and/or para 7 of the amended reply and defence to
counterclaim?
72. In response to NHM's plea that Sembawang was a party to
the slip policy as a principal and/or was entitled to enforce the
policy as the beneficiary of a trust, CPL and Sembawang
pleaded that the London insurers were entitled to avoid the
insurance on the ground of non-disclosure of Sea Trucks/CPL's
intention and authority to obtain insurance for Sembawang. By
further amendments to the pleading after the order for
preliminary issues, NHM was included as an entity whose
intention and/or authority should be disclosed, whilst asserting
that NHM were in breach of duty and/or negligent in failing to
disclose that intention and/or authority to cover Sembawang as
a co-assured. Equally it was pleaded that if Sembawang was
entitled to claim on the slip policy as a beneficiary of the
London insurers' promise of an indemnity, then there was again
a failure on the part
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of Sea Trucks, CPL and NHM to disclose their intention for
Sembawang to be included in this way. It was alleged that there
was thus material non-disclosure and that the London insurers
could and would have avoided the slip policy in consequence.
73. In answer to this plea, NHM contended that the London
insurers, by reason of the terms of the slip policy, waived
disclosure of these matters, or abandoned their rights to avoid,
or affirmed the insurance, by concluding the assignment
agreement an/or commencing this action and/or serving
statements of case in it. NHM also maintained that there was no
real prospect that the London insurers could succeed in their
allegation that they could have and would have avoided the
insurance. NHM also contended that, on the current state of the
pleadings without amendment, as the claim against NHM was
made for failure to obtain an insurance which covered
Sembawang and not for failure to disclose the intention and
authority to insure for Sembawang, (allowing it to intervene as
an undisclosed principal), the question of non-disclosure was
irrelevant.
74. On the hypothesis that Sembawang was entitled to
intervene as an undisclosed principal, despite not falling within
the definition of "Assured" or "Additional Assured", CPL was
the agent for Sembawang in giving instructions to NHM which
in turn instructed NMB. A duty of good faith and, as part of
that, duties of disclosure would be owed in the context of a
marine policy. The question arises as to the ambit of the duty of
disclosure in the context of an undisclosed principal.
75. If the insurance does admit of the possibility of an
undisclosed principal, then, notwithstanding that, it is said by
the London insurers that an intention to contract on behalf of
Sembawang, as the builders, so that it could intervene, was a
material fact which the London insurers would wish to know
and which would affect their underwriting judgment. A number
of extreme examples were raised in argument such as an agent
contracting for an undisclosed principal who turned out to be an
owner with an appalling record for scuttling ships. Obvious
questions of moral hazard arise in relation to such a person.
Whilst at the outset, I expressed the tentative view that, if the
insurance admitted of the possibility that an undisclosed
principal could be a party, there must be a waiver of the
intention to contract for that other, I am persuaded that there is
scope for this argument.
76. It was conceded by counsel for NHM that a potential loss
of subrogation rights could be material, a concession which, in
my judgment, was rightly made on the authorities. The London
insur-
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ers contended that an intention to enter into an insurance
contract on behalf of Sembawang, with authority to do so,
without disclosure to the underwriters was a breach of the duty
of utmost good faith because the effect would be to add a party
to the insurance against whom there would otherwise be
valuable rights of subrogation. Whereas the other entities
referred to in the slip policy were either companies in the same
group as the assured or closely related to it and sharing the
same type of interest in the vessel or entities with derivative
interests such as mortgagees or loss payees, Sembawang, as a
builders' yard, was of an altogether different character. It was
self-evident that damage to the vessel occurring during the
period covered by the insurance, whilst at the shipbuilders yard,
would very likely be caused by negligence on the part of
Sembawang for which it would be liable. Sembawang was thus
the most likely target for the exercise of any subrogated rights
on paying out under the all risks policy.
77. In Siu (ibid), after summarising the general principles
which applied to undisclosed principals, Lord Lloyd went on to
deal with an argument raised by the insurers that a contract of
insurance was a contract of a special kind which of its nature
was inconsistent with the intervention of an undisclosed
principal. At page 210 he referred to the short answer to the
argument which lay in a finding by the first instance judge that
the actual identity of the employer of the crew in question was a
matter of indifference to the insurers. "It was not material to the
risk", because the insurers would have been content to insure
the employer of the crew whoever it was. Despite going on to
deal with questions of general principle in the context of
undisclosed principals and marine insurance, he then referred at
page 210(h) to the need, when a vendor took out insurance for a
purchaser, to give disclosure of information relating to the
purchaser and not the vendor.
78. Although NHM relied upon the general statements of
principle at pages 207 and 210 in the opinion of the Privy
Council given by Lord Lloyd in Siu (ibid) with regard to
undisclosed principals in marine insurance, this does not touch
upon the point at issue. In this connection I was referred to three
articles or text books where Professor Merkin was either author
or co-author.
(i) In the first article in the [1994] All England Annual
Review, he and Professor Palmer referred to the decision of the
Privy Council in Siu, the judgment of Colman J in NOW v
DOL [1993] 2 Lloyd's Rep. 582 and pointed out the
difficulties which arise in reconciling the concept of an
undisclosed principal with the duty of utmost good faith. They
comment that "if the Assured's identity is a material fact,
(whether by virtue of
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moral hazard or otherwise) it is hard to see how, as a general
principle, the doctrine of undisclosed principal can operate,
given that the Assured's own identity is being withheld." They
conclude that although the decisions may be explicable on
their facts, "in many, indeed in most cases, it is likely to be the
case that the Assured's identity is a material fact and that if it
is not disclosed the insurer can avoid the policy where there is
any attempt to invoke the undisclosed principal doctrine".
(ii) In his joint work with John Butler on Reinsurance Law at
para A-0636, the authors make much the same point in stating
that it is surprising to find that English law has endorsed the
application of the doctrine of the undisclosed principal to
insurance contracts. The authors suggest that these two
decisions are difficult to reconcile with general principle and
should not be taken as authority for the proposition that the
identity of the assured is not a material fact.
(iii) As the author of Colinvaux's Law of Insurance (7th ed)
Professor Merkin refers to The Moonacre [1992] 2 Lloyd's
Rep. 501 as an example of authority for the proposition that
the true identity of the assured is a material fact which is
relevant to both the physical and moral hazard. Having
referred to the Privy Council decision, he states that it may be
that, if the duty of disclosure is taken into account, the true
rule is that an undisclosed principal can take the benefit of a
contract provided that the insurer is aware that the person
entering into the contract is a mere agent or is likely to be
insuring other interests as well as his own. It is then suggested
that if the insurer chooses not to enquire as to the identity of
the Assured, he thereby waives that information.
The difficulties posed in relating issues of non-disclosure to the
doctrine of the unidentified principal and his ability to intervene
in insurance contracts is thus made plain.
79. It is, in my judgment, self-evident that, as a matter of
principle, disclosure is required of anything which is material in
relation to the intervention by an undisclosed principal. This
may relate to the characteristics of the entity concerned or to the
role or function fulfilled by that entity or to any of the other
wide range of circumstances which could influence the insurers'
judgment. The role of the undisclosed principal as the builder
and the fact that subrogation rights might he affected, are both
capable, in my judgment, of being material facts for this
purpose.
80. As is plain from decisions such as Marc Rich v Portman at
first instance [1996] 1 Lloyd's Rep. 430 at page 442ff, as upheld
in the Court of Appeal,
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there must be a fair presentation of the risk before there can be
any waiver of the disclosure obligation. Whether or not, on the
facts here, there was a fair presentation of the risk may depend
upon the materiality of CPL's intention and authority and the
potential for Sembawang to take up the contract as an
undisclosed principal. As the authorities show, matters relevant
to subrogation can be material to a prudent underwriter, but
whether the potential for Sembawang, as a builder, with
potential impact on subrogated rights, to take up the insurance
cover was material here is a question which can only be decided
on proper investigation.
81. Paragraph 11 of the assumed facts states that unless the
contrary can be said by reason of the terms of the slip policy,
the London insurers were not notified that Sembawang was
intended to be a co-assured and paras 12 and 13 of the assumed
facts shows that the London insurers had no intention to include
Sembawang specifically and could not be said to have had such
intention unless the terms of the slip policy required it. For
Sembawang then to come in as an undisclosed principal
obviously raises potential issues of materiality.
82. Whilst NHM relied upon the decision in Glasgow
Assurance v Symondson (1911) 16 Com Cas 109 and the dictum
at pages 119-120 of Scrutton J to the effect that it was not
necessary to disclose the name of the person interested in the
ship which was being reinsured, he also said that the material
facts included the perils to which the ship was exposed which
could include the potential negligence of Sembawang and the
loss of subrogated rights, should Sembawang be entitled to
claim under the slip policy.
83. In my judgment, none of the provisions of the Marine
Insurance Act 1906 upon which NHM relied assist NHM in its
argument. Section 14(2) which provides that any person having
an interest in the subject matter insured may insure for the
benefit of other interested persons, section 23(1) which makes it
clear that either the name of the assured or the name of the
agent can be in the policy, and section 26(2) which provides
that the nature and the extent of the assured's interest in the
subject matter need not be specified have no direct impact upon
the obligations which arise under section 17 of the Act.
84. So far therefore as concerns issue 3, both subpara (a) and
subpara (b), an investigation of fact would be required to see if
a fair presentation was made and whether the broad reference in
the assured clause and the additional assured clause in the
conditions could amount to a waiver in all the circumstances of
the placement. It seems to me that
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the issue would turn on the question of fair presentation of the
risk since, if the wording of the slip policy was not apt to
include Sembawang, the insurers could not be on notice as to
that possibility nor express any contentment with the possible
intervention of an undisclosed principal such as Sembawang.
Moreover any reference in placement to Sembawang's own ship
repairers' liability policy would work to the opposite effect.
Waiver is therefore unlikely to arise. Either there will be
material non-disclosure or there will not.
85. Issue 4 raises questions of affirmation and contractual
abandonment. The principles of affirmation are set out
conveniently by Mance J (as he then was) in Insurance
Corporation of the Channel Islands v Royal Hotel Ltd [1998]
Lloyd's Rep IR 151 at pages 161-163. In order to affirm, there
must be not only knowledge of the facts not disclosed and
knowledge that the non-disclosure gives rise to a right to avoid
but there must also be an unequivocal communication to the
insured (Sembawang) by words or conduct that an informed
choice has been made to affirm the contract of insurance. The
communication itself or the circumstances must demonstrate
objectively or unequivocally that the party affirming is making
an informed choice.
86. I am unable to see how the London insurers could lose any
entitlement to avoid by affirmation by reason of entering into
the assignment agreement, commencing these proceedings or
serving their statements of case herein. Throughout the whole
period, London insurers maintained that there was no contract
with the yard in a context where it is recognised that, if there
was insurance for CPL and Sembawang, the insurance would be
composite not joint. Recognition of the validity of a contract
with CPL is therefore neither here nor there and para 8 of the
assignment agreement specifically contained a denial of any
insurance contract with Sembawang. At no time was the
existence of the contract with Sembawang ever accepted or
affirmed.
87. Equally, reliance upon para 3 of the re-amended
Particulars of Claim which alleges that NHM were authorised
by CPL, Sea Trucks and Sembawang to place insurance for
them does not amount to affirmation. Once again, at para 13(1)
it is made plain that NHM failed to place a policy which
provided insurance for Sembawang.
88. Absent an unequivocal communication of affirmation of
the insurance, there can be no loss of the right to avoid. Whilst
the London insurers maintained that there was no contract, it is
hard to see how they could avoid and the point at which the
need to elect arises would presumably be when it became plain
that Sembawang was a party to the
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slip policy. It is self-evident that a breach of the duty of good
faith, in failing to make proper disclosure, would not
automatically negate the existence of a contract of insurance to
which Sembawang was, as undisclosed principal, a party. It
would only be upon acquiring knowledge and the exercise of
the London insurers' election that the slip policy would be
avoided.
89. Mr MacDonald Eggers argued however that the
assignment agreement amounted to a contractual abandonment
of the right to avoid. I have already referred to the essential
provisions of the agreement earlier in this judgment but the
critical part of this agreement, for this purpose is to be found at
para 13 which reads as follows:
Except as provided herein, [the London Insurers] hereby
waive and fully and finally settle all existing rights, benefits,
interests and claims they may have under the BAR Policy
and/or by way of subrogation against CPL and ST and SSPL
[Sembawang] save that any outstanding premiums. . .remain
due and owing . . .
90. Whilst recital F to the agreement set out the London
insurers' position that Sembawang was not a co-assured, the
effect of para 13 is to waive any rights which might have
existed in respect of any such insurance. In doing so, as a matter
of contract with Sembawang, the London insurers did waive
any right to avoid the insurance.
91. The agreement was made on 26 July 2004 but the plea in
para 6(a) of the re-amended reply and defence to counterclaim
was to the effect that, insofar as Sembawang was entitled to
intervene as undisclosed principal and there was non-disclosure
of the intention and/or authority which permitted that, the
London insurers "could and would have avoided for material
non-disclosure". This presents a hypothetical situation in the
absence of the assignment agreement. If Sembawang had
pursued a claim against the London insurers claiming to be an
undisclosed principal instead of settling their claim, then no
doubt NHM could have relied on the non-disclosure argument
in addition to maintaining that Sembawang was not a party to
the insurance. The assignment agreement does not therefore
affect that argument although the answer to issue 4 is in my
judgment that the London insurers did lose their entitlement to
avoid on 26 July 2004 and could not now effect such avoidance.
92. Issue 5 is a summary judgment issue inasmuch as NHM
say that the London insurers cannot succeed in any argument
that they would be entitled to avoid the slip policy by reason of
the non-disclosures to which I have already referred. NHM say
that the London insurers have not established,
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let alone pleaded all of the elements of their entitlement to
avoid.
93. The evidence before me on this issue consists of two
statements from Mr Atkin, the underwriter at the Talbot
Syndicate, a joint statement from two of the following
underwriters, together with a witness statement from an expert,
all of which have been adduced by the London insurers. NHM
have produced a statement from Mr van der Linden.
94. There are issues between Mr Atkin, Mr Riches (the expert)
and Mr van der Linden as to what is suggested by the
presentation of a slip for an owner-arranged builders' risk policy
which contains no express reference to the builder as a
co-assured. There is an issue as to what a reasonable broker
would know and understand in relation to the parties insured
under a slip policy which took the form of the slip in question. I
have already decided the pure issues of construction of the slip.
95. Mr Atkin, in his first statement, says that not only did he
have no intention to cover Sembawang when writing the
insurance and that had he been told by NHM, prior to inception,
that the intention was for Sembawang to be covered by this
form of words, it would have affected his assessment of the risk
and the terms upon which he would have written any cover.
Equally, he states that if he had been informed after placement
that the intention was that Sembawang be covered and that
there was authority given and exercised to achieve that, he
would consider the non-disclosure of those matters on
placement as material and if an opportunity to avoid the policy
arose, he would avoid it. He made it clear that he did not
consider whether to avoid the policy at the time as the insurers
considered there was no cover at all. Two of the following
underwriters confirmed that evidence for their own syndicates
and stated that they would not have written the risk in the
manner they did had they understood that Sembawang could be
an insured. Reliance was placed upon the information given that
Sembawang had its own ship repairers legal liability insurance
and the value of the subrogated rights which would arise,
should damage to the vessel occur in circumstances for which
Sembawang was responsible.
96. In my judgment, notwithstanding anything Mr van der
Linden says, there is plainly an issue as to the materiality of the
non-disclosure and issues as to inducement. Although there is
no direct evidence from the fourth underwriter of the London
insurers, on a summary judgment application where three
underwriters give evidence of inducement, it is legitimate for
the court to infer that there is an arguable case upon inducement
for the fourth, not
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least because of the decision in St Paul Fire & Marine
Insurance Co Ltd v McConnell Dowell Constructors Ltd [1995]
2 Lloyd's Rep. 116 at 127. Although there is no presumption of
law that an insurer is induced to enter into a contract by a
material non-disclosure, the facts may however be such that it is
to be inferred, even in the absence of evidence from him (see
Assicurazioni Generali v Arab Insurance Group [2003] Lloyd's
Rep IR 131 at para 62).
97. NHM maintains that the London insurers knew of the
relevant facts from December 2003 onwards but took no steps
to avoid, even though they knew of the undisclosed principal
issue. They could, says Mr MacDonald Eggers, have
maintained their primary case of no contract with Sembawang
but given notice of avoidance in the alternative, if they were
wrong on their primary case. Whilst it would no doubt be
possible to do this, the evidence of the London underwriters is
that they considered that there was no contract with
Sembawang. They also state that if the point had been
concluded against them and it had become known to them then,
as a fact, that Sembawang was truly the undisclosed principal,
they would have avoided at that point. Until then they say that
they could not know that they had the right to avoid in law or if
there were truly facts in existence which justified it. Difficult
issues of knowledge arise here of the kind discussed by Mance J
(as he then was) in Insurance Corporation of the Channel
Islands (ibid) at page 162. It is nothing to the point, says Mr
Kealey QC on behalf of CPL/Sembawang (as represented by
the London insurers in subrogation) that there may have been a
contractual abandonment of the right to avoid in July 2004
since all of this argument proceeds upon the hypothesis put
forward by NHM, namely that Sembawang was an undisclosed
principal. If it had become plain at any stage prior to the
assignment agreement, that Sembawang was truly an
undisclosed principal to the insurance, then the London insurers
would have avoided at that point.
98. It is clear to me that this issue raises issues of fact and
arguments in relation to a hypothetical situation which cannot
be determined on a summary judgment basis without full
evidence and testing of that evidence. For summary judgement
purposes I have no doubt that the evidence so far adduced is
sufficient to show that the London insurers have realistic
prospects in succeeding on these issues.
99. Issue 6 is a pleading issue, inasmuch as the London
insurers have pleaded a claim against NHM in negligence in
failing to include Sembawang as a
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co-assured under the policy or specifically to identify
Sembawang as such on the face of the policy. At the time of the
order for preliminary issues, no claim had been pleaded against
NHM of any failure to disclose material facts which rendered
the insurance voidable. A late amendment, for which I
understand no permission has been given makes such a case.
100. The issue proceeds upon the basis that Sembawang is an
assured as a result of being an undisclosed principal and not
because it falls within the wording of the assured or additional
assured clauses. Alternatively it proceeds on the basis that the
court has decided that CPL was trustee of a promise of cover in
favour of Sembawang. Self-evidently, if the London insurers
could and would have avoided for material non-disclosure of
the intention to include Sembawang as a co-assured and of the
existence of authority in Sea Trucks and/or CPL to do so, this
would make no difference to the claim as framed prior to
amendment.
101. The re-amendments to para 6(d) and para 7 of the
amended reply and defence to counterclaim plead a claim that
NHM were in breach of duty and/or negligent in failing to make
disclosure and, if such a claim is pursued, then self-evidently
any court decision that avoidance could and would have
occurred on this basis is on point.
102. Insofar as an application was made, tentatively, at the
hearing for this amendment and to add (for the sake of clarity
only) NHM's failure to give disclosure (because failure by CPL
was already pleaded) I refused to make any decision on the
application so as to preserve the status quo for the hearing of
the preliminary issues. It is hard to see how any application for
amendment could be successfully resisted in the future
however.
(C) Paragraphs 13(6), 15 and 21 of the points of claim
Issue 7
Is there a real prospect that the London insurers would succeed
in their claim for damages on the grounds that NHM failed to
place the builders' risks policy which expressly named
Sembawang as a co-assured and/or to ensure that Sembawang
was identified as a co-assured on the face of the builders' risks
policy with sufficient or any clarity?
103. In my judgment it is clear that, if NHM, through NMB,
did not obtain cover which, as a matter of law, clearly did
include Sembawang as co-assured, without room for significant
debate, this
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represented a failure to act with due care and skill in the
placement of the insurance.
104. A number of authorities make it clear that the duty of a
broker is, so far as possible, to obtain insurance coverage which
clearly and indisputably meets its clients' requirements.
105. In FNCB Ltd v Barnet Devanney (Harrow) Ltd [1999]
Lloyd's Rep IR 459 (CA) Morritt LJ at para 21 said this:
. . .it is not the function of an insurance broker to take a view
on undetermined points of law. The protection to be afforded
to the client should, if reasonably possible, be such that the
client does not become involved in legal disputes at all. As in
the case of a solicitor the insurance broker should protect his
client from unnecessary risks including the risk of litigation.
106. Reference was then made to Dixey & Sons v Parsons
(1964) 192 EG 197 which was, like Levy v Spyers (1856) 1 F &
F 3, an action involving a negligent solicitor who had failed to
secure the clients' position with consequent expense in
argument and litigation. Whether or not the argument advanced
by the broker or solicitor is ultimately found to be correct, the
fact remains that, by not doing what a competent professional
person would do to avoid such argument, cost and expense can
be incurred. In those circumstances liability for loss and
damage which flows from that negligence and is not too remote
must be recoverable.
107. NHM contends that it was only instructed to arrange
cover for Sembawang in accordance with clause 15.12 of the
Sembawang contract. That clause, as set out earlier in this
judgment, provided that CPL was obliged to "include the
contractor (Sembawang) as an Additional Co-Assured". This
meant no more than that Sembawang would be covered as a
co-assured, not that it had to be named.
108. The re- amended Particulars of Claim plead that NHM
failed to place a policy which expressly named Sembawang
and/or failed to ensure that it was sufficiently identified as a
co-assured on the face of the policy with sufficient or any
clarity. Loss and damage is alleged to follow. In para 21, it is
alleged that CPL paid $850,000 to Sembawang in settlement of
its claim for such failure by NHM and the potential breach of
article 15.12. Whilst it is true that the breach of article 15.12
would be the failure to obtain cover for Sembawang and not the
failure to name Sembawang in the policy, the settlement
agreement was a compromise in circumstances where there was
dispute. The issue is not necessarily whether CPL was in breach
of article 15.12 but whether it reasonably settled a claim that it
was in such breach as a result of the failure of NHM to
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obtain insurance for Sembawang which was clear on the face of
the policy.
109. The written instructions given and the exchanges of
correspondence to which I have already referred talked in terms
of "naming" Sembawang as co-assured and this would be the
ordinary and natural way to achieve the desired result. This
NHM did not do and Mr van der Linden's protestations in his
statement about his instructions and his understanding of the
position do not, arguably, assist NHM at all. Insofar as Mr van
der Linden's evidence raises issues about the nature and terms
of his instructions, which do impact on the duties undertaken,
this raises issues of fact which are not capable of determination
on a summary basis.
110. The argument which has taken place about the wording
of the slip policy and whether or not Sembawang was or could
be covered by it illustrates the consequence of NHM not taking
the step which Mr Riches, the London insurers' expert, states is
that which any competent broker would take to insure that
Sembawang was covered - namely to ensure that it was
expressly named as a co-assured.
111. It matters not that arguments are open to NHM as to
whether or not the slip policy did cover Sembawang or allowed
for Sembawang to take up the contract as an undisclosed
principal. If NHM had done its job properly, no such argument
would have been necessary. In such circumstances, there would
have been no dispute about whether CPL was in breach of
article 15.12 and no compromise agreement would have been
concluded, nor any payment made.
112. Whether or not the agreement was reasonably concluded
in mitigation of loss, following NHM's breach might be open to
argument but matters of fact arise here, which cannot be
resolved on a summary judgment application. Issue 7 only asks
me to decide whether there is a real prospect that the London
insurers would succeed in their claim on the grounds that NHM
failed to obtain cover which expressly named Sembawang or to
ensure that it was identified as a co-assured on the face of the
slip policy with sufficient clarity. I find that there is such a real
prospect. Whether or not NHM could envisage success on
arguments as to whether or not Sembawang was included
within the wording of the slip policy, was the beneficiary of the
trust of a promise or could intervene as undisclosed principal, it
seems that it was their negligent action in failing to procure the
naming of Sembawang as a co-assured that gave rise to all the
arguments and losses, subject to any issues of failure to
mitigate.
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(D) The no loss issue
Issues 8 & 9
8. Did Sembawang suffer no loss as a result of any alleged
breach of duty on the part of NHM on any of the grounds set
out in para 9(1) of the amended defence and counterclaim?
9. Did CPL suffer no loss (by way of a liability to Sembawang
for breach of clause 15.12 of the completion contract) as a
result of any alleged breach of duty on the part of NHM on the
grounds set out in para 16C of the amended defence and
counterclaim?
Sembawang's loss
113. It is suggested by NHM that, regardless of whether or not
Sembawang was a co-assured under the slip policy, it suffered
no loss by reason of any breach of duty on the part of NHM.
The arguments centre upon the construction of the Sembawang
contract and the suggestion that Sembawang was not liable to
CPL under the Sembawang contract and so could have no loss
of its own to claim from the London insurers. At the very least
it is said that, had it been sued by CPL, it could have set off
against any liability under the contract its claim for damages for
CPL's failure to obtain insurance for it.
114. In my judgment, NHM's contentions as to the proper
construction of the Sembawang contract are to be rejected. The
idea that Sembawang was exempt from liability to CPL in
respect of the damage to the vessel by reason of the requirement
for CPL to take out insurance for Sembawang under clause
15.12 fails to take account of the other provisions of the
contract. It is possible that Sembawang might have a claim for
damages against CPL for failure to obtain that insurance but
that is different.
115. Under articles 2.2, 5 and 8 of the Sembawang contract,
Sembawang undertook to perform the specified work in
accordance with the project schedule and to complete it by the
completion date, eight and a half months after arrival of the
barge at the yard. The contract provided for the work to be done
in a professional and workmanlike manner with due diligence in
every respect, for the work to be prosecuted continuously and
diligently in a proper professional and workmanlike manner
using suitably qualified personnel in strict conformity with the
contract (article 11).
116. Under article 13, title to equipment, materials, goods and
drawings supplied or prepared by Sembawang was to vest in
CPL as soon as it became identifiable but all remained at the
sole risk of Sembawang until unconditional acceptance.
Similarly title to any value added or work or
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materials added by Sembawang or any subcontractor to
materials furnished by CPL would pass to CPL on acceptance,
with Sembawang remaining responsible for defects, losses or
damage.
117. Article 15 set out the respective liabilities of the parties
and the insurances to be taken out. The relevant parts are as
follows:
15.0 LIABILITIES AND INSURANCES
15.1 The CONTRACTORS shall be responsible for, and
indemnify and hold harmless the COMPANY GROUP, from
all claims, losses, damages, and expenses resulting from
and/or arising out of:
...
15.1.2 Loss or damage to or loss of use of the
CONTRACTOR GROUP'S equipment, property or assets
including but not limited to all equipment, property or assets
owned, hired or used by the CONTRACTOR GROUP except
where caused by the negligence of the COMPANY's GROUP;
and/or
...
15.2 Subject to Article 15.4 below but without limitation to
the obligations of the CONTRACTORS GROUP under the
CONTRACT, the CONTRACTOR shall indemnify and hold
harmless the COMPANY GROUP from all claims, losses,
damages, and costs resulting from:
...
15.2.2 Loss or damage to or loss of use of property or assets
of the COMPANY GROUP arising out of or in connection
with the negligence of the CONTRACTOR GROUP in the
performance of its WORK.
...
15.4 The CONTRACTOR shall assume full responsibility
and be liable for loss of or damage to:
(a) The BARGE; and/or
(b) any materials or equipment in the care, custody or control
of the CONTRACTOR GROUP;
resulting from or arising our of or in connection with the
negligence of the CONTRACTOR GROUP in the
performance of it's obligations under this CONTRACT
...
15.7 The CONTRACTOR agrees to procure at its sole
expense during the duration of the CONTRACT and the
WORK the following insurance:
...
15.7.5 Ship Repairer's insurance for an amount of not less
than US$5,000,000 per incident, occurrence or event, covering
all operations
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of the CONTRACTOR including without prejudice to the
generality of the foregoing, the contractual liabilities assumed
herein.
This insurance shall remain in force until the end of the
appropriate warranty and guarantee periods as specified in
Article 30 herein.
...
15.12 Policies of insurance procured by the COMPANY
The COMPANY shall arrange Builders All Risks insurance
which shall include the CONTRACTOR as an additional
co-assured and shall be endorsed to require the underwriters to
waive any rights of recourse including, in particular,
subrogated rights against all assured thereunder.
Liability for deductibles thereunder shall be for the account
of the CONTRACTOR.
118. It will be noted that the obligation of Sembawang was "to
be responsible for" and "indemnify and hold harmless" CPL in
respect of "claims, losses, damages and expenses" or "costs" in
a number of areas. Specifically, under article 15.2.2, the
obligation was to indemnify and hold CPL harmless from
claims, losses, damages and costs resulting from loss or damage
to CPL's property arising out of or in connection with
Sembawang's negligence. Likewise, under article 15.4,
Sembawang was to assume full responsibility and be liable for
loss of or damage to the barge and any materials or equipment
in its care if such resulted from, arose out of, or in connection
with, its negligence.
119. There cannot be the slightest doubt that the primary
obligation upon Sembawang was to indemnify CPL and hold it
harmless and to undertake full responsibility and liability for
loss or damage to the barge caused by its negligence.
120. I was referred to the decision of the House of Lords in
The Fanti & The Padre Island (No 2) [1990] 2 Lloyd's Rep. 191
and to Lord Goff's explanation of the meaning of an indemnity:
A promise of indemnity is simply a promise to hold the
indemnified person harmless against a specified loss or
expense. . .No debt can arise before the loss is suffered or the
expense incurred; however, once the loss is suffered or the
expense incurred, the indemnifier is in breach of contract for
having failed to hold the indemnified person harmless against
the relevant loss or expense. There is no condition of prior
payment. . .As a general rule indemnity requires that the party
to be indemnified shall never be called upon to pay . . .
121. The scheme of this contract is plain. If damage occurs to
the vessel as a consequence of Sembawang's negligence, it is
automatically in
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breach in failing to hold CPL harmless and it is required to
remedy that forthwith.
122. It is, in any event, required to complete the contract in the
time specified, and could not rely on its own breach in failing to
do the necessary work to achieve that. It was because the yard
was, under the Sembawang contract, required to do the repair
work that it required and was to be afforded insurance cover.
Under article 15.7.5, it should in addition have procured a ship
repairers insurance in respect of its contractual liabilities so that
this cover would respond. In addition however, CPL was to
arrange insurance cover which would include Sembawang as an
additional co-assured which would enable Sembawang to claim
on that policy as well as its own ship repairer's policy. There is
however no doubt that Sembawang, as between itself and CPL,
had to put matters right because of the nature of the substantive
obligations undertaken, regardless of any question of insurance.
Where there is a provision for both parties to take out insurance
which cover the same event, namely damage to the vessel
caused by Sembawang's negligence, although the policies differ
in nature as one is for "all risks" and the other insures against
liability, there can be little doubt that the insurance provisions
are subordinate to the liability provisions in the contract. Thus
Sembawang was obliged to put matters right where it had been
negligent and caused damage before any claims were made
under any policy for which the contract provided.
123. This is in fact what happened so that Sembawang
suffered loss in incurring the expense of reparation work. CPL
were in breach in failing to take out the all risks cover to which
article 15.12 referred with the result that Sembawang could
have a valid claim against CPL for the amount which it would
have recovered under the policy, had CPL fulfilled its
obligations to obtain it. However CPL would have a cross-claim
for Sembawang's own failure to insure in accordance with
article 15.7.5. Moreover, there would be a sum of $325,000 by
way of deductible under article 15.12 which Sembawang would
have to bear, subject to any question of recovery under its own
policy. It is probable that the two insurances constituted joint
insurance and that one insurer could have claimed a
contribution from the other had either existed. In fact
Sembawang had failed to take out its own ship repairer's cover
and it was, on my findings, not covered by the CPL policy.
124. In these circumstances it is nothing to the point that
Sembawang might have sued CPL for breach of article 15.12,
regardless of the above. It also had a valid cause of action
against NHM, if NHM owed it a duty, as Sembawang, through
its assignees, the London insurers, alleges. The consequence of
NHM's alleged breach of duty is that
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Sembawang could not recover under the slip policy in
circumstances where its claim against the London insurers was
refused solely on the ground that it was not an assured under
that policy (see assumed fact 17). Assumed fact 15 sets out
Sembawang's expense by way of cost of repair of the vessel and
assumed fact 20 states that Sembawang received $850,000 from
CPL in respect of the recoverable repair costs and its claims
against CPL for failure to obtain the builders' risk insurance,
under the settlement agreement. That sum therefore falls to be
credited against the loss incurred by way of cost of repair.
125. Although CPL could have made a monetary claim against
Sembawang in respect of the damage to the vessel, then even if
Sembawang would have been entitled to set off its own claim
for CPL's breach of article 15.12, (ignoring its own breach of
article 15.7.5) no such claim was actively made by CPL. Thus
Sembawang, in accordance with the terms of the contract
fulfilled its primary responsibility to repair the vessel and thus
suffered loss and damage. Sembawang's liability to do so was
not exempted by the insurance provisions at all although
Sembawang would, had the slip policy named it as an assured,
have been able to recover under it.
126. It matters not that Sembawang had no "established
liability" in the shape of a judgment or settlement agreement
because that would be unnecessary for a claim under the slip
policy, which was not a liability policy, but an all risks property
policy, covering loss in respect of an insurable interest in the
barge.
CPL loss
127. NHM also contends that CPL suffered no loss by reason
of any breach of duty on the part of NHM. NHM maintains that
CPL was clearly an assured under the slip policy and that it was
always open to CPL to recover an indemnity from the London
insurers for the damage done to the vessel amounting to the cost
of repair. This argument founders because CPL never did incur
any loss in relation to the cost of repair inasmuch as
Sembawang bore it, and rightly bore it under the terms of the
Sembawang contract. As set out already, CPL was never liable
to reimburse Sembawang for the repair costs under the terms of
the policy although it could arguably have been liable to
Sembawang for failure to obtain the insurance that article 15.12
required. A claim for failure to insure was not covered by the
"All Risks" policy.
128. CPL therefore suffered no direct loss in relation to the
cost of repair but faced a claim from Sembawang in respect of
its breach of article 15.12. CPL paid $850,000 to Sembawang in
full and final
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settlement of that claim under the settlement agreement. That is
a sum which it would never have had to pay if NHM had not
failed to obtain a slip policy in which Sembawang were named
as a co-assured. CPL has recovered sums from the London
insurers under the assignment agreement which still leave a
shortfall against the sum it has paid out to Sembawang.
129. In addition, both Sembawang and CPL allege that they
have incurred costs and expenses as a result of NHM's breach
and, to the extent that these are established, they are in principle
recoverable.
(E) The delay issue
Issue 10
10. Is there a real prospect that the London insurers will
succeed in their claim for items L and/or M referred to in
Steege Kingston's third report dated 20 May 2004, or are they
excluded from cover under the builders' risks policy pursuant to
section 55(2)(b) of the Marine Insurance Act 1906?
130. Once again this is effectively a summary judgment
application made by NHM. Two items of "repair costs" are
claimed relating to "yard extended project management" (item
L) and "yard extended general services and facilities" (item M).
Mr Roger Law of Steege Kingston, the adjusters instructed by
the London insurers, explains in some detail how the sums in
question were calculated at paras 19-26 of his statement. He
concludes that the figures in question represent "the actual costs
of repairs or supervision of repairs alone". They represent 80
per cent of the project management costs and the cost of general
yard services and facilities over a 60-day period which was the
time taken for the repairs to be carried out, as adjusted by
Steege Kingston.
131. NHM, for the purposes of the argument, accepts that
items L and M may arguably be within the costs of repair
referred to in section 69(1) of the Marine Insurance Act 1906,
whilst reserving its position to argue otherwise at a later stage,
following full disclosure. Nonetheless, NHM maintains that
these costs are excluded from cover under the policy pursuant
to section 55(2)(b) of the 1906 Act which reads:
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.
132. NHM maintains that the marine adventure being insured
is the project under the Sembawang contract itself and that the
policy contemplated that the project period would be six and a
half months. I
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L="2"/>settlement of that claim under the settlement
agreement. That is a sum which it would never have had to pay
if NHM had not failed to obtain a slip policy in which
Sembawang were named as a co-assured. CPL has recovered
sums from the London insurers under the assignment agreement
which still leave a shortfall against the sum it has paid out to
Sembawang.
129. In addition, both Sembawang and CPL allege that they
have incurred costs and expenses as a result of NHM's breach
and, to the extent that these are established, they are in principle
recoverable.
(E) The delay issue
Issue 10
10. Is there a real prospect that the London insurers will
succeed in their claim for items L and/or M referred to in
Steege Kingston's third report dated 20 May 2004, or are they
excluded from cover under the builders' risks policy pursuant to
section 55(2)(b) of the Marine Insurance Act 1906?
130. Once again this is effectively a summary judgment
application made by NHM. Two items of "repair costs" are
claimed relating to "yard extended project management" (item
L) and "yard extended general services and facilities" (item M).
Mr Roger Law of Steege Kingston, the adjusters instructed by
the London insurers, explains in some detail how the sums in
question were calculated at paras 19-26 of his statement. He
concludes that the figures in question represent "the actual costs
of repairs or supervision of repairs alone". They represent 80
per cent of the project management costs and the cost of general
yard services and facilities over a 60-day period which was the
time taken for the repairs to be carried out, as adjusted by
Steege Kingston.
131. NHM, for the purposes of the argument, accepts that
items L and M may arguably be within the costs of repair
referred to in section 69(1) of the Marine Insurance Act 1906,
whilst reserving its position to argue otherwise at a later stage,
following full disclosure. Nonetheless, NHM maintains that
these costs are excluded from cover under the policy pursuant
to section 55(2)(b) of the 1906 Act which reads:
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.
132. NHM maintains that the marine adventure being insured
is the project under the Sembawang contract itself and that the
policy contemplated that the project period would be six and a
half months. I do not consider that it is right to say that the
marine adventure insured is the completion and outfitting
contract as such. The insurance does not cover the doing of the
work - it covers the vessel whilst it undergoes completion
outfitting and the like at the yard over the anticipated period
during which that work is carried out. This is a marine hull
policy covering all risks whist the work is being done.
133. There is no doubt that the damage to the vessel caused
delay in the completion of the work because of the need to carry
out repairs. The insurance was undoubtedly extended for a
period to ensure that cover continued throughout the period of
work and remedial work.
134. The issue here is a question of fact and determination of
proximate cause. It is inevitable that if repairs have to be done,
there are not only costs of labour and materials in effecting the
work itself but project management costs in the shape of
planning and supervision of the repairs and the provision of
yard services which are calculated on a time basis. This does
not mean that they are costs of delay or amount to a "loss
proximately caused by delay".
135. Whether or not the costs are truly costs of repair or costs
proximately caused by delay is a question of fact where the
London insurers have adduced evidence which gives them a
realistic prospect of success. Furthermore, in my judgment, on
the evidence currently available, this is a matter upon which
they are likely, rather than NHM are likely, to succeed.
Conclusion
136. For the reasons given, I answer the preliminary issues as
set out in this judgment. On the central issue and indeed on
most of the issues, the London insurers have succeeded. Whilst
I wait to be addressed on costs, it seems to me at pre- sent that
the London insurers will be entitled to an order in their favour,
subject to any arguments about discrete issues or matters of
which I am unaware.