LW 620 Workshop ThreeThe Inchmaree ClauseIntroduction

Guiding QuestionsWhat is the Inchmaree Clause?

What is recoverable under the clause?

“[The] Inchmaree Clause was introduced to give the protection denied by this decision. [Thames & Mersey Marine v Hamilton Fraser (1887). It covers the negligence of servants, it covers explosion and bursting of boilers, it mentions breakage of shafts, which is rather a damage in itself than a peril causing damage, and it then covers loss or damage through latent defects. The Inchmaree Clause is, in my view, an extension of the list of perils insured against in an ordinary Lloyd's policy, and only the actual loss or damage to hull from the named perils is recoverable. Loss to the shipowner's pocket is only recoverable as the measure of the actual loss of or damage to hull” (per Scrutton J in Hutchins Brothers v Royal Exchange Assurance Corp [1911] 2 K.B. 398

Institute Cargo Clauses (Hulls) (1995)

‘6.2. This insurance covers damage to the subject matter insured caused by…

6.2.2. Bursting of boilers breakage of shafts or any latent defect in the machinery or hull…’

The Genesis

Prior to 1887, the standard Lloyd’s Marine Policy on hulls, which covered losses caused by perils of seas, such as fortuitous accidents resulting from the adverse elements at sea or any losses or mishaps in navigation was the lynch pin of all matters marine insurance. It was widely employed all over the globe. In that year, however, an accident occurred aboard the SS Inchmaree, a Scottish vessel, and the House of Lords, contrary to the industry’s

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conventional wisdom held that such an accident was not covered by the policy in question; it also ruled that the loss caused by a latent defect in the SS Inchmaree’s machinery was not caused by a peril of the seas, and that therefore, it was not covered by the policy. Not surprisingly, the marine insurance industry, particularly, the ship-owners, were concerned that expensive accident which might take place at sea might not be covered by the then Lloyd’s policy in vogue. Consequently, the marine industry responded by adopting a new clause, aptly named the Inchmaree Clause, providing additional coverage for an additional premium.

The new clause covered loss of or damage to the vessel directly caused by bursting of boilers, breakage of shafts, or any latent defect in the machinery or hull, (excluding the cost and expense of replacing or repairing the defective part), provided such loss or damage was not the result of the assured’s want of due diligence. Today, the Inchmaree clause including coverage for latent defects, explosions, negligence of master or mariners, and other special perils is now included in marine insurance policies to supplement the coverage under the perils clause.

Case Study OneThe Thames and Mersey Marine Insurance Co Ltd v Hamilton, Fraser, & Co. The Inchmaree (1887) L.R. 12 App Cas 484

Insurance (Marine)—“Perils of the seas and all other perils,” &c.—Perils insured against—Words ejusdem generis—General Words—Donkey—engine, Injury to.

The Inchmaree was insured by a time policy in the ordinary form on the ship and her machinery, including the donkey-engine. For the purposes of navigation the donkey-engine was being used in pumping water into the main boilers, when owing to a valve being closed which ought to have been kept open water was forced into and split open the air-chamber of the donkey-pump. The closing of the valve was either accidental or due to the negligence of an engineer, and was not due to ordinary wear and tear.

The owners of the SS Inchmaree put in a claim for the loss sustained, but the insurers refused to pay on the basis that latent defects in machinery were not perils of the seas and therefore were not covered under the terms of the policy. The owners filed a claim against the insurers.

The questions stated for the opinion of the Court were, whether the defendants were liable under the policy in respect of the loss, (1) if it could have been avoided by proper care, and occurred through negligence; (2) if it occurred accidentally, without negligence.

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The Queen's Bench Division gave judgment for the plaintiffs, and this judgment was affirmed by the majority of the Court of Appeal (Lindley and Lopes L.JJ.), Lord Esher M.R. dissenting.

On appeal

Held, reversing the decision of the Court of Appeal (17 Q. B. D. 195), that whether the injury occurred through negligence or accidentally without negligence, it was not covered by the policy, such a loss not falling under the words “perils of the seas,” & c., nor under the general words “all other perils, losses, and misfortunes that have or shall come to the hurt, detriment or damage of the subject-matter of insurance.”

LORD BRAMWELL

My Lords, I cannot agree with the judgment in this case. The donkey-engine was insured. The adventures and perils which the defendants were to make good, specified a great many particular perils, and “all other perils, losses and misfortunes that have or shall come to the hurt, detriment or damage of the aforesaid subject-matter of insurance, or any part thereof.” Words could hardly be more extensive, and if the question, I ought to say a question on them, arose for the first time, I might perhaps give them their natural meaning, and say they included this case. But the question does not arise for the first time. It has arisen from time to time for centuries, and a limitation has always been put on the words in question.

Definitions are most difficult, but Lord Ellenborough's seems right:

“all cases of marine damage of the like kind with those specially enumerated, and occasioned by similar causes.”

I have had given to me the following definition or description of what would be included in the general words:

“Every accidental circumstance not the result of ordinary wear and tear, delay, or of the act of the assured, happening in the course of the navigation of the ship, and incidental to the navigation, and causing loss to the subject matter of insurance.”

Probably a severe criticism might detect some faults in this. There are few definitions in which that could not be done. I think the definition of Lopes L.J. in Pandorf v. Hamilton very good:

“In a seaworthy ship damage to goods caused by the action of the sea during transit not attributable to the fault of anybody,” is a damage from a peril of the sea.

I have thought that the following might suffice:

“All perils, losses and misfortunes of a marine character, or of a character incident to a ship as such.”

I put it forward with distrust, but it would comprehend all the cases cited where the assured has recovered, save perhaps the Panama case. For example, it would include the case of the ships blown over while in dock, of the ship damaged by its moorings giving way, of the ship

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fired into by a ship. It would not include the cases put by Lord Esher, or the case I put of the captain seized with giddiness dropping the chronometer into the hold; nor would it include the present case. The damage to the donkey-engine was not through its being in a ship or at sea. The same thing would have happened had the boilers and engines been on land, if the same mismanagement had taken place. The sea, waves and winds had nothing to do with it.

The Clause in the Courts

1. “CAUSED BY”The phrase “caused by” refers to the damage resulting from “the bursting of boilers, breakage of shafts or any latent defect in machinery or hull” and not to the damaged suffered by the machinery or hull itself. The phrase was examined in the following cases

Case Study OneHutchins Brothers v Royal Exchange Assurance Corp [1911] 2 K.B. 398The Issues

Insurance (Marine)—Ship—Damage to Hull—Latent Defect in Stern Frame—Cost of replacing defective Stern Frame.

The Facts

A policy of insurance on a ship, the Ellaline for twelve months, covering the ordinary perils insured against by a Lloyd's policy, provided that the insurance should also cover loss of or damage to the hull through any latent defect in the hull. In 1906, when the ship was built, the builders put into her a stern frame, supplied by a foreign firm, which contained a latent defect that was not discoverable by reasonable inspection until, during the currency of the policy, it became visible owing to the ordinary wear and tear of the ship. The stern frame was in consequence condemned:—

Held, that the cost of a new stern frame was not recoverable under the policy.

SCRUTTON J.

In this case, heard before me without a jury, the owners of the steamship Ellaline claimed against the defendants as underwriters a sum of £137, being the defendants' proportion of an expense of about £2300 incurred by the plaintiffs in replacing a stern frame condemned because of a crack or fissure. Was this “loss of or damage to the hull through a latent defect”?

The clause I have to construe is commonly known as the “Inchmaree Clause.” The machinery of the Inchmaree was damaged by an explosion, either through a valve becoming salted up,

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not in ordinary wear and tear, and the closing not being discoverable by reasonable care, or by the valves being closed by negligence of the engineers. The House of Lords in Thames and Mersey Marine Insurance Co. v. Hamilton, Fraser & Co held that such damage was not recoverable either as a peril of the sea or under the general words in a Lloyd's policy. The Inchmaree Clause was introduced to give the protection denied by this decision. It covers the negligence of servants, it covers explosion and bursting of boilers, it mentions breakage of shafts, which is rather a damage in itself than a peril causing damage, and it then covers loss or damage through latent defects.

The Inchmaree Clause is, in my view, an extension of the list of perils insured against in an ordinary Lloyd's policy, and only the actual loss or damage to hull from the named perils is recoverable. Loss to the shipowner's pocket is only recoverable as the measure of the actual loss of or damage to hull. In the present case, has any damage to the hull occurred during the currency of the policy through latent defect? The only damage is, in my view, the latent defect itself, which by wear and tear has become patent. But the latent defect did not arise during the currency of the policy; it existed in 1906, and the underwriter does not insure against ordinary wear and tear and its consequences. Has any part of the hull been lost in fact during the currency of the policy? The stern frame has not been lost in fact; it is there as it was before the policy began; the only change is that a previous latent defect has by wear and tear become patent. It has not been constructively lost during the currency of the policy; it was constructively lost in 1906, if the true facts had been known; what has happened during the currency of the policy is the discovery of the true facts. If it is said there is a loss of hull, because the shipowner has had to replace it and suffered loss during the currency of the policy, it is true that the expense is incurred during the currency of the policy, but the damage alleged to be covered by the policy, as a latent defect, came into existence in 1906, and must have been repaired then, if discovered.

For these reasons I hold that no loss of or damage to hull has happened during the currency of the policy from perils insured against, and that the discovery of pre-existing loss or damage, though impossible on reasonable examination before the date of the policy, is not enough to give a claim.

In my view what is recoverable under this part of the Inchmaree Clause is:

(1.) Actual total loss of a part of the hull or machinery, through a latent defect coming into existence and causing the loss during the period of the policy. This was the kind of latent defect alleged in the Inchmaree case.

(2.) Constructive total loss under the same circumstances, as where, though the part of the hull survives, it is by reason of the latent defect of no value and cannot be profitably repaired.

(3.) Damage to other parts of the hull happening during the currency of the policy, through a latent defect, even if the latter came into existence before the period of the policy. The pre-existing latent defect itself is not damage, indemnity for which is recoverable, even if by wear and tear it becomes visible during the policy.

I think this is substantially the result arrived at by Fletcher Moulton L.J. and Walton J.; and it is not uninteresting to note that it was the result arrived at by the plaintiffs' solicitors, who wrote, in making a claim on behalf of their clients on a third party, “We have exhaustively inquired into the question as to whether or not the cost of renewing the stern frame can be

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recovered from underwriters, and it was with much regret that we came to the conclusion that no claim could possibly be asserted.” Arriving by independent investigation at the same conclusion I give judgment for the defendants with costs.

Judgment for defendants.

The plaintiffs appealed.

FLETCHER MOULTON L.J.

It is suggested that this was a “loss of or damage to hull through a latent defect in the hull” within the meaning of the Inchmaree Clause. It was in my opinion nothing of the kind. It was not loss or damage caused by a latent defect, but a latent defect itself. To hold that the clause covers it would be to make the underwriters not insurers, but guarantors, and to turn the clause into a warranty that the hull and machinery are free from latent defects, and, consequently, to make all such defects repairable at the expense of the underwriters. There are no words in the clause which warrant such an interpretation. The fact that it begins with the word “insurance” negatives, in my opinion, the possibility of its being so interpreted.

It is contended that the clause has been so interpreted by the Lord Chief Justice and Buckley L.J. in Oceanic Steamship Co. v. Faber. The language used by Buckley L.J. at the end of his judgment appears to me conclusive against that contention. I cannot help thinking that any ambiguity in the earlier part of his judgment is due to the fact that “breakage of shafts” is specially referred to earlier in the clause in another context. It seems to me possible that a difficult question may arise in future as to whether breakage of shafts is not by the language of the clause put in a special position in which other defects in machinery and hull are not. I think that it was probably in considering the effect of the special words in reference to “breakage of shafts,” which do not apply in the present case, that Buckley L.J. used the words in the earlier part of his judgment which give rise to the apparent ambiguity that has been referred to. I do not think that he intended to express any disagreement with the judgment of Walton J. or with what I said in my judgment.

Appeal dismissed.

2. “Breakage of Shafts”It is widely accepted that the Inchmaree Clause covers losses caused by the bursting of boilers as well as losses caused by the breakage of shafts; and that it does not, by contrast, cover damage to the shaft itself. This point was clearly articulated in the following case.

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Court of Appeal ¶ 25 May 1911

Cases I0B7CDC4011E81 %5B1911%5D+2

Case Study TwoScindia SS (London), Ltd v The London Assurance [1937] 1 K.B. 639 [The SS Jalavijaya]

The Issues

Insurance (Marine)—Policy—"Inchmaree" clause—"Damage to hull or machinery .... caused.... through.... breakage of shafts, or through any latent defect"—Breakage of shaft through latent defect therein—Liability of insurer for damage to shaft—Marine Insurance Act, 1906 s. 55, sub—s. 2 (c).

The Facts

A time policy of marine insurance, by which a steamship belonging to the plaintiffs was insured by the defendants and others, contained a clause known as the "Inchmaree" clause in the following terms:

"This insurance also specially to cover (subject to free of average warranty) loss of or damage to hull or machinery directly caused by accidents in loading, discharging, or handling cargo, or in bunkering or in taking in fuel, or caused through the negligence of master, mariners, engineers or pilots, or through explosions, bursting of boilers, breakage of shafts, or through any latent defect in the machinery or hull."

During the currency of the policy the vessel was in dry dock undergoing an operation which required the removal of the propeller and tail shaft. While the propeller was being wedged off, the shaft broke owing to a latent defect therein, the end of the shaft with the propeller attached to it falling into the dock and a blade of the propeller being broken. The defendants admitted liability for the damage to the propeller.

The plaintiffs brought an action against the defendants, their claim being that the defendants were liable under the above clause in the policy to the extent of their proportion in respect of the damage to and cost of repairing the shaft:-

Held, that the plaintiffs' claim failed for the following reasons, namely:-

That the words "breakage of shafts" in the clause could not be transferred from their context to a position immediately before the words in brackets, so as to read "This insurance also specially to cover breakage of shafts," inasmuch as such a construction would do undue violence to the clause;

That the clause on its true construction meant that the insurance covered loss of or damage to hull or machinery occasioned by any of a number of occurrences which were arranged in

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groups, each group beginning with the expression "caused by" or "caused through"; the only two of these occurrences appropriate to the present case being "breakage of shafts" and "latent defect";

That, though the shaft was part of the machinery, the damage involved in the breakage of the shaft was not damage to hull or machinery "caused through" breakage of the shaft, inasmuch as that expression could only refer to damage to some other part of the hull or machinery occasioned by the breakage of the shaft, and could not refer to damage involved in the breakage of the shaft itself; and

That, for a similar reason, the damage involved in the breakage of the shaft through a latent defect therein was not damage to hull or machinery "caused through" that latent defect.

BRANSON J.

This case raises a point which has been adumbrated for a number of years. It relates to the proper construction to be put upon the words of a clause called the "Inchmaree" clause in a Lloyd's policy. The facts of the case are not in dispute. The case depends upon the true construction of the clause, which is as follows:

"This insurance also specially to cover (subject to free of average warranty) loss of or damage to hull or machinery directly caused by accidents in loading, discharging, or handling cargo, or in bunkering or in taking in fuel, or caused through the negligence of master, mariners, engineers or pilots, or through explosions, bursting of boilers, breakage of shafts, or through any latent defect in the machinery or hull,"

The construction of various parts of this clause has been the subject of decisions in the Courts; but that of the particular part upon which the plaintiffs first rely has not.

The plaintiffs' case is, first, that upon the true construction of this clause "breakage of shafts" is covered simpliciter, and, therefore, that all that the plaintiffs have to do here is to say that the tail shaft of their steamer broke, and that for whatever reason that may have happened they are entitled to recover.

The defendants say that the plaintiffs cannot properly construe this clause as covering breakage of shafts isolated from all the rest of the subject-matter of the clause, but that they must read the clause as a whole, and that when they do so they will find that no such construction can be put upon it. But the defendants go on to say that even if that be a possible construction, still it will not assist the plaintiffs in the present case, because of s. 55, sub-s. 2 (c), of the Marine Insurance Act, 1906, it being plain upon the pleadings, and the admitted facts, that this breakage arose through the inherent vice of the shaft itself.

The facts with regard to the breakage seem to be plain enough. During the operation of wedging off the propeller the shaft was being subjected to an ordinary operation of repair which any shaft of proper strength and construction would be able to sustain without any difficulty, but, owing to what is described as a "smooth flaw extending downwards from the top as the shaft then lay" deep into the metal, involving about one-half of the material, the other half of the shaft remained and was broken. It is said on the part of the defendants that that is a latent defect, and, except under those words of this clause which deal with latent

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defects, damage caused by latent defects is excluded from this clause by virtue of s. 55, sub-s. 2 (c), of the Marine Insurance Act, 1906. That seems to me to be a sound proposition.

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Now the next point that is taken is that if you cannot so isolate them, you may, at all events, read them in the following way:

"This insurance also specially covers loss of or damage to hull or machinery through breakage of shafts."

It is said that "shafts" are a portion of hull or machinery, being a portion of the machinery, and that loss of or damage to machinery caused through breakage of shafts includes the actual breaking of the shaft itself. That, it seems to me, is a forced construction of the language and not the ordinary meaning which, reading the clause as a piece of English prose, one would be inclined to put upon it. It follows other clauses in which obviously the loss or damage happens to something different from the thing by which the damage is said to be caused. The first clause is "caused by accidents in loading," and so forth; the next is "caused through the negligence of master, mariners," and so forth. Both of those clauses obviously envisage, as it seems to me, a state of affairs in which the main cause produces damage which has an effect on something else; and I see no reason why, when after those two clauses one comes down to the one with which I have particularly to deal, one should read it in any other way. It seems to me, therefore, that the proper reading is that the breakage of the shaft itself is not covered, nor can it properly be said that the breakage of the shaft is a loss of or damage to machinery caused by the breakage of the shaft. The breakage of the shaft is the breakage of the shaft, and if, by reason of the breakage of the shaft, the machine is torn to pieces, then one would get damage caused by the breakage of the shaft. But in this case the only damage beyond the damage to the propeller, which has been paid for, is the actual damage which happened to the shaft itself, to wit, the breakage of the shaft. To speak of that as damage to the machinery which the breakage of the shaft has caused, seems to me to produce a confusion both of thought and language, which I think should not be introduced into the construction of a clause of this kind.

I therefore think the plaintiffs fail to establish a right to recover under that part of the clause which relates to the breakage of shafts.

Judgment for defendants.

3. Latent Defect in the Hull or MachineryIn contrast to the ordinary wear and tear, a latent defect is a fault in the machinery of the hull which is not the result of the ship-owner’s carelessness or his lack of due and attention. Vide,

The Nukila, below

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Promet Engineering (Singapore) Pte Ltd v Sturge [1997] C.L.C. 966

Marine insurance—Inchmaree clause—Defective welds led to cracking in metal legs of platform—Whether cracks were damage caused by latent defect or latent defect itself.

The Nukila was a mobile self-elevating accommodation and work platform in the Ardjuna field, in the Java Sea. After some four years in service routine inspection of the legs and spudcans found serious cracks in the metal of all three of the spudcans and the legs. Repairs were carried out and the plaintiff owners sought to recover from the defendant underwriters. The underwriters denied liability. They argued that there was no consequential damage. All that occurred was that a latent defect in each leg manifested itself. The cracks were no more than the discovery of the latent defect that existed in that leg.

Tuckey J [1996] CLC 294 held that an assured had no claim under an Inchmaree clause in relation to cracks caused by defective welds because all that had happened was that a latent defect had become patent.

The judge found that the cause of the cracks was the improperly profiled weld and rejected the defendant's evidence that what had occurred was the result of fair wear and tear. He found that the weld was not part of the vessel, the part was the leg. Accordingly there had been no consequential damage to the vessel.

The plaintiffs appealed

Held, allowing the plaintiffs appeal:

1 The application of the language of the Inchmaree clause to the facts of the case was straightforward. At the commencement of the period of cover there, was a latent defect in the welds. That latent defect gave rise to minute fatigue cracks which could also properly be described as latent defects. Those during the period of cover caused extensive fractures. That was on any ordinary use of language damage to the subject matter insured, the hull, etc. of the Nukila.

2 In considering whether there was damage to the hull and whether such damage was caused by a latent defect in the hull, it followed that the damage had to be something different from, something over and above and incrementally greater than the latent defect itself. Where the line was to be drawn was a matter of fact and degree. It required a factual assessment of on the one hand; the nature of the latent defect and all that was inherent in it, and, on the other hand, the nature of the damage to the hull. The latter had to be directly caused by the former.

3 There was nothing in the language of the clause itself nor in the authorities which justified the enquiry which the judge was invited to undertake which was to decide whether the weld was a separate part from the legs and the spudcan which were united by that weld or whether the united legs and spudcan together constituted the defective part. The word part was capable of being used in a whole variety of ways depending upon the context. Its use provided no answer to any relevant question. The weld was a part just as much as was a bracket or bulkhead or plate or the totality of the leg structure.

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Hothouse LJ

The defendant in the action, Mr Sturge, is the representative underwriter. The time policies were hull and machinery policies of marine insurance; the interest insured is described as ‘Hull and Materials, Engines and Machinery etc. and everything connected therewith’. The Institute Time Clauses Hull (1/10/83) were incorporated with immaterial amendments. These clauses extend the ordinary marine cover so as to include risks which would not otherwise be covered. (Thames and Mersey Marine Insurance Co v Hamilton, Fraser and Co (1887) 12 App Cas 484). Thus, in the clause known as the ‘Inchmaree’ clause:

‘6.2. This insurance covers damage to the subject matter insured caused by…

6.2.2. Bursting of boilers breakage of shafts or any latent defect in the machinery or hull…’

The policies also incorporated the Institute Additional Perils Clauses—Hulls (1/10/83) which in consideration of an additional premium extended the insurance to cover:

‘1.1. The cost of repairing or replacing

1.1.1. Any boiler which bursts or shaft which breaks

1.1.2. Any defective part which has caused loss or damage to the vessel covered by clause

6.2.2 of the Institute Time Clauses Hulls 1710/83,

…

2. Except as provided in 1.1.1. and 1.1.2 nothing in these additional perils clauses shall allow any claim for the cost of repairing or replacing any part found to be defective as a result of a fault or error in design or construction and which has not caused loss of or damage to the vessel.’

Insurance covers fortuities, not losses which have occurred through the ordinary incidents of the operation of the vessel. Similarly the insurance does not cover the costs of maintaining the vessel or running it. As the judge held to be the case in the present action, the cracking occurred as a result of the ordinary working of the platform at sea and the presence of the latent defects in the welds. There was no external accident or cause. Correcting latent defects is, as a matter of principle, an expense to be borne by the shipowners and not by underwriters. Similarly; the pre-existing defective condition of the subject matter of the insurance (be it hull or cargo) can be said to have made the loss something which was bound to happen and therefore not fortuitous. These types of question have been addressed in a number of the cases on cargo insurance and, in relation to hull insurance, in The Caribbean Sea [1980] 1 Ll Rep 338 . But, as s. 55 of the Act recognises, if the parties make a specific agreement, a policy can cover such risks. The presence or absence of a latent defect in the hull or machinery of a vessel is, by definition, unknown to the assured and whether or not there is such a defect and whether or not it will during a given period of time or maritime adventure have an impact or cause any damage is fortuitous from the point of view of the assured. As is demonstrated by the Inchmaree clause and other similar clauses which have been introduced into policies following the series of decisions in the House of Lords in 1887, there is both a market need for such cover and a willingness to provide it.

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However there are further difficulties. A policy of insurance does not cover matters which already exist at the date when the policy attaches. The assured if he is to recover an indemnity has to show that some loss or damage has occurred during the period covered by the policy. If a latent defect has existed at the commencement of the period and all that has happened is that the assured has discovered the existence of that latent defect then there has been no loss under the policy. The vessel is in the same condition as it was at the commencement of the period. Therefore, in any claim under the Inchmaree clause or any similar clause, the assured has to prove some change in the physical state of the vessel. If he cannot do so, he cannot show any loss under a policy on hull. ..

In my judgment the application of the language of the Inchmaree clause to the facts of the present case is straightforward. At the commencement of the period of cover there was a latent defect in the welds joining the underside of the top-plate of each spudcan to the external surface of the leg tube. By that time that latent defect had also given rise to minute fatigue cracks in the surface of the tube in the way of the weld which could also properly be described as latent defects. Those features during the period of cover caused extensive fractures in the full thickness of the tube extending in places both above and below the defective weld, extensive fractures in the metal of the top-plating and bulkheads of the spudcans and other fractures at other locations. This was on any ordinary use of language damage to the subject matter insured, the hull, etc. of the Nukila. It was, as the judge found, caused by the condition of the Nukila at the commencement of the period that is to say by the latent defects I have identified. Therefore, subject to authority, the arguments of the owner should be accepted and the claim should succeed.

4. Latent Defect DefinedA latent defect may be defined as “one that could not be discovered by any known or customary test” See the following American case

SIPOWICZ v. WIMBLE 370 F.Supp. 442 (1974) The GREEN LION

CANNELLA, District Judge.

OPINION

The instant admiralty and maritime claim was commenced in September 1971 by the plaintiff, Alexander J. Sipowicz, against the defendant insurers to recover $20,000 arising out of the sinking of the yacht GREEN LION on May 14, 1970. Plaintiff asserts that the loss resulted from a peril insured against by the terms of the time hull policies issued by the defendants and that, therefore, he is entitled to recover damages. Defendants take the position that the sinking was of a nature not embraced by the provisions of the policies and, therefore,

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that they are not liable to plaintiff herein. The case was tried before this court, without a jury, on November 2 and 14, 1973. At trial, three witnesses were called and gave testimony and certain additional documentary evidence was received. For the reasons set forth below, the court finds for the defendant insurers and grants their motion for judgment dismissing the complaint, with prejudice.

After a careful review of the testimony and exhibits in this case, the court finds that plaintiff insured's yacht, the GREEN LION, sank on May 14, 1970, at its dock at the Little Ferry Marina, in clear weather and upon calm seas, and that the sinking was caused by the incursion and accumulation of water in her hull. The court further finds that the incursion and accumulation of water in the hull resulted from a separation between the keel and keelson and the remainder of the hull, which separation was the direct and proximate consequence of the deteriorated condition of the fastenings and frames which secured the keel and keelson to the rest of the hull. The court finds that these metal fastenings, which were originally 3/8 of an inch in thickness when the vessel was constructed and which had deteriorated to a thickness of 1/16 of an inch at the time of the loss, were not capable, either alone or in conjunction with the other parts of the vessel, of supporting a 7 ton lead keel and that the separation of the keel and keelson from the rest of the hull was an inevitable consequence of this condition.

Peril of the Sea

The phrase "peril of the sea" is a term of art, the precise meaning of which has been developed by several centuries of judicial construction, both in this country and in England (in whose precedents this court may find guidance). See generally, 11 Couch on Insurance, § 43.86 et seq. (2 ed. Anderson, 1963); 2 Arnould, Marine Insurance (15 ed.) § 800 et seq.; Ivamy, Marine Insurance, pp. 149 et seq. (1969); Buglass, Marine Insurance and General Average in the United States, pp. 27-30 (1973); 5 A Appleman, Insurance Law and Practice, § 3267 (1970).

Applying this test to the facts of this case, the court finds that the sinking of the GREEN LION was not the result of a fortuitous entry of water into the hull; it was an event which had to happen because of the deteriorated condition of the metal fastening which secured the vessel's keel and keelson to its hull. The evidence demonstrates that the separation of the keel and keelson from the hull was inevitable and was not an occurrence peculiar to the sea. The GREEN LION did not sink as the result of a peril of the sea, and, therefore, plaintiff can not have recovery under the "Perils" clause of the instant policies.

The "Inchmaree" Clause

Plaintiff also predicates a recovery herein upon the "Inchmaree" clause of the instant policies. He asserts, inter alia, that the sinking of the GREEN LION resulted from a latent defect in the vessel's machinery or hull and that he had exercised all due diligence otherwise necessary to avoid the loss. The court finds that the loss did not result from a latent defect and, therefore, does not reach the due diligence requirement.

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The GREEN LION sank as the result of the incursion of water into her hull. Water was allowed to enter the vessel because the deteriorated metal fastenings which secured the keel and keelson to the hull had weakened and had allowed a separation to occur. These fastenings and the metal assisting frames had deteriorated from age, wear and lack of maintenance, but were not shown to be inherently defective in their original construction. Plaintiff had knowledge of the condition of these metal supports by virtue of the specific recommendations for their repair, reconditioning or replacement contained in the 1966 condition survey report. Plaintiff was further aware of their condition because, as he testified at trial, he had performed certain work in an effort to restore the fastenings. In view of this proof, the loss of the GREEN LION cannot, as a matter of law, be said to have resulted from a latent defect.

A latent defect is a defect which a reasonably careful inspection would not reveal (Reisman v. New Hampshire Fire Ins. Co., 312 F.2d 17, 20 (5 Cir. 1963). It is not a gradual deterioration but rather a defect in the metal itself (Waterman S. S. Corp. v. United States S. R. & M. Co., 155 F.2d 687, 691 (5 Cir.), cert. denied, 329 U.S. 761, 67 S.Ct. 115, 91 L.Ed. 656 (1946). In Tropical Marine, supra, the Court stated that the classic meaning of the term "latent defect" was as follows:

"A latent defect is one that could not be discovered by any known or customary test," . . . and "* * * is a hidden defect and generally involves the material out of which the thing is constructed as distinguished from the results of wear and tear." . . . It is "A hidden defect * * * not manifest, but hidden or concealed, and not visible or apparent; a defect hidden from knowledge as well as from sight; * * * a defect which reasonably careful inspection will not reveal; one which could not have been discovered by inspection * * * by any known and customary test." [citations omitted] Tetreault, The Hull Policy: The "Inchmaree" Clause, 41 Tulane L. Rev. 325, 336-338.

The GREEN LION's defective and deteriorated metal fastenings were not, under the above definitions, latent in nature; they were clearly patent. They were observable and had been observed. They were accessible and access to them had been obtained by plaintiff, who had made an attempt to restore them. They were not hidden or unknown, but rather were fully revealed in the 1966 condition survey report. They were not defects inherent in the metal, but were rather the result of 27 years of use. As such, the court concludes that the vessel did not sink as the result of a latent defect as that term is employed in the "Inchmaree" clause of the instant policies.

CONCLUSION

The sinking of the plaintiff's’ yacht, the GREEN LION, did not result from a peril or defect insured against by the defendants in the Time Hull policies presently at bar. Therefore, the complaint is dismissed, with prejudice. Let the Clerk of the Court enter judgment, with costs, accordingly. The foregoing constitutes the findings of fact and conclusions of law of the court, pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.So ordered.

5. Latent Defect and Unseaworthiness14

A latent defect may cause a vessel to become unseaworthy by making her unable to encounter the ordinary perils of the seas, and the question which arises is whether insurance cover for that defect would override the implied warranty of seaworthiness in a voyage policy, or an express warranty in a time policy. This point is by no means easy to determine. In case below, a latent defect in design and unseaworthiness were the issues of concern, and in the event, both were held to be concurrent and effective causes of loss.

Case Study OneJ. J. Lloyd Instruments Ltd. v Northern Star Insurance Co. Ltd. “The Miss Jay Jay'' [1987] 1Lloyd’s Rep 32LAWTON, LJ

The plaintiffs' motor cruiser, Miss Jay Jay, with two experienced yachtsmen on the flying bridge, was on a round trip across the English Channel. On her way back, the vessel ran into a choppy, confused sea with waves about three metres high, maybe a little more. The cruiser duly arrived at base. It was then discovered that, as a result of the passage through the choppy, confused sea, the floor of the cruiser had cracked and part of the skin of the hull on the port side was missing from chine to topside. The cost of repairing the hull was about £30,000.

The plaintiffs claimed under the policy, but the defendants refused to pay.

Mustill J., found for in favour of the plaintiffs.

The defendants have appealed on three grounds:

First, that the loss was not caused by “accidental external means”;

Secondly, that the trial judge misdirected himself by excluding from consideration the fact, not challenged by the plaintiffs, that the loss would not have occurred but for the cruiser's unseaworthiness due to design defects; and,

Thirdly, that the design defects, not the adverse sea, were the dominant and effective cause of the loss.

The fact, as the judge found, that the sea was not exceptional and could have been anticipated, does not stop the loss from being adjudged to have been caused by “external accidental means”. It was not caused by “the ordinary action of the wind and waves” (see Rule 7 of the Construction Rules in the First Schedule to the Marine Insurance Act 1906) but by the frequent and violent impacts of a badly designed hull upon an adverse sea. This fact,

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however, did not make the defendants liable under the policy unless the loss was “proximately caused by a peril insured against”: see section 55(1) of the 1906 Act. Most of the argument was directed to this issue.

Mustill J. also found that the cruiser “was in such a condition, by reason of defects in design and construction, as to be unseaworthy for a passage from Deauville to Hamble”. If the defects in design and construction had been the sole cause of the loss, then the plaintiffs would not have been entitled to claim either at common law (see Ballantyne v. Mackinnon (1896) 2 Q.B. 455 ) or because of an express exclusion in the policy. On the facts, as the judge found, the unseaworthiness due to design defects was not the sole cause of the loss. It now seems to be settled law, at least as far as this court is concerned, that, if there are two concurrent and effective causes of a marine loss, and one comes within the terms of the policy and the other does not, the insurers must pay. In the last three editions of Halsbury's Laws, the law has been stated in these terms:

“If one of these causes is insured against under the policy, and none of the others is expressly excluded from the policy, the assured will be entitled to recover”.

In the fourth edition see Volume 25 paragraph 181. All the relevant authorities were considered by this court in Wayne Tank and Pump Co. Ltd. v. Employers Liability Assurance Corporation Ltd. (1974) Q.B. 57 . In that case there were two causes of a fire, one was within the terms of an insurance policy, one within an exception. This court adjudged that the dominant cause came within the exception. All three members of the court, however, considered what should happen when there were two causes which were equal or nearly equal in their efficiency in bringing about the damage, one being under the general words so as to make the insurers liable and the other within the exception so as to exempt them from liability. They all agreed that the exception applied. Roskill L.J. (as he then was) stated at page 74 that in marine insurance law the position was clear. In this case the evidence proved that there were two causes. I will consider later whether both were proximate or only one was. The exclusions in the policy only applied if “any loss or expenditure (was) incurred solely in remedying a fault in design or in the event of damage resulting from faulty design” . On the facts as found this exclusion did not apply.

The plaintiffs were not privy to the defects in design (see section 39(5) of the 1906 Act) nor to the fact that at the material time the cruiser was not seaworthy. They had not impliedly warranted that it was not (see the same sub-section of the 1906 Act) nor had they failed to take reasonable steps to maintain and keep the cruiser in a proper state of seaworthiness as they were required to do under the policy. The loss was not caused by wear or tear so as to cause “debility”. Since the defendants did not exclude unseaworthiness or design defects which contributed to a loss without being the sole cause (as they could have done) the plaintiffs' claim falls within the policy provided that what happened in the sea conditions was a proximate cause of the loss.

The cause of a loss has to be determined on the evidence. There may be a number of causes, some making a bigger contribution to the loss than others. Under marine insurance law the insurer is only liable for losses proximately caused by a peril insured against. In the past, judges have used synonyms for the statutory word “proximately” – “dominant” , “effective” and “direct” . Lord Wright favoured “dominant” – see the Smith, Hogg and Co. Ltd. case at page 1006. It has been adjudged, however, that “proximately” means proximate in efficiency

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rather than proximate in time (see Leyland Shipping Co. Ltd. v. Norwich Union Fire Insurance Society Ltd. (1918) A.C. 350 at pages 363 and 369.

What has to be decided in this case is whether on the evidence the unseaworthiness of the cruiser due to the design defects was such a dominant cause that a loss caused by the adverse sea could not fairly and on common sense principles be considered a proximate cause at all. In my judgment, the evidence did not establish anything of the kind. What it did establish was that, but for a combination of unseaworthiness due to design defects and an adverse sea, the loss would not have been sustained. One without the other would not have caused the loss. In my judgment, both were proximate causes.

I would dismiss the appeal.

6. Negligence of the Master, Crew or PilotsThe Inchmaree Clause, in part, provides that:

This insurance also specially to cover … loss of or damage to hull or machinery directly caused by the … negligence of master, mariners, engineers or pilots. ....

Case Study OneBaxendale v Fane (The Lapwing) (1940) P 112 .

Shipping—Marine insurance—Damage to yacht—Sitting in uneven berth—Perils ejusdem generis with perils of the sea—Institute Yacht Clauses—Negligence of "master."

The plaintiff, the owner of the Lapwing, claimed for a particular average loss under a policy of marine insurance. The policy insured the plaintiff's yacht against perils of the sea and all other perils ejusdem generis, and was subject to the Institute Yacht Clauses, clause 5[The Inchmaree Clause] of which provided that the insurance also covered damage to hull caused by "negligence of master. ...."

The plaintiff arranged to have the yacht moved from Southwick to Shoreham for docking. She left for Shoreham in charge of one O.'Connor., the manager of the Sussex Yacht Works, and by him was so negligently berthed in their dock that she received damage by sitting on a block of wood and afterwards on some baulks of timber, and also from the uneven nature of the bottom of the dock.

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The defendant, one of the subscribers to the policy, contended that, as the yacht was deliberately placed where she received the damage, there was nothing fortuitous in the accident; it was bound to happen, and was not a peril ejusdem generis with a peril of the sea; and, further, that in berthing the yacht O’Connor was not her master but an independent contractor:-

Held, (i.) that, although it was intended that the yacht should be docked, it was not intended that she should be so negligently docked as to be allowed to sit on a dangerous bottom, and that the intervention of those responsible for the docking provided the fortuitous circumstances which entitled the plaintiff to recover under the terms of the policy for a loss due to a peril ejusdem generis with a peril of the sea, namely, stranding.

(ii.) That O’Connor was the "master," and prima facie responsible for the docking, and that the plaintiff was also covered under clause 5 of the Institute Yacht Clauses, whether or not the damage was due to a marine peril.

HODSON J.

"Clause 5. This insurance also specially to cover (subject to the free of average warranties, or any special conditions of the policy) loss of or damage to hull or machinery directly caused by the following: Explosions, bursting of boilers, breakage of shafts or any latent defect in the machinery or hull. Negligence of master, mariners, engineers or pilots. .... provided such loss or damage has not resulted from want of due diligence by the owner of the vessel or any of them or by the managers."

The defendant contends that the damage (if any) suffered by the Lapwing was not covered by the policy.

It is true that it was intended that the vessel should be docked, but not that she should be so negligently docked as to be allowed to sit on a dangerous bottom, and I think that the intervention of the negligence of those responsible for the docking provides the fortuitous circumstances which entitles the plaintiff to recover under the terms of the policy.

I have come to the conclusion that whether the damage was caused by the vessel sitting on the block, or on the uneven bottom of the dock, or on the seven baulks of timber, or by a combination of these things, in each case the plaintiff has established a loss due to a peril ejusdem generis with a peril of the sea, namely, stranding.

The plaintiff also relies on clause 5 of the Institute Yacht Clauses, and says that the damage was directly caused by the negligence of the master. It was said by the defendant that O'Connor was not the master, but the manager of the yacht works. It was argued that, although he may, perhaps, be treated as the master for some purposes; for example, he might have subjected the ship to a maritime lien in the event of collision occurring between Southwick and Shoreham, yet he was not the master within the meaning of the clause when he was docking the vessel.

"Master" has been defined in many statutes. In the Merchant Shipping Act, 1894 (s. 742), "Master" includes every person (except a pilot) having command or charge of any ship.

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I have no doubt that O'Connor was the master of the vessel at the time of the first docking. He was still in charge of her. The fact that he was at the same time manager of the yacht works, and was the servant of the yacht works not of the plaintiff, seems to me to make no difference. Indeed, his dual position enables his negligence to be more clearly established, because he was in a position to know what was the nature of the bottom of the dock in which he was placing the vessel.

If, however, part of the damage is to be attributed to the second docking, the situation is not quite clear. There was put in evidence by the plaintiff a statement sent to him by the defendant's solicitors, which purports to show that a Mr. Page became the master of the vessel on May 16, i.e., before the second and after the first docking. It is not clear whether he had in fact taken charge of the vessel at the time of the second docking; and it was argued on behalf of the defendant that it would be unjust to find negligence against him, especially as he has not been called to give his account of the event. The allegation of negligence against the master was made in the pleadings, and I find that the plaintiff has established that the ship was negligently docked on both occasions. It was not incumbent on him to call the masters or either of them to establish this negligence. The master being in charge of the ship is prima facie responsible for the docking of the ship in a proper manner.

I have therefore come to the conclusion that the plaintiff is covered under clause 5 of the Institute Yacht Clauses in respect of loss of or damage to hull caused by negligence of the master, whether or not the damage was due to a marine peril.

His Lordship then dealt with the question of quantum, and gave judgment for the plaintiff for two seventy-sevenths of £1575 with interest at 4 per cent from May 10, 1938.

Case Study TwoTrinder, Anderson & Co. v Thames and Mersey Marine Insurance Co [1898] 2 Q.B. 114

The Issues

Insurance, Marine—Policy—Loss by Negligence of Master—Master also Part Owner.

The Facts

In an action by the owners of a ship, the Gainsborough, including the master, on a policy of marine insurance, for loss within the perils insured against, the fact that the loss arose through the negligent navigation of the master, not amounting to wilful negligence, affords no defence to his claim.

The first-named action was against underwriters, and was brought by the plaintiffs on behalf of themselves and all other owners of the ship Gainsborough, including the master, who was part owner, for a total loss of freight. The vessel, the freight of which was insured, was stranded owing to the negligence, but not the wilful negligence, of the master. The principal

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question in the case was whether the fact that the master, through whose negligence the loss occurred, was part owner was a bar to his recovering in the action. A question as to the necessity for notice of abandonment under the circumstances of the case was also raised on the argument in the Court of Appeal.

Judgment was given for the plaintiffs.

The defendants appealed.

SMITH L.J.

It was held over fifty years ago in Dixon v. Sadler that an assured of ship makes no warranty to the underwriters that the master and crew will do their duty during the voyage, and consequently their negligence is no defence to an action on a policy when the loss is brought about by their negligent navigation, if the loss is immediately occasioned by the perils of the sea. Parke B., when delivering the judgment of the Court, cited five cases in support of this proposition, commencing as far back as the year 1818 with the case of Busk v. Royal Exchange Assurance Co.

That the negligent navigation of a ship by a person other than the assured affords no defence to an action upon a policy of marine insurance against perils of the sea when the loss is immediately occasioned by a peril of the sea is clear, the reason, in my opinion, being that what is insured against is a peril of the sea, which is none the less a peril of the sea though brought about by negligent navigation. Is there, then, any warranty by a part owner, if he be one of the assured, that he will not personally be guilty of negligent navigation during the voyage covered by the policy? We are not dealing with a loss brought about by the wilful act of an assured. Negligent navigation has never been held to be equivalent to “dolus,” or the “misconduct” which is spoken of by Lord Campbell in Thompson v. Hopper; nor is it the negligence referred to by Lord Ellenborough in Bell v. Carstairs the case of insurance against capture.

It is not disputed at the bar that negligence of an assured upon a fire policy, whereby the fire was occasioned which caused the loss, affords no defence to the insurer. Why so? Because loss by fire is what is insured against; so in a marine policy sea perils are what are insured against. The risk undertaken by an underwriter upon a policy covering perils of the sea is that, if the subject-matter insured is lost or damaged immediately by a peril of the sea, he will be responsible, and, in my judgment, it matters not if the loss or damage is remotely caused by the negligent navigation of the captain or crew, or of the assured himself, always assuming that the loss is not occasioned by the wilful act of the assured.

7. BarratryWhat is Barratry?

Barratry is any fraudulent or criminal conduct against the owners of ship or goods by the master or mariners, in breach of the trust reposed in them, and to the injury of the owners; although it may not be done with intent to injure them, or to benefit at their expense the

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master or mariners. And therefore, where a master had general instructions to make the best purchases with dispatch, this would not warrant him in going into an enemy's settlement to trade (which was permitted by the enemy) though his cargo could be more speedily and cheaply completed there; but such act, in consequence of which the ship was seized and confiscated, is barratrous.

According to Rule 11 of the Rules for Construction of Policy; the term “barratry includes every wrongful act wilfully committed by the master or crew to the prejudice of the owner, or, as the case may be, the charterer.

Clearly, this definition is not exhaustive. Arnould, defines “barratry” as:

“Barratry, then, in English law comprehends not only every species of fraud and knavery covinously committed by the master with the intention of benefiting himself at the expense of his owners, but every wilful act on his part of known illegality, gross malversation, or criminal negligence, by whatever motive induced, whereby the owners or charterers of the ship (in the case where the latter are considered owners pro tempore) are in fact damnified”.

Therefore, if the master scuttles the ship (Ionides v Pender (1872)), or fraudulently sells the cargo (Havelock v Hancill (1789), or fraudulently deviates (Metz, Decker & Co v Maritime Insurance Co (1910), or if the crew wrongfully refuses to discharge the cargo ( Campania Naviera Bachi v Henry Hosegood & Co Ltd (1938), or if the master and crew run off with the ship (Marstrand Shipping Co Ltd v Beer (1937), these acts amount to barratry. For other examples, see Halsbury’s Laws of England 3rd Ed Vol 22 pp 82-83; and Carver paras 185-187

The term barratry, which was more recently described as a “strange word” by Mustill J was the subject of analysis by the House of Lords in Shell International v Gibbs, (below, Case Study Two] in which almost all the old cases were reviewed. But first, reference may be made to the following American case, which shades some light on the relationship between “barratry” and “seizure”. The classical definition of “barratry” was laid down by Lord Ellenborough in 1806 in Earle v Rowcraft, the details of which are set out below:

Case Study OneEarle v Rowcroft (1806) 8 East 126 This was an action on a policy of insurance, on the ship “Annabella,” at and from Liverpool to the coast of Africa, during her stay and trade there, and to the port of sale in the West Indies, with liberty to exchange goods, &c.; and the plaintiff averred a loss by barratry of the master.

Lord Ellenborough C.J.

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It is extraordinary that this species of loss, occasioned by the misconduct of the master, selected and appointed as he is by the owners themselves, and liable to be dismissed by them only, should ever have been made the subject of insurance: and it is the more so, as it has an impolitic tendency to enable the master and owners, by a fraudulent and secret contrivance and understanding between themselves, to throw the ill success of an illegal adventure, of which the benefit, if successful, would have belonged solely to themselves, upon the under-writers. So, however, it is, that this description of loss has, from the earliest times, held its place, as a subject of indemnity, in British policies of insurance.

The original meaning of this term is to be collected from the Italian language … and is, according to Dufresne's Glossary, verbum Barratria… He does not apply it in any marine sense, or with reference to the particular relation of master and owners. In that sense, however, in which it is peculiarly used, as applied to subjects of British marine insurance, in the earliest reported case which we find on the subject, it is considered as being precisely tantamount to fraud, in the particular relation which subsists between master, mariners, and owners; being such by which a loss may happen to the subject matter insured. In Knight v. Cambridge , 1 Str. 581, where the breach was assigned in a loss “per fraudem et negligentiam” of the master; and where it was objected, in arrest of judgment, that the fraud and negligence of the master were not within the policy, being more general than the word barratry; Raymond J. in the report of the same case in 8 Mod. 231, held that “per fraudem aut negligentiam would not have been good 14 .”

So that the negligence was considered as immaterial, and the fraud as being the substantial matter constituting the barratry. And the Court (in the report in Strange) held that negligence was not within the policy, but that fraud was. Now as no limitation is put upon that term in the record in Knight v. Cambridge, we must understand the Court as holding that fraud and barratry were in effect words of coextensive import; that is, that barratry included every species of fraud in the relation of the master to his owners, by which the subject matter insured might be endangered. The particular manner in which the loss was in that case occasioned does not appear in any of the reports of it either in Strange, Lord Raymond, or 8 Modern. But a MS. note of Mr. Ford of the argument in Stamma v. Brown , in referring to the case of Knight v. Cambridge , and describing the question in that case upon the record, and stating that “fraud was barratry,” adds, “If the master sail out of the port, without paying port duties, whereby the goods are forfeited, lost, or spoiled, that is barratry 15 :” (and which probably was the question of fact decided at the trial, or upon a case in the Common [136] Pleas). And from what is said of the facts of Knight v. Cambridge , in Vallejo v. Wheeler , Cowp. 153, both by counsel and by Lord Mansfield, it was a case in which the captain, whose duty it was to have paid the port duties before the ship went out of port, had not done so; and is therefore most probably the same case as is alluded to by Lord C. J. Lee, in Stamma v. Brown , 2 Stra. 1174, where he compared the case then in question “to the case of a sailing out of port, without paying duties, whereby the ship was subjected to forfeiture; and which had been, he says, holden to be barratry.” In a MS. note of the case of Stamma v. Brown , which was read to us by my Brother Lawrence, Lord C. J. Lee defines barratry as being “some breach of trust in the captain ex maleficio.” And in the note of the same case with which I have been furnished from Mr. Ford's MS. Lord C. J. Lee says,

“Barratry must be ex maleficio with intent to destroy, waste, or embezzle, the goods; (that, it must be remembered, was a policy on goods,) and therefore although this might be a deviation, yet I do not see how it can be considered as barratry. I make no question that there may be such a deviation as will amount to barratry; as where the master deviates to burn,

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sink, destroy, or throw the ship into the enemy's hands; or where he has benefit by the deviation; as if he himself had insured the goods: and therefore it was a material part of the case, whether the master had any benefit by this alteration of the voyage; for that might have been evidence of fraud in him, &c.”

Of course he did not consider the benefit of the master as a necessary ingredient in the constitution of barratry in all cases, but only as a pregnant circumstance to prove the existence of such a fraud in point of fact, in a particular case. In Nutt v. Bourdieu , 1 Term Rep. 323, Lord Mansfield defines barratry nearly in the same terms, viz. as partaking of something criminal, and as committed against the owner by the master or mariners. And Lord Hardwicke, in Lewen v. Suasso 16 , had before defined it to be “An act of wrong done by the master against the ship and goods.”

Willes J. in giving the judgment of the Court in Lockyer v. Offley , 1 Term Rep. 252, a case decided just before that of Nutt v. Bourdieu ; and upon which occasion he must be understood as speaking in conformity with the opinion upon this point of Mr. Justice Buller, who was then present; and probably after some communication on the subject with Lord Mansfield also, who happened then to be absent; defines barratry as including “every species of fraud or knavery of the master of the ship, by which the freighters or owners (the freighters in that case were owners pro tempore) are injured.”

And in Vallejo v. Wheeler, Cowp. 155, Aston J. after stating that the conduct of the master was clearly barratry, adds, as the reason which induced him to form that conclusion, “For he was acting for his own benefit, without intending any good to his owner, and without his consent and privity:” here considering, as Lord C. J. Lee had done before in, the circumstance of private benefit accruing to the master as evidence of fraud in him in the particular case, and not essential to its constitution in all cases whatever. And he adds afterwards,

“I am clearly of opinion that this change of the voyage for an iniquitous purpose was barratry; which is not confined to the running away with the ship, but comprehends every species of fraud, knavery, or criminal conduct in the master, by which the owners or freighters are injured.” He does not add, “and by which the master is benefited;” which he must have done if he had considered the actual or intended benefit of the master as essential to the definition of barratry. In Robertson v. Ewer , 1 Term Rep. 127, Buller J. upon the trial, was of opinion, and it does not appear upon the argument to have been denied by the Court, that sailing out of port without leave, in breach of an embargo, in consequence of which the owners afterwards sustained a loss, in respect of seamen's wages and provisions, by the detention of the ship, was barratry. The only question made by the Court was, whether a loss of this kind were recoverable on a policy upon the body of the ship. And although it was urged in argument for the defendant, that what was done by the master had been intended for the benefit of the owners, the Court did not advert to it as a point at all material to the decision of the question. In Moss v. Byrom , 6 Term Rep. 379, where a master, under letters of marque defective in point of validity for want of a certificate, and which had been put on board by the owners with a view to encourage seamen to enter, and without any intention of their being used for the purpose of cruizing, had cruized for and taken a prize, and had afterwards libelled such prize for condemnation in the name of himself and his owners, in a port in the West Indies, and during his stay there on that occasion was lost: this was holden by Lord Kenyon and the rest of the Court to be barratry.

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After these various decisions of Courts of Law, we are certainly warranted in pronouncing that a fraudulent breach of duty by the master, in respect to his owners; or, in other words, a breach of duty in respect to his owners, with a criminal intent, or ex maleficio, is barratry. And with respect to the owner of the ship or goods, whose interest is to be protected by the policy, it can make no difference in the reason of the thing, whether the prejudice he suffers be owing to an act of the master, induced by motives of advantage to himself, malice to the owner, or a disregard to those laws which it was the master's duty to obey, and which (or it would not be barratry) his owners relied upon his observing.

It has been strongly contended on the part of the defendant, that if the conduct of the master, although criminal in respect of the State, were in his opinion likely to advance his owner's interest, and intended by him to do so, it will not be barratry. But to this we cannot assent. For it is not for him to judge in cases not intrusted to his discretion, or to suppose that he is not breaking the trust reposed in him, but acting meritoriously, when he endeavours to advance the interest of his owners by means which the law forbids, and which his owners also must be taken to have forbidden, not only from what ought to be, and therefore must be presumed to have been, their own sense of public duty, but also from a consideration of the risk and loss likely to follow from the use of such means. In laying down this doctrine we feel ourselves supported by the several eminent authorities already referred to. And in giving this opinion we do not feel any apprehension that simple deviations will be turned into barratry, to the prejudice of the under-writers; for unless they be accompanied with fraud, or crime, no case of deviation will fall within the true definition of barratry, as above laid down.

For these reasons we are of opinion, that the rule nisi, which has been obtained in this case, must be discharged.

Case Study TwoRepublic of China v National Union Fire Insurance 1958

SOPER, Circuit Judge.

These suits in admiralty were brought to recover the value of seven vessels which had been sold by the United States to the Nationalist Government of China and subsequently lost by the defection of their masters, officers or crew to the Communist Government of China. Each vessel is the subject of a separate suit but all of the suits were tried concurrently in the District Court. The libellants are the Republic of China, China Merchants Steam Navigation Company, which operated the ships as a governmental corporation of the Republic of China, and the United States, the holder of purchase money preferred mortgages on the ships. The respondent is the National Union Fire Insurance Company of Pittsburgh, Pennsylvania, which had issued marine policies and war risk policies on each ship to the Government of the Republic of China, insuring it against the loss of the vessel resulting, in addition to other causes, from perils of the seas, barratry of the master and mariners or the consequences of civil war, excepting however, capture and seizure. The principal question in each case is

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whether the loss of the vessel was caused by barratry, which was covered by the policy, or by capture and seizure, which were excluded from coverage by the policy, or by both.

The District Judge filed a carefully considered opinion and exhaustive findings of fact to which reference may be made for detailed information. 151 F. Supp. 211.

He held that six of the vessels were lost by barratry of the master and awarded damages to the libellants [plaintiffs] in the sum of $2,995,270.87, the face amount of the policies, with interest at 3 per cent from the date liability was denied to the date of the decree, and interest at 6 per cent from the latter date until paid. As to the seventh vessel the Judge dismissed the libel since he found that the loss was due to seizure of the ship by the crew which, in his judgment, was excluded from coverage by the terms of the policies. The insurance company has appealed from the adverse judgment as to the six vessels; and the libellants have appealed from the award of interest at 3 per cent to the date of the decree, claiming that they are entitled to 6 per cent for this period, and have also appealed from the judgment dismissing the libel as to the seventh vessel.

On various dates in 1946 and 1947, the United States sold to the Government of the Republic of China a number of Liberty ships, including the seven covered by the policies in suit. In each instance the buyer executed and delivered to the United States, represented in some instances by the Maritime Commission and in others by the Export-Import Bank of Washington, a note and a preferred ship mortgage to secure the unpaid balance of the purchase price. Defaults in these mortgages occurred in October 1949, and were declared by the United States on or about January 17, 1950, whereby it acquired the right to retake the vessels.1

The Republic of China, the named insured in all of the policies, was proclaimed in 1911 and in the middle 1920's established a strong national government at Nanking. Following World War II, Taiwan, which had been surrendered to Japan in 1904, was reincorporated into China as a province. In 1937, the Chinese communist movement actively organized resistance to Japan in northern China. After World War II Communist Armies dominated northern China and in 1949 drove southward so that as of April 19, 1949, a state of civil war existed. The Nationalist Government, under increasing pressure, moved its capital from Nanking to Canton in April, 1949; thence to Chungking and to Chengtu and, finally, to Taipei, Taiwan, on December 9, 1949, by which time the mainland was largely in control of the communist forces. Since that date it has continued to operate on Taiwan as a sovereign entity. It is recognized by the United States as the only proper and lawful government of China and its officials are the accredited representatives of the Republic of China in the United Nations.

On October 1, 1949, the Communist Government was proclaimed under the name of the Central People's Government of the People's Republic of China. On October 14, 1949, it occupied Canton, which is close to the port of Hong Kong, a Crown Colony of the United Kingdom. On January 5, 1950, the British Government recognized the Communist Government as the de jure government of China and ceased to recognize the Nationalist Government as a de jure government. A number of other nations extended de jure recognition to the Communist Government.

After the ships were acquired they were operated by the Nationalist Government through an agency which, in September, 1948, was organized as a government-owned corporation called the China Merchants Steam Navigation Company, Ltd. The head office of the company was

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located at Shanghai until May, 1949, when it was transferred to Taipei, Taiwan, with a branch office at Hong Kong. The port of registry of each of the vessels was transferred to a port on Taiwan in the latter part of 1949. The respondent insurance company recognized this government agency as the representative of the Nationalist Government in the operation of the ships and transacted with it the insurance business relating to vessels owned by the Nationalist Government, including the seven vessels in this suit. The insurance company accepted premiums on the policies, which were paid out of the funds of the Republic of China, and recognized the Republic of China as the owner of the fleet which it had insured against loss.

The insurance policies covering the seven vessels were issued at various dates in 1949.2 The named insured in all of the policies is "The Government of the Republic of China represented by Universal Trading Corp." and the loss, if any, was made payable to the United States Maritime Commission, or the Export-Import Bank, for distribution to itself and to the Government of the Republic of China as their interest might appear. The total amounts for which the vessels were insured were: Cheng Kung $470,000; Chiao Jen $470,000; Hung Chang $470,000; Lin Shen $342,375; Teng Keng $372,075; Tsai Er $342,375; Hai Hsuan $550,000. The policies were valued policies.

The marine risk policies are in the customary form with a Free of Capture and Seizure clause or warranty added. The terms of these policies with which we are particularly concerned insure against loss of the vessel resulting, in addition to other considerations, from "Barratry of the Master and Mariners and all other like Perils, Losses and Misfortunes," but exclude claims for loss, damage or expenses "resulting from capture, seizure, arrest, restraint or detainment or the consequences thereof or of any attempt thereat, or any taking of the Vessel, by requisition or otherwise; whether in time of peace or war and whether lawful or otherwise; also from all consequences of hostilities or warlike operations * * Further warranted free from the consequences of civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or piracy."

The war risk policies cover the risks, including barratry, which would be covered by the marine risk policy in the absence of the above quoted "free of capture and seizure" exclusionary warranty. Originally the war risk policies did not exclude capture and seizure but contained certain trading warranties, which were modified from time to time, to limit the ports in China at which the ships could touch, so as to avoid the danger of capture by the communists. In June 1949, when the communist armies were rapidly extending their area of conquest, the clause "excluding capture and seizure" was added to the war risk policies, obviously to avoid capture by the communist forces.

Against this background we come to consider whether the loss of the vessels under the circumstances set out below should be ascribed to the barratry of the master or crew within the coverage of the policies or to capture and seizure which is excluded therefrom. The relevant findings of fact of the District Judge, which are supported by the evidence, may be summarized as follows:

The six vessels first listed above were among thirteen vessels, owned by the Nationalist Government and managed by China Merchants, which were in the port of Hong Kong during November and December, 1949. For convenience the six vessels have been designated as the "Hong Kong vessels" in this opinion.

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China Merchants maintained its head office, under a general manager, in Taipei and a branch office in Hong Kong where a branch manager and marine superintendent were located. From November 13, 1949 to January 16, 1950, when the communist threat was becoming more and more imminent, the general manager sent many messages to the Hong Kong office and to the officers and crew of the ships ordering the ships to leave Hong Kong and sail for Taiwan or Japan or, in some instances, to the Philippines. These orders were ignored since most of the ships' personnel were reluctant for a number of reasons to go to Taiwan and were inclined to favour the communist regime. These reasons were reported to headquarters, together with a request for additional money for wages and supplies. The necessary money was sent by the Taiwan office to Hong Kong. There were communist agents as well as agents of the Nationalist Government operating both in Hong Kong and on the ships; and on January 13, 1950, the manager and most of the employees of the Hong Kong office publicly defected to the Communist Government. The head office, however, remained completely loyal to the Nationalist Government and there was nothing to prevent the ships from leaving the port except the unwillingness of the master and mariners to obey the orders of the head office. Two ships other than the six did sail to Taiwan. The Communist Government took over all the government property on the mainland that it could reach and its artillery dominated the harbour of Hong Kong; but it did not, by proclamation or otherwise, purport to take over the China Merchants Steam Navigation Company or any ships in foreign ports.

The Hong Kong personnel continued to man the Hong Kong office but they displayed the Communist flag and operated for the benefit of the Communist Government; and on January 15 the master of each vessel voluntarily, as a result of an agreement amongst themselves, raised the communist flag in place of the flag of the Nationalist Government. The vessels remained in the port of Hong Kong until September, 1950, when they sailed for Canton. During that period the wages were paid by the Hong Kong office with money supplied by the communist regime. However, while the vessels were at Hong Kong no document or other paper was filed with the government of Hong Kong showing any change in the port of registry, owner or flag of any of the six vessels.

The Hai Hsuan, unlike the other six vessels, was on the high seas proceeding easterly through the Indian Ocean bound for Japan at the time of the British recognition of the Communist Government and at the time of the defection of the personnel in the Hong Kong office. The officers and crew of the ship learned of these incidents through British radio broadcasts. The master received orders by radio from the head office at Taiwan not to stop at any British port and to proceed at all possible speed to Taiwan. He was anxious to comply but the crew objected, first arguing through the officers for a stop at Hong Kong then later pressing for Singapore. The master was advised by a member of the crew that the chief engineer was leading a plot against him and trying to convince the other officers and mariners that the ship should be kept from going to Taiwan. A radio dispatch was received from the communist-controlled Hong Kong office to put into Singapore and the officers and crew held a meeting to decide which orders to follow. The master informed the gathering that his orders alone should be obeyed. He decided that the ship should not go to Singapore. But, when the ship was 100 miles west of Singapore, the chief officer threatened to stop the engines if no call was made at that port. The master gave no heed to this statement but on the following day, January 23, when Singapore was thirty miles distant, the engines stopped and the master, several days without food and apparently quite ill, radioed Taiwan that he was sick in bed and requested orders. In reply the head office, unaware of the situation on board the ship, instructed the chief officer to assume command and proceed to Taiwan. Instead, he put into Singapore on January 24, and on January 26, after the master had been admitted to a hospital

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on shore, having left behind all papers, log books and radio messages; the communist flag was raised over the vessel. The wages of the crew were thereafter paid by the communists in control of the Hong Kong office. On February 1, China Merchants instructed Paul H. Paulsen, master mariner, to take command of the vessel in Singapore. Unable to get police protection from the harbor authorities, he mustered a skeleton crew and, unarmed, boarded the ship. Upon request that the ship be turned over, the Chinese crew voted a refusal and grew belligerent. Captain Paulsen then abandoned the venture and took his men ashore.

The crucial question is whether under these circumstances the activities of the masters of the Hong Kong vessels and of the crew of the Hai Hsuan amounted to barratry. The following excerpt from the opinion of Judge Thomsen in the District Court sets out the generally accepted definition of the offense of barratry with the supporting authorities [151 F.Supp. 226]:

"The classic definition of barratry was given by Lord Ellenborough, C. J., in Earle v. Rowcroft, 8 East 126, at 138: `* * * a fraudulent breach of duty by the master, in respect to his owners; or, in other words, a breach of duty in respect to his owners, with a criminal intent, or ex maleficio, is barratry. And with respect to the owner of the ship or goods, whose interest is to be protected by the policy, it can make no difference in the reason of the thing, whether the prejudice he suffers be owing to an act of the master, induced by motives of advantage to himself, malice to the owner, or a disregard to those laws which it was the master's duty to obey, and which (or it would not be barratry) his owners relied upon his observing.'

The English Marine Insurance Act, 1906, Sch. I, Rule 11, provides: `The term "barratry" includes every wrongful act wilfully committed by the master or crew to the prejudice of the owner, or, as the case may be, the charterer.'

This definition is accepted in America as well as in England. Arnould, sec. 839; 1 Phillips on Insurance (5th ed., N.Y., 1867), sec. 1062; Patapsco Ins. Co. v. Coulter, 3 Pet. 222, 28 U.S. 222, 7 L.Ed. 659; Greene v. Pacific Mutual Ins. Co., 9 Allen 217, 91 Mass. 217. Wilful nonfeasance of the master, doing nothing, if productive of mischief to the owner, may be barratry. Patapsco Ins. Co. v. Coulter, supra. If the captain deviates, or is compelled by the crew to deviate the vessel from its proper course and to put into an unauthorized port in fraud of his or their duty to owners, it is barratry. So is unreasonable or criminal delay. Arnould, secs. 844, 847. Where a captain, acting in collusion with the captain of an enemy ship, sailed his vessel to an area where she was captured by the enemy ship, it was held that recovery might be had either on the ground of barratry or of capture. Arcangelo v. Thompson, 2 Camp. 620. Crime is not a necessary element of barratry. Arnould, sec. 845, 847. Mutiny of mariners is discussed in Arnould, sec. 848, which says that `where the crew overpower the captain or constrain him to consent to their proceedings, the same acts would be barratry in them as in the master.'"

The celebrated and widely cited opinion of Chief Justice Bigelow in Greene v. Pacific Mutual Life Ins. Co., 1864, 9 Allen 217, 91 Mass. 217, applied these principles to a case in which the owner of a whaling ship recovered from the insurance company for a loss sustained when the ship was taken from the command of the officers and the possession of the owner by a mutinous crew. The master and third officer were killed, the first and second officers were badly wounded and the ship and its equipment were so badly damaged that the voyage was necessarily abandoned. The principal question considered by the court was whether the

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insurance company was liable for the loss under the clause covering "barratry of master or mariners" or was exonerated under the clause by which the vessel was warranted "free from loss or expense arising from capture, seizure or detention". The company defended on the ground that the evidence showed a "seizure" of the vessel by the mutinous acts of the crew. In discussing this question, the Court said, 9 Allen at page 220, 91 Mass. at page 220:

Barratry is one of the enumerated perils against which the defendants insured the plaintiff. This is a generic term which includes many acts of various kinds and degrees. It comprehends any unlawful, fraudulent or dishonest act of the master or mariners, and every violation of duty by them arising from gross and culpable negligence contrary to their duty to the owner of the vessel and which might work loss or injury to him in the course of the voyage insured. A mutiny of the crew and forcible dispossession by them of the master and other officers from the ship is only one form of barratry. Now it is obvious, in a practical point of view that no reasons existed for exempting this particular mode of committing the act from the general risk of barratry which the underwriters assumed. There was nothing in the nature of the voyage, or the business in which the ship was to engage, which furnished occasion for such exception.

Upon careful consideration, we are of opinion that the exception of a loss by seizure does not include the risk of mutiny of the mariners and the forcible taking of the ship from the control of the officers; or, in other words, that it does not properly exclude from the operation of the policy a loss by barratry. Certainly the word `seizure' cannot be applied to any barratrous act of the master. He has by law possession and control of the ship. He may, it is true, take her out of her course, or convert her to his own use in violation of his duty to the owners. But he cannot be justly said to seize that which is already in his own keeping. The same is true to a certain extent of the mariners. While in the discharge of their duty they have a qualified possession of the vessel. Subject to the order of the master, it is in their care and custody. If they violate their duty and disobey the master, displace him from command and assume entire control of the vessel, it is a breach of trust rather than a seizure. Lawton v. Sun [Mutual] Ins. Co., 2 Cush. 500, 514. It can be properly described only as barratry, in like manner as misappropriation of money by a servant or agent to whom it is intrusted is, correctly speaking, embezzlement, and not larceny. Indeed, the word `seizure,' as applied to the contract of insurance, may be said to import the taking possession of a ship or vessel by superior force, or by violence from without, and not a barratrous conversion of her by the officers and crew, or either of them.

"Authority is not wanting for the position that `seizure,' in a contract of insurance, is always to be understood in a restricted and limited sense, as signifying only the taking of a ship by the act of governments or other public authority for a violation of the laws of trade, or some rule or regulation instituted as a matter of municipal policy, or in consequence of an existing state of war. It is so understood in the commercial code of continental Europe. In this sense, too, it is used in other clauses of the policy declared on which exempt the underwriters from liability for `seizure for or on account of illicit or prohibited trade, or trade in articles contraband of war.' Such undoubtedly is its most common and ordinary signification, as applied to the subject matter of marine insurance. Whether it can have a broader meaning, so as to include a forcible taking of a ship as an act of hostility or for the purpose of plunder, it is not necessary now to determine. It is sufficient for the decision of the present case to say, that it cannot be interpreted to include the dispossession of the master and other officers from the ship by the mariners, and the barratrous conversion of her by them to their own use."

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This decision has been repeatedly cited and the principles enunciated have been generally accepted by text writers on the subject of marine insurance. See 1 Phillips, Insurance, 5th ed., 1867, p. 652; 1 Parsons, Law of Marine Insurance, 584; Richards on Insurance, 4th ed., 1924, p. 834; 5 Appleman, Insurance Law and Practice, 1941, § 3256, note 37; and so it has become familiar knowledge to underwriters of marine insurance and their technical advisers, as pointed out in the opinion of the District Court, that according to recognized authority the term "seizure" does not include a violent taking of possession of the ship by a mutinous crew.

In this view of the law, which we accept, the liability of the insurance company not only for the loss of the six Hong Kong ships but also for the loss of the Hai Hsuan is established. We are unable to accept the conclusion of the District Judge that the insurance company has no liability for the loss of the Hai Hsuan, a conclusion which is based on the stated distinction between the "possession and control" of the ship by the master and the "qualified possession" of the crew. Undoubtedly the possession of the crew is subject to the paramount authority of the master but they are not relieved from their own obligation to the owner when for any reason the master is unable to carry on. Clearly the crew cannot rid themselves of this duty of obedience to the owner by forcibly taking the controlling possession of the vessel out of the hands of the master. On the contrary, their duty becomes the greater when they depose the master and arrogate the supreme authority to themselves. As Chief Justice Bigelow said in the Greene case: "If they violate their duty and disobey the master, displace him from command and assume entire control of the vessel, it is a breach of trust rather than a seizure."

No case has come to our attention in which the barratrous conduct of either the master or the crew of a vessel has been held to be within the capture and seizure exclusion clause of a marine insurance policy.

In Kleinwort v. Shepard, 1 El. & El. 447, 120 Eng.Rep. 977 (1859), coolie passengers took control of a ship and made off with her. The court, in holding that the resulting loss came within the exclusion of "capture and seizure," inquired argumentatively whether it would not also be a seizure if a crew, intending to turn pirates, should murder the captain and run away with the ship. But this was mere dictum, aimed at answering the argument of counsel for the assured that "seizure" within the warranty had to be belligerent and come from without. The single point decided was that the passengers on board the ship, owing no duty of loyalty to the owner and being incapable of committing barratry, had effected a "seizure" of the vessel within the excluding clause. There was no barratry of master or mariners in the case.

The closest case in the view of the respondent insurance company is The Minden [1942] A.C. 50 British. , which considered the action of a German master of a German vessel carrying British cargo at the beginning of World War II. Acting under orders of the German Government the master scuttled the ship to prevent her capture by the The British court held that the insurance company was liable under a cargo policy insuring against loss by "capture, seizure, arrest, restraint * * * and detainment of all kings, princes, and peoples."

The respondents further contend that masters and mariners who change sides in a civil war and take their ships with them cannot be considered to have committed barratry. The answer to this is simply that the characterization of an act as barratrous is independent of the motives which provoked the act. Barratry cannot be modified by patriotism. In The Jupiter No. 3, [1927] Prob. 122, the master who had been placed in command of a vessel by the

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administrator for White Russian interests allowed the U.S.S.R. to gain possession of his ship. The court decided that the master "may have acted as a loyal subject of the U.S. S.R., but he betrayed his trust to his employers."

We find no error in the allowance by the District Judge of interest at 3 per cent on the face amount of the policies from the date of the rejection of the claims by the insurance company to the date of the decree and interest at 6 per cent thereafter.

The judgment of the District Court in each of the cases relating to the Hong Kong vessels will be affirmed and the judgment in the case relating to the Hai Hsuan will be reversed and the case remanded for further proceedings in accordance with this opinion.

Affirmed in part and reversed in part.

Case Study ThreeShell International Petroleum Co. Ltd. v Gibbs “The Salem” [1982] Q.B. 946The Issues

The Issues

Insurance—Marine—Cargo—Conspiracy to make away with cargo of crude oil—Cargo insured for voyage from Persian Gulf to Europe—Bulk of cargo fraudulently discharged in South Africa—Vessel with residue of cargo scuttled—Whether loss of cargo caused by "perils of the seas," "takings at sea" or "barratry"—Whether cargo owners to recover under policy—Marine Insurance Act 1906 s. 44

The Facts

Conspirators planned and executed a fraud and made away with a shipload of 195,000 tons of oil from the Persian Gulf, disposed of all but 15,000 tons in South Africa at a time when there was an embargo on oil supplies from the Arab states to that country and then scuttled the ship with the rest of the oil. In the execution of the fraud the conspirators purchased and manned

the Salem which they chartered to innocent charterers ("Pontoil") for a laden voyage from Kuwait to Europe. Pontoil purchased 200,000 tons of oil from innocent Kuwaiti shippers who loaded 195,000 tons at Mina al Ahmadi ("Mina") in Kuwait on to the

Salem. The master then issued documents relating to a voyage to Italy.

Pontoil declared the cargo under an open cover written by the defendant and fellow underwriters. The risks were those of the Lloyd's S.G. policy with the Institute Cargo Clauses

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and the Institute Strikes, Risks and Civil Commotion Clauses. The Lloyd's policy stated that the "perils" covered were those "of the seas... takings at sea... barratry of the master and mariners, and of all other perils, losses and misfortunes, that have or shall come to the hurt, detriment or damage of the said goods... and ship... or any part thereof."

Clause 8 of the Institute Cargo Clauses provided that in the event of loss the assured's right of recovery was not to be prejudiced by the fact that the loss might have been attributable to the "wrongful act or misconduct of the shipowners or their servants." The Institute Strikes Clauses provided, inter alia, that the insurance covered loss or damage caused by "persons acting maliciously."

After the Salem left Mina, by an entirely innocent transaction, Pontoil sold her cargo of oil on c.i.f. terms to the plaintiffs ("Shell"). Instead of going straight down the East African

coast and around the Cape on a course for Italy, the Salem turned off to Durban where she made fast to a single buoy mooring a mile and a half offshore. From there she pumped 180,000 tons of oil through hoses to tank farms ashore. Over U.S. $32,000,000 was paid into Swiss banks for the oil by South African importers and was then distributed among the

conspirators. The Salem then left Durban with the remaining 15,000 tons of oil and took in seawater to replace the discharged oil. Two weeks later as part of the planned fraud she was deliberately flooded by her master and crew off Senegal and sank with the rest of her cargo. Shell as purchasers of the cargo and assignees of the rights under the policy sought to recover their loss against the defendant as a representative underwriter and claimed, inter alia, that they were entitled to recover the sum insured under the policy.

Mustill J., after holding, inter alia, that there was no loss by barratry nor by "persons acting maliciously," gave judgment for Shell holding that there was a loss proximately caused by a

taking at sea which occurred when the Salem deviated from the direct course to Europe and made for Durban.

On appeal by the defendant: -

Held, allowing the appeal,

(1) that since the conspirators were privy to the acts of the crew of the Salem there had been no loss by barratry; that since they were acting for their own gain and not out of spite or ill-will they were not "acting maliciously"; and that whether there was a taking (per Lord Denning M.R.) at Mina, or whether there was a taking when the 180,000 tons of oil were pumped ashore at Durban, there was not a "taking at sea" nor were Shell entitled to rely on the ejusdem generis general words "all other perils, losses and misfortunes" in the policy; and that, accordingly, there was no liability under the policy in respect of that 180,000 tons

(2) That the proximate cause of the loss of the remaining 15,000 tons of oil was the scuttling of the Salem which (May L.J. dubitante) was "attributable to the wrongful act or misconduct of the shipowners" (the conspirators) within the meaning of clause 8 of the Institute Cargo Clauses; that such "loss" was by "perils of the seas" within the policy; and that accordingly Shell were entitled to judgment for the value of the residue of the oil remaining in the Salem when she was scuttled.

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Per Kerr and May L.JJ. The second sentence of clause 8 of the Institute Cargo Clauses does not apply to barratry (post, pp. 997E-F, 1002H - 1003A).

Per Lord Denning M.R. There was a "taking" which amounted to larceny by a trick when the oil was pumped into the Salem at Mina (post, pp. 986F, 987B).

Per Kerr L.J. "Takings at sea" within the meaning of the Lloyd's S.G. policy cannot apply to a taking by the shipowner of the cargo, but only to a taking by some outsider of both ship and cargo (post, p. 991C). If there had been a "taking at sea" when the Salem altered course to Durban, that alteration was not the proximate cause of the loss (post, p. 995G).

Per May L.J. The tendency to redraft insurance policies to give greater simplicity and certainty should be encouraged by Lloyd's and other insurers (post, p. 999A).

Quaere. Whether section 44 of the Marine Insurance Act 1906 gave a defence to Shell's claim (post, pp. 957A-

MUSTILL J.

During 1979 by a bold and essentially simple device, a group of dishonest men contrived to make away with a complete shipload of crude oil: nearly 200,000 tons, worth U.S. $56 million. The shippers of the goods were insured under a policy of marine insurance for a voyage from Mina al Ahmadi in the Persian Gulf to Europe. The plaintiffs, Shell International Petroleum Co. Ltd. ("Shell"), who were purchasers of the cargo and assignees of the shippers' rights under the policy, now seek to recover the amount of their loss in the present action, in which the defendant is sued as a representative underwriter.

The history of this affair, apart from a few inevitable but important omissions, is set out in a long and comprehensive statement of facts agreed between the parties for the purposes of this action. I will return to certain aspects of the facts in more detail at a later stage, but the following summary, contained in paragraph 2 of the agreed statement, is sufficient to enable the issues of law to be stated:

"The conspirators were planning and preparing the fraud from at least as early as October 1979. In the result the conspirators achieved their object as follows. (i) They obtained a purchase contract from the South African Strategic Fuel Fund Association ('S.F.F.') providing for the delivery of a cargo of Saudi Arabian crude-oil to Durban. (ii) They used that contract to obtain an advance payment from a South African bank (Mercabank Ltd.) sufficient to finance the purchase of a suitable tanker to carry such a cargo from the Arabian Gulf. (iii) They purchased such a tanker (the Salem). (iv) They manned that tanker with a master and principal officers... who were parties to the conspiracy and with a crew which was likely to be amenable to the conspirators' instructions. (v) They chartered out the tanker to an innocent charterer (Pontoil S.A.) for a laden voyage (in the event) from Kuwait to Europe. (vi) They deceived the charterer (Pontoil S.A.) and the shipper (Kuwait Oil Co.) of this cargo and the Kuwaiti authorities none of whom would have permitted the loading of the cargo nor the departure of the vessel *951 had they known the conspirators' actual instructions. (vii) Either before or after loading they procured the agreement of S.F.F. to accept a cargo of Kuwaiti oil in place of Saudi Arabian oil and at a slightly reduced price. (viii) They carried the cargo to and discharged as much as possible of it at Durban. (ix) They collected the price from S.F.F. (x) They scuttled the tanker in the Atlantic so as to attempt to conceal what had occurred. The

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final event in this sequence - the scuttling of the vessel - was completed on January 17, 1980."

Adding a little detail to this summary, it can be said that Pontoil had brought the cargo on f.o.b. terms from Kuwait Oil Co. They then declared the goods under an open cover written by the defendant and his fellow underwriters. After the cargo had been loaded at Mina al Ahmadi ("Mina"), but before the vessel reached Durban, they resold the cargo on c.i.f. terms to Shell. After the loss of the vessel had become known to both parties, Pontoil tendered to Shell the documents of title, including a certificate of insurance relating to the voyage cover. After some discussion, it was agreed that Shell would pay the full price of the goods and pursue the claim against underwriters. There is no dispute as to the right of Shell to bring the present proceedings, and to recover to the same extent and on the same basis, as if Pontoil had retained the documents and brought the claim themselves.

As I have said, the goods were declared under an open cover. This related primarily to the carriage of crude oil in bulk from the Persian Gulf, Kuwait, and ports in the Gulf of Suez, to Italy, together with voyages from Italy to various destinations. The cover also provided: "other voyages held covered." It was an express term of the contract that Pontoil were obliged to declare all shipments and that the underwriters were obliged to accept such declarations. The risks comprised in the open cover were those of the Lloyd's S.G. policy, together with the Institute Cargo Clauses (F.P.A.) and the Institute Strikes, Riots and Civil Commotions Clauses. The relevant part of the Lloyd's S.G. policy reads:

"Touching the adventures and perils which we the assurers are contented to bear and do take upon us in this voyage: they are of the seas … barratry of the master and mariners …

The Institute Cargo Clauses (F.P.A.) contains the following material provisions:

"1. This insurance attaches from the time the goods leave the warehouse or place of storage at the place named in the policy for the commencement of the transit, continues during the ordinary course of transit and terminates either on delivery (a) to the consignees' or other final warehouse or place of storage at the destination named in the policy...

5. Warranted free from particular average unless the vessel or craft be stranded, sunk, or burnt...

It is necessary for the assured when they become aware of an event which is 'held covered' under this insurance to give prompt notice to underwriters and the right to such cover is dependent upon compliance with this obligation."

The Institute War Clauses contain nothing material to the present dispute, but the Institute Strikes Clauses provide, inter alia, that:

"1. This insurance covers loss of or damage to the property hereby insured caused by (a) strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions; (b) persons acting maliciously."

The issues

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On the facts and the contract thus summarised, three distinct issues arise. (1) Did any of the following perils operate on the goods whilst they were on risk under the policy: (a) barratry; (b) persons acting maliciously; (c) perils of the seas; (d) takings at sea; (e) a peril comprised in the words "all other perils, losses and misfortunes"?

(2) If so, was the loss proximately caused by the relevant peril, or were the goods already lost before the peril began to operate?

(3) Did the goods suffer a total loss; or, if not, a partial loss of a type recoverable under the policy?

Barratry

Against this background, I now turn to the specific perils sued upon. The first is "barratry." This strange word, which has featured in policies of marine insurance since mediaeval times, originally had the connotation of "trickery."

It has, however, long been established that the peril must be understood in a much more limited sense. In particular: (1) The policy insures only against barratry "of the master and mariners." A fraudulent taking by the carrier himself or by a third party does not fall within this peril. (2) It is not enough to show fraudulent conduct by the master and crew directed against the interests of the person insured. Barratry necessarily involves a damnification of the ship-owner whether he or someone else is the person insured under the policy sued upon. The word has this meaning, even in the context of a policy on goods or freight: see Nutt v. Bourdieu(1786) 1 Term Rep. 323, 330, where Lord Mansfield C.J. treated it as clear beyond contradiction that barratry could not be committed against any but the owners of the ship. (3) It follows that if the ship-owner is privy to the dishonesty of the crew, there can be no recovery under a policy on either ship or goods. Under a hull policy the assured fails for two reasons: (a) because the loss is not by barratry, since the act is not contrary to his interests, and (b) because he cannot recover for the consequences of his own wrongful act. Under a policy on goods the assured fails for the single reason that there is no loss by barratry.

If these propositions contained the entire relevant law of barratry, Shell's claim to rely on this peril would be bound to fail, at any rate, so far as it is founded on this peril, since Oxford Shipping were undeniably the owners of the Salem and were undeniably privy to the dishonest act.

The principles of the law of barratry have been established for so long that a court (and certainly not a court of first instance) should not now seek to disturb them, however inclined it might have been to set off in a different direction if tackling the question afresh: see per Lord Herschell in Thames and Mersey Marine Insurance Co. Ltd. v. Hamilton, Fraser & Co. (1887) 12 App.Cas. 484, 494.

…

The court ought, in my judgment, still to apply the principles that there can be barratry only against the owner of the ship, and that "the owner" includes for this purpose those who have a sufficient degree of control to make them owners pro hac vice. The latter proposition is

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indeed recognised in a rather oblique way by rule 11 of the Rules for Construction of Policy, contained in Schedule 1 of the Act of 1906.

…

When construing an agreement in order to ascertain the intention of the parties, the court must have regard not simply to the words used but to the commercial purpose which the contract was designed to fulfil, and there is nothing in the doctrine of stare decisis which requires a court to hold that because a particular effect was held a century or more ago, to follow from the use of a particular form of contract, the same effect must inevitably follow today. Circumstances alter cases, and it seems to me impossible to say that in the very different conditions of modern commerce it would ever occur to the participants in an ordinary time or voyage charter that the owner thereby transferred possession and direct control of the ship to the charterer, or that the contract called into existence the relationship of master and servant between the charterer and the crew. The charterer does of course have a greater or lesser measure of choice as regards the employment which the ship is to perform; and very often the contract allows him to exercise this choice by direct communication with the master, rather than by notifying the shipowner for onward transmission to the ship. Such communications are often referred to as orders, and so in a sense they are. But they are essentially directed to the owner, not the master. The charterer avails himself of a contractual liberty to instruct the shipowner's captain what to do. The latter nevertheless remains the shipowner's captain, not the charterer's; and his duty to comply with the charterer's instructions is owed to the shipowner alone.

In these circumstances I believe that it is not correct to apply the old authorities by looking at the dispute now before the court and seeing how it would have been decided at the beginning of the 19th century. Instead, the court should take note of the established law that barratry only takes the shape of an act directed against the owner pro hac vice, who may on occasion be the charterer, and then go on to construe the individual contract before it, taking all the relevant circumstances into account, in order to decide whether this status was conferred on the particular charterers in question. Adopting this approach, I think it quite plain that Pontoil did not become owners pro hac vice and that since Oxford Shipping (or the conspirators who lay behind it) were privy to the acts of the crew; there was no loss by barratry.

In these circumstances, for the reasons which I have given, I conclude that there was a loss proximately caused by a taking at sea. Whether this is properly regarded as a loss of the entire cargo, or whether it was a loss of part followed by the loss of the remainder in consequence of perils of the seas, is immaterial. On either view Shell are entitled to succeed. There will be judgment accordingly.

Judgment for Shell with declaration and cost.

APPEAL from Mustill J.

The defendant appealed on the grounds that the judge

(1) wrongly held that there was a loss (or losses) by perils insured against;

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(2) should not have held that there was a loss by takings at sea;

(3) wrongly concluded that at some time the goods were undoubtedly taken;

(4) wrongly applied the test "when was there an overt act manifested towards the outside world?" and/or wrongly held that there was a taking when the vessel turned into Durban;

(5) wrongly held in the alternative that an event occurring at the conclusion of the maritime adventure would be a taking at sea or other peril;

(6) wrongly disregarded the primary intentions of the conspirators and wrongly inquired whether their intention was immutable;

(7) failed to arrive at a correct conclusion on the question of proximate cause; and that

(8) the decision of the Court of Appeal in Nishina Trading Co. Ltd. v. Chiyoda Fire and Marine Insurance Co. Ltd. (The Mandarin Star)[1969] 2 Q.B. 449 with regard to takings at sea and all other perils (although in the defendant's contention incorrect), ought to have been distinguished by the judge.

By a respondents' notice Shell gave notice of their intention to contend that the judgment should be affirmed on grounds additional to those relied on by the court below, namely,

(1) that the judge ought to have held that there was loss or losses by barratry;

(2) that he ought to have held that Shell were entitled to rely on clause 8 of the Institute Cargo Clauses and that their right of recovery was not to be prejudiced by the fact that the loss might have been attributable to the wrongful act or misconduct of the shipowners or their servants;

(3) that the judge ought to have held that there was a loss or losses by persons acting maliciously;

(4) if there was not a loss by a taking at sea when the ship turned aside from her direct route to Europe and set course for Durban that there was a loss or losses by a taking at sea alternatively by "all other perils"; (a) when the cargo was received on board at Mina; (b) when the ship sailed out of Mina; (c) as regards the quantity discharged at Durban, when the cargo passed the ship's hose connections at the S.B.M.; (d) when the ship sank.

LORD DENNING M.R.

A gigantic ship was used for a gigantic fraud. She was the Salem, a super-tanker. She loaded 195,000 tons of crude oil in the Arabian Gulf for carriage from Kuwait to Italy. Going down the east coast of Africa, she suffered a sea-change. She changed her name from Salem to Lema. Done by painting out "Sa" and adding "a." Then instead of going straight down to the Cape she turned off to Durban. She made fast to a single buoy mooring one and a half miles offshore. She pumped most of the oil through hoses into the tank farms ashore. She pumped ashore 180,000 tons, leaving only 15,000 tons in the ship. The South African importers paid for the oil through their banks. It came to over U.S. $50 million. Most of this money was paid at once into numbered accounts in Switzerland where no one could get at it. That payment

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was done by telex in a few minutes. The Salem then took in sea-water to take the place of the oil. She set off again on her voyage round the Cape - looking to all the world as if she still had her full cargo of oil. She sailed northward until she was off Dakar and Senegal. Then in a calm sea there was a series of explosions on board. She was in danger of sinking. Not far off there was a British tanker, the British Trident. She put out her lifeboats and picked up the crew. The Salem went to the bottom. The captain of the British Trident took a film of the sinking. It came in useful afterwards to find out why she sank. A little oil slick was seen on the water. Only 15,000 tons. The rest was all sea-water.

She had been scuttled. Those aboard, of course, denied it. The Salem had sunk, they said, because of the explosions.

The captain and chief officer were Greek. There was a Tunisian crew of 22. There was a preliminary inquiry in Senegal. The captain produced his credentials. It was a Liberian master's certificate. But it was forged. He and the chief officer were extradited to Liberia. The Tunisian crew were paid substantial "hush money" and went back to Tunisia. Not long afterwards there was a change of government in Liberia. The master and chief officer were set free. The Liberian government apologised for their "illegal detention." They went back to Greece where proceedings have been instituted, but not completed. Will they ever be?

Behind this gigantic fraud there were of course gigantic swindlers. The captain and chief officer were only the tools in their hands to do the dirty work. The wicked minds behind it were those of a group of cosmopolitan crooks. They have never been caught. They are still at large. They seized their opportunity when in 1979 the Arab countries put an embargo on oil supplies to South Africa. So South African importers were keen to get supplies. So the crooks made a plot to get oil from Kuwait on the pretence that it was to go to Italy. Then to divert it to Durban and sell it to the South Africans there. It was all to be done in the name of limited companies. No crook ever operates in his own name. Every country in the world recognises the corporate personality of every company registered in every other country of the world. The crooks use these companies as puppets with which to mount their frauds and to escape being discovered.

The Salem left Kuwait apparently bound for Italy - going straight down the east coast of Africa, round the Cape and up the west coast through the Straits of Gibraltar to Italy. Soon after she left, Pontoil, quite innocently, sold the cargo to the plaintiffs, Shell, on c.i.f. terms. So Shell, quite innocently, became then the owners of the oil.

I have already described what happened to the vessel. But I would add that at Durban the South African concern, through its bankers, paid the purchase price of the oil. In this way U.S. $12.3 million went to pay the sum due for the Salem. U.S. $32 million went to Beets Trading A.G. It was remitted to Switzerland immediately and distributed among the crooks via numbered accounts which cannot be traced. Their plan had succeeded. They had the money for the oil. They did not mind losing the ship. She was scuttled in order to avoid detection.

The losers were Shell. They had paid in full for 195,000 tons of crude oil and had got none of it. They went to South Africa and tried to trace the receivers of the oil. They managed to get quite a lot of money out of them. But they were still a great deal out of pocket. So they claimed on the insurers. That is what this case is about.

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The law

Such are the facts stated shortly. Further particulars can be found in the judgment of Mustill J., ante, p. 950C et seq. He has set out the facts and the law admirably. I find myself in agreement with much of it but not with all - as you will see.

The claim of Shell against the underwriters rests on the policy of insurance. Shell took it over from Pontoil. Pontoil had an open cover with Lloyd's. They declared under it the shipment in the Salem from Mina al Ahmadi ("Mina") in Kuwait to North Europe of the cargo of 196,231.768 metric tons of crude oil under bill of lading dated December 10, 1979.

It was subject to the standard form of Lloyd's Marine Policy together with the Institute Cargo Clauses (F.P.A.) and the Institute Strikes Clauses. I will not read out the relevant parts. You will find them all set out ante, pp. 951F - 952D.

The various perils

So the question became simply whether or not the loss of the cargo was due to one of the perils insured against.

(i) Barratry

Barratry occurs only when there is an act done against the owners of the vessel. It does not apply when the owner himself does the act or is privy to it. In this case the judge held, ante, p. 965A, that "...since Oxford Shipping (or the conspirators who lay behind it) were privy to the acts of the crew, there was no loss by barratry." The judge's ruling on this point was accepted by Shell.

(ii) Persons acting maliciously

This is covered by the Institute Strikes Clauses. The judge held (ante, p. 966A-B) that the crooks were not acting maliciously, i.e. out of spite, ill will or the like, but for their own gain. The judge's ruling on this point was accepted by Shell.

(iii) "Pirates" and "thieves"

These perils have been very narrowly construed. There were no "pirates" here because there was no forcible robbery. There were no "thieves" here because there were no violent means. This was accepted by Shell and no claim was made in this regard before the judge.

(iv) "Takings at sea"

At Mina al Ahmadi (Kuwait)

I do not think that the taking of this oil was a taking "at sea." It was a taking in port. It was a taking in the port of Mina in Kuwait as soon as the oil was pumped into the vessel. It was taken by the master and crew as agents of the shipowners, Oxford Shipping Co. Inc., and is evidenced by the fact that the master gave a bill of lading for it. It was taken in pursuance of a pre-concerted design of converting it to their own use. At the very moment of taking it was taken with predetermined intent of depriving the true owner permanently of it. It was larceny

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by a trick: see all the authorities such as Rex v. Aickles(1794) 1 Leach 294. It was not larceny by a bailee, nor obtaining by false pretences. I make no apology for referring to the old criminal law in this context. Larceny was always spoken of as a "taking." The Larceny Act 1916 (which was a careful compilation of the existing law) defines larceny by reference to the word "takes" and says that the expression "takes" includes obtaining the possession by any trick.

The concept of "takings" in this policy is the same as the concept of "taking" in the old law of larceny. It involves a change of possession. As Atkin L.J. in Lake v. Simmons[1926] 2 K.B. 51, 71 said:

"This is not a technicality of the criminal law, but a principle as old as the common law, and governs civil rights and procedure as much as obligations and procedure in matters of crime."

See also per Viscount Sumner in the House of Lords [1927] A.C. 487, 509-510.

I hold therefore that there was larceny by a trick at Mina al Ahmadi in Kuwait and that the taking was there in port and not "at sea."

Change of course

The judge, however, found that there was a "taking at sea." He held that the taking occurred "when the ship turned aside from the direct course to Europe and made for Durban." I cannot see this at all. There was no change of possession then at all: and therefore no taking by anyone. There was no taking at all until the vessel got off Durban and pumped the oil through the hoses to the tanks ashore. It was then a taking by the South African concern from the shipowners and master into the possession of the South Africans. It was not a taking "at sea."

The Mandarin Star

I am afraid that I am the cause of all the trouble: because of what I said in Nishina Trading Co. Ltd. v. Chiyoda Fire and Marine Insurance Co. Ltd. (The Mandarin Star)[1969] 2 Q.B. 449. I must confess now that I was wrong there. Let me explain why.

I based my reasoning on some observations of Lord Wright in Rickards v. Forestal Land, Timber and Railways Co. Ltd.[1942] A.C. 50, 79-80. In that case, at the outset of the Second War the German government instructed all German vessels to return to Germany with their cargoes or, as a last resort, to scuttle their vessels. The German captains obeyed that instruction and scuttled their ships. The cargo owners claimed on the insurers for "restraint of princes." They succeeded. Viscount Simon L.C. said, at p. 64:

"The constructive total loss occurred when the German captain obeyed the instructions of his government and held the goods as the subject and servant of that government instead of holding them as the bailee of the assured."

As I understand that reasoning, the conduct of the German captain amounted in law to a change of possession: because he attorned to the German government and the very attornment effected a change of possession. But without such attornment there would have been no change of possession: see Dublin City Distillery (Great Brunswick Street, Dublin)

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Ltd. v. Doherty[1914] A.C. 823, 847, per Lord Atkinson and Pollock and Wright, Possession in the Common Law (1888), p. 134.

Lord Wright, as I read it now, said much the same as Viscount Simon. *988 But I am afraid that in The Mandarin Star[1969] 2 Q.B. 449 I misread it. I read Lord Wright as saying that it was sufficient if the German captain off his own head - without any attornment - changed the character of his possession. So interpreting Lord Wright I held in The Mandarin Star that there was a "taking at sea." In so holding I was wrong. There must be a change in the possession - not merely a change in the character of it. In our present case there was no change in possession when the ship changed course. The goods in the Salem remained in the possession of the owners throughout through the master as their servant. There was no change of possession. The change of course was not a "taking at sea."

What then is to be done? I think we should not follow The Mandarin Star. It was decided per incuriam. It is easier for me to say this than it was for the judge or for my brethren here. But even if it was not per incuriam, I am going to risk the disfavour of the House of Lords and say under my breath that we are not bound by our previous wrong decision, reminding myself of what Galileo said - when he was likewise condemned for heresy - E pur si muove - "But it does move."

At Durban

Once we dispose of The Mandarin Star, the case is plain. When the Salem changed course for Durban, there was no "taking" of the goods at all. But there was at any rate a "taking" at Durban - when the oil was pumped ashore. But that was not a taking "at sea." It was a "taking" at a buoy off-shore.

Causation

If I am right in thinking there was a "taking" of the cargo of oil at Mina in Kuwait, there is still the question: was the whole of the 195,000 tons lost there? I think not. There was always the possibility that the fraud might have been discovered and the plan of the crooks frustrated in some way or other: so that the vessel might have carried on with the voyage specified in the policy. The truth on causation is that the cargo was lost in two batches. The first batch of 180,000 tons was lost at Durban; and the remaining batch of 15,000 tons lost when the ship went down off Dakar. The 180,000 tons is not covered by the policy, because it was not a "taking at sea." But the 15,000 tons is covered because it was lost by "perils of the sea." If there was no saving clause, the loss would be due to the "scuttling" and not to perils of the sea: see P. Samuel & Co. Ltd. v. Dumas[1924] A.C. 431. But the second sentence of clause 8 of the Institute Cargo Clauses (F.P.A.) says:

"In the event of loss the assured's right of recovery hereunder shall not be prejudiced by the fact that the loss may have been attributable to the wrongful act or misconduct of the shipowners or their servants committed without the privity of the assured."

Under that sentence I think the claimants are entitled to disregard the scuttling. They are entitled to look only at the fact that the water flooded into the ship and she was lost by "perils of the sea." The 15,000 tons is, therefore, recoverable. *989

Conclusion

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I would hold the underwriters not liable for the 180,000 tons because the taking of it was not a taking "at sea "; but that they are liable for the 15,000 tons lost in the sinking of the Salem.

I would allow the appeal accordingly.

8. The Due Diligence ProvisoThe Institute Time Clauses – Hulls provides, inter alia that:

6.2 This insurance covers total loss (actual or constructive) of the subject-matter insured caused by…6.2.5 barratry of Master Officers or Crew, provided such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers.

This proviso is non-delegable – the responsibility is cast on the ship-owner and the ship-owner only. This point is well illustrated by the Canadian case of Coast Ferries

Coast Ferries Ltd. v. Century Ins. Co. of Canada et al., [1975] 2 S.C.R. 477Insurance (Marine)—Inchmaree clause—Loss caused by negligence of master covered provided such loss not result of want of due diligence by owner—Unseaworthiness of vessel caused by wrong loading for which master to blame—Proximate cause of casualty—Owner wanting in due diligence—Marine Insurance Act, R.S.B.C. 1960, c.231, s. 41(5).

A policy of marine insurance invoked by the appellant, the owner of a motor vessel employed in the coastal trade, contained the normal insuring agreement protecting against the perils of the sea and other risks, including the Inchmaree clause. The latter provided that loss or damage caused by the negligence of the master was covered provided such loss or damage did not result from want of due diligence by the owner. Both Courts below found that the proximate cause of the casualty was the unseaworthiness of the vessel caused by wrong loading for which the master was to blame. No general allegation of peril of the sea was put before the Court and the allegation of shifting of the load was not proven.

The trial judge found that the loss was one covered by the policy because the owner was free from blame. The Court of Appeal reversed the trial judgment on the ground that the owner was wanting in due diligence in seeing that the vessel was properly loaded.

Held: The appeal should be dismissed.

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The Court of Appeal was correct on the question of due diligence. The owner failed to supply proper loading instructions and did not take the basic precaution to verify the conduct of its master.

APPEAL from a judgment of the Court of Appeal for British Columbia, allowing an appeal from a judgment of Ruttan J. Appeal dismissed.

DE GRANDPRÉ J

The facts are simple and I cannot do better than to quote from the reasons for judgment in the

Court of Appeal:

The vessel was a converted automobile ferry employed in the coastal trade, carrying freight between Vancouver, B.C. and Loughborough Inlet, and way points. Her master was K.R. Watt and her mate P.J. Snow, both holding certificates of competency as Masters of home trade vessels limited to 350 tons.

On October 23, 1969, at about 0330 hours, the vessel was off Point Atkinson when she was found to be taking water. The master and crew abandoned her; she rolled over on her starboard beam, shed her deck cargo, and righted herself. The master boarded her and found the main engines still operating and beached her at Garrow Bay, one-half mile away.

…

The learned trial judge found that the proximate cause of the casualty was the unseaworthiness of the vessel caused by wrong loading, for which the master was to blame, but the owner was not.

…

The learned trial judge concluded that the casualty was caused by the vessel sailing with a free-board of only 18” at the stem, and that was aggravated by a rake of 1 foot down by the stem. At the vessel’s full speed of 7½ knots, she generated a bow wave 2 feet high, with the result that even in the dead calm sea the wave broke over the sponson shaped bow and made its way along the deck into the ventilators, which were properly left open under the prevailing conditions, and into the hold, further depressing the head and increasing the inrush of water until she lost her stability and rolled over.

Both Courts below found that the proximate cause of the casualty was the unseaworthiness of

the vessel caused by wrong loading for which the master was to blame. I am certainly not

ready to disturb these concurrent findings of fact. Indeed, they are well supported by the

evidence. The policies of insurance invoked by appellant contain the normal insuring

agreement protecting against the perils of the sea and other risks, as well as the Inchmaree

clause. The relevant part of the latter (taken from one of the policies) reads:

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This insurance also specially to cover (subject to the Average Warranty) loss of or damage to the subject matter insured directly caused by the following:—

…

Negligence of Master, Charterers other than an Assured, Mariners, Engineers or Pilots:

Provided such loss or damage has not resulted from want of due diligence by the Assured, the Owners or Managers of the Vessel, or any of them.

Before the trial judge, plaintiff appellant put its case thus in the words of Ruttan J.:

The owner as plaintiff has stated in the pleadings that the loss was due to the negligence of the master and crew in the loading and in the eventual handling of the vessel immediately prior to her foundering. In the alternative it is alleged that the loss was caused by a peril of the sea which arose by the cargo shifting damaging the vessel and so causing an incursion of sea water whereby she sank.

In the course of the, trial, plaintiff appellant sought to enlarge this allegation by referring to a

more general plea of peril of the sea but this amendment was refused by the judge:

I decreed that if such an amendment were to be made, there would have to be an adjournment as requested by defence counsel, and plaintiff therefore abandoned the motion.

Plaintiff appellant was therefore left under the general clause with the sole allegation that the

cargo had shifted. On this point, the trial judge made a finding that no such shifting had taken

place. There certainly is enough evidence to support this finding and I accept it.

The only question in issue at this stage of the proceedings is the following: Does the

Inchmaree clause permit recovery by appellant? In other words, did the negligence of the

master, as found by the Courts below, exist without “want of due diligence by the Assured”?

The trial judge found that the assured owner did not lack of due diligence. The Court of

Appeal reversed the judgment of the trial Court. Davey J.A., speaking for the Court, declares

himself “fully satisfied on the evidence that the owner was wanting in due diligence in seeing

that the vessel was properly loaded”. The reasons of the Court of Appeal are very well

summarized in the following extract of the reasons for judgment signed by Davey J.A.:

But when the owner left full responsibility for the loading to the master it became its duty to furnish the master with sufficient information about minimum freeboard and trim for the vessel (among other data) to enable the master to exercise sound judgment in loading in the light of his skill and experience. The owner did not do so. Therein lay its want of due diligence. That information was especially necessary because the owner’s standing

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instructions required the master to load the cargo on the vessel (mostly on the deck for which the vessel was well suited) in the inverse order to which it was to be unloaded according to the order of ports of call. Such procedure on occasion required heavier items of deck cargo to be placed well forward, which would depress the bow. On some occasions the owner, not the master, changed the usual order of ports of call to avoid excessive draught at the stem.

In 1960 the owner thought it desirable to learn something of the hydrostatic characteristics of the “Brentwood” and had Mr. Allan, a naval architect, perform inclination tests on the vessel to secure that information. The purpose of the tests was “to obtain an indication of the limits of cargo, distribution of cargo, and cargo weight” that the vessel could carry. Allan gave a written report to the owner (ex. 37). The report showed a minimum safe freeboard midship of 1’6” at even trim, which would substantially exceed 2 feet at the stem. Capt. Torn said that he maintained a minimum freeboard of 2½ to 3 feet at the bow. Mr. Allan discussed verbally with O.H. New, the president of the owner, the question of trim because they both knew it was possible to load the vessel by the head, and they both agreed it would be undesirable to take the vessel any great distance with the trim below level by the head (A.B. 275), because that raised problems of taking water over the bow, steering and the vessel’s behaviour.

None of the information verbal or written was given to Capt. Watt, notwithstanding the owner had gone to some expense to obtain it.

The written report was on board the vessel in a drawer under the master’s bunk along with other papers of the ship, but Capt. Watt had not seen it, and no one seems to have told him about it. He said so far as he knew there was no stability information on the vessel at the time of the accident.

Mr. Allan said that he would expect a deep sea master to be able to read the inclination report, and extract necessary information from it, but not a master holding only a limited coastwise certificate; that coastal masters are not in the habit of making calculations from inclination test reports, but they do judge stability by their experience and the feel of the ship, and many are excellent in their use of these “seat of the pants” methods.

I think it clear from Capt. Watt’s evidence that he could not have utilized fully the information contained in the inclination test report, even if he had seen it, and of course it would have given him no information about the limits of trim, because Mr. Allan did not include that in his report, but covered it in verbal discussion with Mr. New. Obviously, placing the report of the inclination tests on board the vessel was quite an inadequate substitute for proper loading instructions based upon the inclination tests.

Mr. Allan found it incredible that a master would load the vessel so that it had a rake of 1 foot down by the head with a freeboard at the stem of only 18”. From that it would appear that an experienced master without any loading instructions should have seen the folly of so loading the vessel. But in my respectful opinion that does not excuse the lack of diligence of the owner in not supplying proper loading instructions. It emphasizes the need for them.

With these reasons I am in full agreement. As a matter of fact, other circumstances disclosed

by the evidence clearly show to my mind that the appellant owner did not take the basic

precaution to verify the conduct of his master:

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1. on many previous occasions the ship was sent to sea with a cargo the weight of which was

in excess of the maximum prescribed by Mr. Allan, the naval architect consulted by the

appellant in 1960;

2. there were no draft marks on the vessel;

3. no system was devised by the owner to maintain logs showing freeboard, trims, etc.

The duty of due diligence imposed upon the owner is not satisfied if for years he closes his

eyes and does nothing. His obligation is to act reasonably in the circumstances and the

evidence in the present case discloses that the appellant’s main competitor maintains a much

better procedure.

The parties also referred us to s. 41, para. 5 of the Marine Insurance Act, R.S.B.C. 1960,

c. 231, which reads as follows:

(5) In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.

In view of the fact that we were not asked to examine the problem in the light of the general

insuring clause, and in view of my conclusion on the question of due diligence, I do not find

it necessary to examine this point.

For the above reasons, I would dismiss the appeal with costs.

Appeal dismissed with costs.

Further ReadingsGR Pitts, “Barratry as a Covered Risk in Marine Insurance: Problems and Perspectives” [1983] JMLC 131

SJ Hazelwood, “Barratry – the scuttler’s easy route to the “golden prize” [1982] LMCLQ 383

VSE Tsichlis, Causation Issues in Barratry Cases, 35 JML & Com 225

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