Posted: 16/05/2024
In February 2019, quite out of the blue, the Indonesian Navy began enforcing its sovereign state’s rights over the territorial waters surrounding the archipelago, particularly around the island of Bintan. Those waters had been a popular place for vessels waiting outside the eastern port limits of Singapore. Twenty vessels were seized, and their crews detained pending criminal proceedings. Prior to this enforcement, hundreds of vessels had waited safely and uneventfully at this location, generally described by mariners as ‘EOPL Singapore’.
In a recent High Court decision, Mrs Justice Dias DBE dealt with an insurance claim brought by the owners of the vessel Win Win after its detainment exceeded the six months necessary to be deemed a constructive total loss (CTL) under a war risks policy on the American Institute hull war risks and strikes clauses.
It was common ground that the prolonged detainment would qualify as a CTL within the terms of the policy, which included cover for ‘seizure, arrest, restraint or detainment, or any attempt thereat’, subject to a number of defences the insurers were seeking to raise.
Firstly, the insurers argued that, as the master voluntarily proceeded into Indonesian waters and halted there without permission, contrary to international law, the loss lacked the necessary fortuity to qualify as an insured peril. However, the judge found that the master never applied his mind to whether the vessel was in Indonesian waters. While he did assess whether the anchorage was safe from a nautical point of view, he did not subjectively consider the legality of the location, but simply regarded it as a usual anchorage. This was not enough to amount to wilful misconduct, as the loss was not caused ‘by the choice of the assured’.
The insurers also sought to rely on an express exclusion in the policy in respect of ‘arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints not arising from actual or impending hostilities’. They argued that the arrest was procedurally similar to one arising out of customs or quarantine regulations. This argument also failed, the judge finding as a matter of contractual construction that ‘similar arrests and restraints’ necessitated that the arrest have materially the same underlying purpose and objective as an arrest under customs or quarantine regulations. In contrast, the seizure of the vessel was prompted by a change of policy on the part of the Indonesian government with a view to asserting sovereignty over its territorial waters.
Both the American Institute hull clauses and section 78(4) of the Marine Insurance Act 1906 impose on the assured a duty to take such measures as may be necessary to avert or minimise a loss. In this respect, the insurers contended that the detainment was prolonged by the actions of the owners in engaging in discussions with the Indonesian Navy until it became apparent that the Navy officials were seeking a bribe to facilitate the release of the vessel. It was contended that, by withdrawing from those discussions at a late stage, the owners aggravated the situation, resulting in a prolonged detention.
The onus of proof was on the insurers to demonstrate a failure to sue and labour, and the threshold was high, akin to a failure to mitigate. As there was no published decision in which such a failure was found to have broken the chain of causation between the original peril and the loss suffered, unsurprisingly, the present case was no exception. Rather, there was ambiguity surrounding the appropriate course of action to obtain the release of the vessel in the early stages and the owners had, quite reasonably, been exploring every possibility.
Finally, the insurers also raised a non-disclosure defence. Mr Bairactaris, the nominee director of the one-ship company that owned the Win Win, had in 2018 been charged by Greek authorities with being implicated in one of the largest ever intercepted heroin shipments to Europe aboard the vessel Noor 1 in 2014. Mr Bairactaris was a registered member of the Piraeus Bar with an apparently thriving practice, guilt was denied, and the charges were never progressed, not even so far as requesting information or documents. However, the existence of these charges had not been disclosed to the insurers at the time of placing the risk.
The owners were unaware of the charges and the judge found they also did not have constructive knowledge pursuant to section 4(6) of the Insurance Act 2015. Rather, the charges had only come about a few months before cover was procured, and it was not reasonable to expect the owners to have made enquiries with Mr Bairactaris within this timeframe, particularly in view of his vocation and the fact that, as a nominee director, he had no substantive role in running the company. The non-disclosure defence therefore failed. The insurers were not entitled to avoid the policy.
It was accordingly unnecessary to consider whether the non-disclosure was objectively material to the risk and whether the insurers were subjectively induced to write the risk as they did. The judge did however address these issues and indicated that the existence of the charges was material. Even though Mr Bairactaris had no role in running the company, a prudent insurer would at least have wished to consider the issue.
The judge found that the question of whether the insurers were subjectively induced should involve an assessment of what would have happened if the assured had presented a complete picture with respect to the charges ie including the fact that the charges were not progressed, were denied, and Mr Bairactaris was an established and trusted practitioner. The judge concluded that the insurers would have been induced to write the risk on different terms, namely requiring that Mr Bairactaris be replaced before they would cover the risk. However, if the insurance contract were treated as having been written on those terms, there is no doubt the owners would have complied with this requirement.
The claim for a CTL therefore succeeded in the agreed value of US$ 37.5 million; significantly more than the owners paid to purchase the vessel. As the judge observed at the outset, the ‘[r]esolution of these issues will incidentally (and quite irrelevantly) determine whether the Vessel was appositely named...’ The case was a win-win for the owners and an interesting exposition of a spread of marine insurance-related issues.
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