1. No category

Law Coursework Sample
Introduction:
In the case of mv Warwick and mv Salisbury the law that governs the Marine
Insurance contracts is English law, which means that the Marine Insurance Act 1906
(MIA 1906) and the common-law approach will play a core role in this analysis. The
scenario explores various issues in regards to Marine Insurance, which will both be
analysed in regards to legal precedent and academic commentary.
The Collision and mv Warwick
The first set of facts centre on a collision (i.e. the Warwick), which commentators
such as Dari-Mattiacci and Garoupa1 argue should adhere to the traditional
formulation of general negligence, i.e. the Master that could have avoided the
accident with the least harm and the lowest cost should be liable. In this view “[t]he
interest for least cost avoidance typically arises in a subset of accident contexts
within the standard model of bilateral accidents. In the latter, the expected accident
loss is a function of both the injurer's and the victim's care… In such general terms,
this distinction has only been deemed relevant when a party fails to take appropriate
care and the question arises whether the other party should respond by reducing or
increasing his or her precaution”2. There is a growing body of case law that is
considering a combined approach about command and control, because in the case
of the Warwick there is a question of collision avoidance. Therefore, the first part is
going to consider marine collisions and if liability should be apportioned on a cost
avoidance basis3.
Dari-Mattiacci, G and Garoupa, N “Least-Cost Avoidance: the tragedy of Common Safety” JLE & O 25(1) 235-261
Ibid, pg. 235;
3
Robinson, G (1939) On Admiralty, West Publishing Company pg. 664Alvey, GR (1982) “Implied Warranty of
Workmanlike Performance in Towage: A Viable Theory” 7 Mar Law 1, pg. 1-2
1
2
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Law Coursework Sample
Piracy and mv Salisbury
The second set of facts centre on piracy by the Master of the ship; whereby the key
concern is that piracy losses are covered in full under ITCH and Cargo Clauses A4.
However, an issue that arises in this case is that piracy is that the Construction of
Rule 8 of the MIA 1906 defines piracy as “forcible robbery at sea, whether committed
by marauders from outside the ship, or by mariners or passengers within it. The
essential element is that they violently dispossess the Master, and afterwards carry
away the ship itself or any of the goods, with a felonious intent”5. This definition has
been approved in the case of Athens Maritime v Hellenic Mutual War (The Andreas
Lemos)6 where it was held that the normal business definition of piracy applied in the
case of insurance. The primary issue of concern in the case of the Salisbury is
whether the act of piracy can be identified as total or constructive loss when there
was a ransom payment. This has become a point of debate in modern maritime law,
because of the Somali pirates in the Aden strait; whereby the case of Masefield AG v
Amlin Corporate Member Ltd7 (Bunga Melati Dua) held that piracy does not
automatically result in actual or constructive loss under the MIA 1906. Therefore, in
Part II the facts of the Salisbury need to be applied to consider the approach to the
piracy that needs to be taken. Also the case of the Salisbury needs to consider the
effects of the delay, adverse weather and the incorrect age on the claim.
Mandaraka-Sheppard, A (200) Modern Maritime Law and Risk Management, Routledge, pg. 762
Bennett, H (2006) The Law of Marine Insurance, 2nd Edition, pg. 153-4
5
Wong (2009) “Piracy – Does it give rise to a claim for a General Average” Institute of Sea Transport available at:
http://www.seatransport.org/seaview_doc/SV_87/SV_87%20-%20Piracy%20%20Does%20it%20give%20rise%20to%20a%20claim%20for%20General%20Average%20(1).pdf; c.f Colinvaux, RP
(1952) Carver's Carriage of Goods by Sea (9th ed) Stevens & Sons Ltd
6
Athens Maritime v Hellenic Mutual War [1983] QB 647
7
Masefield AG v Amlin Corporate Member Ltd (Bunga Melati Dua ) [2010] 1 Lloyd’s Law Reports 509
3
4
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Law Coursework Sample
Part I -- The Warwick:
The Warwick, Talbot and Liability:
In the case of mv Warwick there is a concern in regards to marine insurance in the
case of the collision. The interesting factor in this case is that the ship the Warwick
collides with is the mt Talbot, which is an old out-of-service oil tanker used as an offshore oil storage facility storing crude oil when storage facilities at the nearby
refinery are full. A central consideration that needs to be explored is role that the
Talbot could have played, because it is a stationary vessel that has retained limited
navigational and engine capabilities sufficient for restricted manoeuvring in coastal
waters8. Hence, the question that needs to be considered is whether the Talbot
could have avoided the collision.
In the case of the Talbot the question of control and command needs to be
considered, because it is an out of use tanker used for purely storage purposes.
Even so, it had restricted manoeuvring capabilities, which means it was possible for
the vessel to avoid the collision. But, as it is moored off-shore from a nearby oil
refinery serving the North Sea oil exploration field did it really have any control? This
will play an important role, because if it is identified as a part of the stationary oil
refinery then it cannot attract any liability9. As a stationary object there is no liability
for the action if it could not have undertaken an action to prevent the collision10.
However, if it is seen as an independent vessel then it has control and could have
reduced the possibility of collision11, i.e. it should have at the minimum been able to
call through to the Warwick in order to alert them to the hazard. It seems that the
See Mandaraka-Sheppard (2001) Modern Admiralty Law Routledge chapter 12; Cockroft & Lameijer, A Guide to the
Collision Avoidance Rules (5th ed, 1996); Holdert & Buzek, Collision Cases: Judgments and Diagrams (2nd ed, 1990);
Owen, ‘The Origins and Development of Marine Collision Law’ (1977) 51 TulLRev 759
9
Mandaraka-Sheppard, A (2007) Modern Maritime Law and Risk Management, Routledge, pg. 762
10
The Niobe (1888) 13 PD 55
11
The Devonshire [1912] AC 634
8
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courts have undertaken a combined approach, because it has been determined that
the Warwick is liable for 90% of the collision; whereas the Talbot is only 10% liable.
This may be problematic; because International Hull Clauses (01/11/03) (IHC)
identifies that the standard contract only covers 75% of the losses12. Thus, this
discussion will explore the Warwick’s liability both under the insurance contract and
insurance law. There are other additional elements that need to be considered in the
case of the Warwick, which are the claims from the injured crew member and the
goods lost in the cargo. In addition, there is the issue of the costs for the
environmental damage caused by the oil leakage and the role of the salvors in this
process.
Apportioning Blame between the Talbot and the Warwick:
The apportionment of blame in this case is the most important factor to determine
the insurance payment and the liability of Gloster. To re-iterate the courts held that
the Warwick was 90% at fault in the civil courts for the following reasons:
1) It was proceeding at excessive speed
2) It had out-of-date charts on board which did not show the oil-exploration field
which would have been shown on up-to-date charts and which would have
alerted the Warwick to the danger posed by offshore installations.
3) During the trial it also emerged that the Warwick was overloaded and Gloster
now face prosecution in respect of this breach of load-line regulations.
These three points indicate a breach of the duties of the carrier under the MIA 1906,
which endorses the Hague-Visby Rules. The duties are entrenched in Carriage of
Goods by the Sea 1996 (COGSA 1996). COGSA 1996 identifies five duties to
12
Ibid, pg. 762
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ensure that the carrier has met the general duty of care of due diligence. The links
between the MIA 1906 s. 55 and the Hague-Visby Rules are directly tied to the
obligations of the carrier, which is based in the due diligence principle. The implied
warranties are basically implied to be the five duties under COGSA 1996. However,
the express duties have been identified in s. 39 of the MIA 1906, which are the ship
must be; 1) seaworthy; 2) properly manned; 3) and in fit state of repair. The third
express warranty relates directly to the duty of stowage under the five duties;
whereas seaworthiness and properly manned are the two requisite requirements of a
seaworthy ship defined in the case of President of India v West Steamship13. Even
so, if one considers the standard forms and excluded perils these directly relate to
the remaining of the five duties14
This was confirmed in the case of Pyrene Co. v. Scindia Steam Navigation Co 15
where it was held that the carrier is; 1) liable to the shipper in regards to goods; and
2) this means that the carrier owes a general duty of care to the shipper, which can
be identified as the same as the five duties under the Hague-Visby Rules. This is
because the concept of due diligence is in the MIA 1906, s. 55; hence general forms
such as the ITCH and IHC deal with. Therefore, in the case of fire there is 100%
coverage; however general perils of the sea is limited to 50% subject to the due
diligence principle. However, it is important to note that in the case of delay there is
no cover, in addition to navigation actions that are outside of the due diligence
principle16. However, in the case of loss if another cause actually resulted in the
damage, which may be apportioned to the act, this will not bar the claim. This is
President of India v West Steamship Co [1963] 2 Lloyds Rep 278
Bennett, H (2006) The Law of Marine Insurance, 2nd Edition, pg. 220-8
15
Pyrene Co. v. Scindia Steam Navigation Co [1954] 2 Q.B. 402
16
Bennett, H (2006) The Law of Marine Insurance, 2nd Edition, pg. 224-5; Institute Cargo Clauses A, B and C Clause 4(5);
Institute Times Clauses Freight cl. 15; Voyage Clause Freight Cl. 11; Pink v Fleming (1890) 25 QBD 396.
13
14
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Law Coursework Sample
because in the case of Pink v Fleming17 it was held that “[a]ccording to the English
Law of marine insurance only the last cause can be regarded… To connect the loss
with any mentioned in the policy, the plaintiffs must go back two steps, and that,
according to English law, they are not entitled to do”18. Therefore, the last cause will
be applied to identify if there is due diligence. This means if it can be shown the
basic duties are shown to be breached then insurance will exclude a claim, which will
now be discussed.
The Obligations of Due Diligence:
The first obligation is that the carrier must be capable of carrying the goods and fulfil
the voyage or safe shipment, which is the primary duty of seaworthiness19. This is
then supported by four further duties that result in creating the concept of due
diligence under s. 55 of the MIA 1906. In relation to goods the carrier is liable for any
negligent loss for goods that have passed the ship’s rail and the servants have
caused their damage20. Prince argues that the Hague-Visby Rules are “the most
famous conscious balancing act of these [the shipper’s] rights and [carrier’s]
exceptions in recent maritime legal history is of course enshrined in the Hague-Visby
rules Conventions of 1922-1923 and 1968 respectively”21. These can be seen in the
four additional duties to that of seaworthiness, which are; 1) due dispatch; 2) to carry
the goods without deviation; 3) to take care of the cargo (stowage); and 4) to deliver
the goods to the nominated port. There are allowable exceptions to these duties,
Pink v Fleming (1890) 25 QBD 396.
Ibid at 398
19
Bennett, H (2006) The Law of Marine Insurance, 2nd Edition, pg. 220; Institute Cargo Clauses A, B and C Clause 4(5);
Institute Times Clauses Freight cl. 15; Voyage Clause Freight Cl. 11; August, R, Mayer D and Bixby M (2008) Business
Law, fifth edition. Pearson
20
I H Olebaken. ‘Background Paper on Shippers Obligations and Liabilities’ (2007-2008) CMI Yearbook, 300. Available
[Online] at: http://www.cmi2008athens.gr/sub3.7pdf
Price.R, ‘The Responsibility of a Carrier of Goods by Sea under the Laws of the Arabian Gulf States: “The Exceptions and
the Rule’ (1987) Arab Law Quarterly, Volume 2, No 1, 29-33.
21
Price.R, ‘The Responsibility of a Carrier of Goods by Sea under the Laws of the Arabian Gulf States: “The Exceptions and
the Rule’ (1987) Arab Law Quarterly, Volume 2, No 1, 29-33, pg. 29; c.f. Phillips Petroleum Co v Reardon Smith Line Ltd
[1951] 2 Lloyd's Rep. 39; Minister of Food v Reardon Smith Line Ltd [1951] 2 Lloyd's Report 265
17
18
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Law Coursework Sample
which are covered by the 50% coverage under the ITCH and ICH clauses. However,
if these duties are breach the coverage is 0%. On the other hand, there is never an
exception to seaworthiness, unless it has happened at sea and the ship was
seaworthy before it left port22.
Prior to applying the specific facts this section will consider the duties and due
diligence in general, in the case of; 1) seaworthiness; 2) stowage; and 2) the general
requirements of due diligence of the servants. The duties of; 1) delay; 2) deviation;
and 3) duty to deliver to the nominated port will be explored in regards to the
Salisbury’s piracy case, as relevant here.
Duty to Provide a Seaworthy Ship:
The basic duty under both the MIA 1906 and COGSA 1996 is that the ship must be
“fit to meet and undergo perils of the sea and other incidental risks to which of
necessity she must be exposed in the course of a voyage”23. This is an absolute duty
that is owed, which explains in the case that a ship is not seaworthy there will be no
insurance coverage24. The concept of seaworthiness is more than just the physical
structure of the ship, because there is a requirement that it is properly manned25.
The case of President of India v West Steamship26 identified that the measuring stick
of a seaworthy ship “is not an accident free ship, nor an obligation to provide ship or
gear which might withstand all conceivable hazards. In the last analysis the
obligation, although absolute, means nothing more or less that the duty to furnish a
ship and equipment reasonably suitable for the intended journey”27. This means that
as long as the ship is properly manned and is capable of making the journey, which
Bennett, H (2006) The Law of Marine Insurance, 2nd Edition, pg. 228
Kopitoff v Wilson (1876) 1 QBD 377, as per Field J at 380
24
Steel v State Line Steamship (1877) 3 App Cas 72
25Sanday v British and Foreign Marine Insurance Co (1916) 1 AC 650
26
President of India v West Steamship Co [1963] 2 Lloyds Rep 278
27
Ibid at 281
22
23
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means carrying the goods safely, then due diligence has been met under both the
MIA 1906 and COGSA 1996. Therefore, if one were to link this to the case of
insurance law by not ensuring that the ship is “suitably manned and suitably
equipped to meet the perils of the sea”28.
The case of Sanday v British and Foreign Marine Insurance Co29 is particularly
important, because it holds that if there is notice, which includes constructive notice,
that the ship is not seaworthy then the insurance will not cover any of these losses.
In the case of the Warwick there is a problem, because it may not have been
seaworthy in its physical structure. In other words, the damage that the collision did
to the Warwick was in the place of a repair 2 years ago. This indicates that there is a
weakness in the ship; however the application of the proximate causation test is
important.
Proximate Causation under 55of the MIA 1906:
A preliminary note is that in the case of fire the insurance will always cover the
damages30. In all other cases the proximate cause test identifies that the most
effective and last cause is applied to the insurance loss. The test that is applied is
the but for test from The Wagon Mound case31. In The Wagon Mound it was held
that any damage that is foreseeable, even if it is small. This means that it is not too
remote, because if any damage is foreseeable the size of the damage matters not
and is thus the proximate cause. Thus, the damage to the ship was the collision;
whereby the damage to the Warwick may be argued is excluded as the ship was not
Wilson, JF (2010) Carriage of Goods By the Sea 7th Edition, Longman, pg. 11
29Sanday v British and Foreign Marine Insurance Co (1916) 1 AC 650
30
The Belle of Portugal(1970) 2 Lioyd’s Rep 386 confirmed the approach to negligence and fire under s. 55(2) of the MIA
1906 where it was held that due diligence is an irrelevant question. This is because fire will always be covered regardless if
the due diligence principles were not met. C.f 55(2) of the MIA 1906 this is an irrelevant question, because fire will always
be covered regardless if negligence was the cause
31
The Wagon Mound [1961] AC 388
28
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considered seaworthy to ship the goods. This means under s. 33(3) of the MIA 1906
and the ICC A any loss caused by this damage would be excluded, due to a breach
of the ship being in a fit state or repair.
Fit State of Repair and Stowage:
The duty of the carry is to take reasonable care of the cargo and the requirement of
fit state of repair under s. 39 of the MIA 1906 are similar. Wilson32 argues that the fit
state of repair is not a strict test of seaworthiness, which is similar to that of stowage.
This means that there is a lesser standard of care; rather the focus that there is a
duty that the goods/persons can make it safely to their destination. Carr33 identifies
that there is an onerous nature under the Hague-Visby Rules for the carrier, which
can be seen the requirement of stowage under COGSA 1996 and due diligence in
the case of MIA 1906. Thus, the result is that under the Hague-Visby Rules “if the
carriers are to escape liability, they must prove that due diligence has been
exercised not only by themselves and by their servants but also by a Lloyd’s
registered shipping surveyor. So where the surveyor is negligent, the shipowner
[carrier] will be liable under the Hague-Visby Rules”34. As soon as the negligence is
shown, i.e. it was shown that the ship not fit for purpose then the result would be that
the insurance will exclude liability. In the case of the Warwick it will be hard to prove
that a 2 year old repair caused the breach, because the collision was extraordinary.
Therefore, exclusion under this head will be hard to prove. The result of this is the
physical seaworthiness under s. 39 will not be proven. Thus, one must turn to the
question if the ship was properly manned.
Duty to provide a properly manned ship:
Wilson, JF (2010) Carriage of Goods By the Sea 7th Edition, Longman, pg. 174-5
Carr, I (2009) International Trade Law, Taylor and Francis, pg. 238
34
Ibid, pg. 238
32
33
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The case of the Delfini35 identifies the duties other than seaworthiness, which are the
ship is; 1) properly manned; and 2) properly equipped36. The case of the Effort
Shipping Co Ltd v Linden Management S.A (The Giannis NK)37 held that it is
possible for the shipper to claim for all damages; however small. This is similar to the
Wagon Mound, which means that if it can be shown that the proximate cause is due
to a breach of due diligence then all the damage will be excluded38. This is because
there has been a breach of utmost good faith, which is defined under s. 39(5) of the
MIA 190639.
The courts held that the primary cause was due to the ship not being properly
manned, i.e. the Master had been traveling at excessive speed and it was not
properly equipped. Thus, this can be argued as the primary cause and the insurance
claim is excluded. This has been confirmed in the case of Leyland Shipping Co Ltd v
Norwich Union Fire Insurance Company40 where it was held that once the proximate
cause is due to a breach of due diligence then the whole claim is excluded under s.
33(3) of the MIA 1906. This is because the “[r]esponsibility of exercising due
diligence to make the ship seaworthy is personal to the carrier even where the work
has been delegated to a servant”41. However, as the court held that the Talbot was
10% liable will the claim be completely barred?
Applying Unit and Control Theory:
There is no requirement for the insurance company to rule in the same manner as
the courts; rather they can consider if there was any duty for the Talbot to inform the
The Delfini [1990] 1 Lloyds Rep 252
Lickbarrow v Mason (1973) 2 TR 73; Leigh & Sillavan v The Aliakom Shipping Company Ltd (The Aliakom) [1986] AC
785
37
Effort Shipping Co Ltd v Linden Management S.A. (The Giannis NK) [1998] 1 All ER. 495 (HL)
38
The Wagon Mound [1961] AC 388
39
K/S Merc-Scandia V. Lloyd's Underwriters (The ‘Mercandian Continent): [2001] 2 Lloyd’s Rep. 563:
40
Leyland Shipping Co Ltd v Norwich Union Fire Insurance Company (1918) AC 360
41
Carr, I (2009) International Trade Law, Taylor and Francis, pg. 238; Marc Rich & Co. v Bishop Rock Marine Co Ltd (The
Nicholas) [1995] 3 All ER 307; The Muncaster Castle [1961] 1 Lloyd’s Rep 57
35
36
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Law Coursework Sample
Warwick of any danger. In addition, as the Talbot had manoeuvrability then it could
have reduced the impact42. This case of the Niobe43 is important in this argument,
because it was held that it is the duty of the stationary object to reduce harm by
being diligent44. This means that the Talbot should have been manned and ready to
limit the occurrence of collision. If it failed to do this then it may be liable for all or part
of the collision. In the case of the Warwick, as the primary cause was the breach of
due diligence then the Talbot at most is contributed to the negligence.45
However, in the Niobe it was also held that “[i]f it had been shewn that The Flying
Serpent had by some sudden manoeuvre, which those on board The Niobe could
not control, brought about the collision, I should have held The Niobe blameless”46.
It may be argued that as the Warwick was speeding that this is the case; however as
the ship was in transit the Talbot should have had notice of the upcoming ship (the
Warwick) and warned it of the danger47. The insurance company may not agree to
this approach, because in reality the Talbot is little more than a storage facility for an
offshore refinery. This means it has no control over the events; rather the whole
control is in the hands of the Warwick48. This approach is clarified in the case of the
Devonshire49 where a tug was incapable of any control due to its status. This is
similar to the status of the Talbot; therefore one can apply the ruling which held that
the “collision was caused by faulty navigation of both the tug and The Devonshire.
The owners of the barge were neither actually or constructively to blame. The tug
Mandaraka-Sheppard, A (2007) Modern Maritime Law and Risk Management, Routledge, pg. 762
The Niobe (1888) 13 PD 55
44
Mandaraka-Sheppard, A (2007) Modern Maritime Law and Risk Management, Routledge, pg. 762
45
Askins, 2005, Legal Implications of a Maritime Casualty, MRI 19(2) , pg. 13; Lewins (2007) Towage contracts, UK
standard conditions for towage and s.74(3) of the Trade Practices Act 1974 (Cth): PNSL Berhad v Dalrymple Marine
Services Pty Ltd JBL Aug 2007, pg. 588; Peermohammed, 2005, Collisions and their Legal Implications, MRI 19(4), pg. 14;
Tetley, 1998, Maritime Liens and Claims – Review Int ILR 6(11), pg. 373
46
The Niobe (1888) 13 PD 55, pg. 60
47
Dari-Mattiacci, G and Garoupa, N “Least-Cost Avoidance: the tragedy of Common Safety” JLE & O 25(1) 235-261
48The Quickstep [1890] 15 PD 196
49
The Devonshire [1912] AC 634
42
43
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was in sole control of the navigation, and her crew were not in a position of servants
to the owners of the barge. Lower courts held that the dumb barge – being an
innocent ship – could recover the whole of her loss from either one of the two ships
that had caused the collision”50. This is very much the case in regards to the Talbot.
This means under insurance case law any payment to the Warwick will be exempted
due to a breach of due diligence. Thus the shipowner will be liable for all damages
that stem from this breach of due diligence51.
Summary of Advice:
The primary approach that the insurance company will take is to exclude all
damages it can. This does not seem to be the approach of the court, which have
applied the economic approach of Dari-Mattiacci and Garoupa’s52; where “[t]he
doctrine of last clear chance seems to be sui generis in this respect, as it only
requires courts to establish the order of the parties' sequential moves and whether or
not the second mover could have done anything to prevent the accident”53. Under
this approach 10% of liability is the Talbot’s fault, which may mean that the breach of
due diligence cannot be proven. This means that 75% will be claimed through the
insurance and the remaining 25% will be split 90%/10% between the parties54. There
is one exception to this approach, which is the application of the law in regards to
SCOPIC and the salvors.
Insurance, SCOPIC and the Salvors:
In the case of the salvors it may be argued they were liable for the spill that occurred
and cleaned up. The United Kingdom Standard Conditions for Towage and other
Mandaraka-Sheppard, A (2007) Modern Maritime Law and Risk Management, Routledge, pg. 762-3
Article 9 of the LLMC ;The Harlow [1922] P 175; The Rajah (1872) 3 A & E 539
52
Dari-Mattiacci, G and Garoupa, N “Least-Cost Avoidance: the tragedy of Common Safety” JLE & O 25(1) 235-261
53
Ibid, pg. 255-256
54
Article 9 of the LLMC; MSA 1995 s.190
50
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services 1986 (UKSTC 1986) clause 6 identifies that the only liability that a salvor
holds is for negligence. Thus if it can be shown that the damage and loss was
outside of their control then the proximate causer will be held liable55, which in this
case is the Warwick. This is due to the strict application of damage in salvage law56.
This area is a key application of unit theory under The Towerfield57; whereby the tow
in an emergency is exempt from liability except in the case of negligence. In the
case of negligence in such a case will result in the Contributory Negligence Act 1945
to apply; where blame will be apportioned between the parties58. In the case of the
Warwick there is no indication of negligence by the salvors thus the contributory
negligence rules will not apply.
It is also important to note that SCOPIC will hold the proximate causer liable,
because this is an exception under insurance law where the insurance will cover
100% of environmental damage. This is because it is special compensation under
Article 14 of SCOPIC, which is contained within both ITCH, clause 10(5)(1) And IHC,
clause 8(4). As the insurance contract is governed by ITCH the implication is that the
salvage costs and environmental clean-up will be covered by the insurer.
Therefore, in the case of the Warwick the insurance will probably not cover the
collision, because there has been a failure of due diligence. Yet, as the court has
implied joint liability between the Talbot and the Warwick it may force the insurer to
pay 75% of the damages. The remaining damage will be apportioned by the two
liable partied. Even so, in the case of the salvors, as there is no indication of
55
HDPCA 1837 s.47
56Great Western Rly Co v Owners of SS Mostyn [1928] AC 57; Aitchison v. Lohre (1879) 4 App. Cas 755. s. 78 (4) MIA
1906; ITCH (1/10/83), cl. 13.1 ; The Vergina (No-2) [2001] 2 Lloyd’s Rep. 698. ICC (A) cl. 16; The Talisman [1989] I
Lloyd’s Rep. 535 ; National Oilwell (UK) Ltd. v. Davy Offshore Ltd. [1993] 2 Lloyd’s Rep. 582 The Vasso [1993] 2 Lloyd’s
Rep. 309
57The Towerfield [1928] AC 57
58
Steel, ‘Ships are different: the case for limitation of liability’ [1997] LMCLQ 77, pg. 79; Owen, ‘The Origins and
Development of Marine Collision Law’ (1977) 51 TulLRev 759, pg. 762; Griggs, ‘Limitation of liability for maritime
claims: the search for international uniformity’ [1997] LMCLQ 369; McGilchrist, ‘Limitation of liability-at sea and in the
air’ [1975] LMCLQ 256, pg. 258;Mustill, ‘Ships are different-or are they?’ [1993] LMCLQ 490, pg. 491
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negligence any damages will be imputed back to the proximate causer (the
Warwick). Albeit the environmental clean-up and the cost of the salvors will be
covered by the insurer, because these damages are non-excludable under ITCH.
Part II – The Salisbury:
Coverage:
There is a similar issue of coverage is present in the case of the Salisbury, as in the
case of the Warwick. This is because the Institute Voyages Clauses Hulls (1/10/83)
(ITCH), like the ICH, only covers 75% of the damage59. In this case there is the issue
of the act of piracy by the new Master, as well as the offer of an arrangement fee to
“recover” the ship. The question that arises here is whether Gloster should accept
this offer, which is little more than a ransom payment for the ship. The problem is
that this payment may be lost money, because the ship may not materialise and it
has been stripped of “all of its navigational and radio equipment and probably
damaged the vessel”. Thus, the final question that needs to be considered is
whether the company can claim under its hull insurance for a total loss of the
Salisbury. Also there are two additional concerns that will be considered; 1) the loss
of the cargo; and 2) the fact that the Gloster’s brokers gave mistaken information on
the age of the ship.
Due Diligence:
There are two additional concerns that have to be explore, which is the delay. As the
case of Hick v Raymond60 held that the carrier “fulfils his obligations notwithstanding
protracted delay, so long as the delay is attributable to causes beyond his control,
and has neither acted negligently nor unreasonably”. The implication is that any
59
60
Ibid, pg. 762
Hick v Raymond [1893] ACC 32
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reasonable delay due to adverse weather or other such perils will be allowable;
hence the exemption under the MIA 1906. Therefore, as the delay was due to
reported typhoons then this will be an allowable delay. A similar approach is taken in
regards to the duty to deviate61. In this case there has been a deviation to avoid
these typhoons, which would be allowable. Thus on this basis the knowledge of the
shipowner is that the acts are reasonable, which would mean that the duty to deliver
the goods safely would be met62. The act that stopped this was that of piracy; hence
the only claims will be associated with the discussion of privacy, as the proximate
cause.
Ascertaining a Case of Piracy under Insurance Law:
Thus it is not restricted by International Law, which under Article 101 of the United
Nations Convention on the Law of the Sea (UNCLOS) it states that “[p]iracy consists
of any of the following acts: (a) any illegal acts of violence or detention, or any act of
depredation, committed for private ends by the crew or the passengers of a private
ship or a private aircraft, and directed: (i) on the high seas, against another ship or
aircraft, or against persons or property on board such ship or aircraft; (ii) against a
ship, aircraft, persons or property in a place outside the jurisdiction of any State; (b)
any act of voluntary participation in the operation of a ship or of an aircraft with
knowledge of facts making it a pirate ship or aircraft; (c) any act of inciting or of
intentionally facilitating an act described in subparagraph (a) or (b)”. Thus in the case
of international law piracy is restricted to the High Seas63. It also must a violent
action that dispossesses the legal owner or their agent of the vessel, but not a lawful
Jones v Flying Clipper (1954) 116 Fed Supp 386
The Evaggelos Th, [1971] 2 Lloyds Rep 200).
63
In Re Piracy Jure Gentium [1934] AC 586.
61
62
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act of war64. However, as the Andreas Lemos has identified that there is a normal
business meaning there is not a restriction to the High Seas in the case of
insurance65 hence this means if the act of piracy happened in territorial waters then
this definition still applies. The primary concern is the definition in the Andreas
Lemos is that the Master needs to be dispossessed; thus as the Master is the
dispossessor is it possible for him to commit an act of piracy? The case of Republic
of Bolivia v Indemnity Mutual Marine Assurance Co Ltd66 may be used to confirm the
approach that the Master is a pirate, because of the use of private gain. Kennedy LJ
held that:
“[T]he term “piracy” must be regarded as having been used in a business document
like this policy of insurance in the sense in which business men would generally
understand it; and I think that, from that point of view, he was right in defining
“pirates” as being those who plunder indiscriminately for their own gain, not persons
who operate solely against the property of a particular Government for such objects
as those for which the persons who seized the goods insured were operating against
the Government of Bolivia in the present case… To my mind the term “piracy” is
inapplicable to the acts of the persons who seized the goods insured in this case…
They seized these goods not for their private gain… I do not think that any business
man would say that those acts constituted “piracy” in the sense in which that term is
used in this policy”67.
This means that as the Master took possession of the ship for private gain then it can
be classed as an act of piracy under the fact that it was for private gain. The facts in
the case of Republic of Bolivia v Indemnity Mutual Marine Assurance Co Ltd the ship
Cameron v HM Advocate (Mary Craig) [1971] JC 50
Bennett, H (2006) The Law of Marine Insurance, 2nd Edition, pg. 153-4
66
Republic of Bolivia v Indemnity Mutual Marine Assurance Co Ltd [1909] 1 KB 785
67
Ibid at 803-4
64
65
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was moored within the port limits and was subject to an act of piracy68. Even so, it
was held that the ordinary business meaning of piracy should apply; thus it was held
that the fact that the shipped at anchor was enough to apply maritime law. Since this
case the Standard form of ITCH and IHC have defined piracy for insurance purposes
in this manner; whereby piracy is an act of mutiny of act of violence from shore is
construed a piracy69. Thus there are three main elements of piracy as construed by
the case of Republic of Bolivia v Indemnity Mutual Marine Assurance Co Ltd, which
are; 1) the vessel must be at sea; 2) there must be a robbery, a person taking or
attempting to take property that does not belong to them; and 3) force or the threat of
force must be used.
Loss in the case of Piracy:
The first consideration is that s. 5 of the MIA 1906 identifies that insurable interests
are buyers, consignees, lenders and shipowner. This means that the Master is
outside of being an insurable interest, which means that he can undertake an action
of piracy. The aim is to argue actual or constructive loss; however as the ship has
the possibility of recovery through the ransom note actual loss will not be proven70.
The result of this is that the principle of constructive loss has to be considered, which
was defined in the case of Sail v Farex.71. The application of constructive loss is that
the damaged goods are no longer recoverable72. The general approach to this is that
a ship may not be recoverable after an act of piracy; however as clause 13 of the
ICC (A) states “[n]o claim for Constructive Total Loss shall be recoverable hereunder
unless the subject-matter insured is reasonably abandoned either on account of its
68
Ibid at 803-4
Pathak, M (2005) ‘Maritime Violence: Piracy at sea and marine terrorism today’ 20 Windsor Review of Legal and Social
Issues 65.
70
Sail v Farex [1994] CLC 1(94)
71
MIA 1906 s 60(1)
72
CTI v Oceanus [1984] 1 Lloyd’s Rep 476; Boulton & Ors v Houlder Bros & Co [1904] 1 KB 784; Harding v Bussell
[1905] 2 KB 83
69
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actual loss appearing to be unavoidable or because the cost of recovering,
reconditioning and forwarding the subject-matter to the destination to which it is
insured would exceed its value on arrival”. In this case there has been a ransom
note; hence it is unlikely that the use of constructive notice will be allowed73.
Therefore, as a ransom note has been received the ship would be construed as
obtainable, even if it came back in a state of lesser value. Rather, it is this lesser
value that the shipowner can claim under the ICC (A). This is because Steel LJ held
in Bunga Melati Dua that “‘an assured is not irretrievably deprived of property if it is
legally and physically possible to recover it (and even if such recovery can only be
achieved by disproportionate effort and expense”74. Thus it is in only such cases that
constructive notice in the case of piracy will be allowed75. There may be an additional
problem that the shipowner may be excluded, because the ship is construed as not
properly manned. However, as the Master committed a criminal act it must be shown
that in background checks that there is would have been constructive notice of his
nature.
In addition, Nair76 argues that that there needs to be balance; thus the application of
the Bunga Melati Dua should not “adopt a restrictive approach in following the ruling
in this case. It may not be ideal to use a broad brush to classify all ransom payments
to pirates as in the public’s interest. Instead, a careful, considered analysis in light of
existing legislation and evidence in relation to the pirates’ general behaviour and
intent and the effect on the community as well as the market will be required. Clearly,
Masefield AG v Amlin Corporate Member Ltd (Bunga Melati Dua ) [2010] 1 Lloyd’s Law Reports 509
Nair, A (2010) “Case Comment: Masefield AG v Amlin Corporate Member Ltd [2010] 1 Lloyd’s Law Reports” 24 A&NZ
Mar LJ 2010 138- 143; cf. Pathak, M (2005) ‘Maritime Violence: Piracy at sea and marine terrorism today’ 20 Windsor
Review of Legal and Social Issues 65.
74
Masefield AG v Amlin Corporate Member Ltd (Bunga Melati Dua ) [2010] 1 Lloyd’s Law Reports 509
75
Bank Line Ltd v Arthur Capel & Co [1919] AC 435;
76
Nair, A (2010) “Case Comment: Masefield AG v Amlin Corporate Member Ltd [2010] 1 Lloyd’s Law Reports” 24 A&NZ
Mar LJ 2010 138- 143
73
73
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this is easier said than done”77. But it is clear that the ship is retrievable, because
the Master’s aim was to claim ransom; hence the shipowner will need to pay this
ransom then sue for losses. This means that the argument of actual or constructive
knowledge is not plausible.
The Role of the Agent:
There is one final issue that needs to be considered is the role of the agent, because
they have given the wrong age of the ship. This would be construed as a breach of
good faith under s. 17 of the MIA 1906. Feng78 identifies that the “contract of marine
insurance is a contract based upon the utmost good faith, and, if the utmost good
faith be not observed by either party, the contract may be avoided by the other
party”. Thus this requires that both parties provide the correct information or the
contract is breached and voidable79. In the case of the insured under s. 18 there is a
requirement of true and full disclosure in order to comply with the provision of good
faith80. The age of a ship is a central factor, because it will be part of determining the
risk by the insurer; therefore as the case of Chapman and others, assignees of
Kennet v Fraser BR81 held any omission or misrepresentation will make the contract
voidable. The problem in the case of the Sailisbury is that the incorrect information
has been mistakenly given by the agent, without the knowledge of the insured;
therefore the primary question is whether this is the fault of the insured?
Section 19 of the MIA 1906 has been construed to mean that any incorrect
information or omission will be the fault of the insured, even if it is due to a mistake
77
Ibid, pg. 142
Feng, S (2008) “Utmost Good Faith in Marine Insurance: A Comparative Study of English and Chinese Maritime Law”
Plymouth Law Review (2008) (1) http://www.plymouth.ac.uk/files/extranet/docs/SSB/Shi_Feng_edited_02-12-08.pdf
79
Hodges, S (1996) Law of Marine Insurance, Cavendish Publishing Limited, pg. 85; Feng, S (2008) “Utmost Good Faith in
Marine Insurance: A Comparative Study of English and Chinese Maritime Law” Plymouth Law Review (2008) (1)
http://www.plymouth.ac.uk/files/extranet/docs/SSB/Shi_Feng_edited_02-12-08.pdf
80
Derry v Peek (1889) 14 App Cas 337
81
Chapman and others, assignees of Kennet v Fraser BR Trin 22 Geo 111
78
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by the agent. However, this was clarified in the Sea Star Case82 where s. 19 will only
apply in the pre-contractual stage. The age of a ship is necessary in the precontractual stage this will a breach of a fundamental warranty. There have been
concerns raised in that this creates an unfair allocation of risk. The Law Commission
in 2007 argued that in all insurance case “[a]ny person who solicits or negotiates a
contract of insurance [i.e. agent/intermediary] should be deemed, for the purposes of
the formation of the contract, to be the agent of the insurers, and the knowledge of
such person should be deemed to be the knowledge of the insurers”83. However, the
only reform that occurred in this light was for the consumer contract, which means
the position remains the same for the commercial contract84. The result of this is that
the whole contract of insurance will be determined voidable and no monies will be
payable.
Therefore, if it was just a case of the piracy the shipowner’s (Gloster’s) will have to
pay the ransom, because the ship is considered lost. This means that if the ship is
returned and losses will be paid, or if it is not returned it can be construed as loss.
However, as the age was recorded wrong the contract becomes voidable; thus the
insurer is more than likely to void the contract.
Manifest Shipping Company ltd v Uni-Polaris Shipping Co and others [2001] 1 Lloyd’s Rep 1
Law Reform Committee (1957 Fifth Report of the Law Reform Committee Cmnd 62, para 14
84
Law Com (2007) Insurance Contract Law: Misrepresentation, Non-Disclosure and Breach of Warranty by the Insured: A
Consultation Paper, Law Com 182, Scot Law Com 134, pg. 231
82
83
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2. The Devonshire [1912] AC 634
3. President of India v West Steamship Co [1963] 2 Lloyds Rep 278
4. Pyrene Co. v. Scindia Steam Navigation Co [1954] 2 Q.B. 402
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307
19. The Muncaster Castle [1961] 1 Lloyd’s Rep 57
20. The Quickstep [1890] 15 PD 196
21. The Harlow [1922] P 175
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22. The Rajah (1872) 3 A & E 539
23. Great Western Rly Co v Owners of SS Mostyn [1928] AC 57
24. Aitchison v. Lohre (1879) 4 App. Cas 755
25. The Vergina (No-2) [2001] 2 Lloyd’s Rep. 698
26. The Talisman [1989] I Lloyd’s Rep. 535
27. National Oilwell (UK) Ltd. v. Davy Offshore Ltd. [1993] 2 Lloyd’s Rep. 582
28. The Vasso [1993] 2 Lloyd’s Rep. 309
29. The Towerfield [1928] AC 57
30. Hick v Raymond [1893] ACC 32
31. Jones v Flying Clipper (1954) 116 Fed Supp 386
32. The Evaggelos Th, [1971] 2 Lloyds Rep 200)
33. In Re Piracy Jure Gentium [1934] AC 586
34. Cameron v HM Advocate (Mary Craig) [1971] JC 50
35. Republic of Bolivia v Indemnity Mutual Marine Assurance Co Ltd [1909] 1 KB
785
36. Sail v Farex [1994] CLC 1(94)
37. CTI v Oceanus [1984] 1 Lloyd’s Rep 476
38. Boulton & Ors v Houlder Bros & Co [1904] 1 KB 784
39. Harding v Bussell [1905] 2 KB 83
40. Masefield AG v Amlin Corporate Member Ltd (Bunga Melati Dua ) [2010] 1
Lloyd’s Law Reports 509
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41. Bank Line Ltd v Arthur Capel & Co [1919] AC 435;
42. Derry v Peek (1889) 14 App Cas 337
43. Chapman and others, assignees of Kennet v Fraser BR Trin 22 Geo 111
44. Manifest Shipping Company ltd v Uni-Polaris Shipping Co and others [2001] 1
Lloyd’s Rep 1
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