Welcome to the forty-sixth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2014.
These updates are aimed at keeping you up to speed and informed of the latest developments in caselaw relevant to your practice. Please follow this link for further details of the following recent cases:
This week's caselaw
- Atlasnavios-Navegacao v
Navigators Insurance Co
A Court construes the meaning of a war risks marine policy (including the term "malicious"), whether a perverse foreign judgment breaks the chain of causation and sue and labour provisions. - Mandalia v Beaufort Dedicated
No.2 Ltd
A decision on damage by tenants and the meaning of "malicious" in a property insurance context. - Amtrust Europe v Trust Risk
Group
A Clyde & Co case on whether a dispute between an insurer and broker should be heard by the English courts or Italian arbitrators.
Atlasnavios-Navegacao v Navigators Insurance Co
Court construes meaning of a war risks marine policy (including the term "malicious")/whether a perverse foreign judgment breaks the chain of causation/sue and labour provisions
http://www.bailii.org/ew/cases/EWHC/Comm/2014/4133.html
When the claimant's vessel was being loaded in Venezuela, an underwater inspection revealed that bags of cocaine had been strapped to its hull. The drugs had been affixed by persons unknown (presumably a drug cartel). The vessel was detained and the crew arrested. The vessel was abandoned by the owners two years later and eventually confiscated by the Venezuelan authorities following a court order. The claimant owners claimed under their war risks insurance policy. It was accepted that the vessel was a constructive total loss.
The policy provided cover for "malicious damage" and "malicious mischief" and "loss of the vessel...caused by...any person acting maliciously". It was common ground between the parties that what constituted "malice" was the criminal law definition, which includes recklessness. The decision of Colman J's decision in "The Grecia Express" (2002) was cited: "the words therefore cover casual or random vandalism and do not require proof that the person concerned had the purpose of injuring the assured". However, the insurers sought to rely on two exclusions in the policy:
- Loss arising from "detainment, confiscation....by reason of infringement of any customs...regulations". Insurers made an important concession: namely, that the deliberate acts of the Venezuelan authorities (in placing drugs on the hull in order to facilitate the confiscation of the vessel) would not have triggered the exclusion. Flaux J held that this indicated that the insurers accepted that there was an implied limitation to the scope of the exclusion. The judge saw no reason to distinguish between that scenario and the present case where the malicious (albeit there was recklessness here, rather than actual malice) acts of a drug smuggler had led to the vessel being detained. To conclude that the exclusion applied to this case would, he said, "not accord with the spirit of the policy". He concluded that "as a matter of construction of the policy in this case, the exclusion does not apply where the infringement is brought about by the malicious act of a third party".
- Loss arising from "the operation of ordinary judicial process, failure to provide security...." The insurers' argument here failed because the claimant had taken reasonable steps to provide security (and it was likely that the Venezuelan authorities would have insisted on security for the full value of the vessel, and that is unlikely to have been acceptable to either the claimant or the insurers).
The insurers' arguments therefore failed. Accordingly, the judge was not required to decide the alternative case advanced by the claimant: namely, that the exclusion did not apply because the real cause of detainment of the vessel was the perverse and wrong decisions of the Venezuelan courts. He did however conclude that, in any event, the decisions of the Venezuelan courts had been correct as a matter of Venezuelan law and there had been no unwarranted political interference.
However, in considering this issue, Flaux J did conclude that, as a matter of principle, a decision of a foreign court which is clearly perverse and not even reasonably arguable as a matter of foreign law would break the chain of causation, so that the customs exclusion would no longer have applied. He held that there was no additional requirement that the decision be made in bad faith, or that the court knowingly acted without jurisdiction (and said that comments to the contrary by the Court of Appeal in The Anita (1971) were obiter, since that case had not been dealing with a perverse decision).
Furthermore, any political interference will only be of relevance if it leads to a wholly unjustified decision.
Further arguments also arose as to the entitlement of the claimant to recover its sue and labour expenses:
- When the claimant served its notice of abandonment, the leading underwriter declined the notice but scratched it with the so-called "writ clause" (ie that insurers agreed to put the claimant in the same position as if a writ had been issued that day and thus, under marine insurance law, the position between the insurer and the claimant was crystallised at that point). Rix J held in Kuwait Airways v Kuwait Insurance (1996) that that meant that the obligation or right to sue and labour ceases when a writ is issued (and so sue and labour expenses can no longer be recovered after that date). Although Flaux J accepted that Rix J "may well be" right where a writ is issued, he also held that the entitlement to sue and labour does not cease at the earlier date of the writ clause.
- Flaux J also said that it was wrong, as a matter of law, to argue that legal fees incurred for a dual purpose (namely, the release of the vessel and the defence of the crew) were not recoverable as sue and labour: "Where expenses are incurred both for the purpose of extricating the vessel from the insured peril and for some other purpose which is not sue and labour (here the defence of the crew), there is no principled basis for apportioning the expenses between those purposes, so they are all to be properly regarded as sue and labour expenses". The legal fees would therefore only have been irrecoverable if they had been incurred solely in defence of the crew. Here, it was not possible to separate the expenditure since "if all the crew had been released and acquitted, the vessel would have been released". Flaux J also held that voluntary funding provided by Gard should be disregarded when assessing the recoverable loss.
Finally, Flaux J held that the costs of running the vessel during the period of detention were recoverable under the terms of the policy (even though there was a current charterparty: the expenses were not incurred because of any contractual commitment but because the claimant wanted to be ready to sail as and when the opportunity arose).
COMMENT: Although apportionment in a marine policy context is possible where there is underinsurance, Flaux J has confirmed here (citing the Court of Appeal decisions in Standard Life v Ace (see Weekly Update 46/12) and Royal Boskalis v Mountain (1997)) that there is no general principle that there can be apportionment where at least one purpose was to safeguard or recover insured property.
Mandalia v Beaufort Dedicated No.2 Ltd
Damage by tenants and the meaning of "malicious" in a property insurance context
The claimants own shop premises which were let out to (what they describe as) "bad tenants". These tenants failed to pay all rent due and to carry out fit out works to a satisfactory standard. Accordingly, proceedings for possession were commenced against them. The claimants allege that the tenants thereafter entered the premises and stripped out much of the contents. However, most of the fixtures and fittings which were removed were owned by the tenants.
The claimants sought to claim under their commercial combined insurance policy, issued by the defendant. The relevant policy wording covered loss or damage by "malicious persons". There was also cover for theft, including damage to the premises, but excluding damage which does not involve "entry to or exit from that part of the building...by forcible and violent means, or actual or threatened assault". Although entry was effected using keys, it was alleged that the exit "took place in an atmosphere in intimidation" and that the claimant's son was assaulted by the tenants' solicitor.
When the defendants advised that the claim was not covered, the claimants brought a complaint to the FOS. They were awarded GBP 100,000 but they did not accept that since their losses were alleged to be around GBP 200,000. The FOS award was not binding on the court.
The judge, Gerard McDermott QC, examined the meaning of "malicious" in the context of this case. He held that the use of the word in a criminal context was very different (where, in the absence of self-defence, it is difficult to see how it could not be "malicious" to, for example, wound by assault). The defendant had referred to the OED definition of malice, namely "the desire to harm someone; ill-will". The judge concluded that "it is plain to me, and I find that, the use of the word "malicious" in this policy was intended to connote an ill intent" which would mean that there had been "no reason for the item to be damaged in the course of the tenants removing property...and it was done with some deliberation with the intention that the same be damaged".
Here, the circumstantial evidence available led to an inference that the tenants had not intended to "ransack" the premises, but instead had caused damage by removing items that they felt entitled to remove. Accordingly, much of the claim failed (and it was said that the claimants should instead pursue the tenants for failing to deliver up the premises in a proper state).
Nor was the peril of theft made out. There had been no forcible entry or exit on the facts. The alleged assault by the solicitor was described as "completely incidental" to any alleged theft. Furthermore, the assault was not by the tenants themselves and did not prove a malicious course of action. However, the judge was prepared to accept that there had been some damage attributable to malicious intent on the part of the tenants when they left the premises (e.g. toilets were smashed and this was not accidental or incidental to the removal of items of equipment). He awarded just over GBP 8,000 plus three months loss of rent whilst this particular damage was repaired (resulting in judgment of GBP 15,750 for the claimants).
COMMENT: The judge's conclusion as to the meaning of "malicious" can be contrasted with that in Atlasnavios-Navegacao and The Grecia Express (referred to above), where the judges held that there was no need to establish ill intent – a much wider test for maliciousness than that adopted in this case.
Amtrust Europe v Trust Risk Group
Whether dispute between insurer and broker should be heard by the English courts or Italian arbitrators
http://www.bailii.org/ew/cases/EWHC/Comm/2014/4169.html
Clyde & Co for claimant
The claimant insurer began proceedings in England to obtain an order requiring its Italian broker to repay the sum of EURO 32 million (approx.) into an account (which it maintains is a trust account), because it alleges that the broker misappropriated this sum. The defendant denied that it had misappropriated the money and argued that the dispute should be heard in an Italian arbitration rather than by the English courts. This in turn required an examination of the Terms of Business Agreement ("TOBA") entered into between the parties in 2010 and a Framework Agreement which they (along with the claimant's parent company) entered into in 2011.
The TOBA provided that all disputes would be heard by the English courts and the Framework Agreement provided for Italian arbitration. Blair J noted that where there are different jurisdiction clauses in agreements between the same parties, the "one-stop" presumption stated by Lord Hoffmann's dictum in Fiona Trust & Holding Corp v Privalov (see Weekly Update 40/07) is relevant. This is an assumption that the parties, as rational business people, are likely to have intended any dispute arising out of the relationship into which they have entered to be decided by the same tribunal.
However, he accepted that the claimant's argument that the TOBA and Framework Agreements were dealing with different subject matters (namely, the TOBA was dealing with aspects of the relationship, including premium, whereas the Framework Agreement was dealing with exclusivity). Accordingly, "different choices of law and jurisdiction clauses are "rational" in such a situation". This case also differed from Fiona Trust because the two agreements were entered into at different times. The claimant therefore had a "good arguable case" that the English courts have jurisdiction.
The claimant had also made out its case for a mandatory injunction to have money paid back into the bank account.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
