A recent decision of the English Commercial Court provided an opportunity for reconsideration of the law of inherent vice and the concept of inevitable loss in marine insurance. The case creates no new law but reaffirms the decision of the House of Lords in Soya GmbH Mainz KG v White  1 Lloyd's Rep 136.
The case of Global Process Systems Inc & Anor v Syarikat Takaful Malaysia Berhad  EWHC 637 (Comm) concerned the loss at sea off South Africa of three of four legs of a jack-up oil rig which was being towed from Texas to Malaysia.
It was agreed that the loss occurred because of fatigue cracking caused by repeated bending of the legs while being towed on a barge through the sea. The owners of the barge claimed under a policy of insurance, maintaining that the loss of the rig was accidental and within the terms of the 'all risks' cover. The insurer maintained that the cause was 'inherent vice' in the legs of the rigs. The insurer also maintained the loss was an inevitable consequence of the voyage and that accordingly it was not liable for the loss. The policy of insurance incorporated the Institute Cargo Clauses (A) 1/1/82 under which there is no cover for 'loss, damage or expense caused by inherent vice or nature of the subject matter insured'.
Justice Blair in the Commercial Court of the English High Court heard the case and delivered judgment on 31 March 2009. He noted in his judgment that the case was principally one about causation or the proximate cause of the loss. Justice Blair noted that the test to be applied in considering the proximate cause is one based on the common sense of the ordinary businessman or seafarer (per Bingham LJ in TM Noten BV v Harding  2 Lloyd's Rep 283 at 286-287).
Justice Blair also accepted that if the loss was inevitable, then the claimants should not succeed. He noted that the question of inevitability had to be judged at the time when the policy incepted.
Justice Blair concluded that the failure of the legs on the rig as it was towed around the Cape of Good Hope was very probable but not inevitable.
Looking then at the issue of whether this was a loss by inherent vice, Justice Blair noted that the burden was on the insurer to make out the exclusion.
The claimants maintained that the term 'inherent vice' refers to 'the natural behaviour of the insured cargo without external intervention'. Reliance was placed on the decision in Mayban General Insurance Bhd v Alstom Power Plants Limited  2 Lloyd's Rep 609.
The decision in Mayban concerned an electrical transformer shipped during severe winter weather conditions which arrived damaged. In that case, the trial judge, Lord Justice Moore-Bick, found the damage was caused by the violent movement of the vessel due to the actions of the wind and sea. He found that the loss was caused by the inability of the transformer to withstand the ordinary conditions of the voyage rather than by the occurrence of conditions that it could not reasonably have been expected to encounter.
In the current case, the claimant sought to argue that it is wrong to say that if conditions encountered by the vessel are no more severe than could reasonably have been expected then the conclusion must be that the real cause of the loss is the inherent inability of the goods to withstand the ordinary incidents of the voyage.
However Justice Blair considered this was a misinterpretation of the Mayban decision. Instead the Court in Mayban was required to consider the proximate cause of the damage to the transformer in circumstances where the wind and weather were identified as a cause as was the inherent nature of the transformer being shipped. Lord Justice Moore-Bick decided that inherent vice was the proximate cause but did not suggest that in order to qualify as a peril of the sea the weather had to be extraordinary.
Justice Blair also rejected the claimants' assertion that inherent vice is the natural behaviour of the insured cargo 'without external intervention'. He considered that a misinterpretation of the words of Lord Diplock in Soya v White who had used the words '... without the intervention of any fortuitous, external accident or casualty'.
Justice Blair noted that 'whereas' the vice 'must be internal, the damage, being the consequence of that vice, can and often will develop with the assistance of an external circumstance, typically the weather'.
In his judgment Justice Blair also made it clear that inherent vice has the same meaning in both carriage of goods by sea and in the law of marine insurance.
Justice Blair concluded that:
- The failure of the legs was very probable, but not inevitable.
- The proximate cause of the loss of the legs was not inadequate repairs during the course of the voyage but rather the inherent inability of the legs to withstand the normal incidents of the voyage, including the weather reasonably to be expected.
Accordingly he found that the cause of the loss was inherent vice and the claimants failed against the insurer.
The decision confirms and reinforces the definition of inherent vice provided by Lord Diplock in Soya v White. It also reinforces the Mayban decision and deals with criticism that has been made of that decision.
In addition, the decision importantly confirms that inherent vice should be regarded as having the same meaning in both the law of marine insurance and in relation to carriage by sea.
In so far as Australia and New Zealand is concerned, it can be expected that this decision will be followed by the courts here even though our courts are not bound to follow English decisions.
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