Delos Shipholding S.A. & Ors v Allianz Global Corporate and Speciality S.E & Ors
In April 2024, we reported on the decision of the English Commercial Court in this important case. The case concerned what the trial Judge described as the "illegal parking" of the Capesize bulk carrier WIN WIN inside Indonesian territorial waters in February 2019. In common with many other vessels, the WIN WIN had anchored off the island of Bintan, just inside the 12 mile limit, and without the approval of the authorities. The infringement was one which might ordinarily lead to a fine but instead the vessel was detained by the Indonesian authorities for nearly a year while her Master was prosecuted, eventually receiving a suspended sentence of seven months' imprisonment and a fine of around USD7,000.
The vessel was insured by the Defendant insurers under a war risk policy on the American Institute Hull War Risks and Strikes Clauses (1977). The policy included a detainment clause in the following terms:
"In the event that the Vessel shall have been the subject of capture, seizure, arrest, restraint, detainment, confiscation or expropriation, and the Assured, by reason thereof, has lost the free use and disposal of the Vessel for a continuous period of [six (6)] months…then for the purposes of ascertaining whether the Vessel is a constructive Total Loss [CTL], the Assured shall be deemed to have been deprived of the possession of the Vessel without any likelihood of recovery."
Pursuant to the above clause, the vessel owners claimed a CTL in the sum of USD27.5 million.
It was common ground at trial that detainment under the criminal laws of a country may amount to a restraint or detainment within the meaning of the policy, and that the said state of affairs had endured in the present case for more than the qualifying period of six months. In principle, therefore, the vessel was a CTL. However, at first instance insurers asserted a number of reasons why the present claim was not valid.
The trial Judge, Dias J, found against insurers on all grounds, from which the insurers appealed on two points.
Customs and quarantine exclusion
As the title suggests, a war risk policy is intended to insure the vessel against the perils of war or similar acts of hostility. Its objective is not to indemnify where a vessel merely becomes detained in the course of ordinary judicial process. Consistent with that, the present policy contained the following exclusion:
"This insurance does not cover any loss, damage or expense caused by, resulting from, or incurred as a consequence of:
...
e. Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments not arising from actual or impending hostilities …"
Insurers contended that the detainment in this case was "similar" to that under customs or quarantine regulations, and so excluded.
The trial Judge had rejected this defence, holding that an arrest, restraint or detainment was only "similar" for these purposes if the underlying purpose and objective of the arrest was materially the same as the underlying purpose and objective of an arrest under customs or quarantine regulations. In other words, the regulation invoked must in substance equate to a "customs regulation", as construed under English law, whether the action was in fact taken under a customs regulation or some other local law. In the present case, the Court concluded that the detention of vessels at the relevant time was not a customs and quarantine matter but in fact the product of a decision prompted by a change of policy on the part of the Indonesian Government with a view to asserting sovereignty over its territorial waters.
The Court of Appeal agreed with the trial Judge, noting that a detainment could only be "similar" to a customs detainment if it related to the import of goods, and could only be "similar" to a quarantine detainment if it related to health, whether of people or animals. As the present detainment had nothing to do with either of those things the exclusion did not apply.
Duty to give a fair presentation
Under the Insurance Act 2015, an insured is under a duty to give a fair presentation of the risk, a process which under section 3(4) of the Act involves giving:
- Disclosure of every material circumstance which the insured knows or ought to know, or
- Failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances
As to what the insured "knows", a corporate entity will be taken to possess the knowledge of any individual forming "part of the insured's senior management".
In this case, the insurers alleged that the insureds were in breach of the above duty by failing to disclose that the sole director of the registered owner of the vessel, a Mr Bairactaris, was the subject of criminal charges in Greece. At first instance the trial Judge rejected this defence, noting that Mr Bairactaris was a shipping lawyer in private practice at the Piraeus Bar (who, incidentally firmly denied the charges), and was merely a nominee director of the owner company. As such, he performed an administrative function in signing documents solely on the instructions of the ultimate beneficial owners of the company, the latter of whom were unaware of the position. The only person aware of the charges, Mr Bairactaris himself, did not constitute “senior management” for the purposes of section 4(3) of the 2015 Act. In any event, insurers were held not to have been induced by the alleged non-disclosure.
Again, the Court of Appeal agreed that Mr Bairactaris did not constitute "senior management" for the purposes of section 4(3) of the Act, in circumstances where he was the sole nominee director of a one ship company.
As to the question of information which the insured "ought to know", this is explained by section 4(6) of the Act, and consists of those matters which "should reasonably have been revealed by a reasonable search of information available to the insured", including by the making of enquiries.
The Court of Appeal noted the finding at first instance that the obligation to make reasonable enquiries did not extend to asking the nominee director whether he knew of any circumstances which might affect the risk, given that Mr Bairactaris had no operational role or function regarding the trading of the vessel or her insurance and would not have known anything about the risk to be insured. Again, the Court of Appeal confirmed that this conclusion was one which the trial Judge was entitled to reach.
Given the Court of Appeal’s decision on actual and constructive knowledge, it was not necessary to consider the separate questions of materiality and inducement.
The question of fair presentation, in particular, has relevance extending well beyond this case. In the maritime community the use of special purpose vehicles, each owning a single vessel, and with a single nominee director, is not uncommon. It may seem striking that the shipowning company's only director is not to be regarded as "senior management" for the purposes of the imputation of knowledge to the company.
