US 2nd Circuit: bunker arrests clarified

Bunkers are supplied through a complex chain of suppliers. If you order a stem the outfit you order from will almost certainly not deliver them. Instead it will arrange directly or at one or more removes for a third party to do so, the bunkers being bought in down the line.

Arrest for bunkers is big business in the US, since there you can arrest the ship for the debts of the time-charterer who bunkers her (which you can’t in England unless the owner is also personally liable, which is unlikely). But who can arrest? The person the bunkers were ordered from or the person who pumped them on board? It turns on who “supplied” the bunkers under the relevant section of CIMLA, the maritime lien legislation. In a decision a couple of days ago arising from the OW debacle, ING Bank v The MV Temara 16-3923(L), the Second Circuit Court of Appeals has straightened out who this is: it’s the entity the charterer or shipowner contracted with, not the physical supplier.

And quite right too. The physical supplier here had voluntarily given credit to the uncreditworthy (OW) and supplied the bunkers to its order; it deserved no proprietary claim against the ship. Whereas the person who contracted with the ship had supplied the bunkers to the orders of the charterer. The fact that it had done so through a third party was beside the point.

Thanks to our friends at the Maritime Advocate for the heads-up.

BIMCO Piracy Clause (2009) and duty to proceed with due despatch

 

 

In London Arbitration 13/18 the vessel was time chartered under a charter on NYPE form which incorporated the BIMCO Piracy Clause for Time Charter Parties (March 2009). This provides:.

(c) If the Owners consent or if the Vessel proceeds to or through an area exposed to risk of piracy the Owners shall have the liberty:

(i) to take reasonable preventive measures to protect the vessel, her crew and cargo including but not limited to taking a reasonable alternative route, proceeding in convoy, using escorts, avoiding day or night navigation, adjusting speed or course, or engaging security personnel or equipment on or about the vessel,

 

Owners employed armed guards and purchased additional security equipment when proceeding through an area exposed to risk of piracy, in this case the Gulf of Aden. Charterers contended that the options in paragraph (c)(ii) of the Piracy Clause were disjunctive so that owners could not recover both costs. The Tribunal disagreed and held that the clause made it clear that the owners were not so limited and could recover both costs. However, owners’ liberty to take ‘reasonable preventive measures’ did not justify their decision to proceed via a route which skirted the border of the high risk area, and constituted a breach of their obligation under cl. 8 to prosecute voyages with due despatch. The vessel employed armed guards for the fourth voyage and had installed a new set of protective materials and had the maximum level of security measures as set out under Best Management Practices 4 for Gulf of Aden Transits, Somalia Transits and Indian Ocean Transits. It was unreasonable to route the vessel in such a way that there would be no chance of interference from pirates and the owners were in breach of cl.8 for which the charterers were awarded damages in hire and fuel costs.

 

A further issue arose as to owners’ right to claim crew war bonuses from charterers. Clause 57 provided that when trading in the Gulf of Aden the crew war bonus if any was to be for charterers’ account. Owners claimed that the only condition was that the war bonus must actually have been paid to the crew. However, the Tribunal pointed to the BIMCO Piracy Clause which provided:

(d) Costs…

(ii) If the Owners become liable under the terms of employment to pay to the crew any bonus or additional wages in respect of sailing into an area which is dangerous in the manner defined by the said terms, then the actual bonus or additional wages paid shall be reimbursed to the owners by the charterers at the same time as the next payment of hire is due, or upon redelivery, whichever occurs first.

 

To be recoverable from charterers any bonus had to be one which owners were obliged to pay under the crew’s terms of employment. Here, the relevant terms provided that a bonus for transit of the Extended Risk Zone would be paid only if the vessel were attacked, which had not been the case. Accordingly, owners were not entitled to recover from charterers the bonus they had paid to the crew.

 

 

 

EU anti-suit injunctions don’t rule — OK?

Confirmation from Males J today in Nori Holdings Ltd & Ors v PJSC Bank Otkritie [2018] EWHC 1343 (Comm)  of what we all suspected: you can’t injunct EU / Lugano proceedings in support of arbitration. The facts aren’t that interesting. Essentially an ailing Russian bank was seeking to undo the effects of a debt restructuring agreement entered into with a number of its borrowers and their sureties, members of the O1 group. To that end it sued in Russia and Cyprus. The present claimants, borrowers and sureties, sought anti-suit injunctions on the basis that the claims were the subject of valid arbitration agreements. It got injunctions in respect of the Russian proceedings; we say no more.

As for the Cypriot proceedings, the bank understandably invoked West Tankers Inc v Allianz SpA (Case C-185/07) [2009] ECR I-00663 and its holding that any intra-EU anti-suit proceedings unacceptably infringed EU full faith and credit under the then Brussels I, not to mention EU courts’ powers to decide on their own jurisdiction. The claimants countered, as might be expected, with the slightly curious remarks of the Advocate-General in the Gazprom OAO case (Case C-536/13) that suggested Recital (12) in Brussels I Recast had cast doubt on the West Tankers holding. Males J subjected the reasoning of the Advocate-General to searching scrutiny at [84]-[99]. His conclusion, though judicious, was pretty blunt: the Advocate-General was simply wrong. There was no room for any inference of an intent to depart from West Tankers.

So now we know. Professors may have lost a useful examination question: but for the rest of us, we know where we stand. And a good thing too.

We do need a marine insurance drugs clause

Another item for the agenda at the LMA (and elsewhere where they do insurance).  If someone tries to use your ship without your knowledge for drug-smuggling and the vessel gets seized, the Supreme Court has now confirmed in Navigators Insurance Co Ltd & Ors v Atlasnavios-Navegação Lda [2018] UKSC 26 that your insurance may well not respond, with your underwriters politely but regretfully telling you that you are on your own.

While an elderly  bulker, the B Atlantic, was loading a cargo of coal in Maracaibo, Venezuela, enterprising drug smugglers strapped nearly 300 lb of cocaine to her hull with a view to retrieving it later. The drugs were found, and the vessel seized and condemned by the Venezuelan authorities. Her owners’ H&M insurance included the Institute War & Strikes Clause, which gave cover for capture, seizure and arrest; against persons acting maliciously; and against confiscation and expropriation. But specifically excluded under Clause 4.1.5 was detainment, confiscation or expropriation by reason of infringement of customs or trading regulations. The underwriters declined to pay. Flaux J decided for the owners; the smugglers’ acts were those of “persons acting maliciously”, and Clause 4.1.5 did not apply because the substantial cause of their loss was the acts of the smugglers and not the resulting infringement of the Venezuelan customs code. The Court of Appeal disagreed: the exclusion of infringement of customs or trading regulations should not be limited in this way, and in the circumstances excluded liability.

The Supremes, led by Lord Mance, agreed with the Court of Appeal, but went further. Not only did the events fall fair and square within the exclusion of confiscation for breach of customs or trading regulations, but there had been no cover in the first place. “Persons acting maliciously” meant persons deliberately out to injure the interests of the owners. Unlike terrorists, bombers or garden-variety vandals, drug-smugglers did not fall in this category: they were criminals, true, and knew that what they did might have consequences for the owners, but this was not enough.

This is, if one may say so, a sensible and convincing decision on the facts and the wording. But it does leave owners high and dry when faced with a risk against which they can quite legitimately desire protection. A specific clause protecting against seizure for drug-smuggling committed without the knowledge or connivance of the owner or the crew now seems a high priority. As we said, it’s over to you at the LMA.

 

 

Marine Cargo Policies Do Not Normally Provide Cover for Economical Losses

Engelhart CTP (US) LLC v. Lloyd’s Syndicate 1221 for the 2014 year of account [2018] EWHC 900 (Comm)

Having purchased 1,967.898 metric tonnes of cooper ingots, said to be shipped in 102 containers from New York, the buyer (assured) obtained “Marine Cargo and Storage Insurance Policy” from various insurers at Lloyd’s. The insurance policy, inter alia, stated:

“… noted and agreed that unless otherwise declared the contrary, the broadest coverage shall apply.”

“Container Clause

It is agreed that this Insurance contract is also to pay for shortage of contents (meaning thereby the difference between the number of packages as per shippers and/or suppliers invoice and/or packing list loaded or alleged to have been laden in the container and/or trailer and/or vehicle load and the count of packages removed therefrom by the Assured and / or their agent at time of container emptying) notwithstanding that seals may appear intact, and/or any other loss and/or damage including but not limited to cargo and/or container sweat howsoever arising.”

 

“Fraudulent Documents

This insurance contract covers physical loss of or damage to goods and/or merchandise insured hereunder through the acceptance by the Assured and/or Shippers of fraudulent documents of title, including but not limited to Bill(s) of Lading and/or Shipping Receipt(s) and/or Messenger Receipt(s) and/or shipping documents and/or Warehouse Receipts and/or other document(s) of title.

This insurance contract is also to cover physical loss of or damage to goods insured caused by utilisation of legitimate Bill(s) of lading and/or other documents of title without the authorisation and/or consent of the Assured or their Agents and/or Shippers.”

On arrival at Hong Kong for transhipment, it was discovered that no cooper ingots were, in fact, shipped in the containers. Indeed, no such cargo existed and the containers only contained slag of nominal commercial value.

The assured’s claim for indemnity was turned down on various grounds but it was specifically stipulated by Sir Ross Cranston, sitting as a judge of the High Court, that all risk marine cargo insurance was generally construed as covering only losses following from physical loss or damage to goods and this policy as a whole did not displace the presumption against cover for pure economic loss.

The trial judge  dismissed the assured’s contention that the alleged loss fell under the container clause stressing that the term “shortage” in the clause should be given its ordinary meaning and could not cover a situation where there was no goods in the first place. He also emphasised that the “fraudulent documents” clause expressly and exclusively responded to “physical loss of or damage to” goods through the acceptance of dishonest documents so this clause rather than displacing the presumption against cover for pure economic loss in cargo policies endorsed it in the sense that it did expressly indicate that no cover was available for physical losses.

2 points emerge from the judgment:

  1. Considered from the perspective of the construction of contracts, the decision is not at all surprising. It is in line with the spirit of several high profile judgments of the Supreme Court, such as Rainy Sky SA Kookmin Bank [2011] UKSC 50; Arnold v. Britton [2015] UKSC 36 and Impact Funding Solutions Ltd v. Barrington Support Services Ltd [2016] UKSC 57, which emphasise that construing a written document is “first and foremost” a textual exercise. On that premise, a clear and express wording is required to extend the cover of a marine cargo policy to losses which are economic in nature. General statements in the policy purporting to describe the nature of coverage provided in broad terms are not on their own capable of extending the nature of cover beyond physical loss or damage to goods.
  2. It is somehow surprising that the insurers did not develop an alternative defence to the claim by arguing that the policy in this case was void (or did not attach) as the subject matter of insurance has never existed in the first place (see AF Watkinson & Co. Ltd. v. Hullett (1938) 61 L1L Rep 145) In fact, it was argued forcefully in Marine Insurance Fraud, (2014, Informa Law) at 2-117-2-118) that where insurance is obtained for an imaginary cargo, the non-disclosure and misrepresentation is of such magnitude that there is no cover at all.             

Warranty or Not?

Bluebon Ltd (in liquidation) v Ageas (UK) Limited, Aviva Insurance Ltd and another [2017] EWHC 3301 (Comm)

The assured, owners of the Star Garter Hotel at West Lothian, having purchased the property in December 2007, obtained an insurance policy from insurers, Ageas and Aviva, which incepted on 3 December 2009 for a period of 12 months. The insured property suffered loss by fire on 15 October 2010 and a claim was made. The insurers denied liability on the premise that the Electrical Installation Inspection Warranty was breached. The relevant term in the policy was worded as follows:

“It is warranted that the electrical installation be inspected and tested every five years by a contractor approved by the National Inspection Council for Electrical Installation (NICEIC) and that any defects be remedied forthwith in accordance with the Regulations of the Institute of Electrical Engineers.”

On the premise that the last electrical inspection at the Hotel had taken place in September 2003, the insurers argued that the policy was either void or suspended from the outset. In the case, the trial judge, Bryan, J, was required to determine:

  1. The proper construction of the Warranty – was the five-year period to be calculated from the date of the last electrical inspection, or from Policy inception?
  2. Was the Warranty a True Warranty, a Suspensive Warranty, or a Risk Specific Condition Precedent, and what was the consequence of a breach?

The proper construction of the warranty

The assured argued that the five year period should be calculated from the date the policy has been incepted. Taking into account the commercial purpose of the warranty, i.e. ensuring that the risk of fire is minimised (whilst also protecting the health and safety of the insured and the occupiers of the hotel), the judge rejected this contention. This objective can only be achieved if the electrical installation is inspected at regular intervals, e.g. every five years, and any defects identified are remedied. The judge also suggested that the contention of the assured, i.e. the installation inspected every 5 years from the inception of the policy, would make no commercial sense and not work in the context of a one year policy, like this one.

This outcome makes sense and the judgment is in line with recent authorities on the matter such as AC Ward & Son Ltd v. Catlin (Five) Ltd [2009] EWHC 3122 (Comm) and GE Frankona Reinsurance Ltd v. CMM Trust No 1400 (The Newfoundland Explorer) [2006] EWHC 429 (Admlty), analysed by the author in his contribution to the 4th Volume of The Modern Law of Marine Insurance (2016, Informa Law) “New Parameters in Construing Insurance Contracts”

Legal classification of the clause            

The insurers argued that the clause in question was a true warranty and accordingly in this case breach had the effect of rendering the policy void from inception as the warranty related to a period before the attachment of the risk. Alternatively, they argued that the clause was a “suspensive provision” and as the inspection had not been carried out in 2008, the cover was suspended from the outset, i.e. the insurer never came on the risk. Conversely, the assured argued that the clause was a “Risk-Specific Condition Precedent”- i.e. a term which required compliance in respect of risks relating to the electrical installation. Therefore, in case of breach the assured could not recover for liabilities that emerge from risks associated with the electrical installation but cover should be available for liabilities that emerge from other risks.

The assured’s contention was a novel one and essentially based on the premise that a clause could make compliance with a specific aspect of the risk condition precedent to liability. That is certainly possible but clear and apposite language is required to achieve such an outcome. That does not seem to be the case here and the trial judge finding in favour of the insurers expressed the view that the clause was a “suspensory provision”. In reaching this conclusion, he worked on the assumption that the clause was designed to ensure that the assured undertakes such an inspection immediately if there had been no such inspection in the last five years. In other words, he assumed that the intention of the clause was to encourage the assured to get the inspection done as soon as possible by suspending the cover until it is completed. The author is not certain that this was the original intention of the insurers. The insurers in all probability desired to assess the risk accurately at the outset by ensuring that they were insuring a property that had gone through electrical surveys at regular intervals. To the author, it was clear that the clause went to the root of the contract and bore materially on the risk of fire and damages would not have been an adequate remedy (these are all the attributes of a true warranty as highlighted by Rix, LJ in HIH Casualty & General Insurance v New Hampshire Insurance Co [2001] EWCA Civ 735, at [101]). In fact the judge himself appreciated that the term carried all these attributes! It is, therefore, arguable that this was a true warranty.

In the end, the judge’s classification of the clause as a “suspensory provision” had no impact on the outcome. In the present case, the cover was suspended from the outset as the electrical survey had not been concluded 5 years after the previous one by the time the policy had been incepted.

The outcome is in line with the recent trend in the judiciary, i.e. to avoid classifying terms as warranties due to the harshness of the remedy they attract in case of their breach. (see, for example, Sugar Hut Group v. Great Lakes Reinsurance (UK) Plc [2010] EWHC 2636 (Comm)) Of course, had the case been considered under the Insurance Act 2015 a different outcome could have been possible. Under s. 11 of the 2015 Act, the assured could possibly argue that this was a term designed to reduce the risk of a particular type (i.e. fire that is caused by electrical default) and the assured should be able to recover for the loss if he can show that its breach did not increase the risk of the loss which occurred in the circumstances in which it occurred.

It is worth noting that s. 11 is not available in cases where the term in question is designed to define the risk in a general way. The author does not think that the clause in question is of that nature but nevertheless one should be alert to the fact that this kind of disputes could arise under the new Act as s. 11 introduces a type of causation test from the backdoor (even though the Law Commissions were desperate to avoid such an outcome!). (for a more analytical evaluation on s. 11 and the effect of changes on law see- B. Soyer, “Risk Control Clauses in Insurance Law: Law Reform and the Future” (2016) Cambridge Law Journal 109)

Meaning of ‘similar amendment’ in cl.8(b) of 1996 Inter-Club Agreement

Agile  Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055 (Comm) is a recent decision on the meaning of “similar amendment” in cl.8(b) of the 1996 Inter-Club Agreement (‘ICA’), in favour of the claimant shipowners, represented by IISTL’s Simon Rainey QC.

The “Maria” was time chartered for a single trip from Tunisia to India via Trinidad, carrying a consignment of direct reduced iron (“DRI”) which is  highly reactive and combustible in the presence of heat or water. During loading the cargo onto the vessel by means of a conveyor belt at Port Lisas, Trinidad, the belt was seen to have caught fire, but the appointed supercargo inspected the holds and advised that loading could continue. The cargo was still on fire during the voyage and cargo interests, an associated company of the charterers, brought a claim against the shipowners. In turn, they claimed a 100% indemnity from the charterers under the Inter-Club Agreement 1996 which was incorporated into the charter. The charter was on NYPE 1946 form, with an unamended cl.8, so under cl.8(b) of the ICA owners would be entitled to a 100% indemnity in respect of claims “in fact arising out of the loading, stowage, lashing, discharge, storage or other handling of cargo”.

The clause contains the proviso “ unless [1]  the words “and responsibility” are added in clause 8 [of the NYPE form]” to which the 1996 form added the words  “or there is a similar amendment making the Master responsible for cargo handling”, in which case a 50/50 split applies. Charterers pointed to cl.49 which provided “The Stevedores although appointed and paid by Charterers/Shippers/Receivers and or their Agents, to remain under the direction of the Master who will be responsible for proper stowage and seaworthiness and safety of the vessel…” and argued that this constituted a ‘similar amendment’. Charterers argued that  this would transfer back responsibility to the owners that aspect of cargo handling which was in fact in issue in the particular case. His Honour Judge Waksman QC rejected this, and held the required “similar amendment” must be one which would have the same effect as the addition of the words “any responsibility” and therefore, connotes the transfer of all aspects of cargo handling generally back to the Owner. He went on to observe that Clause 49 only transferred back responsibility for stowage, and probably only stowage affecting the seaworthiness or safety of the vessel. A transfer back of stowage only did not connote any transfer back of other cargo handling responsibilities.

Of sales, bills of exchange and arbitration

Picken J today revisited an old chestnut in arbitration law. Suppose you sell goods or services and draw on the buyer for the price (yes, some people still do this), and have a standard arbitration clause referring to “all disputes arising out of or in connection with this Contract”. Does the arbitration clause cover a claim on the bill of exchange, as against one on the underlying contract of sale? Just this happened in Uttam Galva Steels Ltd v Gunvor Singapore Pte Ltd [2018] EWHC 1098 (Comm), where the buyer made a s.67 application challenging an LME arbitration tribunal that had said yes and had then given judgment against it on the bill. In fact the buyer had introduced the point out of time, so the point was a non-starter.  But even without that it would, said Picken J, have failed. On the basis of modern arbitration practice as evidenced in Fiona Trust v Privalov [2007] UKHL 40; [2007] 4 All E.R. 951 parties should not lightly be taken to have agreed to bifurcated dispute resolution according to whether the action was being brought on the bill or on the contract. Dicta in Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 1 WLR 713, 731 and the Singapore decision in Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza SpA [2016] SGCA 53 failed to convince him otherwise.

On balance it is suggested that his Lordship was right. It is true (as he admitted) that the result is that those who sell under bills of exchange may inadvertently give up the right they would otherwise have to summary judgment on the bill with few if any questions asked under the ‘pay now, sue later’ principle. But summary judgment is equally available under the underlying contract, and the fact that this may be precluded by an arbitration clause never seems to have unduly worried anyone.

If the claim is brought on the bill by an indorsee who is a holder in due course, then presumably the result will be different: the holder here can hardly be bound by any arbitration clause — as indeed was held in Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza SpA [2016] SGCA 53, where the claimant was the indorsee of a promissory note. But this need not detain us.

Meanwhile, the sensible reaction for a commercial lawyer is a simple one: say what you want. Where payment is or may be made by a bill of exchange, it is hardly rocket science to draft the arbitration clause to as to embrace “all disputes arising out of or in connection with this Contract, including cases where the claim is brought under a bill of exchange or promissory note”, or (if you prefer) “all disputes arising out of or in connection with this Contract, save for cases where the claim is brought under a bill of exchange, promissory note or similar instrument”. You may do students of commercial law out of a bit of technical learning, but you sure will save your clients a good deal of heartache and very possibly money.

Settlement: not as easily inferred as you might think.

It’s a fact of life that most cases settle. But establishing a settlement isn’t as straightforward as it looks, as Males J’s judgment in Goodwood Investments Holdings Inc v Thyssenkrupp Industrial Solutions AG (The M/Y Palladium) [2018] EWHC 1056 (Comm) shows. Goodwood appeared as purchaser of the Palladium, a futuristic 300-foot superyacht built by ThyssenKrupp for Russian billionaire Mikhail Prokhorov. The paint proved troublesome, and arbitration commenced.

Following settlement attempts, ThyssenKrupp wrote:

Offer in Full and Final Settlement

In view of the foregoing, the Builder’s offer is as follows: 1. The Replacement Works; and 2. Costs – €… Accordingly, the total net payment to be made by the Builder, in addition to performing the Replacement Works at its own cost will be €…

Additional Settlement Terms

The conclusion of a final settlement will remain subject to the following terms: 1. A full release of any existing or future (known or unknown) claims arising out of or in connection with the SBC, whether against the Builder, B+V, or any other sub-contractor ….  3. Return and cancellation of all outstanding guarantees. 4. Conclusion of a formal settlement agreement to include, prior to signature, formal approval of the settlement by the competent corporate body of the Builder.

A couple of days later Goodwood replied:

… the Further Offer is accepted by the Purchaser, subject only to the following points of clarification that are needed for logistical reasons:
1. The Further Offer does not say at which yard the work will be carried out. Can you please state which yard the Builder proposes to use? For the avoidance of doubt, the Purchaser would be prepared for that to be Blohm + Voss, or its new owner, Lurssen, or another European yard of comparable standing and quality.
2. The Further Offer is unclear about a start date for the work. For your information, the Purchaser’s preferred start date is about October 2018, after the next summer cruising season. We suggest, therefore, that the parties liaise about an exact date convenient to both parties.
3. Whilst the Purchaser is content for the work to be overseen by Wrede, the Purchaser must have the right to send its own consultants to assist Wrede, and receive reports and updates from Wrede, as it is in the interests of both the Purchaser and the Builder that any further dispute be avoided.
4. We understand that the settlement requires approval from the Builder’s board. Whilst that is understood by the Purchaser, your and Mr Bracker’s recommendation ought, we assume, [sc. to] ensure it is forthcoming. Regarding the arbitration hearing, our view is that it should be adjourned sine die pending formal board approval.
5. The Further Offer, taking account of the foregoing points, should be set out in a formal short settlement agreement to be executed by both the Purchaser and the Builder (once board consent is obtained) and that settlement agreement must expressly provide it is in full and final settlement of all disputes and differences arising out of or in connection with the subject matter of the Arbitration, and all the further matters that you mention in your Further Offer. It must be common ground that neither party is ‘buying litigation’ in order to end this long running paint dispute.”

ThyssenKrupp sought to continue the arbitration: Goodwood argued that the claim had been compromised. Males J had no doubt that ThyssenKrupp were right. Paragraph 4 of their Additional Settlement Terms put two obstacles in the way of there being an immediately binding offer to settle: a need for a formal agreement, and for the approval of ThyssenKrupp’s management. Furthermore, although expressed to be for ‘clarification’ the extra points in Goodwood’s response prevented this from being an unequivocal acceptance.

One further point. Goodwood argued, one suspects in some desperation, that an offer to settle subject to management approval, once accepted, gave rise to a concluded contract with a duty to use best endeavours to get that approval. Males J without hesitation rejected this argument: such an obligation, even if intended (a point that he did not have to decide), was an unenforceable agreement to agree.

In short, copy and paste the wording from this offer by ThyssenKrupp and you can be fairly safe in suggesting settlement with virtually no danger of inadvertently giving up your client’s case. Useful to know.

 

When copper turns out to be slag. No physical loss of cargo, no claim under all risks open policy.

 

In   Engelhart CTP (US) LLC v Lloyd’s Syndicate for the 2014 year of account [2018] EWHC 900 (Comm) the cif buyer claimed under an all risks open policy when containers were found not to contain the copper ingots it had traded, only slag of nominal value. It was assumed that no copper was ever shipped and that the claimant in good faith has paid for and taken up fraudulent bills of lading and other shipping documents.  Sir Ross Cranston held that the purpose of all risks marine cargo insurance, was to cover loss of or damage to property. In this case, there was no physical loss of or damage to property as  there never was any cargo of copper ingots, and, consequently, no cargo to be physically lost or damaged. Something must exist to be physically lost.

The scope of the policy was extended by additional clauses but these were all suggestive of physical loss. The first was a Container clause which provided that the policy “is also to pay for shortage of contents…notwithstanding that seals may appear intact”.  The word “shortage” in the clause bore its ordinary meaning and could not cover a situation where there were no goods in the first place.  The second was a Fraudulent Documents clause which was expressly provided to cover a physical loss of goods through acceptance of fraudulent documents of title. Neither clause extended the scope of the policy beyond physical loss of or damage to goods.