Atlasnavios-Navegacao Lda (formerly Bnavios-Navagacao Lda) v Navigators Insurance Company Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Hughes,Lord Briggs,Lord Sumption,Lord Mance,Lord Hodge |
| Judgment Date | 22 May 2018 |
| Neutral Citation | [2018] UKSC 26 |
| Court | Supreme Court |
| Date | 22 May 2018 |
[2018] UKSC 26
Lord Mance, Deputy President
Lord Sumption
Lord Hughes
Lord Hodge
Lord Briggs
Appellant
Alistair Schaff QC
Alexander MacDonald
(Instructed by W Legal Ltd)
Respondents
Colin Edelman QC
Guy Blackwood QC
(Instructed by Stephenson Harwood LLP)
Heard on 20 March 2018
( with whom Lord Sumption, Lord Hughes, Lord Hodge and Lord Briggs agree)
In August 2007, the vessel “B Atlantic”, owned by the appellant, was used by unknown third parties in an unsuccessful attempt to export drugs from Venezuela. After her consequent detention by the Venezuelan authorities and the expiry of a period of more than six months, the owners treated the vessel as a constructive total loss. The issue is whether the vessel sustained a loss by an insured peril, entitling the owners to recover the vessel's insured value from the respondents, her war risks insurers.
The war risks insurance policy was for a year commencing 1 July 2007. According to section A, it afforded hull and machinery cover
“including strikes, riots and civil commotions, malicious damage and vandalism, piracy and/or sabotage and/or terrorism and/or malicious mischief and/or malicious damage, including confiscation and expropriation.”
The cover afforded was on the terms of the Institute War and Strikes Clauses Hulls-Time (1/10/83). These provide as follows:
“1. PERILS
Subject always to the exclusions hereinafter referred to, this insurance covers loss of or damage to the vessel caused by
1.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power
1.2 capture seizure arrest restraint or detainment, and the consequences thereof or any attempt thereat
1.3 derelict mines torpedoes bombs or other derelict weapons of war
1.4 strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions
1.5 any terrorist or any person acting maliciously or from a political motive
1.6 confiscation or expropriation.
2. INCORPORATION
The Institute Time Clauses-Hulls 1/10/83 (including 4/4ths Collision Clause) except Clauses 1.2, 2, 3, 4, 6,12, 21.1.8, 22, 23, 24, 25 and 26 are deemed to be incorporated in this insurance in so far as they do not conflict with the provisions of these clauses.
…
3. DETAINMENT
In the event that the Vessel shall have been the subject of capture seizure arrest restraint detainment confiscation or expropriation, and the Assured shall thereby have lost the free use and disposal of the Vessel for a continuous period of 12 months then for the purpose of ascertaining whether the Vessel is a constructive total loss the Assured shall be deemed to have been deprived of the possession of the Vessel without any likelihood of recovery.
…
4. EXCLUSIONS This insurance excludes
4.1 loss damage liability or expense arising from
…
4.1.2 the outbreak of war (whether there be a declaration of war or not) between any of the following countries:
United Kingdom, United States of America, France,
the Union of Soviet Socialist Republics,
the People's Republic of China
4.1.3 requisition or pre-emption
4.1.4 capture seizure arrest restraint detainment confiscation or expropriation by or under the order of the government or any public or local authority of the country in which the Vessel is owned or registered
4.1.5 arrest restraint detainment confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations
4.1.6 the operation of ordinary judicial process, failure to provide security or to pay any fine or penalty or any financial cause
4.1.7 piracy (but this exclusion shall not affect cover under Clause 1.4),
4.2 loss damage liability or expense covered by the Institute Time Clauses-Hulls 1/10/83 (including 4/4ths Collision Clause) or which would be recoverable thereunder but for Clause 12 thereof …”
The period of 12 months in clause 3 was by agreement reduced to six months.
The appeal turns on the inter-relationship of the perils identified in clauses 1.2, 1.5 and 1.6 with clause 3 and with the exclusions identified in clause 4.1.5. This was considered in the courts below in two stages. First, four preliminary issues were identified, three of which were determined by Hamblen J by a judgment given on 23 March 2012: [2012] EWHC 802 (Comm). There was then a trial before Flaux J of all other issues of fact and law extending over some 14 days in October 2014, leading to a judgment dated 8 December 2014: [2014] EWHC 4133 (Comm); [2015] All ER (Comm) 439. An appeal against aspects of Hamblen J's and Flaux J's judgments was heard on 14–15 June 2016 and determined on 1 August 2016 by the Court of Appeal (Laws LJ, Clarke LJ and Sir Timothy Lloyd): [2016] EWCA Civ 808; [2017] 1 WLR 1303.
Hamblen J determined that, in order to rely on clause 4.1.5, insurers did not need to show privity or complicity on the part of (a) the insured or (b) any servant or agent of the insured. There has been no challenge to these conclusions. He also answered in the negative a third issue
“whether the exclusion in clause 4.1.5 is only capable of applying to exclude claims for loss or damage to a vessel which would otherwise fall within insuring clause 1. 2 or 1.6, and not the other perils insured against under clause 1 and/or Section A of the Conditions.”
On that basis, Flaux J determined that owners were entitled to recover from insurers. The cause of the vessel's loss was the malicious act of unknown third parties in attaching the drugs to the hull, and the exclusion of detainment, etc “by reason of infringement of any customs … regulations” in clause 4.1.5 was to be read as subject to an implied limitation where the only reason for such infringement was such an act. The Court of Appeal reached the opposite conclusion, holding that no basis existed for any such implied limitation, and that the vessel's loss could both be attributed to a malicious third party act within clause 1.5 and be excluded as “arising from … detainment … by reason of infringement of any customs … regulations” within clause 4.1.5. The Court of Appeal also dismissed owners' cross-appeal (in support of which owners had offered no submissions) against Hamblen J's determination of the third issue before him. Before the Supreme Court, owners have preserved their case that Hamblen J was wrong on this point as an alternative to their primary case that, assuming he was right, clause 4.1.5 still does not cover the present circumstances.
As is evident from this summary, it has been common ground since at least the hearing before Flaux J that the attempted use by unknown third parties of the vessel for the purpose of smuggling involved the unknown third parties “acting maliciously” within the meaning of clause 1.5. Only on that basis can owners claim under clause 1.5 and argue that clause 4.1.5 is inapt to cut back the cover against malicious acts which clause 1.5 affords. However, during the course of the hearing before it, the Supreme Court concluded that it was necessary to re-examine the resulting common ground, to avoid the risks attaching to any exercise of deriving conclusions from what might prove a false premise. The parties were therefore invited to make and after the hearing made further written submissions on the effect of clause 1.5. The owners continued to resist the proposed expansion of the issues on this appeal, but in my view it involves no real prejudice on a point which is one of pure construction and law.
The vessel had in early August 2007 loaded a cargo of coal in Lake Maracaibo, Venezuela for discharge in Italy. During an underwater inspection on 12 August 2007, divers discovered a loose underwater grille, in the space behind which were a grappling hook, a saw, a rope and other tools. The Master was told to have the grille rewelded because of the risk of drug smuggling, but declined as the vessel was due to sail that night. In fact, there had been a miscalculation of the vessel's draft, which, when appreciated, enabled her to load a further 800 metric tons. Her sailing was thus delayed to 13 August 2007, enabling a second underwater inspection to take place, during which the divers now discovered three bags of cocaine weighing 132 kg strapped to the vessel's hull, ten metres below the waterline and some 50 metres from the grille. Unknown third parties were responsible — presumably associated with a drug cartel intent on smuggling drugs out of South America into Europe. It is not suggested in these proceedings that either the owners or their crew were in any way implicated (although, as will appear, a different conclusion was reached in Venezuela with regard to the master and second officer).
The concealment of the drugs constituted an offence under article 31 of the Venezuelan Anti-Drug Law 2005, which provides:
“Whoever illicitly traffics, distributes, conceals, transports by any means, stores, carries out brokering activities with the substances or their raw materials … for the production of narcotic drugs and psychotropic substances, will be punished with a prison sentence of between eight and ten years.”
In case of an offence under article 31, article 63 authorised seizure of any ship involved “as a precautionary measure until … confiscation in a definitive judgment”, with a proviso that “the owner is exonerated from that measure when circumstances demonstrate its lack of intention”. Article 66 further provides:
“The … property … ships and other items employed to commit the investigated offence, as well as property about which there is a reasonable suspicion that it...
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