Atlasnavios—Navegação, LDA and Another (Respondent/Cross-Appellant/Claimant ("owners") v Navigators Insurance Company Ltd and Others (Appellants/Cross-Respondents/Defendants ("Insurers")
| Jurisdiction | England & Wales |
| Judge | Lord Justice Christopher Clarke,Sir Timothy Lloyd,Lord Justice Laws |
| Judgment Date | 01 August 2016 |
| Neutral Citation | [2016] EWCA Civ 808 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2015/0123 |
| Date | 01 August 2016 |
[2016] EWCA Civ 808
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HON. MR JUSTICE FLAUX AND THE HON. MR JUSTICE HAMBLEN
2011 Folio 537
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Laws
Lord Justice Christopher Clarke
and
Sir Timothy Lloyd
Case No: A3/2015/0123
Alistair Schaff QC and Mr Alexander MacDonald (instructed by W Legal Ltd) for the Claimant
Mr Colin Edelman QC and Mr Guy Blackwood QC (instructed by Stephenson Harwood LLP) for the Defendants
Hearing dates: 14 and 15 June 2016
Approved Judgment
The respondents are the owners of the vessel "B ATLANTIC". The appellants are their war risk insurers. Hereafter I refer to the "owners", the "vessel" and the "insurers". The question in this appeal is whether Flaux J was right to find that the owners were entitled to be indemnified by the insurers in respect of the constructive total loss of the vessel in the following circumstances.
On 13 August 2007 the vessel completed loading a cargo of coal in Lake Maracaibo, Venezuela for discharge in Italy. An underwater inspection by divers discovered three bags of cocaine weighing 132 kg strapped to the vessel's hull in the vicinity of the rudder, 10 metres below the waterline.
This concealment itself constituted an offence contrary to Article 31 of the Venezuelan 2005 Anti-Drug Law which provides:
"Whoever illicitly traffics, distributes, conceals, transports by any means, stores, carries out brokering activities with the substances or their raw materials…. to which this Law refers and which were deviated, even in a discarded form, for the production of narcotic drugs and psychotropic substances, will be punished with a prison sentence of between eight and 10 years"
Article 63 and 66 of the same Law provides:
"Preventive seizure
Article 63 — When the offences covered by Articles 31, 32 and 33 of this Law are committed on ships … such items will be seized as a precautionary measure until their confiscation in a definitive judgment. The owner is exonerated from that measure when circumstances demonstrate its lack of intention. That question will be resolved at the preliminary hearing."
Secured, seized and confiscated property
Article 66– The moveable or immoveable property… ships … and other items employed to commit the investigated offence, as well as property about which there is a reasonable suspicion that it originated from the offences envisaged in this Law or related offences ….. will be in all cases seized as a preventive measure and, when there is a final and definitive judgment, an order will be given to confiscate and the property will be awarded to the decentralised agency in the field…"
Article 63 involves, as the judge found a reverse burden of proof [283].
When exactly the drugs were attached to the vessel is unknown. There was an inspection on 12 August 2007 when the divers noticed that an underwater grille on the hull was loose and that various objects not belonging to the vessel (a grappling hook, a saw, a rope and other tools) were inside the space behind the grille. The Master was told to have the grille rewelded because of the risk of drug smuggling. He declined to do so because the vessel was due to sail that night. But the vessel did not sail then because there had been a miscalculation of the vessel's draft and consequently a short loading, so that 800 m.t. of additional cargo was loaded. A second inspection was carried out the next day. It may well be that the drugs were attached after the first inspection after which the smugglers did not expect to be, but were, caught out by a second inspection.
On 16 August 2007 the vessel was detained and the crew were arrested. The Master and the Second Officer were charged with complicity with drug smuggling and on 31 October 2007 the control court judge, Judge Villalobos, sent them for trial and ordered the continued preventive detention of the vessel pursuant to Articles 63 and 66 of the Anti-Drug Law and Article 108 of the Venezuelan Criminal Procedure Code. The vessel remained in detention until in August 2010, following a jury trial, the two officers were convicted and sentenced to 9 years' imprisonment. The court ordered the final confiscation of the vessel, which the owners had abandoned to the court in September 2009.
The drugs were affixed to the vessel by persons unknown, presumably members of a drug cartel engaged in smuggling drugs from South America to Europe. The insurers do not suggest that the owners were implicated in these activities in any way and the case has proceeded on the basis that the Master and Chief Officer were wrongly convicted in Venezuela.
The policy
The policy was in force for the period 1 July 2007 to 30 June 2008. It was a standard war risks insurance on the Institute War and Strikes Clauses 1/10/83 with additional perils. The Conditions for hull and machinery cover (Section A) provided:
"Institute War and Strikes Clauses Hulls – Time Clause 281. 01.10.1983. 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.
Line 20 of the Institute War and Strikes Clauses Hulls-Time Clause 281.01.10.1983 amended from 12 to 6 months."
The Institute War and Strikes Clauses, as amended, provided, relevantly, as follows:
"1 PERILS
Subject always to the exclusions hereinafter referred to, this insurance covers loss of or damage to the Vessel caused by
…
1.2 capture seizure arrest restraint or detainment, and the consequences thereof or any attempt thereat
…
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 [6] 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
…
4.1.5 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 …
4.2 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."
Clause 6 of the Institute Time Clauses-Hulls 1/10/83 provides:
"PERILS
6.1. This insurance covers loss of or damage to the subject—matter insured caused by:
6.1.5 piracy
…
6.2.5 barratry of Master Officers or Crew
Provided such loss or damage has not resulted from want of due diligence by the assured, owners or Managers."
In March 2012 Hamblen J, as he then was, heard the trial of various preliminary issues in this case. Those issues were:
(1) Whether, in order for Underwriters to be able to rely on the exclusion in clause 4.1.5, they must show that there was privity or complicity on the part of the insured in any infringement of customs regulations.
(2) If not, whether Underwriters must show that there was privity or complicity on the part of the servants or agents of the insured in any infringement of customs regulations.
(3) 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.
(4) Whether the exclusion in clause 4.1.5 is capable of applying if an infringement of customs regulations is found not to be, or not reasonably arguably to be, a ground for the arrest, restraint, detainment, confiscation or expropriation of the vessel in question as a matter of the relevant local law.
Hamblen J answered each of the first three questions in the negative. It was common ground that the fourth question involved questions of fact and did not...
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