Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MAY |
| Judgment Date | 22 March 1989 |
| Judgment citation (vLex) | [1989] EWCA Civ J0322-8 |
| Docket Number | 89/0419 |
| Court | Court of Appeal (Civil Division) |
| Date | 22 March 1989 |
[1989] EWCA Civ J0322-8
Lord Justice May
Lord Justice Ralph Gibson
and
Lord Justice Bingham
89/0419
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr. Justice Hobhouse)
Royal Courts of Justice
MR. J. MANCE, Q.C., MR. J. FLAUX and MR. S. KENNY (instructed by Messrs Constant & Constant) appeared on behalf of the Respondents/Plaintiffs.
MR. C. CARR, Q.C, MR. J. GILMAN and MR. A. GRIFFITHS (instructed by Messrs Holman, Fenwick & Willan) appeared on behalf of the Appellants/Defendants.
This is the judgment of the court to which each member has contributed.
For the reasons which follow we have reached the conclusion that the judgment in favour of the plaintiffs cannot be sustained and that this appeal must be allowed.
This is a defendants' appeal from a declaratory interim judgment of Mr. Justice Hobhouse in this litigation of the 2nd October 1987: [1988] 1 Lloyd's Rep.514. The defendants are mutual war risks insurers and we propose to refer to them in this judgment as the "Club". This is of long standing and has as its purpose the provision of protection in respect of war risks to Greek shipowning interests. It was ultimately controlled by a Board of Directors, who were elected by the members and were themselves (beneficially) shipowners.
The Club was registered and based in Bermuda and its managers were a limited company by the name of Thomas R. Miller & Son (Bermuda) Ltd. The latter employed as their London agents Thomas R. Miller & Son Ltd. of the City of London. The principal person there involved was a Mr. Michael Miller, who has a long experience in mutual insurance and the running of such associations as the Club. He was indeed the de facto chief executive of the Club. His principal assistant at the material times was a Mr. Ballantyne who, like Mr. Miller, has considerable experience in this field. There is no need to make any distinction between any of the Bermuda entities and Millers in London and accordingly, as did the learned judge, we propose simply to refer to the Club and to Millers, the former being insurers and the latter the agents and managers of those insurers.
The case concerns the insurance by the Club of various vessels of a group known as the "Good Faith" Group which was run by a Captain Frangos and a Mr. Moundreas. These were, in effect, a partnership, with the former contributing the shipowning skills and the latter contributing the chartering and brokerage skills. As the learned judge said in his judgment, they operated in the way that was usual with many shipowners. They acquired tonnage, almost invariably secondhand tonnage, financing their purchases by bank loans. One of the banks providing such finance was the plaintiffs. This enabled the Good Faith Group to acquire a number of vessels, in particular the M.V. Good Luck and also the Good Master, the Good Challenger and the Good Ocean. In connection with the provision of the relevant insurance the Club gave the banks Letters of Undertaking, to the precise terms of which we shall refer hereafter, but which imposed certain obligations on the Club to the respective banks in relation to the vessels entered for war risks insurance in the former.
The insurance provided by the Club was defined in and governed by its rules. The policy year ran from 1st January in any year and although there were certain revisions in both 1981 and 1982, to take effect in the following years, we are principally concerned with and the learned judge confined himself to the rules of the Club as they were in 1982. Of these Rules 20 and 25 are central to the present case and need to be quoted more or less in full. Rule 20 provided:
"A. The Directors have power under Rule 26 to specify any ports, places, countries, zones or areas (whether on land or sea) as Additional Premium Areas and to specify any special terms, conditions, exceptions, or limitations of or to the Association's cover which shall apply while an entered ship shall be or remain in any such area.
"B. If an entered ship shall proceed to or be or remain in any Additional Premium Area, then (subject to paragraphs C and D of this rule):
(i) The owner shall continue to be insured while the ship proceeds to or is or remains within such area.
PROVIDED ALWAYS that:
It is a condition of the insurance given by the Association that the Owner shall give prompt notice to the Association of the fact that the entered ship will enter, has entered or is in the Additional Premium Area as soon as the Owner knows of such fact. If any Owner shall fail to give prompt notice to the Association as aforesaid then the Association shall be entitled, if the Directors in their discretion so determine, to reject any and all claims arising out of events occurring while the ship is in the Additional Premium Area but in such event the Association shall return to the Owner any additional premium which may have been paid pursuant to (iii) below.
(ii) The terms of the insurance of the entered ship during such period shall be those which have been agreed between the Owner and the Association…..
(iii) The Owner shall pay to the Association an additional premium to be arranged.
C. An Owner shall be entitled to give written notice to the Association at any time before the entered ship enters an Additional Premium Area stating that he desires the cover of the entered ship to be suspended while the ship is within the said area. If notice in writing is given as aforesaid then—
(i) The cover given by the Association in respect of the ship so specified shall be suspended and the Owner shall remain uninsured in respect of such ship during the period while the ship is and remains in the Additional Premium Area.
(ii) The Owner shall be under no liability to pay any additional premium in accordance with paragraph B(iii) of this rule but shall not be entitled to any return of contributions paid or payable in respect of the entered ship unless the directors in their absolute discretion otherwise determine.
Unless a notice shall have been given pursuant to this paragraph before the ship enters the designated Additional Premium Area, the provisions of paragraph B of this Rule shall be applicable…..
E. Where the entered ship is mortgaged the owner shall not be entitled to give notice under paragraph C of this rule or to negotiate under paragraph D of this rule any reduction and the maximum cover available from the Association unless he shall have obtained and produced to the Association the consent of his mortgagees to the suspension or reduction of the cover….".
The learned judge held and we respectfully agree that the structure of Rule 20 is clear. It is essentially a "held covered" provision. If the vessel of a member of the Club enters an Additional Premium Area the cover continues, but the member is liable to pay a special additional premium. This is expressly provided for by Rule 20B(i) and (iii). There is an obligation on the member to pay this additional premium, and he can only escape from it by making use of the liberty given to him under sub-rule C, whereby he can give notice before his ship enters the relevant area, stating that he wishes cover on that ship to be suspended while she is within the area. The proviso to B(i) gives the right to the Club to reject any claim where the member has failed to give prompt notice that the vessel is about to enter or has entered a relevant area.
Rule 25 of the Rules of the Club provided:
"A. The Directors shall at all times have power to give any Member or Members such orders, prohibitions, directions or recommendations as the Directors in their absolute discretion may see fit as regards routes, ports, stoppage, convoys, cargoes, methods of loading or discharge of cargoes, modes of management or of navigation of ships, manning or equipment, including orders to go or to depart from or remain at (all prohibitions from going to, or departing from or remaining at) any port, place, country, zone or area…..
C. Every insurance given by the Association shall be deemed to contain or shall contain a warranty by the Owner that all such orders, prohibitions, directions or recommendations as are referred to in paragraphs A and B of this Rule shall be acted upon and complied with by the insured ship irrespective of whether they were made before or after the date of the entry of the insured ship.
PROVIDED ALWAYS that:
The breach of such warranty shall not operate to invalidate the insurance if the Owner shall prove that such breach occurred without any personal fault or any of due diligence on the part of the Owner or Managers of the entered ship or was committed in order to avoid loss by the risks insured by the policy.
D. Notwithstanding any order of prohibition made by the Directors a ship may be specially insured on the terms that a specific order of prohibition shall not apply and that failure to comply therewith shall not be deemed a breach of warranty. A ship may be specially so insured on such terms as to additional premium or otherwise as the Managers think fit.
E. No ship shall be deemed to be insured on the special terms referred to in paragraph D hereof unless the exemption from the particular order or prohibition is specified in writing by the Managers…".
The remainder of the Rules are not directly material, but there are a group of them which refer to and cover "cesser of insurance" in various circumstances. These other Rules make additional provision that the Owner shall...
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