Bank of Nova Scotia (a Corporate Body) v Hellenic Mutual War Risks Association (Bermuda) Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Bridge of Harwich,Lord Brandon of Oakbrook,Lord Oliver of Aylmerton,Lord Goff of Chieveley,Lord Lowry |
| Judgment Date | 14 October 1991 |
| Judgment citation (vLex) | [1991] UKHL J1014-1 |
| Date | 14 October 1991 |
| Court | House of Lords |
[1991] UKHL J1014-1
Lord Bridge of Harwich
Lord Brandon of Oakbrook
Lord Oliver of Aylmerton
Lord Goff of Chieveley
Lord Lowry
House of Lords
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Goff of Chieveley. I agree with it and for the reasons he gives I would allow the appeal.
My Lords,
For the reasons given in the speech prepared by my noble and learned friend, Lord Goff of Chieveley, I would allow the appeal.
My Lords,
I have had the opportunity of reading in draft the speech prepared by my noble and learned friend Lord Goff of Chieveley. I agree with it, and for the reasons which he has given I, too, would allow the appeal.
My Lords,
The appeal before your Lordships' House in this case is concerned with claims by the appellant, the Bank of Nova Scotia ("the bank"), against the Hellenic Mutual War Risks Association (Bermuda) Ltd. ("the club"), arising out of the failure by the club to notify the bank of certain events affecting the entry of a vessel, Good Luck, with the club, relevant to the bank's interest as mortgagee of Good Luck and other vessels forming part of a group of vessels in the same beneficial ownership, called the Good Faith Group. The bank claimed damages from the club (1) for breach of a letter of undertaking given by the club to the bank; or (2) for breach of a duty of utmost good faith in failing to disclose to the bank what they knew; or (3) in tort for breach of a duty to inform the bank of what they knew - which in this case has been referred to as the duty to speak. Hobhouse J. held the club liable in damages for breach of the letter of undertaking. He rejected the bank's argument based on a duty of utmost good faith; but he indicated that he would, if necessary, have held the club liable for breach of their duty to speak. The Court of Appeal reversed the decision of Hobhouse J., both on the letter of undertaking and on the duty to speak, while upholding his decision on the duty of utmost good faith. They therefore allowed the appeal of the club. The bank now appeals to your Lordships' House by leave of the Court of Appeal, seeking to restore the decision of Hobhouse J. on the letter of undertaking, or alternatively on the duty to speak; in the further alternative they have sought to pursue their argument on the duty of utmost good faith. Your Lordships heard argument in the first instance on the issue arising on the letter of undertaking, and on certain related issues (concerned with remoteness of damage and causation). At the conclusion of that argument, your Lordships then formed the opinion that the judge's decision on the letter of undertaking should be restored, and so required no argument on the other two issues, on which they have formed no view. It follows that I will, in this speech, limit myself to expressing the reasons upon which, in my opinion, Hobhouse J.'s judgment on the issue of breach of the letter of undertaking should be restored and the bank's appeal should, on that basis, be allowed.
The facts of the case are of considerable complexity. They are set out in lucid detail in the judgment of the learned judge, for which I wish to express my admiration. The Court of Appeal expressed a difference of opinion with the judge on two aspects of his findings of fact. These differences of opinion are not, for present purposes, important. Even so, it was submitted to your Lordships by Mr. Mance, for the bank, that the Court of Appeal erred in departing from the judge's view on these matters; with that submission, I agree. I shall refer to those points in due course. But it follows, in my opinion, that the learned judge's account of the background to the case, and his findings of fact on all matters in dispute, can be accepted in toto. For the purposes of this appeal, I fear that I shall have to set out the facts of the case in some detail; for the rest, reference can if necessary be made to the judgment of the judge.
The club is a shipowners' mutual insurance association, which has as its purpose the provision to Greek shipowning interests of protection against war risks. The club is based in Bermuda, and its managers were at all material times Thomas R. Miller & Son (Bermuda) Ltd., which employed as their London agents Thomas R Miller & Son Ltd. The principal person involved in London was Mr. Michael Miller, who was de facto the chief executive of the club, his principal assistant being a Mr. Ballantyne. No distinction need be drawn for present purposes between either of the Bermuda entities or Millers in London; and so reference need be made only to the club and to Millers, the former being the insurers and the latter their agents and managers.
The insurance provided by the club is defined and governed by the rules of the club. The rules which are directly relevant to the present case are rules 20 and 25 (in the edition for 1982). Rule 20 conferred on the directors of the club power to specify certain places or areas as additional premium areas, the broad effect of which was that, if an entered ship proceeded to or remained in such an area, the owner continued to be insured but was bound to pay to the club an additional premium to be arranged. As the judge held, rule 20 is essentially a "held covered" provision. Rule 25 provided as follows:
"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, stoppages, 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 depart from or remain at (or prohibitions from going to, departing from or remaining at) any port, place, country, zone or area.
C. Every insurance given by the association shall be deemed to contain and 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 want 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 or 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.…"
Having set out the terms of rule 25, the judge made this comment:
"The scheme of rule 25 is also clear. It lays down an express warranty in the marine insurance sense. Therefore, by section 33(3) of the Marine Insurance Act 1906, the warranty
'… is a condition which must be exactly complied with … (and) if it be not so complied with then … the insurer is discharged from liability as from the date of the breach of warranty …. '
It is, of course, possible for the insurer to waive the breach of warranty but, unless and until the insurer so chooses, the warranty has the effect of excluding cover from the date of breach."
The meaning and effect of section 33(3) of the Act of 1906 gave rise to the principal difference of opinion between the judge and the Court of Appeal on the issue of the letter of undertaking. I shall have to consider this difference between them in some detail at a later stage, but it is right to observe that the judge evidently thought that, in this brief passage from his judgment, he was summarising what was no more than established law.
During the relevant period, the most important additional premium area was the Arabian Gulf. Prohibited zones, the subject of rule 25, were zones of such extreme danger that it was not considered acceptable that vessels should be covered at all by the club while in such an area. If an owner wanted to cover his vessel while in such an area, the insurance had to be arranged on a facultative basis at a no doubt higher premium rate. In September 1980, the club declared as a prohibited zone the Shatt Al Arab and Khor Musa and the approaches to those places at the northern end of the Gulf, which were areas directly affected by the hostilities between Iran and Iraq.
Among the members of the club recruited in 1980 was the Good Faith Group, run by a Captain Frangos and a Mr. Moundreas. In 1980 and 1981, their reputation was very good indeed. Vessels in the group were registered in the usual way with one ship companies. At the end of 1981, there were 38 vessels in the group. Money had been advanced to the group by various banks in the usual way, against mortgages of individual or groups of vessels, with interlinking repayment obligations and personal guarantees by the principals, Captain Frangos and Mr. Moundreas. Three banks were separately involved. The bank which made the largest advances was the bank itself; its administrative head office was in Toronto, with a regional office for Europe in London, and a branch office specifically concerned with ship...
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