Cia Maritima San Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) Ltd
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE ROSKILL,LORD JUSTICE GEOFFREY LANE |
| Judgment Date | 26 May 1976 |
| Judgment citation (vLex) | [1976] EWCA Civ J0526-1 |
| Docket Number | 1975 C. No. 8372 |
| Court | Court of Appeal (Civil Division) |
| Date | 26 May 1976 |
Re: The "Eurysthenes"
[1976] EWCA Civ J0526-1
The Master of the Rolls
Lord Justice Roskill and
Lord Justice Geoffrey Lane
In The Supreme Court of Judicature
Court of Appeal
Queen's Bench Division (Commercial Court)
MR. M. J. MUSTILL. Q. C. and MR. M. G. COLLINS (instructed by Messrs. Richards, Butler & Co., Solicitors, London) appeared on behalf of the Plaintiffs (Appellants).
MR. A. LlOYD, Q. C. and MR. J. COOKE (instructed by Messrs. Norton, Rose, Botterell & Roche) appeared on behalf of the Defendants (Respondents).
The owners of the "Eurysthenes" are members of an association of ship owners commonly known as a P and I Club (Protection and Indemnity Club). The Club exists so that the members can be protected and indemnified against liabilities which they may incur. The members are all ship owners. They pay calls which form a mutual insurance fund. Out of which indemnity is paid. The Association is incorporated as a limited liability company registered in Bermuda, but with offices in Pireaus and London. It has rules binding the Members and the Club. These are governed by English Law. So is any contract between a Member and the Club.
The "Eurysthenes" flies the Greek flag. She was built in 1960 with a gross registered tonnage of 6288 tons. In February 1972 the owners entered her with the association: and the association issued a certificate of entry showing that the risk was to commence at noon on 17th February, 1972. The certificate was to 'remain in force until cancellation or expiration'. It was to cover protection and indemnity risks on a mutual call basis in accordance with the rules of the association. The limit of liability was to be £10,000,000 any one accident or occurrence with an advance call of U. S. $3.90 per gross registered ton per annum.
On 25th April, 1974, the vessel was carrying cargo from the United States to the Philippines. She stranded in the San Bernadino Strait. As a result much of the cargo was lost or damaged. The cargo-owners claimed from the ship owners sums which are said to amount to U. S. $2,500,000. They said that the vessel embarked on the voyage without a proper complement of certified deck-officers, without proper charts, with an echo-sounder that was unserviceable, and with a boiler that was inoperative. On this account the cargo-owners said that the vessel was unseaworthy caused by want of due diligence by the ship owners. The ship owners have settled, or are about to settle, this claim by the cargo-owners and claim to be indemnified by the association. The rules appear to cover it: but the association resist theclaim. The association resist this claim on the ground that the ship was sent to sea in an unseaworthy condition and that she was so sent with the privity of the ship owners.
On 3rd August, 1975. the ship owners issued a writ against the association claiming a declaration that they were entitled to recover an indemnity. The association applied to stay the proceedings so that the matter could be referred to arbitration under a clause contained in the Rules. But it appeared that the dispute was likely to give rise to difficult questions of law, which would return to the Court on a Case Stated. So Mr. Justice Mocatta ordered that those questions be tried as preliminary issues. Mr. Justice Donaldson decided them. Now there is an appeal against his rulings. We do not like deciding preliminary issues before knowing the facts, but the issues having been stated, we must do the best we can with them.
Much of the argument turned on Section 39(5) of the Marine Insurance Act, 1906, which I will read: "In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but, when, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness".
Time Policy. The first question is whether the assurance here was a "time policy". The association said it was. The ship owners said it was not. The words "time policy" are defined in Section 25 of the Act, which says that: "Where the contract is to insure the subject-matter for a definite period of time, the policy is called a 'time policy'".
The rules of the association contain these provisions: Rule 2: "Policy Year. The year from noon on the 20th February to noon on the 20th February next ensuing". Rule 9: "… The Managers shall issue a Certificate of Entry… and the ship shall be deemed to be entered in the Association from the time stated in the certificate and such entry shall continue from Policy year to year unless notice to the contrary be given as provided in Rules 17 and 18".Rule 17: "A member may terminate the entry of an entered ship by giving to the Managers not less than two months' notice in writing expiring on the last day of any policy year, and the Association may at any time discontinue the insurance of a Member in respect of an entered ship by giving him seven days' notice in writing to that effect". Rule 18 provides that a Member shall cease to be protected in certain events, such as transfer of the ship; loss of the ship; and so forth.
In the present case the certificate of entry stated that the risk was to commence at noon on 17th February, 1972. So it attached until 20th February, 1972, and continued thereafter from year to year until determined. It was still in existence in April 1974 when the ship stranded and the damage done.
The ship owners submitted that the insurance here was not for a "definite period of time" within Section 25 of the 1906 Act: because it continued indefinitely until determined by one side or the other. The Association submit that the insurance was for a "definite period of time", namely, until the 20th February, 1972: and the fact that it continued after it did not make it any the less a time policy.
For over a century now these Clubs have insured vessels for a stated period of less than a year, but renewable from year to year. This was done so as they should comply with the Stamp Acts which said: "… every policy of sea insurance which shall be made for any time exceeding 12 months shall be null and void".
If made for a stated period of less than a year, they were held to be valid, even though renewable from year to year - see ( Michael v. Gillespy 1857)2 CB., NS. 627; Lishman v. Northern Maritime Insurance Co. 5 Com. Cases 408 - and even though they contained a continuation clause continuing the cover (after the stated period) until the end of the current voyage, see the Finance Act, 1901, Section 11 over-ruling Charlesworth v. Faber 5 Com. Cas. 408, andsee also Royal Exchange (1902) 2 K. B. 384. Such policies complied with Section 23(3) of the Marine Insurance Act, 1906, which required a policy to state the "period of time… covered by the insurance". Those provisions of the Stamp Acts and that part of Section 23 of the 1906 Act were repealed by the Finance Act, 1959, Section 30. But that repeal did not alter the fact that the assurance given by the Club specified the "period of time".
Mr. Mustill stressed the word "definite" in Section 25. This means, I think, that the period must be specified. But it is, I think, sufficiently specified if it specifies a stated period, even though that period is determinable on notice, and even though the assurance will be renewed or continued automatically at the end of the period, unless determined; or will continue under a continuation clause. This is supported by the fact that, in an ordinary time policy, the Institute Time Clauses (Hulls) include a continuation provision in clause 4, but that does prevent the policy being a time policy.
Applying these considerations, I think the assurance here was a "time policy" within Section 26 of the 1906 Act, and it is subject to Section 39(5) of the Act, unless that provision is impliedly excluded.
Is Section 39(5) impliedly excluded by the Rule? It was suggested that Section 39(5) did not apply in this case because the Rules of the Association made the Club liable to indemnify the ship owner even though he was privy to the unseaworthiness. Now I quite agree that Rules 3 and 17 do contain a promise by the Association to indemnify a Member against liability for damage to cargo "arising out of any breach by the Member… or out of unseaworthiness or unfitness of the entered ship". And Rules 4(7) and 4(8) do contain express provisions excluding the liability of the Club in the circumstances there specified. But these rules do not cover all the ground. They still leave room for Section 39(5) to operate. I think it does still operate so as to disentitle the assured from recovering if he is privy to the ship being sentto sea in an unseaworthy state.
"Privity". This is the great question in the case. But, before stating it, I would draw attention to the background. Let us assume that the "Eurysthenes" was sent to sea in an unseaworthy state in that she did not have a proper complement of certified deck officers, or had no proper charter, or an unserviceable echo-sounder, or an inoperative boiler. If this took place without the "actual fault or privity" of the ship owners, they would be entitled as against the cargo owners - to the limitation of liability provided by Section 503 of the Merchant Shipping Act, 1894. Their liability would be limited to about £195,000. But, if it took place with the "actual fault or privity" of the ship owners, they would be liable to the cargo owners in the full amount and they would not be entitled to the limitation of liability. Their liability might be as much as £10,000,000.
The ship owners fear that it may be held against them that the ship was sent to sea...
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