Container Transport International Inc. v Oceanus Mutual Underwriting Association (Bermuda) Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE KERR,LORD JUSTICE PARKER,LORD JUSTICE STEPHENSON
Judgment Date02 Feb 1984
Judgment citation (vLex)[1984] EWCA Civ J0202-1
Docket Number84/0013 1981 C No. 2359

[1984] EWCA Civ J0202-1

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

(MR. JUSTICE LLOYD)

Royal Courts of Justice

Before:

Lord Justice Stephenson

Lord Justice Kerr

and

Lord Justice Parker

84/0013

1978 C No. 1729

1981 C No. 2359

Between:
CTI—International Incorporated

and

Reliance Group Incorporated
Plaintiffs/(Respondents)
and
The Oceanus Mutual Underwriting Association (Bermuda) Limited
Defendants/(Appellants)
And Between:
CTI—International Incorporated
Plaintiffs/(Respondents)
and
The Oceanus Mutual Underwriting Association (Bermuda) Limited
Defendants/(Appellants)

(Consolidated Pursuant to Order Dated 22nd May 1981)

MR. MARK WALLER QC, MR. MICHAEL HARVEY QC and MR. WILLIAM WOOD (instructed by Messrs. Herbert Smith & Co, Solicitors, London EC4M 5SD) appeared on behalf of the Defendants (Appellants)

MR. ANTHONY EVANS QC, MR. DAVID RAILTON and MISS G. ANDREWS (instructed by Messrs. Berwin Leighton, Solicitors, London EC4R 9HA) appeared on behalf of the Plaintiffs (Respondents)

LORD JUSTICE KERR
1

I. Introduction

2

These are appeals from two judgments—one on liability and the other on quantum—delivered by Mr. Justice Lloyd on 22nd January and 13th July 1982 in two actions which were heard together and involved identical issues. The first was brought in March 1978 and the second in March 1981 to recover monies due under a marine insurance cover placed by the plaintiffs and the defendants from 1st December 1976 to 20th February 1978. We have been told that the total amount now alleged to be due under this cover is in excess of U.S.$8 million. The defence in both actions raised numerous allegations of non-disclosure and misrepresentation, and the defendants claimed to avoid the cover ab initio on 16th March 1978. The judge found in favour of the plaintiffs on all issues as to liability. The second judgment dealt with issues as to quantum on the true construction of the cover, which he also decided in favour of the plaintiffs.

3

The history of events and the many issues on liability are unusually complex, and the course of the trial itself presented the judge with quite exceptional difficulties. The pleadings, with numerous re-amendments of the defence, ranging from red to yellow via green and purple, cover 280 pages. The hearing took some 36 days in the Commercial Court, and the appeal before us no less than 28 days. The judgments below are reported in (1982) 2 Lloyds Reports, 178, and I shall refer to passages in this report. A summary of the proceedings will also be found in the judgments given by this court on an interlocutory appeal in a related action, Bragg v. Oceanus and C.E. Heath & Co (Marine) Ltd, (1982) 2 Lloyds Reports, 132 (Court of Appeal), to which some reference must also be made later on.

4

It must be stressed at the outset that owing to the course which the trial took, with changing patterns of issues and newly discovered documents, the judge never had a full opportunity of seeing the history of events in its true perspective. Some of the difficulties which he faced are described early on in his judgment at p.180 of the report, and we were told that discovery was still going on as the trial proceeded. Although the hearing of the appeal was also exceptionally lengthy and complex, we have had the advantage of being able to consider the history and documents chronologically and to concentrate only on the essential issues. I stress this at the outset, because—with the greatest possible respect for this highly experienced judge—I find myself compelled to differ from him on virtually all of the issues which arise on this appeal, both as to law and fact. I am referring to the appeal on liability, since we have deferred hearing the appeal on the second judgment, concerning quantum, with the consent of the parties.

5

II. Conspectus of the history

6

The parties

7

The events concern the insurance of the plaintiffs' operations, first in the United States, then on the London market, and finally by the defendants. I will refer to the plaintiffs as "CTI"; to their American brokers, Alexander and Alexander, as "A&A"; and to their American insurers as Crum & Forster. A Mr. Marder and a Mr. Winter were the persons mainly concerned on behalf of CTI and A&A respectively. The Lloyds brokers instructed on behalf of the plaintiffs were C.E. Heath & Co (Marine) Ltd. to whom I will refer as "Heath", and their director who was concerned with both of the placings in this country was a Mr. Fleetwood. The insurers in the London market were various syndicates at Lloyds headed by the Chester Syndicate (mainly Mr. Bragg, the deputy underwriter, and Mr. Poole, his superior) and a number of companies headed by Ulster Marine whose leading underwriter was a Mr. Jones. I will refer to all these insurers compendiously as "Lloyds". The defendants are a Mutual Protection & Indemnity Association Incorporated in Bermuda but managed from London by John Laing (Management) Ltd., to whom I will refer as "Oceanus". Their underwriter was a Mr. Lee and the Managing Director a Mr. Laing.

8

By the late 1960's the business of shipping cargoes in containers was expanding rapidly and many shipowners and operators were already using specially designed container ships. Since that time CTI have been one of the largest owners and lessors of containers, with their headquarters in Whiteplains, New York, and some 175 depots in different parts of the world. Their business was to lease containers to shipowners and charterers, partly for single voyages or "trips", but mainly on a time basis, with some leases extending over many months or even years. The nature of their operations is succinctly described at pp.180 and 181 of the judgment below, and by 1976–7 they owned some 80,000 containers. One of their main problems, apart from containers occasionally becoming total losses, was damage suffered by the containers in the course of handling and transit, other than deterioration due to inevitable wear and tear. The latter was dealt with by depreciating each container over a life span of about 11 years. It was therefore possible to calculate the total "book value" of the whole container fleet, as well as the average book value of the containers which were out on lease at any time. The containers fell into two main classes according to their length, 20 ft. or 40 ft., and for the purpose of CTI's insurance arrangements the 20 ft. container was used as the norm. Looking at the CTI fleet as a whole on this basis, it was common ground that the average book value of single containers throughout the relevant period was of the order of US$800 to $1000.

9

CTI's insurance requirements also fell into two classes; cover against the total loss of containers, and cover against damage and the costs of repairs. The total loss cover was known as "FPA" (free from particular average) which gave rise to part of the total premium. The FPA part consisted of a minimum deposit payable in advance, which was then adjusted at the end of each year according to the total number of containers which had been on risk, and I refer to this throughout as "the FPA cover".

10

The more complex and, for present purposes much more important concern of CTI, was the problem of damage to containers otherwise than by wear and tear. Originally the scheme had been that the lessees were obliged to return the containers at the end of each lease in good condition, wear and tear excepted, or to pay for any damage which had been sustained. However, since this resulted in a multiplicity of small claims, CTI found it convenient to operate container leases subject to a number of variants of a "Damage Protection Plan" ("DPP") whereby CTI would themselves bear the first slice of the repair bill for each container returned in a damaged condition. Each D.P. Plan carried an extra charge to the lessee, which was also called a premium, according to the variant which was adopted. The two main variants, without going into greater detail than necessary, were for CTI to bear the first $250 or $500 of the costs of repair of each container, and these were generally referred to as Plan A and Plan B respectively.

11

CTI's D.P.P. insurance arrangements

12

These were also highly complex and varied in detail from time to time; again I only summarise so far as necessary. Although CTI's retained liability of $250 and $500 under Plans A and B was largely, or even fully, covered by the additional "premiums" which they charged to lessees who contracted on the DPP basis, which later became compulsory, it was also CTI's practice to insure this retention. The insurance could be done with or without a "deductible", i.e. a retained liability by CTI as against their insurers. Thus, to take figures which applied to the Crum & Forster cover at different times, under Plan A there might be a deductible of $50 or $100, and of $250 under Plan B; or there might be a "nil deductible" option. The greater the deductible, the lower would be the corresponding DPP premium payable by CTI. As matters developed, CTI's preference was for a minimum or nil deductible, whereas their insurers preferred to insist on deductibles, since this left CTI with a greater degree of responsibility for the damage sustained by each container and with a greater interest in minimising such damage.

13

CIT charged their lessees operating under DP Plans on the basis of a daily charge for each container out on lease. But CTI's corresponding DPP insurance premiums were, so far as relevant, always computed on two alternative bases. The first was by charging a percentage on the average book value of containers out on lease;...

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  • Post‐Contractual Good Faith – Change in Judicial Attitude?
    • United Kingdom
    • The Modern Law Review Nbr. 66-3, May 2003
    • 1 Mayo 2003
    ...International Inc vOceanusMutual Underwriting Association (Bermuda)Ltd [1982] 2 Lloyd’s Rep 178, but later rejected uponappeal [1984] 1 Lloyd’s Rep 476 (CA), as well as in Pan Atlantic Insurance Co vPine TopInsurance Co Ltd [1995] AC 501 (HL), [1993] 1 Lloyd’s Rep 496 (CA).Post-Contractual ......

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