Global Process Systems Inc. v Syarikat Takaful Malaysia Berhad
| Jurisdiction | England & Wales |
| Judge | Waller,Carnwath,Patten L JJ |
| Judgment Date | 17 December 2009 |
| Date | 17 December 2009 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Waller, Carnwath and Patten L JJ.
Claire Blanchard (instructed by Watson Farley & Williams LLP) for the appellant.
Luke Parsons QC and Stewart Buckingham (instructed by Hill Dickinson LLP) for the respondent.
The following Cases Were Referred to in the judgment:
British & Foreign Marine Insurance Co Ltd v GauntELR [1921] 2 AC 41.
JJ Lloyd Instruments v Northern Star Insurance Co (Miss Jay Jay)UNK [1985] 1 Ll Rep 264; [1987] 1 Ll Rep 32 (CA).
Koebel v Saunders (1864) CBNS (NC) 71.
Mayban General Insurance BHD v Alston Power Plants [2004] 2 CLC 682.
NE Neter & Co Ltd v Licenses & General Insurance CoUNK (1944) 77 Ll L Rep 202.
Soya GmbH Mainz KG v WhiteUNK [1980] 1 Ll Rep 491; [1982] 1 Ll Rep 136 (CA); [1983] 1 Ll Rep 122 (HL).
TM Noten BV v HardingUNK [1990] 2 Ll Rep 283.
Shipping — Marine insurance — Tug and tow — Inherent vice — Perils of the sea — Jack up drilling rig towed from Texas to Malaysia round Cape of Good Hope with legs elevated above deck — Fatigue cracking, caused by repeated bending of legs under motion of barge as it was towed, caused rig's legs to fall off — Whether loss caused by inherent vice and thus excluded from policy — Erroneous to say that because weather was such as might reasonably be anticipated there could be no peril of the seas — Leg-breaking wave not bound to occur on voyage — Metal fatigue not sole cause of loss of legs — Loss caused not by ordinary action of wind and waves but by leg-breaking waves.
This was an appeal by the owner of an oil rig from a judgment of Blair J ([2009] Ewhc 637 (comm)) that the loss overboard of the legs of the rig while it was being carried on a barge round the Cape of Good Hope was not due to perils of the sea but to inherent vice and thus excluded from the owner's insurance cover.
The rig had been laid up in Galveston, Texas. It was purchased by the appellant for conversion into a mobile offshore production unit (MOPU) for use off the coast of East Malaysia. The appellant engaged experts to organise transit. The appellant obtained insurance cover. The policy issued by the respondent was an “all risks” policy, excluding (among other things) “inherent vice”.
The rig was carried on a barge with its legs extending 300 feet into the air. It was recognised that stresses would be imposed on the legs by virtue of the motions of the waves. Consultants were engaged to perform calculations as to the structural integrity of the legs for the purpose of transportation.
The rig reached Saldanha Bay just short of Cape Town. The motion of the waves had caused some cracking on the voyage from the Gulf of Mexico and repairs were done. North of Durban the legs fell off into the sea.
It was common ground that the cause of the loss of the legs was fatigue cracking, which was caused by the repeated bending of the legs under the motions of the barge in the sea. The cracks propagated until they reached a critical size at which time, with the application of sufficient stress, the legs failed.
The insurer's case was that the damage was caused by inherent vice in that the legs were not capable of withstanding the normal incidents of the tow, as demonstrated by the fact that they failed in weather conditions which were within what could reasonably have been expected.
The judge, apparently following Mayban General Insurance v Alston Power Plants [2004] 2 CLC 682, ruled that since it was common ground that the action of the waves was no greater than was reasonably to be expected in November round the Cape of Good Hope, the loss was not due to perils of the sea, and was due to inherent vice and thus excluded from the policy.
The appellant submitted that reasonable expectation or foreseeability of the adverse weather conditions from which the loss arose was not in itself enough to bring the case within the scope of “inherent vice”.
Held, allowing the owner's appeal:
1. Where one had an accident at sea such as occurred here, the burden was on the underwriter to establish inherent vice as the proximate cause. That would involve consideration of whether there was some other external fortuitous event which caused the loss of the legs. If it was the action of the sea which had caused the loss, there had to be something beyond the ordinary. It was erroneous to say that because the weather was such as might reasonably be expected there could be no peril of the seas. There must be some element of the fortuitous or unexpected to be found somewhere in the facts and circumstances causing the loss. There must be something which could not be foreseen as one of the necessary incidents of the adventure; an accident which might happen, not an event which must happen. (NE Neter & Co Ltd v Licenses & General Insurance CoUNK(1944) 77 Ll L Rep 202 considered.)
2. Inherent vice excluded the ordinary wear and tear that could be expected to occur as a result of the ordinary action of wind and waves. But, if the action of the sea was the immediate cause of the loss, a claim lay under the policy notwithstanding that the conditions were within the range which could reasonably be expected. In considering whether damage to cargo had been caused by inherent vice, the answer could not be found by reference to what might be reasonably foreseeable as the ordinary incidents of that voyage, but by reference to wind or wave which, it would be the common understanding, would be bound to occur as the ordinary incidents on any normal voyage of the kind being undertaken. (Soya GmbH Mainz KG v WhiteUNK[1980] 1 Ll Rep 491 and Miss Jay Jay [1985] 1 Ll Rep 264; [1987] 1 Ll Rep 32 (CA) applied.)
3. Thus a more narrow test than that in Mayban was the correct test. That judge clearly applied the wider test in finding that the legs broke off even though the weather experienced was within the range that could reasonably have been contemplated.
4. In finding that the accident was not a certainty, the judge must have concluded that a leg-breaking wave, as described in his finding, was not bound to occur on the voyage. It was not the weather by itself that was fortuitous. It was not that the legs simply suffered severe metal fatigue and cracking, i.e. normal wear and tear. Metal fatigue was not the sole cause of the loss of the legs. A leg-breaking wave, not bound to occur in the way it did on any normal voyage round the Cape of Good Hope, caused the starboard leg to break off. That led to the others being at greater risk and then breaking off. It was not certain that that would happen and although with the benefit of hindsight it was highly probable, that high probability was unknown to the insured and that was a risk against which the appellant insured.
Waller LJ:
1. In November 2005 the oil rig “Cendor MOPU”, owned by the appellants, was being carried on a barge round the Cape of Good Hope with its legs elevated in the air above the deck. Fatigue cracking, caused by the repeated bending of the legs under the motion of the barge as it was towed, caused first the starboard leg and then the other two legs to break and be lost. The appellants had insured the rig under an all risks policy and the issue before Blair J was whether the loss was covered by the policy. Blair J ([2009] EWHC 637 (Comm)) dealt with a number of points which are no longer in issue on the appeal, but on the critical issue raised by this appeal he ruled that since it was common ground that the action of the waves were no greater than was “reasonably to be expected” in November round the Cape of Good Hope, the loss was not due to perils of the sea, and was due to inherent vice and thus excluded from the policy. In ruling as he did the judge seemed to follow the approach of Moore-Bick J (as he then was) in Mayban General Insurance v Alston Power Plants[2004] 2 CLC 682 (Mayban). In granting permission to appeal Toulson LJ said that the question whether that approach was right gave rise to a seriously arguable point of law of some general importance.
2. The full detail appears in the judge's judgment. It is sufficient to summarise the facts as follows. The rig was laid up in Galveston Texas. It was purchased by the appellants in May 2005 for conversion into a mobile offshore production unit (MOPU) for use in the Cendor Field some 200 metres off the coast of East Malaysia. The appellants engaged experts Proceanic Engineering Services Pte Ltd (Proceanic) to organise transit. It was appreciated that any arrangements would have to be approved by a marine surveyor for the purpose of insurance and Proceanic recommended Noble Denton. It was further appreciated that one problem if the rig was transported with its legs protruding upwards was metal fatigue due to the actions of the waves. Consultants were required to perform calculations as to the structural integrity of the legs both for the purpose of transportation and for use in Malaysia. Viking Systems Inc were engaged for that purpose.
3. The rig was ultimately carried with its legs extending 300 feet into the air. It was well-recognised that stresses would be imposed on the legs by virtue of the motions of the waves and the structural integrity was assessed very much with that in mind. An alternative method of transportation would have involved the shortening or “cropping” of the legs and indeed it was the view of a Mr Harris, consulted at the time on an ad hoc basis, that that was what should happen, given the likely weather conditions round the Cape of Good Hope. But cropping was expensive and was thus an option which the appellants were reluctant to adopt. The judge found that the appellants” reluctance to crop was understandable and he found that if the appellants had been advised to “crop” by Noble Denton they would have done so.
4. The charter with Seaspan (Cyprus) Ltd for carriage of the rig to Malaysia was entered...
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Global Process Systems Inc. and Another v Syarikat Takaful Malaysia Berhad (The "Cendor MOPU")
...or unforeseeable — Marine Insurance Act 1906, s. 39, 40, 55. This was an appeal by insurers from a decision of the Court of Appeal ([2009] 2 CLC 1056) that the loss of the legs of a jack-up rig, which broke off while it was being towed on a barge from the US to Malaysia, was caused by a per......