K/S Merc-Scandia XXXXII v Underwriters of Lloyd's Policy No 25T 1054 and Others

JurisdictionEngland & Wales
CourtQueen's Bench Division (Administrative Court)
Judgment Date23 Jun 2000
Judgment citation (vLex)[2000] EWHC J0623-8
Docket Number1999 FolioNo: 108

[2000] EWHC J0623-8





The Hon. Mr. Justice Aikens

1999 FolioNo: 108

K/s Merc-Scandia Xxxxii
(1) Certain Lloyds Underwriters Subscribing To Lloyd's Policy No. 25t 1054 87 as More
Particularly Identified Therein
(2) Ocean Marine Insurance Company Ltd and The (3) To (37) Defendants Identified In The Schedule

Mr Richard Millet instructed by Jackson Parton appeared on behalf of the Plaintiff

Mr Andrew Lydiard instructed by Clyde & Co appeared on behalf of the Defendants.

I direct pursuant to CPR Part 39 P.D. 6.1. that no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic. Copies of this judgment are available in "Word" on provision of a 3.5 floppy disc.


This action raises two interesting questions on the law of marine insurance. One of them involves matters that are due to be considered by the House of Lords in October this year. 1 The issues arise in the following circumstances. The assured (a ship repairer in Trinidad) had cover against legal liability in respect of negligent repairs to vessels; a claim was made against the assured for negligent repair and consequent loss to the shipowner; notice of a potential claim on the liability insurance was given to the insurers; the insurers agreed to take over the defence of the claim and they appointed solicitors to do so; proceedings were started in the English courts by the shipowner against the assured and permission to serve the proceedings out of the jurisdiction was obtained; the assured then produced to the solicitors appointed by the insurers a forged document which the assured thought would assist the solicitors on the issue of the jurisdiction of the English court, but the forged document itself had nothing to do with the merits of the substantive claim by the shipowner against the assured or its claim under the policy; the forgery was discovered before there was any hearing on the jurisdiction issue; then the insurers avoided the liability policy for breach of the duty of utmost good faith by the assured. The first and more important issue is: are they entitled to do so? The second issue arises out of the terms of a clause in the General Conditions of the policy under which: "in the event of any occurrence which may result in a claim…the assured shall give prompt written notice…and shall keep underwriters fully advised". The question here is: was there a breach of this term because the assured did not tell the insurers that the document it was producing was a forgery. If there was a breach, then what are the consequences: does it provide a defence to a claim on the policy, as the insurers argue; or does it mean that only damages for a breach (if proved) can be recovered by the insurers?


The Background to the Action: the parties and the insurance policies

At the hearing of this action (which lasted 21/ 2 days) none of the principal facts were in dispute. It was accepted that the documents in the Court Bundles were evidence of the facts stated in them, save in relation to the facts concerning the forged letter dated 1 July 1988. There were two witness statements. That of Mr Nicholas Bourke, a partner of Elborne Mitchell & Co, was served on behalf of the Claimants; that of Miss Charlotte Brown, an adjuster now employed by Matthews Daniel International (London) Ltd, loss adjusters, was served on behalf of the Defendants. Neither witness was cross examined on the contents of their statements, which were not contentious. So the trial consisted of my reading the relevant documents and hearing the oral argument of counsel, which supplemented their very helpful written submissions.


The Claimants in this action are the owners of the vessel " Mercandian Continent": ("the vessel"). The Claimants' Technical Director at the relevant time in 1988 and 1989 was Mr Allan Hansen. The Defendants are Lloyds underwriters and companies who subscribed to liability policies in favour of Trinidad Foundry and Fabricating Limited, which was a ship building and repairing company in Port of Spain, Trinidad: ("the Assured") . The Assured was one of a number of associated companies in Trinidad that were run and controlled by the Baboolal brothers. Vic (or Dr R) Baboolal was the Chairman of the Assured. His brother, Mr Kayam Baboolal, was the Managing Director of the Assured. The General Manager of the Assured at the time was Mr Peter Gruny. The "Assistant General Manager" or "Consultant" of the Assured until 14 May 1990 was Mr Thor Torressen. 2 The Assured also had an agent in Denmark, who was Mr Jan Eberhardt.


The liability policies in favour of the Assured were effected by a declaration made pursuant to "permanent open covers" running for 12 months from 1 January 1987. 3 The policies were evidenced by a cover note, dated 9 October 1987, which was issued to the Assured by the producing brokers Gibbs Hartley Cooper (E/1) . The two policies were subscribed by Lloyd's underwriters (for 53.0963% of the risk) and ILU companies (for 46.3062% of the risk) . I will refer to the Defendants as "the Underwriters". Both the policies were on the J Form and the terms of the two policies are materially the same. I will set out the relevant terms below.


The repairs to the vessel and the events leading to the first action between the Claimants and the Assured

In April 1988 the Claimants arranged with the Assured that various repairs should be done to the vessel at the Assured's shipyard. On 12 May 1988 a specification for the repair work was signed by the parties. 4 The repair contract had no express term concerning the proper law of the contract. The vessel was repaired at Port of Spain during April and May 1988. Work was done on the vessel's engine. 5 Notice of completion of the repairs was given on 26 May 1988: (D1/22) . The vessel was redelivered to the Claimants that day, but shortly after the vessel left the yard her engine exploded and severe damage was done to the vessel. It is now accepted that the explosion and the consequent damage were due to the negligent repair work done by the Assured, in particular that engine bolts in way of the No 2 cylinder were insufficiently tightened. 6 As a result of the explosion the vessel had to undergo further repairs costing DkK 8,625,782.96. The vessel was also put out of action for some time and the Claimants suffered a loss of use which was quantified at DkK 3,039,200. 7


The Claimants instructed an expert to consider the cause of the explosion. His report concluded that the cause was insufficient tightening of the bolts. It was sent to the Assured on 1 July 1988. On the same day a Memorandum (D1/28) was prepared by Mr K Baboolal for circulation to Mr Gruny and others within the Assured. It informed them of the claim and instructed the recipients that "all legal correspondence to or from the vessel or its owners be directed through me". It also stated that "Dr Baboolal or myself will handle all negotiations, contracts and legal documents in respect of the above present or in the future". The Memorandum was signed by Mr K Baboolal and it records that copies were sent to Mr Thor Torressen and Mr Allan Hansen. 8


On 2 July 1988 the Assured replied to the Claimants' letter of 1 July, denying the allegations and rejecting the claim: (D1/30) . On 4 July 1988 the Assured notified Gibbs Hartley Cooper of the claim and asked them to inform the Underwriters: (D1/32) . Subsequently the Claimants' hull underwriters (Baltica) also commissioned a report from an expert on the cause of the explosion. He also concluded that the explosion was caused by insufficient tightening of the bolts in way of the No 2 cylinder. (D1/62) . That report was sent to Gibbs Hartley Cooper and by them to Bain Dawes for the Underwriters' consideration. (D1/60) .


On 2 December 1988 Baltica wrote to Bain Dawes and demanded payment of the cost of repairs to the vessel and compensation for the loss of use: (D1/75) . That claim was followed, on 14 March 1989, by a letter from the Danish attorneys 9 for the Claimants and their hull underwriters, which was sent to Gibbs Hartley Coopers and to the Assured. It made the same demands: (D1/86) . A dispute then arose over the extent to which the Assured, as opposed to the Claimants, had done work on the engine and whether the Assured was responsible for any failure to tighten the bolts.


On 19 May 1989 Mr Jan Eberhardt, the agent for the Assured in Denmark, wrote to Mr Thor Torressen, (the Assured's Assistant General Manager or Consultant) , suggesting that this dispute and any possible future disputes over repairs should be referred to the jurisdiction of the High Court in London and subject to English law: (D1/106) . A reply was sent from the Assured, signed by Mr Torressen, agreeing to this: (D1/111) . It is this agreement which is the source of the present dispute, because, subsequently, the Assured denied that Mr Torressen had authority to make this agreement. The Assured asserted that the Claimants knew of this fact because of a letter dated 1 July 1988, which they claimed had been sent by Mr K Baboolal to the Claimants' Technical Director, Mr Allen Hansen. The Assured alleged that Mr Hansen had countersigned this letter and returned it to the Assured. But in fact the letter dated 1 July 1988 was manufactured by the Assured in 1992 and the countersignature of Mr Hansen was a forgery. I shall set out in more detail below of the circumstances in which this letter (which was referred to in the hearing as "the July 1 Letter") was created.


In August 1990 Brocklehursts, the loss adjusters appointed by the Underwriters, reported that the claim of the Assured would be covered by the policy. On 21 August 1990 the Leading Underwriter scratched this report: "instruct Elborne...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT