Masefield AG v Amlin Corporate Member Ltd

Hearing dates: 14—16 December 2009

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice David Steel :

Introduction

On 19 August 2008, the vessel Bunga Melati Dua (“the vessel”) a chemical/palm oil tanker was seized by Somali pirates in the Gulf of Aden during a voyage from Malaysia to Rotterdam. The vessel together with her crew and cargo were taken to Somali waters. The Claimant was the owner of two parcels of bio-diesel which had been shipped onboard the vessel.

The Defendant was the insurer of the cargo under an open cover contract. This policy covered loss by both piracy and theft. Soon after the seizure, negotiations between the pirates and the owners of the vessel (“MISC”) a state owned Malaysian company were commenced with a view to obtaining the release of the vessel, cargo and crew. During the course of those negotiations (about a month after the vessel had been seized) the Claimant served a Notice of Abandonment on the Defendant. This was declined but the parties entered into an agreement that proceedings should be deemed to have commenced on 18 September 2008. About 10 days later MISC paid a ransom to the pirates and the vessel was shortly thereafter released together with her crew. The vessel arrived at Rotterdam on 26 October where the cargo was discharged.

It is the Claimant's primary case that on the capture of the vessel by the pirates and its removal into Somali waters the cargo became an actual total loss in terms of s57(1) of the Marine Insurance Act 1906 (“the Act”) in that the assured had been “irretrievably deprived” of the cargo. In the alternative the Claimant asserted that there had been a constructive total loss under s60(1) of the Act in that the vessel and cargo had been reasonably abandoned on account of its actual total loss appearing to be unavoidable.

The Claimant does not dispute that there always existed a possibility, perhaps even a likelihood, that MISC would successfully ransom the ship but submits that the possibility of an effective ransom payment should be ignored for the purposes of both s57(1) and s60(1).

The marine open cover was in place for all of the Claimant's shipments commenced during the policy period. It was obligatory from both the perspective of the assured and the insurer. Declarations totalling US$13,326,481.75 were made in respect of the two parcels of cargo 1. The claim in respect of the total loss is put forward in the sum of about US$7 million being the net loss allowing for receipts from the disposal of the cargo after discharge at Rotterdam.

The policy was an all risks policy albeit with a war exclusion clause which read as follows:—

“6. In no case shall this insurance cover loss, damage or expense caused by …

6.2 capture, seizure, arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat”.

Importantly there was a Constructive Total Loss clause to the following effect:

“13. No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter insured is reasonably abandoned either on account of its actual loss appearing to be unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter to the destination to which it is insured would exceed its value on arrival.”

It was accordingly common ground that both theft of cargo and the capture or seizure of the cargo by pirates were insured risks under the policy. It was also common ground that the effect of clause 13 of the policy was to exclude the additional category of constructive total loss provided for in s60(2)(i) of the Act relating to deprivation of the assureds possession in circumstances where it is “unlikely he can recover the ship or the goods as the case may be…”.

Sadly during the course of the capture, one member of the crew of the vessel was killed. Thereafter no attempt was made to recover the vessel or cargo by military intervention. Nor were there any diplomatic or other such attempts to obtain their release.

The primary issue is whether, when notice of abandonment was served on 18 September 2008, the Claimant had been irretrievably deprived of the cargo (and likewise the shipowner of their vessel) and thus it had been actually totally lost albeit restored at a later date following payment of a ransom by or on behalf of the shipowners.

At the forefront of this analysis was the Claimant's reliance on the decision in Dean v Hornby (1854) 3 El & Bl. 180 that was said to support the proposition that, in the case of capture by pirates who intend to exercise dominion over a ship or cargo, there is straightaway an actual total loss even though the property is later recovered.

Piracy in Somalia

The existence and nature of piratical attacks off Somalia is a matter of great notoriety and has claimed increasing column inches of headlines over the last 2 or 3 years. The background is simple enough. Somalia is a failed state with no effective government or law enforcement. It is also one of the poorest countries in the world. This provides a fertile breeding ground for piracy conducted by fishermen living along the lengthy seaboard of Somalia.

The absence of any national administration means that any attempt to intervene by diplomatic means is fraught with difficulty. Equally any concept of military intervention involves legal and technical difficulties, leaving aside the risk to captured crews. In short the only realistic and effective manner of obtaining the release of a vessel is the negotiation and payment of a ransom. The scale of the problem is startling. In the 12 month period to November 2008 some 30 vessels were seized and then released on payment of ransoms in excess of $60million.

Bunga Melati Dua was the sixth ship to be hijacked in 2008. The seizure was in August. 2 It was taken to a position off the coast at Eyl. The initial ransom demand was well in excess of $2 million. But this was all of a piece with the process of Somali hijacking. Fortunately the process of negotiating such a demand and making an agreed payment had invariably led to the release of all vessels involved. Against that background, I did not understand it to be controversial that the actual prospects of recovery of the cargo as at 18 September were good. In any event, the evidence is overwhelmingly in support of that conclusion.

Following the seizure, there were contacts and communications between the Claimant, the Defendant, the other cargo-owners, and the shipowner, MISC, discussing the situation. In addition from the moment the vessel was seized, its taking and subsequent developments were reported in the press and these were circulated amongst the interested parties. Many of these reports clearly emanated from MISC, the shipowner, and the Malaysian Government, who own a stake in MISC.

The following represents a selection of such exchanges and reports.

i) On 20th August 2008, only a day after the seizure, one of the shippers of the cargoes, Carotech Berhad—a Malaysian company—sent an email stating that “MISC is in the progress the negotiation with the pirates”.

ii) On 24th August 2008, the Claimant circulated an email internally with the un-confirmed information that the pirates had contacted the owners and had demanded a ransom of $2million and that the Malaysian government had asked the US government for help.

iii) On 26th August 2008, the Claimant received a message from MISC stating that “Negotiations are ongoing to secure the safe release of the crew members”.

iv) On 26th August 2008, Lloyd's List reported that “The Malaysian government is holding talks with the pirates behind the attack to secure the release of the 39 crew members, the country's deputy prime minister added …”.

v) On 28th August 2008, Clarksons, MISC's brokers, informed the Claimant that “Owners are doing their utmost to secure the release of the crew …”.

vi) On 31st August 2008, MISC briefed the families of the 65 Malaysian crew members of Bunga Melati Dua and Bunga Melati 5 (a sister vessel which had been seized on 29th August 2008), at which the shipowner said that “the ordeal will be over in 30–40 days” (as reported by the Malaysian National News Agency on 4th September 2008).

vii) On 2nd September 2008, MISC issued a press release confirming that “… Negotiations are ongoing for the safe release of the crew of MT Bunga Melati Dua… At least 30 ships have been hijacked in the Gulf of Aden this year … In all known cases, the crew are known to be unharmed by the pirates …”.

viii) On 2nd September 2008, the director of the International Maritime Bureau (IMB), Captain Pottengal Mukundan, was reported in thestar. com as saying that “the negotiations could take between two to three months before the crewmen could be released. “It is not a quick fix. The pirates are not interested in the cargo but money,” he said”.

ix) On 2nd September 2008, an MISC representative confirmed that “it has a team in constant contact with the pirates”. In the same report, it was also stated that “The pirates are reported to have demanded over RM3mil for the release of each vessel …” and that “two Malaysian navy vessels with navy commandos and rations are heading to the Gulf of Aden...