Netherlands (State of The) (represented by the Minister of Defence) v Youell
| Jurisdiction | England & Wales |
| Judge | Rix J. |
| Judgment Date | 20 March 1997 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 20 March 1997 |
Queen's Bench Division (Commercial Court)
Rix J.
Adrian Hamilton QC and Jawdat Khurshid (instructed by Hill Taylor Dickinson) for the Netherlands.
Peter Gross QC and David Owen (instructed by Ince & Co) for the underwriters.
The following cases were referred to in the judgment:
Alexion Hope, TheUNK [1988] 1 Ll Rep 311.
Beacon Carpets Ltd v KirbyELR [1985] QB 755.
British and Foreign Insurance Co Ltd v GauntELR [1920] 1 KB 903 (CA); [1921] AC 41 (HL).
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London LtdELR [1912] AC 673.
Captain Panagos DP, The [1986] 2 Ll Rep 470.
Commonwealth Construction Co Ltd v Imperial Oil Ltd (1977) 69 DLR 3rd 558.
Currie & Co v Bombay Native Insurance CoELR (1869) LR 3 PC 72.
General Accident Fire and Life Assurance Corporation Ltd v Midland Bank LtdELR [1940] 2 KB 388.
Gold Sky, The [1972] 2 Ll Rep 187.
King (deed), Re. Robinson v GrayELR [1963] Ch 459.
Lind v MitchellUNK (1928) 31 Ll L Rep 262; (1928) 32 Ll L Rep 70 (CA).
National Oilwell (UK) Ltd v Davy Offshore LtdUNK [1993] 2 Ll Rep 582.
Petrofina (UK) Ltd v Magnaload LtdELR [1984] QB 127.
Samuel and Co Ltd v DumasELR [1924] AC 431.
Slattery v ManceUNK [1962] 1 Ll Rep 60.
Solholt, The [1983] 1 Ll Rep 605.
Tomlinson (A) (Hauliers) Ltd v HepburnELR [1966] AC 451.
Insurancec — Wilful Misconduct of Assured — Duty of assured to avert or minimise loss — Preliminary issues — Navy claimed on policies covering building of two submarines at shipyard — Underwriters resisted navy's claim on ground of wilful misconduct of yard — Whether wilful misconduct of yard relevant — Whether navy and yard jointly insured — Whether yard was navy's agent for purpose of duty to avert or minimise loss — Marine insurance act 1906, s. 55(2)(a), 78(4).
This was a trial of preliminary issues arising out of a claim by the Dutch royal navy on insurance policies covering the building of two submarines at a Dutch shipyard.
In the course of their construction and trials the submarines suffered debonding and cracking in their paintwork. The extent and precise cause of the damage were in issue but underwriters alleged that it was due to the defective application of primer in excessive thicknesses. The underwriters denied liability: they denied the operation of an insured peril, they denied the occurrence of any fortuity, and for the purposes of the preliminary issues particularly they alleged that the damage was due to the wilful misconduct of either the navy and/or the yard in knowingly or recklessly proceeding with the application of excessive coating thicknesses, or was due to their failure to take steps to avert or minimise the damage. The underwriters relied on s. 55(2)(a) of the Marine Insurance Act 1906 (“The insurer is not liable for any loss attributable to the wilful misconduct of the assured”) and on s. 78(4) (“It is the duty of the assured and his agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss”).
The claim was brought in the name of the State of the Netherlands (represented by the Minister of Defence) as plaintiffs, against representative Lloyd's underwriters and the companies subscribing to ILU policies as defendants. In its points of claim the navy pleaded that it had suffered loss and was entitled to be indemnified under the policies “in respect of the full cost of repair”. That cost was then particularised.
The two submarines were insured under separate groups of policies which named the State of the Netherlands and the yard (as well as all co-and sub-contractors) as assureds. If the submarines suffered any damage prior to delivery which constituted a loss under the building insurance, the yard was to repair at its expense, but the work would be covered and financed out of the insurance proceeds settled by the yard and paid in the first instance to the navy.
The critical question which arose under the preliminary issues was whether the conduct and knowledge of the yard, as distinct from that of the navy, was relevant in law to the underwriters' pleas of wilful misconduct and of failure to sue and labour. The navy argued that the yard's conduct was irrelevant; the underwriters argued that it was relevant. The underwriters relied on pleaded allegations that two other submarines previously built for the navy by the yard suffered similar problems with their coatings.
It was common ground that if the navy and the yard were joint insureds, as underwriters submitted, then the navy could not avoid the relevance of an allegation that one of the joint assureds, the yard, was guilty of wilful misconduct. The navy submitted that the insurance was not joint but composite, i.e. the various assureds under the policies were separately insured in respect of their individual insurable interests, albeit compositely insured in a single policy (or policies).
The underwriters made an alternative submission based on the navy's assertion that it had already paid the yard for the cost of repairs: any such payment was a voluntary payment because under the building contract the yard was obliged to repair at its own expense and such a voluntary payment did not qualify the navy to make good a claim in its own name and for its own benefit free of any defence based on the wilful misconduct of the yard. The navy's case was that the claim was confined to the navy's own loss and that no claim was made for any costs or expenses which the yard rather than the navy had borne.
Held, ruling accordingly:
1. Section 55(2)(a) of the Marine Insurance Act 1906 only applied to exclude recoverable loss if attributable to the wilful misconduct “of the assured”, and did not apply to the wilful misconduct of a co-assured, unless that co-assured was jointly insured in respect of the same interest. The policy was not a joint policy and the navy and the yard were not joint insureds or jointly interested in respect of the loss in question.
2. The wilful misconduct of the yard would not prevent the occurrence of a fortuity; nor did the wording of the building contract or the possibility of a voluntary payment by the navy or a consideration of the substance of the matter or of “the real interest insured”, separately or in conjunction, make the yard's wilful misconduct relevant. In the circumstance that the navy did not claim or seek to recover in respect of any sum or expense paid for or incurred by the yard, and in general made ho claim for the benefit of the yard, to the extent that the yard's wilful misconduct was prayed in aid as a defence, such defence failed as irrelevant.
3. The question of the consequence in law of the costs and expenses of recoating being paid by the yard did not arise, for the navy had irrevocably abandoned a claim beyond a claim to recover its own costs and expenses. Similarly, the question of the yard being liable, as between the navy and the yard, for the costs and expenses of recoating the submarines, although possibly relevant to any future issue such as title to sue or voluntary payment, was not relevant to the present issues, for the navy made no claim other than in respect of its own beneficial interest.
4. A defence by reason of the yard's failure to take reasonable steps for the purpose of s. 78(4) of the Act to avert or minimise the loss or damage claimed, failed either because the yard's conduct as co-assured was not relevant, or because the yard is not the navy's “agent” for the purpose of s. 78(4), and in any event because the yard's negligence or misconduct, if any, was expressly covered by the policy.
Rix J: This is a trial of preliminary issues arising out of a claim by the Dutch royal navy on insurance policies covering the building of two submarines at a Dutch shipyard. In the course of their construction and trials the submarines suffered debonding and cracking in their paintwork. The extent and precise cause of the damage are in issue and do not here concern me: but underwriters allege that it was due to the defective application of the Molifast primer in excessive thicknesses. The underwriters deny liability; they deny the operation of an insured peril, they deny the occurrence of any fortuity, but for present purposes of particular relevance they allege that the damage was due to the wilful misconduct of either the navy and/or the yard in knowingly or recklessly proceeding with the application of excessive coating thicknesses, or was due to their failure to take steps to avert or minimise the damage. In this context the underwriters rely on s. 55(2)(a) of the Marine Insurance Act 1906 (“The insurer is not liable for any loss attributable to the wilful misconduct of the assured”) and on its s. 78(4) (“It is the duty of the assured and his agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss”).
The claim is brought in the name of the State of the Netherlands (represented by the Minister of Defence) as plaintiffs, against representative Lloyd's underwriters and the companies subscribing to ILU policies as defendants. The shipyard where the submarines were built was De Rotterdamsche Droogdok Maatschappij BV (“RDM”). RDM were also assureds under the policies, but are not parties to the litigation.
The Dutch navy or the “navy” (as I shall refer somewhat informally to the plaintiffs) were the purchasers of the two submarines (numbered 352 and 353) under a contract with RDM (the “yard”) made in or about December 1985 (the “Contract for the building of two Walrus Class submarines”, which I shall refer to as the “building contract”). The two submarines were insured under separate groups of policies, but for present purposes all policies were in identical terms. They were on the MAR form, contained a traditional sue and labour clause, named the State of the Netherlands and RDM (as well as all co-and...
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