PT Buana Samudra Pratama v Maritime Mutual Insurance Association (NZ) Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 29 September 2011 |
| Neutral Citation | [2011] EWHC 2413 (Comm) |
| Docket Number | Case No: 2011 FOLIO 124 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 29 September 2011 |
[2011] EWHC 2413 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Justice Teare
Case No: 2011 FOLIO 124
Nigel Jacobs QC (instructed by Horn and Co.) for the Claimant
Mark Templeman QC (instructed by Holman Fenwick Willan LLP) for the Defendant
Hearing dates: 8 July 2011
This is an application by the Claimant for summary judgment against the Defendant on a claim under a marine insurance policy.
The Claimant was the owner of the tug BUANA DUA. The tug was insured under a policy of marine insurance no. BO507/MO51H01240 by three underwriters of whom the lead underwriter was Axa. The other two underwriters were the Defendant and Aegis. The insured value of the tug was US$1,400,000 with an increased value insurance of US$350,000. The Defendant's liability under the policy was 50% and so the claim against it is for the sum of US$875,000. Axa and Aegis have paid the claims against them under the policy.
On 30 September 2005 the tanker DURGANDINI ran aground while approaching Pertamina Oil Terminal. She was refloated by 3 harbour tugs and secured to a discharge berth. The tanker required to be towed to Tanjung Priok for tank cleaning before being repaired.
The tanker was owned by a subsidiary of PT Arpeni Pratama Ocean Line Tbk ("APOL") and the Claimant was also a subsidiary of APOL. Initially APOL decided to use tug BUANA DUA and a chartered tug, ABACO, to tow the tanker to Tanjung Priok. But on 22 October ABACO was substituted by the tug BUANA SATU.
On 26 October both BUANA DUA and BUANA SATU proceeded independently to Cilicap. En route BUANA DUA ran aground off the coast of Tanjung Gede and was subsequently declared to be a constructive total loss.
On 31 October BUANA DUA was replaced by ENA EMPEROR.
On 9 November the Claimant tendered notice of abandonment to the "concerned underwriters" and on 10 November Axa declined to accept the notice but agreed "to put the Assured in the same position as if the writ had been issued this day".
On 15 May 2006 Axa agreed to pay their 40% share of the claim.
On 22 May 2006 Holman Fenwick and Willan, the solicitors acting for the Defendant, informed Axa that the Defendant was rejecting any liability because, in breach of warranty, BUANA DUA had been engaged to provide towage and/or salvage services to the tanker and requested Axa to confirm that any payment by Axa would be on a without prejudice basis. On 23 May Axa informed the Defendant that "we have agreed to the CTL of the vessel and this settlement was not made on a "without prejudice" basis pending further investigation on the circumstances of the incident." On 25 May Axa paid their share of the claim. On 31 May the Defendant reserved its position, alleging a breach of warranty. On 22 June Aegis paid its share of the claim.
On this application for summary judgment the Claimant has said that the Defendant is obliged to follow the settlement of the claim by the leader, Axa, and that in any event there was no breach of warranty. The Defendant has said that it is not obliged to follow the settlement by the leader in circumstances where there has been a breach of warranty. The Defendant has further said that in any event it is discharged from liability because on 13 July 2006 and on 20 April 2007 fraudulent misrepresentations were made on behalf of the Claimant to the Defendant that it was never intended that BUANA DUA should undertake the towage of the tanker and that it had always been intended that towage of the tanker should be undertaken by ENA EMPEROR. The Claimant denies any fraudulent misrepresentation but accepts that on this application it must be assumed that the Defendant has raised an arguable case to that effect. The Claimant submits that in circumstances where the leader, Axa, had agreed to pay the claim before the alleged fraudulent misrepresentations were made such alleged misrepresentations do not provide the Defendant with a defence to the claim.
The terms of the policy
The policy applied to the tug SURALAYA and other vessels in a schedule which listed other tugs, floating cranes and flat top barges. BUANA DUA was included in the list. The policy expressly provided:
"It is agreed that vessel may be employed in operations which entail cargo loading or discharging at sea from or into another vessel."
There was a "follow Axa" clause in the following terms:
"It is agreed to follow Axa HK in respect of all decisions, surveys and settlements regarding claims within the terms of the policy, unless these settlements are to be made on an ex gratia or without prejudice basis."
The Institute Times Clauses – Hulls (with certain exclusions) were incorporated and the policy stated that the Additional Perils Clause (Hulls) was only to apply to tug vessels.
Clause 1.1 of the Institute Time Clauses – Hulls provided:
"The Vessel is covered subject to the provisions of this insurance at all times and has leave to sail or navigate with or without pilots, to go on trial trips and to assist and tow vessels in distress, but it is warranted that the Vessel shall not …………undertake towage or salvage services under a contract previously arranged by the Assured ……….This Clause 1.1 shall not exclude customary towage in connection with loading and discharging."
Clause 3 provided:
"Held covered in case of any breach of warranty as to …..towage….provided notice be given to the Underwriters immediately after receipt of advices and any amended terms of cover and any additional premium required by them be agreed."
The Additional Perils Clause provided:
"1. In consideration of an additional premium this insurance is extended to cover"
…..
1.2 loss of or damage to the Vessel caused by any accident or by negligence, incompetence or error of judgement of any person whatsoever.
….
3. The cover provided in Clause 1 is subject to all other terms, conditions and exclusions contained in this insurance ………"
Construction of the "Follow Axa" provision
On behalf of the Claimant Mr. Jacobs QC submitted that the decision of Axa to settle the claim was a decision or settlement "regarding claims within the terms of the policy" and so the Defendant was obliged to follow that decision whether or not there had been a breach of warranty.
On behalf of the Defendant Mr. Templeman QC submitted that where there had been a breach of warranty the claim was not "within the terms of the policy" and so there was no obligation on the part of the Defendant to follow the decision of Axa.
Mr. Jacobs relied on what Mance J., as he then was, said in Roar Marine Ltd. v Bimeh Iran Insurance Co. [1998] 1 Lloyd's Law Reports 423 were the commercial reasons for a provision which obliges underwriters to follow the decision of the lead underwriter. At p.427, rhc, Mance J. said, of the clause in that case:
"The commercial reasons why both the assured and the following market should find advantage in such an arrangement are obvious. From insurers' viewpoint, it is bound not only to save time and cost, but must also make such a co-insurance more marketable and attractive to those seeking insurance."
At p. 430, lhc, Mance J said:
"The only matrix of real relevance in the material before me is the obvious commercial purpose of the clause in simplifying administration and claims settlement."
Mr. Jacobs said that to construe the clause in the manner suggested by the Defendant would drive a coach and horses through the clear commercial purpose of the clause. For it would enable the Defendant, by saying that the claim was outside the terms of the policy, to render the leader's settlement irrelevant and to require litigation with the Defendant before it could be compelled to pay.
Mr. Templeman said that the comments of Mance J. as to the commercial purpose of the clause in that case must be understood in the context of the wording of that clause which did not contain words equivalent to "claims within the terms of the policy". Mance J. had observed that the wording of the clause before him was "of notable breadth compared with some other wordings." By contrast the wording of the clause in the present case obliged the following market to follow a settlement where a claim fell within the terms of the policy (ie to follow as to quantum) but not where liability for the claim is disputed. This was not a commercial nonsense but involved striking a balance between the interest of the assured in not having the same claim investigated and adjusted more than once and the interest of the following market in ensuring that any claim adjusted and settled by the leader is properly settled and represents a risk that the following market agreed to bear.
The "follow Axa" clause should be given that meaning which it would be reasonably understood to have. In deciding what that meaning is it is necessary to bear in mind the commercial purpose of "follow" clauses in marine insurance policies. That is part of the background of which the assured and underwriters would be aware.
Whilst regard must always be had to the particular words used there does not seem to me to be any reason to doubt that Mance J. correctly identified the obvious commercial purpose of "follow" clauses in Roar Marine. The real question in the present case is whether or not the words used in the policy indicate an intention by the parties to restrict the ambit of the follow clause in the manner suggested by...
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