Delos Shipholding v Allianz Global & Specialty - The Win Win
DMC/INS/24/01
England
Delos Shipholding S.A. & Others v Allianz Global Corporate & Specialty S.E. & Others (The “Win Win”)
English Commercial Court: Dias J: [2024] EWHC 719 (Comm): 25 March 2024
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2024/719.html
Peter MacDonald Eggers KC, Sandra Healy, Charlotte Payne and Sophie Hepburn (instructed by Hill Dickinson International) for Delos & Others (Insureds)
Philippa Hopkins KC, David Walsh and Lorraine Aboagye KC and Michal Hain (instructed by Adams & Moore Solicitors LLP) for Allianz & Others (Insurers)
MARINE WAR & POLITICAL RISKS INSURANCE: WHETHER ARREST AND DETENTION OF VESSEL FOR ANCHORING UNLAWFULLY IN INDONESIAN WATERS FORTUITOUS: WHETHER CLAIM EXCLUDED UNDER EXCLUSION FOR ARREST AND DETENTION UNDER CUSTOMS OR QUARANTINE REGULATIONS OR “SIMILAR” ARREST AND DETENTION
Summary
In this case the High Court held that the Vessel was a constructive total loss under the relevant Marine War Risks Policy, following her arrest and detention in Indonesia for more than six months. In consequence, the Insureds were entitled to be paid the Vessel’s total agreed sums insured of USD37.5 million. In finding for the Insureds, the Court held that the nature of the loss was fortuitous in character because, at the time in question, the arrest and detention of the Vessel for anchoring in Indonesian waters unlawfully was not inevitable. Further, exclusion (e) of the Policy [see further below] did not operate to exclude the loss because the exclusion was to be read narrowly and asserting sovereignty over unauthorised anchoring by the Indonesian authorities was not sufficiently similar to purposes underlying customs and quarantine regulations, to which the exclusion applied.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes
Background
The claim arose out of the unlawful anchoring of the Capesize bulk carrier “Win Win” (Vessel) just inside the Indonesian territorial waters off Singapore in February 2019. The incident led to the Indonesian authorities detaining the Vessel for nearly a year and the prosecution of the Vessel’s Master, who received a suspended sentence of seven months’ imprisonment and a fine of USD7,000.
The Vessel was insured by the Insurers for War Risks, including the risk of arrest and detention (Policy). The Insureds brought a claim under the Policy, asserting that the Vessel had become a constructive total loss by virtue of being detained for more than six months, such that they were, accordingly, entitled to recover the agreed total sums insured of USD37.5 million.
The Insurers broadly accepted that the requirements for a constructive total loss were met but, nonetheless, denied the claim on essentially four grounds:
(1) the detainment was not fortuitous since the Master and/or one or more of the Insureds knew or should have known that the Vessel had anchored in territorial waters and the arrest was the consequence of their voluntary conduct in so doing;
(2) the claim fell within an exclusion to the Policy;
(3) the delay was materially caused by the Insureds’ allegedly unreasonable conduct in breach of their duty to sue and labour; and
(4) the Insurers were allegedly entitled to avoid the Policy for material non-disclosure.
This note focuses on grounds (1) and (2) for brevity, although, for the sake of completeness, grounds (3) and (4) of the Insurers’ defence (also) failed.
It was common ground that the Policy covered "seizure, arrest, restraint or detainment, or any attempt thereat" (these being risks which had been excluded by the American Institute Hull Clauses and written back in by the War Risks Clauses) exceeding six months’ duration, and included exclusion (e), which stated:
“This insurance does not cover any loss, damage or expense caused by, resulting from, or incurred as a consequence of: … e. Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments not arising from actual or impending hostilities …”
It was also common ground that detainment of a vessel under the criminal laws of a country is not ordinary judicial process, and so may, therefore, amount to a restraint or detainment within the meaning of a marine War Risks policy.
Judgment
Having dealt with the background, the facts, the terms of the Policy and the parties’ evidence and submissions, the Judge addressed grounds (1) and (2) and found and held as follows based on her discussion and analysis of the case.
(1) Insured peril/Fortuity
The Vessel had anchored without permission in Indonesian territorial waters in an area commonly used for anchoring while awaiting orders. However, in February 2019, the Indonesian authorities suddenly, and without any prior warning, started arresting and detaining vessels anchored there illegally. This was an unprecedented action.
Neither the Vessel’s Master nor anyone at the Vessel’s managers actually knew that the Vessel was anchored in Indonesian waters. The Master should have reviewed the passage plan to consider territorial waters and would have chosen a legal anchorage if he had realised the true situation.
The Vessel’s operations department, in sending the anchoring instructions, should also have known the coordinates were in Indonesian waters. However, they did not instruct the Vessel to anchor at that precise location. Neither the Master nor the managers appreciated there was risk of arrest and detention for illegally anchoring there.
The key legal issue was whether the loss from the arrest and detention was “fortuitous”, so as to be covered by the Policy. The Insurers argued that it was not fortuitous since it resulted from the voluntary conduct of anchoring illegally in Indonesian waters.
The Judge agreed that a loss would not be fortuitous if it was caused by an insured’s wilful misconduct or was the ordinary consequence arising from an insured’s voluntary conduct in the ordinary course of trading.
However, the Judge found that the Master and the managers did not make a conscious “choice” to anchor in territorial waters, since they were unaware of doing so. Their conduct was, at most, negligent, which did not deprive the loss of its fortuitous character.
Further, the Judge also found that the arrest and detention was not an “inevitable” or “ordinary” consequence of illegal anchoring in early 2019, because it was an unprecedented and heavy-handed response from the Indonesian authorities, without prior warning, when vessels had anchored there for years without such consequences.
The Judge distinguished The “Wondrous” (fn.1), where non-payment of port dues inevitably led to detention based on universal practice worldwide. By comparison, here immediate detention was unexpected, based on past practice.
As a result, while detention was legally permissible, the Judge held that such detention could not be seen as an “ordinary” consequence in circumstances prevailing at the time, based on past tolerance by the Indonesian authorities of such anchoring.
Therefore, the loss was of a fortuitous character and this defence failed.
(2) Exclusion (e)
The Vessel was detained by the Indonesian authorities under Articles 193(1)(a) and 219(1) of Indonesia’s Shipping Law of 2008. That law covered a wide range of maritime matters aimed at strengthening national sovereignty, transportation and environmental protection.
The key legal issue was how to construe the meaning of “similar” in exclusion (e) of the Policy in the phrase “Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments not arising from actual or impending hostilities”.
The Judge rejected interpretations that would restrict the cover to only war related arrests and detainments made under regulations. She construed “similar” to mean arrests with an underlying purpose and objective materially similar to arrests under customs or quarantine regulations.
More specifically, the purpose had to be akin to regulating imports/exports, customs duties, or quarantine, not just general assertions of sovereignty or security, which could apply to many laws.
The Insurers argued the arrest was “similar” because the Shipping Law worked in conjunction with Indonesian customs and quarantine law, with shared objectives around regulating trade and border controls. However, the Judge found this connection to be too broad and unspecific.
The Insurers alternatively argued that the arrest related to an anti-smuggling campaign – as per a January 2019 memorandum between Indonesian ministries. Yet there was no evidence that this actually applied to the Vessel’s detention in that area.
On the proper narrow construction of exclusion (e), the Judge found that the arrest’s purpose of asserting sovereignty over unauthorised anchoring was not sufficiently similar to purposes underlying customs and quarantine regulations.
Therefore, the exclusion for “similar” arrests did not apply. As a result, the loss was covered by the Policy.
Comment
This judgment covers a number of issues that were hotly debated and raised a number of interesting points on which there appears to be scant authority.
The grounds on which the Judge held that the Insureds were entitled to be paid for their loss under the Policy are well reasoned and assuredly correct.
The judgment is well structured, detailed and also worth reading on the topics of sue and labour, material non-disclosure and damages for late payment.
Footnote 1:
[1991] 1 Lloyd’s Rep. 400
