ON APPEAL FROM THE QUEEN’S BENCH DIVISION
COMMERCIAL COUT
Mr Justice Blair
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
LORD JUSTICE WALLER
Vice-President of the Court of Appeal, Civil Division
LORD JUSTICE CARNWATH
and
LORD JUSTICE PATTEN
Between :
Global Process Systems Inc & Anr | Appellant |
- and - | |
Syarikat Takaful Malaysia Berhad | Respondent |
(Transcript of the Handed Down Judgment of
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Claire Blanchard (instructed by Watson Farley & Williams LLP) for the Appellant
Luke Parsons QC and Stewart Buckingham (instructed by Hill Dickinson LLP) for the Respondent
Hearing dates : 17th, 18th November 2009
Judgment
Lord Justice Waller :
In November 2005 the oil rig “Cendor MOPU”, owned by the appellants, was being carried on a barge round the Cape of Good Hope with its legs elevated in the air above the deck. Fatigue cracking, caused by the repeated bending of the legs under the motion of the barge as it was towed, caused first the starboard leg and then the other two legs to break and be lost. The appellants had insured the rig under an all risks policy and the issue before Blair J was whether the loss was covered by the policy. Blair J dealt with a number of points which are no longer in issue on the appeal, but on the critical issue raised by this appeal he ruled that since it was common ground that the action of the waves were no greater than was “reasonably to be expected” in November round the Cape of Good Hope, the loss was not due to perils of the sea, and was due to inherent vice and thus excluded from the policy. In ruling as he did the judge seemed to follow the approach of Moore-Bick J (as he then was) in Mayban General Insurance v Alston Power Plants [2004] 2 Lloyd’s Rep 609 (Mayban). In granting permission to appeal Toulson LJ said that the question whether that approach was right gave rise to a seriously arguable point of law of some general importance.
The facts
The full detail appears in the judge’s judgment. It is sufficient to summarise the facts as follows. The rig was laid up in Galveston Texas. It was purchased by the appellants in May 2005 for conversion into a mobile offshore production unit (MOPU) for use in the Cendor Field some 200 metres off the coast of East Malaysia. The appellants engaged experts Proceanic Engineering Services Pte Ltd (Proceanic) to organise transit. It was appreciated that any arrangements would have to be approved by a marine surveyor for the purpose of insurance and Proceanic recommended Noble Denton. It was further appreciated that one problem if the rig was transported with its legs protruding upwards was metal fatigue due to the actions of the waves. Consultants were required to perform calculations as to the structural integrity of the legs both for the purpose of transportation and for use in Malaysia. Viking Systems Inc were engaged for that purpose.
The rig was ultimately carried with its legs extending 300 feet into the air. It was well-recognised that stresses would be imposed on the legs by virtue of the motions of the waves and the structural integrity was assessed very much with that in mind. An alternative method of transportation would have involved the shortening or “cropping” of the legs and indeed it was the view of a Mr Harris, consulted at the time on an ad hoc basis, that that was what should happen, given the likely weather conditions round the Cape of Good Hope. But cropping was expensive and was thus an option which the appellants were reluctant to adopt. The judge found that the appellants’ reluctance to crop was understandable and he found that if the appellants had been advised to “crop” by Noble Denton they would have done so.
The charter with Seaspan (Cyprus) Ltd for carriage of the rig to Malaysia was entered into on 28th June 2005. The rig was to be carried on the “Boabarge 8”. On 9th July Seaspan sent Noble Denton what was described as preliminary engineering for the barge, including a sea motions analysis together with weather data for the intended route. On 18th July Noble Denton confirmed it had inspected the rig and found her ready for wet tow to the load out location and that preparations for the “Boabarge 8” were also complete. Other essential data, in the form of “design constraint (worst case)” response amplitude operators for the transit, was sent by Seaspan’s naval architects (Grand Marine). The loading onto the barge was completed between 22nd and 23rd July 2005.
Meanwhile the appellants had been seeking insurance. A cover note was sent on 20th July. The terms of the policy are not in issue and are recorded by the judge in these terms.
“The policy of insurance
16. Meanwhile, the claimants sought insurance through brokers called Insfield Insurance Brokers Sdn Bhd. A cover note issued by the defendant insurers was sent to them on 20 July 2005, and a placement slip, schedule and certificate followed. It is common ground that it was a condition of the policy that Noble Denton approved the arrangements for the tow. The terms are not in dispute and so far as material are as follows (the references to RM are to Malaysian ringgit):
"Cover Note
Period of Cover 20th July 2005 to 30th November 2005
Description of Risk On Cendor MOPU …
For commencement of loading operations in Galveston Texas until completion of discharge in Lumut Port, Perak, Malaysia.
Total sum covered: RM38 million (Equivalent to USD10 million)
Placement Slip
…
ENDORSEMENTS 9. Institute Cargo Clauses (A) 1.1.82
…
DEDUCTIBLE USD1,000,000 or equivalent to RM3,800,000 …"
17. Further, by reason of the incorporation of the ICC(A) terms, the policy of insurance incorporated the following terms:
"RISKS COVERED
1. This insurance covers all risks of loss of or damage to the subject-matter insured except as provided in Clauses 4, 5, 6 and 7 below.
...
EXCLUSIONS
4. In no case shall this insurance cover:
…
4.4 loss damage or expense caused by inherent vice or nature of the subject matter covered."
The policy was therefore an "all risks" policy, excluding (among other things) "inherent vice".”
The condition relating to Noble Denton was in these terms :-
“Survey Clause or Pre shipment Survey including loading and Unloading, Tow Out to be supervised by approved and nominated surveyor. Noble Denton has been nominated and approved.”
Before the barge set off further inspections were carried out. At one stage it seems Noble Denton were contemplating recommending that the rig did not have adequate fatigue life for the transit, despite “simplistic” fatigue assessments carried out by Viking relating to the pinhole subject to the highest stress showing a total damage ratio of 0.26. This was well within the parameters published by Det Norske Veritas (DNV), according to the expert evidence, (1.0 being the figure at which fatigue life would be considered expended, and 0.33 the maximum allowable value for critical structures where inspection and repairs during the operation were not planned and 0.5 where they were planned.) Ultimately Noble Denton issued a certificate of approval on 23rd August 2005. As the judge said:-
“22. The Noble Denton Certificate of Approval was issued at 18.30 on 23 August 2005. It recommended among other things that the barge roll motions should be kept under 5 degrees. With regard to the legs it says as follows:
"1 The ODIN LIBERTY legs have been the subject of a simplified fatigue analysis. Taking into account the fact that some of the fatigue life has already been used in the rig's previous history, and the uncertainty associated with the simplified fatigue analysis for the wet tow from Galveston to Lumut, it is possible that the legs in way of the pinholes may not have sufficient fatigue life to undertake the full tow to Lumut.
2 Since the fatigue analysis shows possible damage, it is required that the legs be re-inspected at Capetown for crack initiation in way of the six levels of 'pinholes' above the mat. Capetown is, broadly speaking, the half way point and remedial work could be undertaken should it be found necessary. Inspection should be using eddy current or equivalent NDT [non-destructive testing] technique."
With approval from Noble Denton thus in hand, the tow sailed away from Galveston on the same day.”
The barge set sail and while on the voyage from Galvaston to Saldanha Bay just short of Cape Town further calculations were done. A further simplistic fatigue assessment was issued by Viking on 20th September 2005 showing a figure of 0.68 and stating that “the legs were expected to withstand fatigue damage during transportation from the Gulf of Mexico to Malaysia via the Cape of Good Hope”. That figure, according to the judge, was taken from an earlier draft because the actual analysis showed 0.89 to be compared (as the judge said) with the 0.26 of 20th August. That assessment recommended that, because of the uncertainties of a simplistic fatigue analysis, a spectral fatigue analysis be carried out.
A spectral fatigue analysis was carried out and produced on 21st September and that showed a figure of 2.13 and this analysis did not have the words recommending that the legs would be expected to withstand the transportation round the Cape of Good Hope. This analysis was never seen by Noble Denton and the judge described that as “something of a mystery”. In the context of this use of language it is right to emphasise that it seems clear that the appellants, and indeed the insurers, relied on Noble Denton to assess the capabilities of the legs to withstand the voyage round the Cape of Good Hope. There is no suggestion that the appellants placed the rig on a barge for towing round the Cape of Good Hope knowing that the legs were unfit for that journey or reckless as to whether the legs were fit.
On 10th October the rig arrived at Saldanha Bay. The motion of the waves had caused some cracking on the voyage from the Gulf of Mexico and repairs were done. It was an issue at the trial whether the loss of the legs was caused by the failure to repair at Saldanha Bay. The judge rejected that case and held that nothing which could have been done at Saldanha Bay could have put the legs into a state where they were less likely to suffer from fatigue damage than when they set off from the Gulf of Mexico.
Noble Denton issued a certificate of approval for the tow to proceed for the final section of the voyage recording that the legs had been “the subject of a simplified fatigue analysis” showing “possible damage”. Those terms were relied on by the judge as showing that Noble Denton did not see the spectral analysis. Again the appellants and the insurers relied on Noble Denton’s assessment as to the capabilities of the rig being able to negotiate the final part of the journey round the Cape of Good Hope. There is no suggestion that the appellants were aware of any deficiency in the ability of the legs to withstand that part of the journey.
The judge then described the loss of the legs in these terms:-
“30. On 28 October 2005, the tow departed Saldanha Bay with two tugs in attendance, the "Smit Amandla" having joined the "Atlantic Hickory", in accordance with Noble Denton's stipulation, for the passage through the rough waters round the Cape. As planned, on 3 November 2005 the "Smit Amandla" let go, and the "Atlantic Hickory" continued on its own. North of Durban on 4 November 2005 at 20:00 hours, the starboard leg of the rig broke off at the 30 foot level. The following day at 20.50 hours, the forward leg broke off at the 30 foot level, and about half an hour after that, the port leg broke off at the 18 foot level. The legs all fell into the sea, fortunately without damaging the barge too substantially. The tow limped into Richards Bay on 11 November, departing three days later. In Mr Ooley's words, it then continued without further incident, arriving off Lumut on 9 December 2005.
32. The defendant's case was also subject to a late amendment. In its final form, it is said that the damage was caused by inherent vice in that the legs were not capable of withstanding the normal incidents of the tow, as demonstrated by the fact that they failed in weather conditions within what could reasonably have been expected. "Adequate" repairs (in the sense of repairs resetting the fatigue life of the legs) were not intended or attempted, and were not practically possible. Even if such repairs had been successfully performed, there would have been insufficient fatigue life in the legs to complete the voyage to Lumut. In the alternative, the defendant says that the fractures to the legs were inevitable.
The expert evidence
33. Four experts gave oral evidence at the trial. For the claimants, these were Dr John Aston (naval architecture), and Dr R.M. Andrews (metallurgy/fatigue). For the defendant, these were Mr Jeremy Colman (naval architecture), and Dr Jonathan Sykes (metallurgy/fatigue). It may be noted that Dr Sykes inspected what was left of the legs shortly after the rig arrived in Lumut, and was able to obtain samples. Each of the experts is experienced and well qualified, and they were able to reach a measure of agreement at their pre-trial meeting. There were also weather experts on each side, but because the claimants accepted that the weather experienced was within the range that could reasonably have been contemplated (albeit their expert puts it at the upper end), it was possible to proceed on the basis that their respective views could be treated as establishing an upper and lower range, and oral evidence from them was unnecessary.
34. It is common ground that the cause of the loss of the legs was fatigue cracking, which was caused by the repeated bending of the legs under the motions of the barge in the sea. The cracks propagated until they reached a critical size at which time, with the application of sufficient stress, the legs failed. The starboard leg failed first followed by the forward leg, and finally the port leg. It is also common ground that once the first leg failed, the effects operating on the remaining two legs would have been exacerbated. Nor is it in dispute that the second sector of the voyage in which the loss occurred included the seas which would be expected to be the roughest of the voyage, on account of the southern ocean depressions which circle the globe between Antarctica and the Cape of Good Hope.”
It is also of relevance to the issues on this appeal that he described the process of failure through fatigue in these terms:-
“48. The evidence is that a developed crack would not, on its own, have been sufficient to cause a leg to come off. That requires, in addition, a "leg breaking" or "final straw" stress, that finally fractures the weakened steel. I found the evidence of Mr Colman convincing in this regard. He told me that:
"When we have these fatigue cracks, they're 100 or 200 millimetres long – that's 4 or 8 inches – but remember that we have a leg which is 12 feet in diameter, a circumference of about 40 feet. So even quite a lot of these little cracks still leave a very large amount of good steel an inch and a half thick. This isn't light plate; this is very heavy steel, and that's an enormously strong structure. So you've got to catch it just right, if you want to make it actually fail all the way round. I'm not surprised that it takes a special event to make it go, but I think it was very lucky to have survived the first leg, as indeed the speed with which it failed during the second leg showed".
49. I asked him to explain further what he meant by "catching it just right" and he said:
"Just right in terms of roll angle, the direction of the motion and the amplitude of the motion and the presence of a crack of the right orientation in the right place, I suppose. Perhaps it's worth bearing in mind that the legs aren't just rolling from side to side or pitching backwards and forwards. They're getting a combination of those motions. So they're going around in great circles, or ellipses in different directions, and the stressing that is caused by that is complex. So somewhere all of the ingredients have to come together, but I think once you have used up a lot of fatigue life and you have cracks everywhere, then all you need is probably the 2, 3, 4-metre sea states that the Cape waters can provide."
The agreed range of wave heights demonstrates that waves in excess of 3 metres were in fact regularly experienced during the second stage of the voyage as the rig navigated the waters of the Cape.”
Weather experts produced reports but they were not called to give evidence because “the claimants accepted that the weather experienced was within the range that could reasonably have been contemplated (albeit that Mr Cowle [their expert] puts it at the upper end)” [see paragraph 100 of the appellants’ opening submissions at the trial]. The judge accordingly recorded that it was possible to proceed on the basis that their respective views could be treated as establishing an upper and lower range . . . ” [last sentence paragraph 33 of the judgment]. The language may be important, and I would understand “reasonably contemplated” to be different from “expected” although I note from the respondent’s closing submissions at the trial that they seem to equate the two concepts [see paragraph 2 of their closing submissions at the trial].
The judge had to consider whether the loss of the legs was inevitable and/or to what extent the repairs or lack thereof in Saldanha Bay was a cause of the loss. He said “I am satisfied in general terms that Mr Colman (the insurers’ expert’s evidence) was correct to say that “I don’t think that these legs were ever going to make it round the Cape”, and that was the reality whatever repairs had been done at Saldanha Bay” [see paragraph 83]. He came to that conclusion on the basis that even the spectral figure of 2.13 was probably too low but, more importantly, that if a surveyor had known of the spectral figure of 2.13 the rig would never have been allowed to start on its journey. That put the chances of the legs failing in the way they did very high but, the judge concluded, not inevitable. He found that “the failure of the legs as this rig was towed round the Cape was very probable, but it was not inevitable.” [paragraph 87]
The issue that remained for the judge was thus whether the proximate cause of the loss was “inherent vice or nature of the property” (which for short I will call simply inherent vice), or “perils of the sea”. It seems that the possibility of there being two causes, perils of the sea and inherent vice, was canvassed by the respondents on the basis that, if inherent vice was one of two causes since it was excluded, that would lead to the claim failing, but the paragraph began by saying “It is submitted that this is not a realistic possibility”. [See paragraph 35 of the respondents’ closing submissions]. The possibility of two causes was not canvassed by either side before us.
The judge found the proximate cause was inherent vice concluding as follows:-
“111. The weather is plainly an important part of the evidence in the case, but it is only part. In arriving at a conclusion I have kept in mind the claimants' submissions on the law, and have tried to take account of the evidence as a whole. Nevertheless, I cannot accept that the proximate cause of the loss of the legs was inadequate repairs at Saldanha Bay. There was no intention or attempt on the claimants' part to reset the fatigue life of the legs. To state that, is not to criticise the claimants' conduct in any way. But the tow was midway through the voyage, and it would in practice have been difficult to achieve repairs to that standard. I have given my reasons above and shall not repeat them. As a matter of common sense, the legs failed not because of the repairs, but despite them. The real problem lay with the inherent inability of the legs to withstand the normal incidents of the voyage. In that regard, I felt that the defendant's expert Mr Colman came closest to expressing the view of a "business or seafaring man" (Noten B.V. v. Harding, ibid, per Bingham LJ). As he put it—"I don't think that these legs were ever going to make it round the Cape". That in my opinion is the reality of this case. Taking the evidence as a whole, I am satisfied that the defendant insurers have proved that the proximate cause of the loss was the fact that the legs were not capable of withstanding the normal incidents of the insured voyage from Galveston to Lumut, including the weather reasonably to be expected.”
The issue is whether the judge is applying the right test and whether that conclusion was right.
The following provisions of the Marine Insurance Act are relevant:-
“39. Warranty of seaworthiness of ship
(1) In a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured.
(2) Where the policy attaches while the ship is in port, there is also an implied warranty that she shall, at the commencement of the risk, be reasonably fit to encounter the ordinary perils of the port.
(3) Where the policy relates to a voyage which is performed in different stages, during which the ship requires different kinds of or further preparation or equipment, there is an implied warranty that at the commencement of each stage the ship is seaworthy in respect of such preparation or equipment for the purposes of that stage.
(4) A ship is deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured.
(5) In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.
40. No implied warranty that goods are seaworthy
(1) In a policy on goods or other moveables there is no implied warranty that the goods or moveables are seaworthy.
(2) In a voyage policy on goods or other moveables there is an implied warranty that at the commencement of the voyage the ship is not only seaworthy as a ship, but also that she is reasonably fit to carry the goods or other moveables to the destination contemplated by the policy.
. . .
55 Included and excluded losses
(1) Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.
(2) In particular—
(a) The insurer is not liable for any loss attributable to the willful misconduct of the assured, but, unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against, even though the loss would not have happened but for the misconduct or negligence of the master or crew;
(b) Unless the policy otherwise provides, the insurer on ship or goods is not liable for any loss proximately caused by delay, although the delay be caused by a peril insured against;
(c) Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject-matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.”
Inherent Vice
This policy covered all risks of loss or damage to the subject matter insured, subject to the exclusion that “in no case shall this insurance cover loss or damage or expense caused by inherent vice or nature of the subject matter.”
There is no definition of inherent vice in the Act. Miss Blanchard for the appellants and Mr Luke Parsons QC for the insurers accept the definition of inherent vice propounded by Lord Diplock in Soya v White [1983] 1 Lloyd’s Rep 122 at125 where he said:-
“The facts as I have summarized them for the purpose of determining the question of construction of the HSSC policy in the instant case, assume that the loss resulting from the deterioration of the soya beans during the voyage was proximately caused by the "inherent vice or nature of the subject-matter insured". This phrase (generally shortened to "inherent vice") where it is used in s. 55 (2) (c) refers to a peril by which a loss is proximately caused; it is not descriptive of the loss itself. It means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty.”
The difference between counsel lies to some extent in the interpretation of what Lord Diplock would have had in mind in a case such as the present as the intervention of “any fortuitous external accident or casualty.”
Those words seem to come from the Marine Insurance Act Schedule 1 paragraph 7 of the Rules of Construction, where the perils of the sea are defined in these terms:-
“The term “perils of the seas” refers only to fortuitous accidents or casualties of the seas. It does not include the ordinary action of the winds and waves.”
Miss Blanchard would argue that if the action of the sea has in any way been a cause of the loss, then the loss will not have been caused by inherent vice. She submitted that the immediate cause of the loss was the leg breaking wave or waves and thus was caused by perils of the sea. Mr Luke Parsons argued that if the actions of the sea are no more than would reasonably be contemplated on that particular voyage, then the cause of the loss must be inherent vice or the nature of the subject matter; I repeat the full phrase to emphasise the full ambit of what has to be considered. The judge accepted Mr Parsons’ submission following the reasoning of Moore-Bick J (as he then was) in Mayban. I quote paragraphs 96 to 101 of the judgment which contain the passage to which no exception is taken by either counsel and then the passage to which Miss Blanchard objects together with the judge’s reasoning as to why he accepted Moore-Bick J’s analysis:-
“96. The policy was an "all risks" one, as in the present case. At [7], Moore-Bick J says as follows.
"The expression "all risks" is used in policies of insurance as a convenient way of encompassing all insurable risks to which the property in question may be exposed without attempting to identify them individually. The contract nonetheless remains one under which the insurer accepts the risk of loss occurring through the occurrence of some peril acting on the property insured. A number of consequences follow from this. The first is that in order to recover under the policy the insured must prove that the loss was caused by an accident or casualty of some kind. Insurers accept the risk, but not the certainty, of loss. The second is that although the insured must prove a loss by an accident of some kind, it is not necessary for him to go further and establish the exact nature of the accident by which it occurred. The third is that the policy does not cover the insured against loss due to wear and tear or the inherent vice of the thing insured, whether that loss was bound to occur or was fortuitous in the sense that its occurrence depended on the particular circumstances to which the goods happened to be exposed in the course of the voyage.
He then goes on to cite the passage from Lord Diplock's judgment in Soya GmbH v. White which I have set out above. It was not in dispute that inadequate packing, where packing is required to enable the goods to withstand the ordinary incidents of the voyage, can properly be regarded as an aspect of inherent vice (see [19], and Bennett, The Law of Marine Insurance, 2nd edn, paragraph 15.55).
97. Having analysed the facts, Moore-Bick J said at [21] that the immediate cause of the damage to the transformer was the violent movement of the vessel due to the actions of the wind and sea: "These in themselves were certainly events of a fortuitous nature and they were external to the cargo, but were they the real cause of the loss?" There then follows the passage in the judgment to which the claimants take exception:
"The action of the winds and waves is, of course, an inevitable incident of any voyage and is therefore a hazard to which all goods carried by sea are necessarily exposed. Goods tendered for shipment must therefore be capable of withstanding the forces that they can ordinarily be expected to encounter in the course of the voyage and these may vary greatly depending on the route and the time of year. In a case such as the present, therefore, the competing causes, namely, perils of the sea and inherent vice, are to a large extent opposite sides of the same coin. If the conditions encountered by the vessel were more severe than could reasonably have been expected, it is likely that the loss will have been caused by perils of the sea (though even then there might be evidence that the goods would have suffered the same degree of damage under normal conditions). If, however, the conditions encountered by the vessel were no more severe than could reasonably have been expected, the conclusion must be that the real cause of the loss was the inherent inability of the goods to withstand the ordinary incidents of the voyage."
98. The judge went on at [26] to find that the relatively short periods of high wind encountered on the passage were neither extreme nor even unusual in the sense that they are encountered often enough for mariners to regard them as a normal hazard, concluding that a cargo that could not withstand exposure to conditions of that kind could not be regarded as fit for the voyage. In the result, he was satisfied the loss was caused by the inability of the transformer to withstand the ordinary conditions of the voyage rather than by the occurrence of conditions which it could not reasonably have been expected to encounter.
99. In her well argued submissions, Ms Blanchard submits that it is wrong to say that if the conditions encountered by the vessel are no more severe than could reasonably have been expected, the conclusion "must" be that the real cause of the loss is the inherent inability of the goods to withstand the ordinary incidents of the voyage. All her arguments (as I have understood them) really go to that point. The decision it is submitted is in "flat contradiction" to NE Neter & Co Ltd v. Licenses and General Insurance Co Ltd [1944] 4 All ER 341, Tucker J, where it was said (at p.343G) that "it is clearly erroneous to say that, because the weather was such as might reasonably be anticipated, there can be no peril of the sea". The Mayban case, it is said, is relied upon by the defendant as effectively creating a rule of evidence that, absent exceptional weather being shown to have occurred, the loss must be attributed to inherent vice. The effect is to reverse the burden of proof, by taking the burden of proof off the insurer to prove inherent vice and requiring the insured to prove extraordinary weather. It is said that the consequence is to significantly reduce the scope of cover afforded for perils of the sea in a cargo policy. Finally, it is said that the Mayban case wrongly equated the concept of fitness to withstand the ordinary incidence of the voyage as it is typically applied in a contract of carriage by sea with the concept of inherent vice in an insurance contract.
100. In my opinion, this is a mistaken analysis of the Mayban case. Taking the last point first, the view that the exception against "inherent vice" is the same in the context both of carriage by sea and marine insurance is supported by the judgment of Donaldson LJ in Soya GmbH v. White at p.149-150 that I have quoted above. I agree with Mr Parsons QC for the defendant that one would expect the test to be the same. As Arnould says in paragraph 22-25, although Lord Diplock did not refer to these observations, there is no reason to suppose that he disagreed with Donaldson LJ's approach, or that he intended to give the concept of inherent vice a narrower meaning than had been indicated in the Court of Appeal. At paragraph 22-26 Arnould says that after Soya v. White "inability to withstand the ordinary incidents of the voyage is clearly an appropriate test of inherent vice". With the addition of the word "inherent" before "inability", I accept this as an accurate statement of the law. It was the approach that J adopted in the Mayban case, and I respectfully consider that he was correct to do so. Contrary to the claimants' submission, there is no contradiction with the NE Neter case, in which Tucker J made it clear that he was contemplating a situation in which the goods were properly stowed and in good condition when loaded (ibid, at p.343H, and see the headnote at p.341).
101. I do agree with Ms Blanchard that were it to be submitted that Mayban effectively created a rule of evidence that, absent exceptional weather being shown to have occurred, the loss must be attributed to inherent vice, such a submission would be contrary to authority, and wrong. But that is not the defendant's submission, nor is it what Mayban decided. The defendant says rightly in my view that the enquiry in Mayban was as to the proximate cause of the damage to the transformer. The wind and the weather were identified as a cause, as was the inherent nature of the transformer being shipped. On the facts, Moore-Bick J decided that inherent vice was the proximate cause. He did not suggest that, in order to qualify as a peril of the sea, the weather has to be extraordinary. On the contrary, he expressly contemplated that ordinary weather conditions could qualify as a peril of the sea. The real question in the case, as in the present case, was as to the proximate cause of the loss.”
Miss Blanchard submitted that there was no argument before Moore-Bick J as to the proper approach and that many cases were not cited. In particular she submitted that there were authorities in addition to N.E. Neter which demonstrate that for a loss to be caused by a peril of the sea it is not necessary for there to be exceptional conditions; conditions that would reasonably be contemplated could still cause losses which would be covered by a policy insuring risks from perils of the sea.
Miss Blanchard submitted that the inherent vice exception simply meant that the underwriter was not liable “for that loss or deterioration which arises solely from a principle of decay or corruption inherent in the subject insured …not from external damage, but entirely from internal decomposition.” These words come from paragraph 782 of the 16th Edition of Arnould, published in 1981. The footnote supporting those words said “The definition of inherent vice which is Arnould’s own, is, it is submitted, the best. The use in marine insurance of the criterion employed in affreightment cases, namely “inability to withstand the ordinary incidents of the voyage” is to be deprecated, because such inability may not necessarily be due to inherent vice. See n 94 infra” Note 94 read:-
“Inherent vice must also be distinguished from inherent frailty. Suppose, for example, an insurance on a cargo of eggs. If the voyage is long many may be expected to go bad. This is inherent vice. Many also are likely to be broken; this, it is submitted, is not inherent vice, and loss in excess of ordinary breakage will, subject to proof of the operation of an insured peril, be covered. See further, as to the distinction between inherent vice and ordinary wear and tear, in the context of hull policies.”
That note was to a paragraph within paragraph 782 which said as follows:-
“The suggestion has sometimes been made that inherent vice means the same thing as damage that must inevitably happen, but this is not so. The distinction is between damage caused by external occurrence and damage resulting solely from the nature of the thing itself.”
If the above quotations from Arnould 16th Edition were good law, Miss Blanchard submitted that for the exception of inherent vice to apply something internal must be the sole cause of the damage; if any external fortuity had been causative the exception would not apply. In this case she submitted there was an external cause – the final “leg breaking” wave encountered round the Cape of Good Hope causing the very accident against which the appellants insured. It was known that metal fatigue would occur from the motion of the waves and that thus some cracking would occur (the repair of which would not be covered by the policy). That was due to the nature of the thing being carried, but that the motion should at some stage be so adverse as to cause the legs to break was the fortuity against which the appellants had insured.
Paragraph 22-25 of the present edition of Arnould (the 17th published in 2008) still contains the sentences quoted above. But since the 16th Edition the Court of Appeal and the House of Lords had given judgments in Soya (only the decision of Lloyd J at first instance was referred to in the 16th Edition). In the Court of Appeal [1982] 1 Lloyd’s Rep 136, Donaldson LJ, in a part of his judgment accepted to be obiter, carried out a review of the authorities. He disagreed with Arnould’s view that the criterion applied in contracts of affreightment being applied in marine insurance was to be deprecated and he disagreed with a passage in the judgment of Lloyd J of some relevance to the issue on this appeal. He said this at page 150:-
“The only respect in which I would differ from Mr Justice Lloyd is in relation to his findings on causation. The learned Judge said:
“The burden of proving inherent vice undoubtedly rests on the defendants. They have proved that inherent vice was a cause in the sense that without moisture, the damage could not have occurred at all; but they have not succeeded in proving that inherent vice was the cause, the proximate cause, or one of the proximate causes. It was, to use the language which to my mind still expresses the meaning most accurately, a causa sine qua non, but not a causa causans. It may be said that inherent vice must have been the proximate cause if the soya beans were in fact incapable of withstanding the ordinary incidents of the voyage; that is what inherent vice means. I do not agree. Where there is an insurance against risks of heating, and heating occurs because of the conditions under which soya beans were carried on the particular voyage, I am entitled to hold that the cause of the damage were the conditions under which the soya beans were carried, even though the conditions were normal, and even though nothing untoward occurred. I would only be obliged to find that inherent vice was the proximate cause if the soya beans were such that they could not withstand any normal voyage of that duration. For the reasons already mentioned, that was not the case here.”
I fully accept his finding that the cause of the loss was the condition under which the soya beans were carried, but I disagree with his conclusion that this does not constitute a loss proximately caused by inherent vice. As I have said, in my judgment a loss is proximately caused by inherent vice if t he natural behaviour of the goods is such that they suffer a loss in the circumstances in which they are expected to be carried. This is the test under a contract of affreightment and the shipowner in this case could have pleaded inherent vice in answer to a claim for damage to the cargo. In holding that inherent vice is only proved if the soya beans could not withstand any normal voyage of that duration, the learned Judge was introducing a different concept, namely that of certainty of loss. That is a quite different defence. It is in any event subject to the qualification that it must be a certainty which is, or should be, known at least to the assured.”
When the case went to the House of Lords it is unclear whether Lord Diplock was intending to agree with Donaldson LJ or not but defined inherent vice in the way I have already quoted [see paragraph 20 above].
It is convenient to see how the editors of the 17th Edition of Arnould have, in the light of Soya, adapted Arnould’s view. They continue in paragraph 22-25 to produce the first two paragraphs as per the 16th edition, suggesting that liability depends on whether inherent vice is the “sole” cause but, having referred to Soya both in the House of Lords and the Court of Appeal, and having suggested that there was “no reason to suppose” Lord Diplock was disagreeing with Donaldson LJ, saying
“Arnould’s view, which has been supported in subsequent editions that a loss can only be said to be caused by inherent vice when it is solely due to the nature or condition of the insured property has, therefore, now to be qualified.
After Soya v White (above), inability to withstand the ordinary incidents of the voyage is clearly an appropriate test of inherent vice. It can no longer be said that inherent frailty is to be distinguished from inherent vice, or that the concept of inherent vice is necessarily inapplicable where external factors have contributed to the loss or damage to the insured.
Inherent vice will afford a defence where the sole cause of loss is the internal decomposition or deterioration of the subject matter insured, unless the policy otherwise provides. This is the case envisaged under s.55(2)(c) of the Act. Where the loss results both from the inability of the insured ship or cargo to withstand ordinary incidents of the voyage and from some fortuitous but not unusual external occurrence, it may sometimes be appropriate to conclude that inherent vice was so much the dominant cause that it ought to be viewed as the sole proximate cause of loss but, in many cases, the appropriate conclusion will be that the loss was due to a combination of causes of approximate equal efficiency. In those circumstances, if the external cause is an insured peril and if there is no express exclusion of inherent vice, the assured will be able to recover; if there is an express exclusion of inherent vice, the claim under the policy will be defeated.”
It is also convenient to quote the note 253 which provides a convenient summary of the position in Mayban and the criticism that Miss Blanchard (incidentally an editor of the 17th edition) made of that decision:-
“See Mayban Gen Ins Bhd v Alstom Power Plants Ltd [2004] 2 Lloyds Rep. 609. The insured cargo was a heavy piece of equipment (a transformer) which was damaged when the carrying vessel encountered adverse but not unusually severe weather conditions. The policy incorporated the Institute Cargo Clauses, expressly excluding inherent vice and insufficiency or unsuitability of packing or preparation for the voyage, but J did not base his decision on there being a loss by combination of causes, one of which was excluded; the decision was based on inherent vice, in the sense of inability to withstand the ordinary incidents of the voyage, being the sole cause of the loss. This analysis of causation is to be contrasted with the approach which as been followed in the hull cases, where damage by adverse but not exceptional weather, which a seaworthy vessel would have been able to withstand, has not been seen as resulting solely from unseaworthiness, as the dominant cause: see The Miss Jay Jay [1987] 1 Lloyd’s Rep 32; para. 22-18 above; para 23-15 below. The hull cases do not appear to have been cited in Mayban v Alstom. “The controversial result” of this case, if applied generally, is that it would restrict the scope of cover in respect of heavy weather damage under the Institute Cargo Clauses (A) (January 1, 1982) to wholly exceptional weather conditions; see Bennett, Law of Marine Insurance, 2nd edn para.15.54.”
That criticism is supported by Professor Bennett in the second edition of his book ‘The Law of Marine Insurance’ paragraphs 15.53 and 15.54. He points to the extent of the bad weather faced by the vessel in that case – some of the weather would only be expected to occur once in every eight and a half years. He is critical of the approach of the judge who considered that the inherent vice exclusion required cargo to be fit to withstand the full range of conditions that a commercial person with experience of the relevant waters would regard as reasonably to be expected for the relevant time of year. He concludes:-
“Accordingly, it was, surprisingly, held that even the rare, sustained period of heavy seas was within the range of conditions to be expected and that cargo had to be fit to encounter. Other shorter periods of such heavy seas were more common and clearly to be expected. On the facts, the damage could have been occasioned by the sustained period alone or by two or three of the shorter periods. Consequently, even if exposure to the sustained period of heavy seas fell outside the scope of inherent vice, the evidence demonstrated an inability to withstand the ordinary incidents of the voyage.
The Mayban case clearly applied a broad concept of fortuity to the Diplock formulation of inherent vice. The controversial result is that cover under the Institute Cargo Clauses (A), the most generous standard cargo cover, is confined in respect of bad weather damage to wholly exceptional adverse conditions.”
I pause to take stock at this stage. The first question is whether Arnould’s view, that a cause was due to inherent vice if something internal was the sole cause, was supported by authority. If not a second question will arise as to the circumstances in which inherent vice remains a cause, despite other outside causes, and in that context the precise definition of perils of the sea becomes important. These questions may well be intertwined since, if perils of the sea is a cause, that may show inherent vice was not and vice versa.
The question of whether both can be a proximate cause and, if so, what result that would produce depending on the terms of the policy, may also have to be considered. It is thus worth having in mind the basic rules if two causes are equally proximate as to which there is no issue. If there are two proximate causes one of which is covered by the policy and one of which is not but is not excluded, the policy must respond, but if there are two proximate causes one of which is covered and one of which is expressly excluded, the policy does not respond. It is this latter point which was floated by the respondents at the trial because under this policy inherent vice is specifically excluded.
In considering these questions, which I have found far from easy, I should immediately record my gratitude to Professor Bennett and an article he wrote in Lloyd’s Maritime and Commercial Law Quarterly 2007 page 315, from which I shall unashamedly borrow.
The starting point is the well known quotation from British and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41 (Gaunt). Since it is helpful to see also what Professor Bennett says about it, I will quote from his article at page 317:-
“With respect to fortuity on the facts, the insurers argued that, if bales of wool are not properly covered, becoming wet if it rains is not fortuitous. It was held, however, that the failure to cover properly at a time of rain would supply the requisite fortuity. Responding to the insurer’s argument and elaborating more broadly on fortuity in an all risks context, Lord Sumner stated as follows:
All risks” . . . includes the risk that when it happens to be raining the men who ought to use the tarpaulins to protect the wool may happen to be neglecting their duty. This concurrence is fortuitous; . . . it is not a thing intended but is accidental; it is something which injures the wool from without; it does not develop from within. It would not happen at all if the men employed attended to their duty.
There are, of course, limits to “all risks”. There are risks and risks insured against. Accordingly the expression does not cover inherent vice or mere wear and tear or British capture. It covers a risk, not a certainty; it is something which happens to the subject-matter from without, not the natural behaviour of that subject-matter, being what it is, in the circumstances under which it is carried. Nor is it a loss which the assured has brought about by his own act, for then he has not merely exposed the goods to the chance of injury, he has injured them himself. Finally the description “all risks” does not alter the general law; only risks are covered which is lawful to cover . . .
Similarly, according to Viscount Finlay, “no one would contend that a policy of this kind would cover ordinary wear and tear or deterioration incidental to the transit of goods. There must be something in the nature of an accident to bring the policy into play”.
Since the restriction of “all risks” cover to accidental losses arises largely as a matter of construction, it follows that the precise scope of any given “all risks” policy will depend on the policy wording. In the absence of contrary intention, however, the general guidance offered in Gaunt remains authoritative. Four parameters on cover are identified. Three relate to fortuity: the loss should not be caused by the assured’s own, voluntary act; it should not be a certainty; and it should be external to the insured property. The final parameter consists of the restraints imposed by public policy. As such, it is not particular to “all risks” policies and flows from neither the concept of the term “risk” not the construction of the policy as a whole. The example given by Lord Sumner is of British capture. This refers classically to capture of the property of enemy aliens in time of war. Payment by a British insurer to an enemy assured would be detrimental to British interests and contravene public policy. Such loss is not recoverable under any insurance policy no matter how worded. This restriction on cover will not be discussed further. ”
Professor Bennett then looks at each of the three parameters he has identified. It is important to identify them in the context of the instant case. Wilful misconduct embracing both intentional causing of loss and reckless running of risk will bar a claim. It was not suggested that such conduct barred the claim in the instant case but, if the appellants had been aware of the spectral calculation and had still allowed the rig to sail, that might well have constituted reckless running of risk.
He points out that an aspect of voluntary conduct can be seen in the law on unseaworthiness of vessels under time policies under which the courts decided and, as section 39(5) of the Marine Insurance Act now reflects, there is no implied warranty of seaworthiness as in voyage policies, (see section 39(1), breach of which is an answer to a claim under the policy whether or not the loss was caused by unseaworthiness). In time policies three elements were and are necessary to provide insurers with a defence first unseaworthiness, meaning not reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured when sent to sea; secondly, that the assured must be privy to that unseaworthiness and consciously realise that such circumstances do render the vessel unseaworthy; and thirdly, the subsequent loss must be attributable to that unseaworthiness.
In a policy on goods there is no warranty that the goods are seaworthy (see section 40(1)) and there is no equivalent to section 39(5) in relation to goods. This is a point relied on by Miss Blanchard, who submits that the effect of the reasoning of Moore-Bick J and the judge in this case is to introduce a warranty of seaworthiness.
In dealing with inherent vice Professor Bennett returns to Lord Sumner’s dictum in Gaunt and following recording that it provides for “The insured property being covered against a casualty that happens to the subject matter from without, not the natural behaviour of that subject matter, being what it is, in circumstances under which it is carried.”, Professor Bennett says this:-
“The extent of the inherent vice exclusion is problematic.
There is no statutory definition of inherent vice. In the cargo case of Soya v White inherent vice was described by Lord Diplock as denoting “the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty. It is clear from the statutory wording (“vice or nature”) and the description of Lord Diplock that the phrase “inherent vice” should not be understood as confined to circumstances where the insured property is defective in the normal sense of that term. Accordingly, where leather gloves were damaged in the course of transit by moisture previously absorbed by the gloves, a defence of inherent vice was upheld even though the ability of the gloves to absorb moisture was a natural function of leather and not attributable to any defect in the gloves. The scope of the concept is not, however, free from difficulty. According to Lord Diplock the intervention of a “fortuitous external accident” is inimical to an inherent vice defence. What is meant by “fortuitous” in this context?
Ambiguity is injected by two sets of variables. First [A] inherent vice might be confined to loss or damage incurred solely and exclusively by reason of internal characteristics of the insured property and not by exposure to any risks of transit. Alternatively, [B] it might extend to loss or damage caused by a combination of internal characteristics and risks of the insured adventure. In other words, inherent vice may amount to reasonable fitness of the insured property for the insured adventure. A further sub-level of ambiguity arises with respect to the likelihood of the risks of the adventure impacting upon the goods given their internal characteristics. The relevant risks of the insured adventure [1] may be confined to such risks that are so natural a feature of the transit that it would be unusual not to encounter them (“habitual risks”) or [2] could extend to all reasonably foreseeable perils of the insured transit. Indeed, further levels of foresight of perils of the insured transit could be postulated.”
In seeking to find which of the possible answers is the correct one, Professor Bennett examines the position in relation to hull policies and particularly the authorities to which Miss Blanchard suggested that no-one referred in Mayban. What he says and concludes underpins Miss Blanchard’s submission and I will thus reproduce it referring and summarising the position in the most relevant cases as it does.
“By virtue of r 7 of the Rules for Construction of Policy in the Schedule to the Marine Insurance Act 1906, unless the policy otherwise provides, the phrase perils of the sea “refers only to fortuitous accidents or casualties of the seas. It does not include the ordinary action of the winds and waves”. Fortuity, in this context, addresses two related matters. First, insurance policies are not designed to finance routine maintenance; some wear and tear to a vessel is a natural product of a vessel’s normal existence. Perils of the sea do not include “the silent, natural, gradual action of the elements upon the vessel, which is just another way of describing ordinary wear and tear. In The Xantho Lord Herschell famously observed that the words “perils of the sea”:
“do not protect, for example, against that natural and inevitable action of the wind and waves, which results in what may be described as wear and tear. There must be some casualty, something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen.”
In truth, the precise impact that the natural action of the elements will have upon any given vessel during the period of cover under any particular policy cannot be predicted with certainty. However, such loss as does occur cannot be regarded as fortuitous from an underwriting perspective.
Secondly, hull policies do not guarantee the sound condition of the insured ship. A ship may degenerate to such an extent that it then sinks purely by virtue of its debilitated condition by reason of age, neglect, or a combination of the two. The precise timing and circumstances of the loss will remain a matter of uncertainty, but the cause of the loss when it occurs will not be characterized as fortuitous so as to qualify as a peril of the sea. In The Miss Jay Jay, Mustill J stated as follows:-
“There can be few losses of which it can be said that they must happen, in the sense that this accident is bound to happen in this way at this time . . . When the vessel succumbs to debility, the claim fails, not because the loss is quite unattended by fortuity, but because it cannot be ascribed to the fortuitous action of the wind and waves. A decrepit ship might sink in perfect weather tomorrow, or it might not sink for sic months. To this extent a loss tomorrow is not inevitable. But if the ship does sink, there is no external fortuitous event which brings it about. In respect of such losses, the ordinary marine policy does not provide a remedy.”
Significantly, however, fortuity does not restrict perils of the sea to wholly unforeseeable or not reasonably foreseeable events. In Canada Rice Mills Ltd v Union Marine & General Insurance Co Ltd, cargo on a voyage from Rangoon to British Columbia and insured against perils of the sea was damaged by reason of heating occasioned when cargo hold ventilators were closed to prevent ingress of water in heavy weather. The Court of Appeal of British Columbia held that the cause of the loss was not a peril of the sea because, as summarized by Lord Wright in the Privy Council, “the weather encountered was normal, and such as to be normally expected on a voyage of the character, and there was no weather bad enough to endanger the safety of the ship if the ventilators had not been closed”. However, delivering the opinion of the Board reversing this decision, Lord Wright was clear: “these are not the true tests.” Any accidental ingress of water into the vessel was a peril of the sea. The entry of sea water through an opening by which it was not supposed to enter was accidental even if the sea conditions were entirely normal for those waters at that time of year. Thus, storms that were seasonal and frequent, and therefore to be expected, nevertheless “are outside the ordinary accidents of wind and sea [and are therefore fortuitous]. They may happen on the voyage, but it cannot be said that they must happen.”
Similarly, in The Miss Jay Jay, the relevant sea conditions were such as a person navigating in those waters could have anticipated that he might find, but would hope that he would not find. The conditions were markedly worse than average, but no so bad as to be exceptional. These sufficed to qualify as peril of the sea.
It is, consequently, clear that weather and sea conditions are not disqualified from giving rise to fortuitous losses in the context of perils of the sea merely because they are such as might reasonably be expected of the relevant waters at the relevant time of year. The precise threshold posed by fortuity is, however, uncertain. References to events that “must” happen suggest a test of factual inevitability. However, the intention behind the fortuity requirement of excluding ordinary wear and tear suggests a slightly lower threshold. It may be that circumstances will not qualify as fortuitous so as to give rise to a loss by perils of the sea if they are so characteristic of the relevant waters at the relevant time of year that an informed seaman would consider it highly unusual not to encounter such circumstances, even if they are occasionally not in fact encountered and cannot, therefore, be considered inevitable in an absolute sense.
The inclusion of fortuity within the definition of perils of the sea requires the assured to adduce evidence negating a loss by ordinary wear and tear or inherent vice or nature of the insured vessel. Thus, whereas with most named perils the burden lies on the insurer to invoke s.55(2)(c) and adduce supporting evidence, the definition of perils of the sea reverses that burden.”
Miss Blanchard also relied on the following passage in the judgment of Mustill J (as he then was) in Miss Jay Jay [1985] 1 Lloyd’s Rep 264 at 271. It is an extensive passage but I make no apology for citing the whole passage since it seems to me particularly instructive:-
“Assuming, therefore, that the cases on "perils of the seas" may properly be cited in the present context, what principles do they lay down? I think it helpful, when approaching this difficult area of the law, to draw two sets of distinctions. The first relates to weather conditions, which for present purposes may be divided into three categories: (i) "Abnormally bad weather". Here the weather lies outside the range of conditions which the assured could reasonably foresee that the vessel might encounter on the voyage in question. (ii) "Adverse weather": namely, weather which lies within the range of what could be foreseen, but at the unfavourable end of that range. In effect, the weather is worse than could be hoped, but no worse than could be envisaged as a possibility. (iii) "Favourable weather": namely, weather which lies within that range, but is not bad enough to be classed as "adverse". At the other extreme of the range from "adverse" weather can be found what may be called "perfect" weather.
The assignment of the conditions of wind and sea encountered on any particular occasion to one of these categories will vary according to the nature of the voyage: what is abnormal weather for a short passage in sheltered waters may well be commonplace on a winter voyage in the North Atlantic. Similarly, the nature of the vessel will have to be taken into account. Some craft are not intended to endure conditions which would be trivial for a more robust vessel.
The second distinction relates to seaworthiness, and is one of degree. A vessel is "unseaworthy" if it is unfit to face all the hazards which "a ship of that kind, and laden in that way, may fairly be expected to encounter" on the voyage: Steel v. State Line S.S. Co., (1877) 3 App. Cas. 72, at p. 77. Thus the vessel must be fit to deal adequately with adverse as well as favourable weather. Moreover, quite apart from mere unseaworthiness, there may be instances in which the ship is in such a weak condition that it cannot withstand even perfect weather. Borrowing a word from Wadsworth Lighterage & Coaling Co. v. Sea Insurance Co., (1929) 34 Ll.L.Rep. 98 at p. 105, the ship may be said to suffer from "debility". All debilitated ships are unseaworthy, but the contrary is not the case.
With these distinctions in mind, I believe that the effect of the authorities, so far as material to the present case, may be quite briefly stated as follows.
First, as to "perils of the seas". The definition contained in r. 7 of the rules for the construction of policy set out in the first schedule to the Act excludes "the ordinary action of the winds and waves". While it is tempting to deduce from these words that a loss is not recoverable unless it results from weather which is extraordinary (namely, what I have referred to as abnormal weather conditions) this interpretation is mistaken. The principal object of the definition is to rule out losses resulting from wear and tear. The word "ordinary" attaches to "action", not to "wind and waves". The cases make it quite plain that if the action of the wind or sea is the immediate cause of the loss, a claim lies under the policy notwithstanding that the conditions were within the range which could reasonably have been anticipated. All that is needed is (in the words of Lord Buckmaster in Grant, Smith & Co. v. Seattle Construction and Dry Dock Co., [1920] A.C. 162 at p. 171)—
. . . some condition of sea or weather or accident of navigation producing a result which but for these conditions would not have occurred.
See also Hamilton, Fraser & Co. v. Pandorf & Co., (1887) 12 App. Cas. 518 at p. 527; Canada Rice Mills v. Union Marine and General Insurance Co., (1941) 67 Ll.L.Rep. 549; [1941] A.C. 55 ; N. E. Neter & Co. v. Licences and General Insurance Co., (1944) 77 Ll.L.Rep. 202 at p. 205.
Second, as to causation. It may be that the doctrine of proximate cause has undergone some reassessment since the days when the most important cases on the present topic were decided. In those days the ultimate cause was more readily identified as the proximate cause than might be the case today. Nevertheless, it is clearly established that a chain of causation running — (i) initial unseaworthiness; (ii) adverse weather; (iii) loss of watertight integrity of the vessel; (iv) damage to the subject-matter insured — is treated as a loss by perils of the seas, not by unseaworthiness: see, for example, Dudgeon v. Pembroke, (1874) 9 Q.B. 581, per Mr. Justice Blackburn at p. 595, and (1877) 2 App. Cas. 284 , per Lord Penzance at p. 296, and Frangos v. Sun Insurance Office, (1934) 49 Ll.L.Rep. 354, at p. 359.
Third, as to "debility". Where a ship sinks through its own inherent weakness, there is no loss recoverable under the ordinary form of policy. It is not enough for this purpose that the vessel is unseaworthy. The loss must be disassociated from any peril of wind or water, even if these form the immediate context of the loss, and constitute the immediate agency (for example, the percolation of water through an existing flaw in the hull) by which the loss takes place. As Lord Buckmaster said in Grant, Smith v. Seattle Construction, sup., the policy is not a guarantee that a ship will float. See also Fawcus v. Sarsfield, (1856) 6 E. & B. 192, in relation to the first loss; Merchants' Trading Co. v. Universal Marine Insurance Co., (1870) 2 Asp. M.L.C. 431, the direction of Mr. Justice Lush approved by the Court of Common Pleas; Ballantyne v. Mackinnon, [1896] 2 Q.B., 455; Sassoon v. Western Assurance Co., [1912] A.C. 561 .
Finally, as to the requirement that a loss by perils of the seas shall be "fortuitous". There may be philosophical problems here, possibly compounded by the placing of more weight than it was intended to bear on the apophthegm of Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the "Xantho", ((1887) 12 App. Cas. 503 at p. 509) that—
. . . the purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen.
There can be few losses of which it can be said that they must happen, in the sense that this accident is bound to happen in this way at this time. Indeed, in some of the leading cases it could hardly have been predicted that the loss was bound to happen at all, whilst the policy was on risk. It is, however, unnecessary to enter into this problem. When the vessel succumbs to debility, the claim fails, not because the loss is quite unattended by fortuity, but because it cannot be ascribed to the fortuitous action of the wind and waves. A decrepit ship might sink in perfect weather tomorrow, or it might not sink for six months. To this extent a loss tomorrow is not inevitable. But if the ship does sink, there is no external fortuitous event which brings it about. In respect of such losses, the ordinary marine policy does not provide a remedy.
In the light of these propositions, I now return to the facts of the present case. Miss Jay Jay was plainly unseaworthy, but can it be said that the craft suffered from debility in the sense to which I have referred? It seems to me that the answer must be — "No". There is no reason to suppose that the boat would have sunk at her moorings, or while under way in a millpond sea. Indeed, she had only recently completed a Channel crossing. Conversely, if one asked whether the loss was due to the fortuitous action of the wind and waves, the answer must be — "Yes". True, the weather was not exceptional, but this is immaterial. Whichever of the expert witnesses may be right as to the mechanism of the structural failure, the immediate cause was the action of adverse weather conditions on an ill-designed and ill-made hull. The cases show that this is sufficient to bring the loss within the words of a time policy in the standard form. Since I consider that there is, for present purposes, no material distinction between "perils of the seas" and "external accidental means", I hold that the plaintiffs establish a prima facie loss under section 1 (a) of the policy.”
Miss Jay Jay went to the Court of Appeal [1987] 1 Ll Rep 32. A criticism was made of Mustill J’s judgment that in his paragraph dealing with causation he had applied a test of the proximate cause being last in time whereas by proximate cause is meant proximate in efficiency. The court thought he had not made that mistake. The court however reconsidered the question as to whether lack of seaworthiness was a proximate cause. Lawton LJ concluded that it was a proximate cause but not a cause such that “adverse sea could not fairly and on common sense principles be considered a proximate cause at all”. [See Lawton LJ at 37]. His view was that since there were two proximate causes and one was covered by the policy, and lack of seaworthiness was not excluded, the policy covered the loss. Slade LJ came to the same conclusion. He said:-
“In P. Samuel & Co. Ltd. v. Dumas, (1924) 18 Ll.L.Rep. 211; [1924] A.C. 431 at pp. 222 and 458 Lord Sumner observed:
. . . As has been often said, perils of the sea refer to things that may happen, not to things which must happen in the ordinary course of navigation.
The word "accidental" in section 1(a) of the policy in the present case must, in my opinion, similarly exclude events which must happen in the ordinary course of navigation. As the learned Judge commented, ( [1985] 1 Lloyd's Rep. at p. 271) the word "accidental" makes explicit what is implicit in the older form of words, that there is no recoverable loss in the absence of a fortuitous event. It would not, for example, include the ordinary action of the wind and the waves in a dead calm sea. Nor would it include an intentional act on the part of the insured: (see In re Kate Scarr and The General Accident Assurance Corporation Ltd., [1905] 1 K.B. 387 at p. 393).
In my judgment, however, the sea conditions encountered by the vessel in the present case did not fall outside the phrase "accidental means" merely because, in the learned Judge's words ( [1985] 1 Lloyd's Rep. at p. 270), they-
. . . were such as a person navigating in those waters could have anticipated that he might find, but would hope that he would not find.
Even if the occurrence of a particular unwanted event, which may or may not occur, is a readily foreseeable risk, the event may still be properly regarded as accidental when it does in fact occur. In the present case the weather conditions at the relevant time were found by the learned Judge (ibid at p. 270) to have been "markedly worse than average". They were by no means bound to occur. They fell within the description of an "accidental" cause.”
Slade LJ put the causation point in this way:-
“The learned Judge found as facts ( [1985] 1 Lloyd's Rep. at p. 270) that (a) the sea conditions encountered by the vessel were "markedly worse than average but not so bad as to be exceptional"; (b) the vessel was in such a condition by reason of defects in design and construction as to be unseaworthy for a passage from Deauville to Hamble; (c) a boat of its size and configuration, complying with the description set out in the manufacturer's brochure would, if properly designed and built, have made the relevant voyage in the conditions actually encountered without suffering damage; (d) nevertheless, the vessel would have been able to survive the voyage if the sea conditions had been no worse than average.
In the light of findings (a) and (d) I think it clear on any commonsense view that the sea conditions at the relevant time must be regarded as at least a cause, whether or not the proximate cause, of the damage to the yacht, and I did not understand Mr. Brice to dispute this proposition. However, in the light of the findings (b) and (c), I think it no less clear that the faulty design and construction of the boat must also be regarded as at least a cause, whether or not the proximate cause of the damage. On a commonsense view of the facts both these two causes were, in my opinion, equal, or at least nearly equal, in their efficiency in bringing about the damage.”
Slade LJ finally made clear that it was his view that the yacht in that case was not one of “debility” saying:-
“If at the start of a voyage a vessel is in such a state of general debility that the ordinary action of the wind and waves in any type of sea is bound to cause her damage and such action duly causes her damage, commonsense may dictate that the condition of the vessel rather than the action of the wind and waves shall be treated as the sole proximate cause of the damage.”
It should be noted that in dividing weather conditions into categories Mustill J is not saying that “reasonable foreseeability of bad weather” would exclude perils of the sea as a cause, but he would, I think, exclude “favourable weather”, i.e. weather not so bad as to be adverse. I do not understand the Court of Appeal to disagree.
When Professor Bennett comes to deal directly with cargo insurance he starts with Koebel v Saunders (1864) CBNS (NC) 71a pre Act case. It was that case which laid down that there was no warranty of seaworthiness in respect of cargo as was later reflected by section 40(1) of the Act. But the language used by Willes J is important:-
“As a general rule, the insurer is not liable for damage resulting from a peculiar vice or infirmity in the thing which is the subject of insurance. It is upon that footing that the seaworthiness of the ship is held in our law, as well as in that of most commercial countries, to be an implied warranty. It is a sufficient answer to the assured to shew that the vessel was unseaworthy when she sailed on her voyage, without going on to shew that the damage sustained was the consequence of that unseaworthiness. But, in the case of an insurance on goods, it is no answer to say that they were in an unfit condition to be shipped, unless it is shewn that the loss arose from that unfitness.” [My underlining]
As Professor Bennett said in relation to that quote, it denies the existence of a warranty as to seaworthiness but it appears to recognise that cargo insurers can benefit from a defence based on the condition of the goods without specifying precisely what condition or how causation operates.
The judgment of Byles J in that case is also of interest. He said:-
“With a great deal that Mr Williams has said I fully concur, viz that a loss of goods which perish by some inherent vice or weakness, as in the case of tender animals unfit to bear the agitation of the sea, gun-cotton, or the like, or in the more ordinary instances of fruit, flour, or rice, which are liable to heat or perish on the voyage, is not a loss by perils of the sea.”
His example of calves being unfit to bear the agitation of the sea seems to demonstrate that he, too, did not take the view that inherent vice could only be causative if it were internal and the sole cause. Indeed he was clearly of the view that some motion of the sea, causative of injury to the calves, would not amount to a peril of the sea. It is an interesting example in the context of this case.
Professor Bennett suggests that it is by no means self evident that marine insurance should adopt the same extended meaning of inherent vice as carriage of goods but he also doubts whether Arnould’s narrow concept of the loss having to be “solely” arising from an internal characteristic is correct.
His ultimate conclusion is to favour what he terms a narrow approach but not quite as narrow as the original Arnould view. He suggests that Noten v Harding [1990] 2 Lloyd’s Rep 283 supports a narrow approach. That case concerned gloves shipped wet and where the outside temperature had caused moisture to be attracted to the sides of the containers and then with a change of temperature the moisture to fall back on the gloves. Bingham LJ (as he then was) quoted both the definition of inherent vice given by Lord Diplock in the Soya case and the paragraphs of Arnould the 16th Edition. He then said this:-
“If the factual cause of the damage to these gloves has been correctly identified, then I think it plain that that was an excepted peril under these policies. The goods deteriorated as a result of their natural behaviour in the ordinary course of the contemplated voyage, without the intervention of any fortuitous external accident or casualty. The damage was caused because the goods were shipped wet. For the reasons already given I regard it as immaterial that the moisture travelled round the containers before doing the damage complained of.”
The Soya case is important. As Professor Bennett points out in the House of Lords it was assumed that the cause of the loss was inherent vice “heat” but the House held that that particular inherent vice was covered by the terms of the policy. At first instance before Lloyd J (as he then was) one question was whether if the policy did not expressly cover the inherent vice could the insurers rely on section 55(2)(c). Lloyd J held they could not because the inherent vice was not the sole proximate cause of the loss and would not be unless “the soya beans were such that they could not withstand any normal voyage of that duration.” [See the passage of his judgment quoted above]. Professor Bennett emphasises the “any” as showing that Lloyd J’s view was that inherent vice would be the operative cause where the cargo was not reasonably fit to withstand those perils which it would be unusual not to encounter. His point is that this is not the same as “fit to encounter perils that might reasonably be foreseen”.
Donaldson LJ in the Court of Appeal did not agree with the above passage in the judgment of Lloyd J, suggesting that Lloyd J was introducing a concept of certainty. Professor Bennett suggests he may have misunderstood what Lloyd J was saying since in Lloyd J’s judgment it is apparent that he was not under any illusions about the separate nature of the inevitability defence from that of inherent vice. It is this passage of Donaldson LJ’s judgment and his suggestion that contracts of insurance and contracts of affreightment should be construed in the same way which has lead to the words “in the circumstances in which they are expected to be carried” to bear the meaning of “circumstances which can reasonably be foreseen”. I am not sure he necessarily intended that but if he did it was obiter without facts of the nature present in the instant case before him. It did not have the support as I would read his judgment of Waller LJ, and although O’Connor LJ agreed that the appeal should be dismissed for the reasons given in both judgments, I could not read that as necessarily endorsing all that was said in the obiter part of Donaldson LJ’s judgment.
Furthermore although the editors of the 17th edition of Arnould and Blair J in this case thought otherwise, it is not clear to me that Lord Diplock in the House of Lords supported the view of Donaldson LJ. He dealt with the definition of inherent vice shortly and if anything I would suggest by implication he was saying that he did not need to go into the question whether Donaldson LJ was right in applying the test under a contract of affreightment to insurance. Furthermore it certainly was not necessary for him to consider precisely what constituted an external fortuitous accident where perils of the sea were being relied on.
When in the article Professor Bennett comes to analyse Mayban he makes the same points as in his book. He points out that the case seemed to support the view that one needed exceptional weather conditions if inherent vice was not to be the cause of a cargo suffering damage from the movement of the seas, but that the decision in that case might be justified on the basis that it would not have been at all unusual for the vessel to be exposed to the briefer periods of bad weather, if those had been the cause.
Moore-Bick J’s findings turned on whether the conditions encountered “were more severe than reasonably could be expected.” Moreover “conditions or events which are well known to occur from time to time but which are nonetheless relatively uncommon may well be properly regarded as ordinary incidents of the voyage.” Professor Bennett then says this about Moore-Bick J’s reasoning in Mayban:-
“It is, with respect, suggested that this analysis falls into error. First, the reference to vessel and cargo indicates that Moore-Bick J was drawing a parallel between the standards expected of a carrier of goods by sea and the limits of cover offered by a marine insurer. It has already been suggested that it is by no means self-evident that such a parallel can be supported. Secondly, assureds do not procure insurance against losses that they consider fanciful. Rather, it is precisely because commercial experience indicates a certain level of probability of a particular type of loss that the reasonable person considers insurance a sensible and prudent investment. If, however, goods have to be fit to withstand reasonable foreseeable perils or the loss will be considered to be proximately caused by the inherent vice of the goods, or at least not by a “risk” within the meaning of the “all risks” insurance claim, much of the point of cargo insurance disappears. “All risks” cover would be confined to loss or damage occasioned only by wholly unusual perils or wholly unusual examples of known perils. “All risks” insurance would not cover cargo destined for New Orleans against loss or damage caused by a hurricane of no greater force than Hurricane Katrina that so devastated the city and surrounding area in 2005. It would not insure against loss by piracy cargo that was to be shipped through waters notorious for piratical attacks, such as the Straits of Malacca. And what sort of packaging and security would be required to insure cargo against theft on a voyage during which theft was within the reasonable commercial experience?
Insurers know they are being asked to assume risks that might well occur and have the protection of the law of non-disclosure and misrepresentation in reaching their decision on whether to accept the risk and, if so, on what terms. Insurers, of course, enjoy contractual freedom to restrict their liability by reference to the probability of loss occurring. However, the approach to inherent vice adopted in Mayban represents a restriction on cover that goes far beyond any logical presumed exclusion of ordinary losses and introduces a startling dichotomy between hull and cargo insurance that does not seem to respond to commercial common sense. Foreseeable events, it is suggested, can still constitute risks within the meaning of an all risks policy and the concept of inherent vice should be confined to losses analogous to ordinary wear and tear emanating from the internal characteristics of the insured property.
The above discussion has focused on the single, prolonged period of heavy weather encountered by the Eliane Trader. It may, however, be noted that, on the facts of Mayban “it would not have been at all unusual for the transformer to be exposed to several similar, albeit briefer, spells of bad weather at various stages of its voyage to the Far East” and the damage could have been caused by two or three such shorter periods of adverse weather. The decision in the case may be justified if such shorter periods of bad weather could be considered so ordinary and natural an incident of the voyage that it would be unusual to complete a voyage without encountering them. An inability to withstand such shorter periods would then qualify as inherent vice even on the narrow view favoured in this article.”
Discussion
First, I do not think Arnould’s original suggested definition of inherent vice can be taken literally and Miss Blanchard did not suggest otherwise. Inherent vice can be a cause even though some outside agency such as the motion of the waves has contributed causally to the loss. The calves, in the example given by Byles J, is such a case. Arnould almost certainly intended his definition to be understood as meaning that inherent vice would be the sole cause where any other outside causative factor did not amount to a peril insured against. In the example of the calves the ordinary motion of the sea would not be a peril insured against.
Second, as Lord Diplock’s definition suggests inherent vice may not be a proximate cause if there is an eventuality or accident from without that causes the loss. Lord Diplock does not say whether one may have concurrent proximate causes but, taking Arnould’s definition, it would appear difficult to have concurrent causes where one candidate is inherent vice. Although it could be said the Court of Appeal in Miss Jay Jay would point in a different direction, it seems to me that Moore-Bick J’s approach in the Mayban is likely to be correct. It is only if a peril insured against is not a proximate cause that inherent vice can be the sole and proximate cause. If one takes the circumstances of this case, the insurance contemplated that the condition of the legs was such as they would suffer from fatigue. That was always likely to be a cause if the legs snapped but the fact that it was a cause could not have been understood by the parties to exclude cover altogether.
Lord Diplock was also not concerned to assess what motions of the sea or wind would constitute the required fortuitous event.
Where one has an accident at sea such as occurred here, the burden is on the underwriter to establish inherent vice as the proximate cause. That will involve consideration of whether there was some other external fortuitous event which caused the loss of the legs. I do not find it helpful to simply say the event was caused by perils of the sea because, as I read the authorities, if it is the action of the sea which has caused the loss, there has to be something beyond the “ordinary” and the question is by what is the ordinary to be judged. That may be affected by considering what precisely the insurance was covering. On this aspect, in addition to authorities already referred to, what Tucker J said in N.E. Neter v Licenses & General Insurance Co.77 Lloyd’s LR 202 at 205 is helpful. In that case he had found that the claimants had not established that certain casks had not been damaged before being loaded or other than on the voyage and thus he accepted that his observations as to whether normal weather could be a peril of the sea were obiter. This is what he said:-
“In case I am wrong as to the proper inferences to be drawn from the evidence, I think I ought to deal with the defendants' submission that in any event damage so caused could not constitute loss due to a peril of the seas. This point was fully argued on both sides, and is one of some importance. The defendants say there was nothing abnormal or unexpected in the weather experienced on such a voyage in the month of June, there was nothing fortuitous in what occurred, the damage was solely due to the ordinary action of wind and waves, and there was no peril. They contend that a distinction should be drawn between the incursion of sea water in normal weather through some aperture wrongly left open, which is fortuitous, and the ordinary rolling and pitching of a vessel in heavy, but not unexpected, weather, which is wholly lacking in any fortuitous element.
Having regard to the three authorities reported in Vol. 12 Appeal Cases, namely, Thames & Mersey Marine Insurance Company v. Hamilton, Fraser & Co., 12 App. Cas. 484; The Xantho, 12 App. Cas. 503; and Hamilton Fraser & Co. v. Pandorf & Co., 12 App. Cas. 518; and the recent Privy Council decision in Canada Rice Mills, Ltd. v. Union Marine & General Insurance Company, Ltd., [1941] A.C. 55; 67 Ll.L.Rep. 549 , I think it is clearly erroneous to say that because the weather was such as might reasonably be anticipated there can be no peril of the seas. There must, of course, be some element of the fortuitous or unexpected to be found somewhere in the facts and circumstances causing the loss, and I think such an element exists when you find that properly stowed casks, in good condition when loaded, have become stove in as a result of the straining and labouring of a ship in heavy weather. It is not the weather by itself that is fortuitous; it is the stoving in due to the weather, which is something beyond the ordinary wear and tear of the voyage. This appears to me to be "something which could not be foreseen as one of the necessary incidents of the adventure." It was "an accident which might happen, not an event which must happen," to quote the language of Lord Herschell in the Xantho , sup. In the Canada Rice Mills case, sup. , Lord Wright says at p. 69:
“On any voyage a ship may, though she need not necessarily, encounter a storm, and a storm is a normal incident on such a passage as the Segundo was making, but if in consequence of the storm cargo is damaged by the incursion of the sea, it would be for the jury to say whether the damage was or was not due to a peril of the sea.”
If for the words, "by the incursion of the sea" there are substituted the words "by the action of the sea," the above passage is applicable to the present case on the assumption that the casks of dye-stuff, though properly stowed and loaded in good condition, had been stove in as the result of the action of the sea in stormy weather causing the straining and labouring of the vessel. And on such facts, sitting as a jury, I should have found that this was a loss due to a peril of the seas. It has been decided that it makes no difference whether the sea comes in through a hole or the cargo goes out through a hole into the sea. and I can see no distinction in principle between these happenings and damage to the cargo by the action of the sea without actual contact with the water and not due to action taken to prevent such contact as in the Canada Rice Mills case, sup. This view seems to be in accord with one of the issues decided in the Catharine Chalmers, 32 L.T. 847, the correctness of which decision on this point has never, so far as I am aware, been questioned.”
Mustill J’s classification of weather and his conclusions as to the meaning of the “ordinary action of the waves” are important to bear in mind. Mustill J’s emphasis that the word ‘ordinary’ covers action, not the winds and waves, is intended to demonstrate that the type of voyage is important – the ordinary action of the waves in the Mediterranean will be different from the ordinary action of the waves round the Cape of Good Hope. But the main thrust of the definition is intended to exclude the ordinary wear and tear that can be expected to occur as a result of that ordinary action. In saying, as Mustill J does, that the cases make it plain that if the action of the sea is the immediate cause of the loss, a claim lies under the policy notwithstanding that the conditions are within the range “which could reasonably be anticipated” I would understand Mustill J to accept that what he describes as “favourable weather”, i.e. weather within the range but not bad enough to be classed as adverse or “perfect” weather may not amount to perils of the sea and if a ship foundered in such weather without more, the owners would not be able to establish the fortuity.
I see no reason why the position should be less advantageous to the insured with cargo. If cargo were damaged by the motion of the vessel in “favourable weather” or “perfect weather” the obvious inference in most cases would be that any damage was caused by inherent vice or the nature of the cargo.
The above would seem to me to support the view that in considering whether damage to cargo has been caused by inherent vice, even if the question to be considered is - Was the cause an inability to withstand the ordinary incidents of the voyage? - the answer cannot be found by reference to what might be reasonably foreseeable as the ordinary incidents of that voyage, but by reference to wind or wave which, it would be the common understanding, would be bound to occur as the ordinary incidents on any normal voyage of the kind being undertaken. This is not equating inherent vice with certainty but it is recognising that an insurer would not cover damage to cargo flowing from the motion of a vessel in such seas, even if it was not certain to occur. This I hope is consistent with the views of Tucker J, Mustill J and Lloyd J (as they then were), all masters in this field, and I am not sure that Donaldson LJ (equally a master) would have disagreed.
Thus I am persuaded that a more narrow test than that accepted by Moore-Bick J in Mayban is the correct test. That judge was, it seems, faced with an agreement by the parties as to the correct test without cases on hull insurance being cited to him. What test did the judge apply? The judge summarises his findings this way which seem to me to reflect other paragraphs of his judgment:-
“110. It is not in issue that the weather experienced was within the range that could reasonably have been contemplated (albeit the claimants' expert puts it at the upper end). Nevertheless, the legs broke off some seven days after the tow ventured out into the waters of the Cape.
The judge has clearly applied the wider test as favoured by Moore-Bick J.
I have had some concern as to whether anyone addressed the evidence as to the weather and the waves with the test I have identified in mind. But I have ultimately concluded that the case was, in reality, fought by the respondents on the basis that they could establish the position by reference to foreseeability and the test applied by the judge in this case. They also sought to establish certainty and failed, but did not seek to establish a case by reference to some narrower test as was being argued by the appellants. It also seems to me that in finding that the accident was not a certainty, the judge must have concluded that a leg breaking wave, as described in his finding, was not bound to occur on the voyage. I have also been influenced by the finding of Tucker J in Neter,thatit was not the weather by itself that was fortuitous. He found in that case it was the stoving-in due to the weather which was something beyond the wear and tear of the voyage. It is true that Tucker J contemplates that the cargo had been properly stowed and was in good condition, but it seems to me that in this case the cargo was properly stowed and was in good condition in the sense that care was taken to consult surveyors as to how the rig should be carried and they certified that it was fit for the voyage. It is not that the legs then simply suffered severe metal fatigue and cracking, i.e. normal wear and tear. Metal fatigue was not the sole cause of the loss of the legs. A leg breaking wave, not bound to occur in the way it did on any normal voyage round the Cape of Good Hope, caused the starboard leg to break off. That led to the others being at greater risk and then breaking off. It was not certain that that would happen and although with the benefit of hindsight we know that it was highly probable, that high probability was unknown to the insured and that was a risk against which the appellants insured.
I would allow the appeal.
Lord Justice Carnwath
I agree that the appeal should be allowed for the reasons given by Waller LJ. I add some short comments of my own, in recognition of the judicial and academic disagreements which the issue of “inherent vice” has generated in recent years.
We are asked to differ from Moore-Bick J’s interpretation in a 2004 case of the relationship between the respective concepts of “inherent vice” and “perils of the sea” (apparently not in dispute before him):
“If the conditions encountered by the vessel were more severe than could reasonably have been expected, it is likely that the loss will have been caused by perils of the sea (though even then there might be evidence that the goods would have suffered the same degree of damage under normal conditions). If, however, the conditions encountered by the vessel were no more severe than could reasonably have been expected, the conclusion must be that the real cause of the loss was the inherent inability of the goods to withstand the ordinary incidents of the voyage.” (Mayban General Insurance v Alstom Power [2004] 2 Lloyd’s Rep 609 para 21, emphasis added)
We are asked to test this by reference to Mustill J’s discussion of three categories of “perils of the sea” in the Miss Jay Jay [1985] 1 Lloyd’s Rep 264, 271ff:
“… (i) "Abnormally bad weather". Here the weather lies outside the range of conditions which the assured could reasonably foresee that the vessel might encounter on the voyage in question. (ii) "Adverse weather": namely, weather which lies within the range of what could be foreseen, but at the unfavourable end of that range. In effect, the weather is worse than could be hoped, but no worse than could be envisaged as a possibility. (iii) "Favourable weather": namely, weather which lies within that range, but is not bad enough to be classed as "adverse". At the other extreme of the range from "adverse" weather can be found what may be called "perfect" weather….”
The appellants submit in short that reasonable expectation or foreseeability of the adverse weather conditions from which the loss arises (Mustill J’s category (ii)) is not in itself enough to bring the case within the scope of “inherent vice”.
I start by observing that the concept of “inherent vice” seems to have been sufficiently familiar by the end of the 19th Century, for it to be cited as an “excluded loss” by section 55 the 1906 Codification without further definition. The relevant provision reads:
“(c) Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject-matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.”
This is to be read in the context of the standard form of policy (First Schedule) which includes cover against “perils of the sea”, a term which is defined (in para 7 of the Rules of Construction):
“The term ‘perils of the seas’ refers only to fortuitous accidents or casualties of the seas. It does not include the ordinary action of the winds and waves.”
I agree with Waller LJ that this contrast must have been what Lord Diplock had in mind when he said in Soya v White [1983] 1 Lloyd’s Rep 122 at 125 where he said of the phrase “inherent vice or nature of the subject-matter insured”:
“This phrase (generally shortened to ‘inherent vice’) where it is used in s. 55 (2) (c) refers to a peril by which a loss is proximately caused; it is not descriptive of the loss itself. It means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty”
I understand this passage, not as an endorsement of the much fuller and more controversial analysis by Donaldson LJ in the Court of Appeal ([1982] 1 Lloyd’s Rep 136), but rather as a concise summary of the conventional understanding, in a context where the issue did not arise directly for decision. While of course one pays great respect to the views expressed by Donaldson LJ on this topic, they are not binding on us, and, given the differing responses of commentators, they need to be considered with some care.
The codifying nature of the 1906 Act also makes it relevant to take account of the ordinary understanding of the term as it was at that time. In the Soya caseDonaldson LJ (p 145-6) quoted the second edition of Arnould (1857), noting that it was the work of Sir Joseph Arnould himself:
“… the underwriter is not liable for that loss or deterioration which arises solely from a principle of decay or corruption inherent in the subject insured, or, as the phrase is, its proper vice…” (para 286)
This wording, with its emphasis on the something inherent in the subject insured, as opposed to the impact of external factors, has proved remarkably resilient over the ensuing 150 years. It is true that the cases (both before and since) show that this emphasis cannot be taken too far, and that external factors may be relevant (for example, weather conditions hastening the deterioration of the gloves, in Noten BV v Harding [1990] 2 Lloyd’s Rep 282). However, I treat with caution the implication of the more recent editions of Arnould that a concept whose meaning was regarded as settled for so long, and from well before the 1906 codification, now requires substantial reinterpretation in the light of obiter comments in a 1982 judgment, however distinguished the author.
It is unnecessary to repeat Waller LJ’s detailed discussion of the cases, going back to 1864 (Koebel v Saunders CBNS (NC) 71). Like Waller LJ, I have gained particular assistance from Professor Bennett’s discussion of the issues in his article in [2007] LMCLQ 315, including his comment (as part of his criticisms of the approach of Moore-Bick J in Mayban:
“… assureds do not procure insurance against losses that they consider fanciful. Rather, it is precisely because commercial experience indicates a certain level of probability of a particular type of loss that the reasonable person considers insurance a sensible and prudent investment. If, however, goods have to be fit to withstand reasonable foreseeable perils or the loss will be considered to be proximately caused by the inherent vice of the goods, or at least not by a ‘risk’ within the meaning of the ‘all risks’ insurance claim, much of the point of cargo insurance disappears. ‘All risks’ cover would be confined to loss or damage occasioned only by wholly unusual perils or wholly unusual examples of known perils.” (at p 348)
Finally, in applying the principles to the present case, I have shared Waller LJ’s concern that the findings of the judge might not be sufficient to enable us to reach a determination, having regard in particular to the lack of a clear conclusion as to the nature of the weather conditions. However, on the basis of his analysis of the respective case before us, at paragraph 64, I agree that it is unnecessary for us to remit the case for further findings, and that we are entitled to conclude that the appeal should be allowed.
Lord Justice Patten
I agree with both judgments.