Eagle Star Insurance Co Ltd v Games Video Co (GVC) SA

At some time between 01.45 and 02.00 hours on Wednesday 13 January 1999, while the "Game Boy" ("the vessel") was moored afloat at the Avlis shipyard in Greece with its portside adjacent to the starboard side of the MT "Hamilton", an explosive device was detonated at a point approximately 50cms below the waterline on the port side in way of the midships section of the hull. The explosion caused the hull plating to fracture and the resulting damage caused the vessel to list to starboard and partially to sink. The Defendants are the named assureds under a marine policy of insurance by which the Claimant agreed to indemnify the Defendants against insured perils.

In this action the Defendants ("the Assureds") seek a declaration that the Claimant ("the Insurer") is liable to indemnify them in the sum of US$ 1,800,000 (less a deductible of $50,000) in respect of the total loss of the vessel, and associated liabilities and expenses. The Insurer seeks a declaration that the contract of insurance has been validly avoided and/or that they are under no liability to the Assureds.

It is the Assureds’ case that Mr Xirotiris (a Russian businessman) wished to invest money acquired in the Russian fruit trade in the offshore gambling industry. The focus of his interest was centred on a vessel named the "Seniorita" in which Mr Dimitropoulos (a business contact of Mr Xirotiris) had an interest. He then made contact with Mr Ghiolman (who had experience in ship management) with a view to purchasing the vessel and converting her into a floating casino.The plan in broad outline was that a company would be formed that would buy a ship, Mr Ghiolman would manage the ship and Casinomar SA ("Casinomar"), which was an experienced casino operator, would operate a casino onboard and fund some of the work on the vessel which was necessary so as to enable her trade as a floating casino. Mr Xirotiris was to be the majority shareholder in the ship-owning company, with various other parties (including Mr Ghiolman) having smaller shareholdings.

This arrangement was reflected in a number of agreements, including the following:

As part of this commercial venture, and for the period the vessel was undergoing work, it was necessary to insure the Hull and Machinery of the vessel as well as Casinomar’s interest in her. The Assureds were GVC, Mr Ghiolman and Casinomar. The vessel was insured for $1,800,000 with the Insurers. It is the Assureds’ case that the vessel was lost due to a fortuity and that they are liable to be indemnified in respect of her loss.

It is the Insurer’s case that prior to the conclusion of the contract of insurance the Assureds made material misrepresentations about the condition and value of the vessel. During the course of the trial the Insurer’s case concentrated largely on the value of the vessel which the Insurer contended was knowingly and fraudulently overstated. The Insurer contended that the vessel’s true value was in fact a scrap value of $100,000 and, in any event, significantly less than value of $1,800,000 in the contract of insurance. The Insurer also submitted that, in order to support this value and as part of the fraudulent presentation of the claim, the Assureds arranged for a number of documents to be created which were false, in the sense that they did not reflect the true nature of the agreements, and which were known to be false. The principal documents which were challenged were:

It will be necessary to consider these and other documents with some care later in this judgment.

Most of the evidence related to, what is convenient to describe as, the overvaluation issue. However, the Insurer raised a number of additional defences: allegations of further misrepresentations and non-disclosures, a coverage issue, allegations of breaches of warranty and an allegation of fraudulent presentation of the claim.

The Assureds’ response was that the challenged documents were genuine and that, in any event, the valuation was made in good faith. The Assureds also relied on various specific answers to the Insurer’s additional points which can conveniently be addressed later in the judgement.

It is convenient to start with the contract of insurance between the Insurer and the Assureds. On 13 March 1998 Marine Insurance and Re-Insurance International Consultants SA ("Miric") faxed Sedgwick Ltd in London with a request to obtain a quotation for the M/V "Seniorita", to be renamed. The fax stated that the vessel was laid-up at Chalkis and had operated for a small period as a floating bar and that the new owners’ intention was to carry out "maintenance repairs" for approximately two months and then trade the vessel in international waters as a floating casino. Among the faxed documents was a description of the vessel ("the Tolakis Particulars"), on the headed notepaper of Central Marine, in which the vessel was described as "For Sale". It will be necessary to consider the detailed description later in this judgment but, for present purposes, it is to be noted that the concluding words of the Tolakis Particulars were as follows:

Last year passed special survey as restaurant-cafeteria spent 140 million Drachma

Regards. Capt. John Tolakis.

The 13 March fax also stated that the manager of the vessel would be Mr Ghiolman, a leading figure in the Greek tourist business and indicated various 'value ideas' for the navigating (US$2,500,00) and port risks (US$1,800,000).

On 19 March, Mr Bridges, the Insurer’s Assistant Marine Underwriter, quoted for the risk on the terms of a draft slip. The Slip in its final form was in the following terms:

Type Marine Hull

…

Assured Michael Ghiolman, owner and director of Ghiolman Greek Holidays, travel agency and as agent for associated and affiliated companies for their respective rights and interests.

Vessel "Seniorita" tbr.

Period From time and date of attachment to be agreed until completion of repairs at the Avlis Shipyard. Period not exceeding 2 months or tba.

Interest Hull Materials etc … Valued: USD 1,800,000.

…

Location Whilst laid up at Chalkis, Greece or held covered … Also whilst being repaired at Avlis Shipyard.

…

Rate 0.30% per month or part.

…

Information Passenger vessel "Seniorita" Greek Flag.

Built 1965 Bulgaria.

Grt: 1001, LOA: 63.8m, Beam 9.32m, Draft 2.7m

Vessel currently laid-up at Chalkis, upon delivery vessel will undergo repairs of general maintenance nature involving some hot work at Avlis Shipyard.

Other details as per facsimile transaction dated 13/3/98

Mr Bridges added the following in manuscript:

Warranted not operating

Warranted approval of Lay-up arrangements, Fire Fighting Provisions and all movements by Salvage Association prior to attachment and all recommendations to be complied with (emphasis added).

Survey to be provided to Underwriters.

Subsequently, this warranty as drawn up was in the following terms

Warranted approval of Lay-up arrangements, Fire Fighting Provisions and all movements by Salvage Association and all their recommendations to be complied with prior to attachment (emphasis added).

Survey to be provided to underwriters.

The slight change in the position of the words "to be complied with" is relevant to an argument on the construction of the warranty.

On 12 June Mr Bridges saw two documents produced by the Salvage Association.

The first document was a Survey Report dated 5 June which recorded that the Salvage Association Surveyor, Mr Bache, had attended on board the vessel at Chalkis on 3 June to carry out a survey:

whilst laid up awaiting conversion, since April 1998

The Survey Report concluded:

On 3 June 1998 all our initial recommendations were fully complied with. Our Ongoing Recommendations have been issued separately as an attachment to … EMO 86/98 …

The second document, EMO 86/98, was a certificate dated 6 June and headed "Insurance Survey Certificate: Lay Up and Fire fighting Approval". This certified that that the Salvage Association had carried out a survey at the request of Ghiolman Yachts:

to comply with the following warranty imposed by your underwriters

Warranted Approval of Lay-up Arrangements, Fire Fighting provisions and all movements by Salvage Association prior to the attachment of Insurance and all recommendations to be complied with;

and continued:

We have concluded that the project presents no circumstances beyond those which might normally be accepted by underwriters, subject to compliance with the attached 26 recommendations (emphasis added).

Having seen the Salvage Association documents, Mr Bridges agreed to be bound to the risk for 4 months with effect from 12 June. A subsequent endorsement dated 16 July noted:

It is hereby noted and agreed that owing to local taxation problems the legal transfer from seller to buyer did not materialise. The transfer has now been finalised and the vessel attached hereunder as from 14 July 1998 and noted the name of the owning company 'Games Video Co (GVC) SA. Panama.'

Assured Clause amended to read Games Video Co (GVC) SA. Panama as owners, Michael Ghiolman … and as agent for associated subsidiary and affiliated companies for their respective rights and interests.

There were a number of further endorsements to the policy:

The move to the Avlis Yard had been the subject of a further certificate and report from the Salvage Association. Certificate EMO 301/98 was dated 30 November. Like the earlier certificate it was headed "Insurance Survey Certificate: Lay Up and Fire fighting Approval". As with the earlier certificate, this document certified that the Salvage Association had carried out a survey at the request of Ghiolman Yachts for the purposes of the warranty and continued:

We have concluded that the project presents no circumstances beyond those which might normally be accepted by underwriters, subject to compliance with the attached 34 recommendations. These recommendations must be complied with or this Certificate shall be deemed to be withdrawn (emphasis added).

The 34 recommendations included the following 'Ongoing Recommendations':

13.

VHF Radio (using battery power) and telephone to be available at all times. Telephone numbers of personnel to be contacted in any emergency to be posted.

22.

Security watchman to be in attendance at the entrance to the vessel at all times, with the names of all contractors, labourers and visitors on board recorded in a log book.

A Salvage Association Report dated 7 December approved the mooring arrangements and noted:

A watchman will be on duty at all times and during normal working hours a crew of 4 persons will be on board.

Various recommendations were required to be carried out within 7 days, including:

1.

Polystyrene blocks to be removed from the crew accommodation and the starboard side of the engine room and stored ashore.

2.

Tunnel space to be cleaned thoroughly of loose polystyrene and other debris.

The history of the placing of the insurance, with its contemporary correspondence between Assureds and Insurer, provides a useful framework for considering some of the factual issues in this case. The placing documents show that:

The following is largely common ground and, to the extent that it is not, I make the following findings.

The vessel, previously named the “Admiral Lunin”, the “Kara Dag” and the “Seniorita” was built in Bulgaria in 1965 as a naval training ship for the Russian navy. In 1989 she was brought to Greece and soon after was transferred into the ownership of Seniorita Shipping. From 1989 to 1993 the vessel was laid up at Eleusis. In 1993 the management was put into the hands of Mr Manzariotis of Evia Yachts with a view to the vessel being refurbished. In 1993-94 conversion work was carried out at the Avlis Yard. It is unclear what the nature of the conversion was and how much was spent. The Assureds’ evidence was that a sum in the region of Dr 200 million (US$840,000) was spent. The Tolakis Particulars indicated that Dr 140 million had been spent. The Insurer submitted that the sum spent cannot have been more than Dr 125 million and, in view of the later arrest documents, the likelihood was that very much less than this was spent. It is unnecessary to reach a concluded view about this; but I reject the suggestion that Dr 200 million was spent at this time.

The vessel appears to have passed a special survey for non trading vessels in 1994. This survey would not have included the engines, but was sufficient to allow the vessel to be traded as a bar/cafeteria; and she was authorised for this purpose in the Chalkis area on 31 October 1994. Unfortunately, the bar/cafeteria venture was not a success. The venture only lasted about 40 days and, shortly after, the vessel was arrested by her creditors, which included Evia Yachts which claimed the principal sum of Dr 21m. At some time in 1994 or 1995 the Tolakis Particulars were prepared, with a view to selling the ship.

On 2 May 1996, a report was prepared for the Court at Chalkis following an inspection of the vessel. The report noted that there was no one on board the vessel and that the engine did not work. The report also recorded that the expert appointed by the company initiating the arrest proceedings estimated the value of the ship at Dr 30 million (approximately $100,000). An auction of the vessel was due to take place in May and October 1996 with a reserve price of Dr 15 million (approximately $50,000). It seems, however, that no such auction in fact took place and the vessel remained at her berth in Chalkis throughout 1997.

The position therefore, as at 31 December 1997, was that the vessel was 32 years old and, although some work had been carried out in 1993/94, she had been largely unemployed in the intervening 4 years.

In the course of the trial the Insurer challenged the truthfulness of most of the Assureds’ witnesses and the authenticity of many of the documents which the Assureds relied on. The Insurer submitted that the Assureds had engaged in a conspiracy to misrepresent the value of the vessel and had created false documents for this purpose.

In my view the proper approach to the evidence and to these allegations is as follows.

There are three particular features of the present case which it is necessary to mention at the outset.

First, in many cases which rely heavily on the evidence of witnesses the Court can test the veracity of those witnesses by reference to the contemporary documents. This is not such a case. On any view of the case, many of the crucial documents have no provenance: there are no drafts of these documents showing a process of negotiation, and there are no copies of documents with fax headers, although it is clear that some of the documents were sent by fax.

I have borne these points in mind when assessing the authenticity of these documents.

The second significant feature of the case is the existence of a number of typed notes made by a solicitor, Mr Andrew Goldsworthy. Mr Goldsworthy was instructed, through Ray Ashton & Associates, to carry out an investigation into the facts surrounding the loss of the vessel. He interviewed a number of the Assureds’ witnesses in January and February 1999 and subsequently typed up notes of these interviews. He was criticised for inaccuracy and for not having made his notes available to those that he had interviewed so that they could correct the inaccuracies. In my view the criticism is unjustified. Mr Goldsworthy’s notes of the interviews are not verbatim reports, but they convey the sense of the interviews accurately. He never gave undertakings that the product of his interviews would be made available for correction; and I have little doubt that, if he had, they would have been less useful as a record of what was said. An accurate record of what witnesses say soon after the events they describe and before all the implications of the evidence have been analysed is no less likely to be true than a written statement of the witness which has been crafted so as to deal with every possible issue and signed years after the events it describes. I found Mr Goldsworthy’s notes a useful cross-check of the oral and written evidence in the case.

The third feature of the case was the sustained and demonstrable untruthfulness of the Assureds’ first witness: Mr George Leonidopoulos. Mr Leonidopoulos gave evidence about the background of the vessel, her condition in March 1998, the further work that needed to be done, the obtaining of the insurance and the work carried out in November and December 1998 at the Avlis yard. Having observed Mr Leonidopoulos give evidence over 2 days I formed the view that he was an untruthful witness. It is unnecessary to dwell on the many examples of his falsehoods because, in their Closing Submissions, the Assureds quite properly abandoned any reliance on Mr Leonidopoulos as a witness of truth. An egregious example of his sustained untruthfulness was his insistence that a photograph of the vessel exhibited to a version of the Tsapes Report was taken when she was at Chalkis when he knew that it was in fact taken when she was at Avlis. The significance of the point was that the vessel remained at Chalkis until November 1998 and must have been there in March 1998. If the Tsapes Report exhibited photographs of the vessel taken at Avlis it supported the Insurer’s case that the Report was prepared much later than March 1998. Mr Leonidopoulos could see at once where the cross-examination was leading and simply lied about where the photograph was taken. Another example of his mendacity was his insistence that work described in an undated manuscript work-sheet related to work which was to be carried out in the future. Mr Ghiolman also said this was so. In fact it is clear that the work-sheet covers work done in 1993/94 since the reference to the frame numbers shows clearly that the renewals of steel had been carried before 1998. I will return to both these points later in this judgment.

As Mr Malins QC observed, the significance of Mr Leonidopoulos’s dishonesty as a witness went further than simply to discredit his evidence. Mr Leonidopoulos was closely involved in the vessel on Mr Ghiolman’s behalf and was responsible for the extensive insurance that was obtained. In my view Mr Leonidopoulos’s untruthfulness cast a long forensic shadow over the Assureds’ case.

In a letter of 9 February 1998 from Mr Xirotiris to Mr Lamaris of ATL Shipping Ltd in Cyprus Mr Xirotiris described the possibility of buying a ship, which had been described by the owners, represented by Mr Dimitropoulos, as ‘an almost ready vessel-casino’. Mr Xirotiris asked Mr Lamaris to appoint a representative in Greece and to evaluate the vessel. In their Closing Submissions the Insurer challenged the authenticity of this letter. However, I see no real basis for challenging its authenticity: in contrast to other documents the original was written in Greek and the contents do not indicate that the document was created later.

There is a letter from Casinomar to the owners of the "Seniorita" (Navionic) dated 11 February whose authenticity has, throughout the trial been challenged. The letter, signed by Mr Ktistakis (on behalf of Casinomar) and addressed to Mr Dimitropoulos (on behalf of Navionic), confirms an agreement in the following terms:

1.

Our Company (Casinomar) may guarantee a four (4) years time charter for your above vessel containing a purchase option on the basis of US$2,000,000 as purchase price:

2.

Financing facility to be provided to the buyer of the vessels on the terms and conditions to be agreed and especially facilitating the conversion of the vessel to a Casino.

…

4.

Our company will comply with all the above provided that:

…

4b. The management of the vessel - Casino will be carried out by a person approved by the time charterers having a long experience in such business and good reputation in the Casino Market.

4c. The relevant charter made between the time charterers and the ship owners will be signed before the end of the current year (1998) as well as the commencement of the conversion work.

There are a number of anomalous features about this letter and its timing. First, although it later became the owner of the vessel, Navionic was not the owner on 11 February 1998. Second, although written in English, neither Mr Ktistakis nor Mr Dimitropoulos understood English. Thirdly, although Mr Ktistakis said in evidence that the figure of $2 million came from a survey, it is the Assureds’ case that Mr Tsapes’s survey was carried out in March 1998. Finally, no one was able to identify the time charterers.

If this document stood alone I would have been very doubtful as to whether it was a contemporaneous document. However, it is not an isolated document.

On 23 February Mr Lamaris wrote in Greek to Mr Ghiolman informing him that his business associates had entered into negotiations to buy the "Seniorita" which had ‘been converted into a casino-disco club’, and asking him to have her surveyed ‘with photos and evaluation because her owners say they have spent a lot of money for her conversion.’ On 26 February Mr Ghiolman acknowledged this letter in Greek.

Mr Ghiolman’s letter of instruction to Mr Tsapes was dated 5 March and written in Greek. It asked Mr Tsapes to conduct a general survey with photographs of the vessel’s general condition.

We would be obliged if you could comment about the work that has been undertaken towards a vessel casino-club and give your general opinion about the cost of same.

There are two immediately striking features of the Tsapes Report. First, although it contains a valuation there was nothing in the letter of instruction about Mr Tsapes producing a valuation. Secondly, the Report did not answer the specific question which had been asked: how much had already been spent on converting the vessel? Even before one gets to a detailed consideration of the Tsapes Report one is left with the impression that it does not fit in easily with its background.

The Tsapes Report was typed on the headed notepaper of Success Shipping SA and certified that, at the request of Ghiolman Yachts, Mr Tsapes attended on the "Senorita" while she lay afloat anchored at Chalkis for the purpose of carrying out a pre-purchase condition survey on 8 March 1998. The Report described the vessel, the conversion work already carried out and the work needed to complete the conversion work. It also summarised the works still to be carried out: a cost of US$225,000 over 10 weeks. The report continued in these terms;

The Insurers point to a number of questions that arise in relation to the Tsapes Report: (a) what photographs were attached to the Report, (b) who attended the survey, (c) how did the vessel come to be described as she was, (d) how was the valuation ($2,000,000) arrived at, (e) how was the cost of completing the conversion ($225,000) arrived at, (f) why was it written in English and (g) what was its purpose?

It is convenient to start with the photographs. A copy of the Tsapes Report was handed to Mr Goldsworthy on 1 February 1999. This version of the Tsapes report (Exhibit 5) included a number of photographs as an appendix. When Mr Leonidopoulos came to give his evidence it was pointed out that at least one of the photographs must have been taken at Avlis which suggested that the Report was prepared after the vessel left Chalkis in November 1998. When Mr Tsapes gave evidence he said that he had left it to someone else to attach the photographs; and that the photographs which had been attached to his report were different to the set of photographs attached to Exhibit 5. Mr Tsapes produced a copy of his Report with different photographs (Exhibit 6). These photographs were not particularly illuminating as to the state of the vessel but did not include the photographs which had obviously been taken at Avlis. There were, however, further problems from Assureds’ point of view. The photographs in Exhibit 6 which, on Mr Tsapes’s evidence, were attached to his March Report were shown by expert evidence to be part of a sequence of photographs. That sequence included a photograph which on the Assureds’ case was taken by Mr Leonidopoulos in December. There are a number of other oddities about the photographs in both versions (Exhibits 5 & 6): for example, there is a particular photograph of a WC in a pristine condition although it must have been installed in 1994, used for a month by 300 people and then left unattended for 4 years. It was also impossible to correlate the configuration of this particular WC to any of the WCs on the plans of the vessel. There was also a further problem with the timing of the Tsapes Report: Mr Tsapes confirmed in cross-examination that three particular plans were attached to his Report. However, Mr Leonidopoulos (whose evidence I accept on this point) said that he had made handwritten changes to these plans after the date of the Report.

It is unclear who was on the vessel when Mr Tsapes carried out the Survey. The Report states that Mr Tsapes attended with Mr Manzariotis. There is no mention of Mr Leonidopoulos and I am satisfied that Mr Leonidopoulos did not go on board the vessel until April. Mr Manzariotis told Mr Goldsworthy that he did not know Mr Leonidopoulos; and I accept Mr Bache’s evidence that, when he went on board the vessel to carry out the Salvage Association survey, Mr Leonidopoulos seemed ‘new’ to the vessel.

The description of the vessel owes much to the Tolakis Particulars. The description of the auxiliary generators was wrong in both documents and in both documents there is an incomplete pressure specification for the boiler. Furthermore, the list of ‘Conversion works carried out’ described in the Report was, as Mr Tsapes agreed, largely the same as that contained in a letter from Mr Manzariotis to Casinomar dated 5 August 1998 in which he set out in detail and in Greek the works that he had supervised as Technical Manager of Evia Yachts from 1993-94. For the sake of completeness I should say that I reject the half-hearted suggestion from Mr Tsapes that any copying was done by Mr Manzariotis.

There were also descriptions of the vessel which are very difficult to reconcile with the known position of the vessel in March 1998. There was no basis for the suggestion that the ‘accommodation passenger and crew spaces are in a complete refurbishing mode …’ or that a ‘Complete overhauling of Main Engine’ had been carried out ‘in recent months’. There were also surprising omissions from the Report: for example, the failure to note that the galley, originally installed when the vessel was built, would have been completely inadequate for a high-class casino/restaurant service. There was no photograph of the overall view of the outside of the vessel and no commentary on any of the photographs. The Report was virtually useless from the point of view of a potential buyer.

After describing the work already done and the work that needed to be done to complete the conversion work, the Report concluded that the work could be completed in 10 weeks at a cost of $225,000. The Insurer submitted that this figure was entirely unrealistic. Before considering that submission it is necessary to put the issue in context. The relevant issue is not how much the repairs would have cost; but whether the figure of $225,000 throws light on the broader issues of the authenticity of the Report and the genuineness of the valuation. It was for this reason that I suggested it was unnecessary minutely to investigate the cost of converting the vessel; and it was for this reason that I can state my conclusions broadly. In my view the figure of $225,000 was a rough figure which was needed to be spent to make the vessel seaworthy and to provide minimal facilities for passengers. It was not a remotely realistic figure for outfitting the vessel so as to enable her to trade as a specialist casino vessel; nor did it properly form the basis of a valuation as such by the Assureds or by experts.

As has already been noted, Mr Tsapes was not formally instructed to provide a valuation. His evidence was that Mr Ghiolman gave him verbal instructions and mentioned the figure of $2m. It will be recalled that figures of $1.8m and $2.5m were suggested as insured values in the placing documents. There are 4 points to note in relation to the valuation provided in the Tsapes Report: (1) the valuation was based on prompt cash sale charter-free on delivery; (2) the author of the Report noted the lack of comparable vessels and sales which might provide a comparison, consequently (3) the figure was based on the particular and special characteristics of the vessel. It follows that (4) despite his evidence to the contrary, Mr Tsapes did not consider comparable vessels. If he had, he would have said so and not relied on the characteristics of the vessel.

It is convenient at this stage to consider the expert evidence on valuation. The Insurer called Mr Shipley and the Assureds called Capt Angelakis. There was a fair degree of agreement between them. Both agreed that the vessel had a base value as and where she lay at the beginning of 1998 of about $100,000: in effect a scrap value. They also agreed that, if the vessel was profitably chartered, her value would be increased considerably. In effect the purchaser would not be buying liabilities, but cash-flow and profits. Capt Angelakis thought that, with the benefit of the Bareboat Charter, a value of $1.8m could be justified. I will return later to the significance of the Bareboat Charter; but for present purposes it is sufficient to note that the experts considered that it was the charterparty which might justify the value of $1.8m whereas Mr Tsapes’s value was based on the vessel being charter-free.

It was Mr Tsapes’s evidence that he discussed the value with Mr Barounis, who had experience of valuation from his work at a bank. Their evidence was that the value of $1.8m was derived from a comparison with a vessel named the "Hocus Pocus." I do not consider the "Hocus Pocus" to be a useful comparison. It was a far superior vessel completed to a high standard and engaged in a profitable business. But in any event, I am not satisfied that either Mr Tsapes or Mr Barounis had the "Hocus Pocus" in mind at the time; and I am very doubtful whether Mr Barounis was involved in valuing this vessel until after the sinking. His evidence was not in my view reliable.

It is the Assureds’ case that the Tsapes Report was obtained by Mr Ghiolman so as to reassure Mr Xirotiris about the vessel that he was buying. There are two problems with this. First, the Report is in English and Mr Xirotiris does not speak or understand English. He speaks and understands Greek and Russian. I reject the explanation that this type of document is usually in English. Previous correspondence from both Mr Xirotiris and Mr Ghiolman was in Greek; and, if the object of the Tsapes Report was to inform Mr Xirotiris about what he was buying, it defies commercial sense to have written the Report in English. Secondly, if the Report was for that purpose then the purpose was defeated if Mr Ghiolman was giving indications of value. In my view, and leaving aside when it was produced, the intention was to use the Tsapes Report in connection with a transaction in which the reader understood English.

Any genuine report on value would have taken into account the following matters. The vessel had been laid up since 1989. Since then she had only been operated for a few weeks as a floating discotheque/bar. She had been under arrest since late 1994 and was not released from that arrest until some time in 1998. During the period of arrest she had twice been the subject of auction proceedings in which her market price had been determined at about US$125,000 and a reserve fixed at $62,500. She had failed to reach that reserve. Although money had been spent on the vessel in 1993/94, no money had been spent on the vessel, her hull or machinery since then. She was in a poor state of repair.

In view of the above I have concluded that (1) the Tsapes Report (Exhibits 5 & 6) did not come into existence in March 1998, although it is possible that there was another report prepared at about this time which has never been disclosed. (2) The photographs attached to the Tsapes Report were chosen with a view to giving a misleading picture of the vessel. (3) The Tsapes Report was subsequently put forward with a view to deceiving the Court. (4) There was no proper basis for the valuation of $2m. (5) At all material times the facts set out above were known to the Assureds. (6) The Tsapes Report provides no support for any belief that the value of the vessel was $1.8m. On the contrary it undermines it.

I should add that I did not find Mr Tsapes a credible witness. Although he presented himself as an independent surveyor, he was clearly closely connected with Mr Ghiolman and Mr Dimitropoulos and their businesses; and the Report has none of the hallmarks of an independent survey.

This document dated 9 April 1998 is in Greek, appears to be signed by Mr Ghiolman and Mr Xirotiris and appears to be witnessed by Mrs Ghiolman.

This document provided for an agreement in the following terms:

1.

To constitute a Panamanian …. company with the purpose of purchase and operation of the vessel-casino. The name of the company will be Games Video … and the participation of each of the contracting parties and the capital of the company will be 70% (Mr. Xirotiris) and 30% (Mr. Ghiolman).

2.

The vessel which has been recommended for purchase and which complies with the requirements of the above use (casino) is the vessel "Seniorita" … owned by Navionic Enterprises SA.

3.

The Vessel is offered for sale by (Navionic) with a charter party of four years with a daily hire of US$1,800 in the amount of US$ 1.8 million, a price which is considered reasonable and commercial by reason of the total absence of a similar vessel in the market.

4.

The payment of the purchase price of the vessel … will be carried out by (Mr. Xirotiris).

Mr. Ghiolman also undertook the operation of the vessel, contacts with sellers, chartering brokers, insurance brokers, port authorities and general management of the vessel for a fee represented by the 30% shareholding in Game Boy as well as sums payable from the profitable operation of the vessel which were to be the subject of a subsequent agreement.

There are a number of difficulties with the date of this Agreement. First, Navionic was not the owner of the vessel on 9 April. Secondly, according to Mr Ghiolman’s evidence the purchase price of the vessel was not agreed at this date. There is a subsequent letter from Mr Xirotiris dated 25 May in which he says that the negotiations for the price are coming to an end. Yet it is the final agreed figure of $1.8m which is set out in this agreement. Thirdly, on Mr Ghiolman’s evidence the rate of hire under the charterparty had also not been agreed on 9 April. Yet it is this daily rate of hire which is specified in this agreement. Fourthly, the agreement was not referred to until relatively late in the proceedings (in Oct 2002); and there was no previous reference to a written agreement which set out the respective interests of Messrs Ghiolman and Xirotiris.

It is convenient at this stage to refer to part of the expert evidence on handwriting, since it is the Insurer’s case that, not only was the Agreement not a genuine document of 9^th April but, in addition, the signature of Mr Xirotiris was forged.

Two experts were called to express an opinion on the genuineness of the signature: Mr Thomas on behalf of the Assureds and Dr Giles on behalf of the Insurer. The task of the experts was to compare the questioned signature with contemporary control signatures which were assumed to be those of Mr Xirotiris.

The experts disagreed. Mr Thomas considered that the questioned and control signatures were written by the same hand and that the signature on the Private Agreement was "undoubtedly a genuine signature". In Dr Giles’s view the differences between the questioned and control signatures provided strong positive evidence that the questioned signature was "not a genuine signature of Evangelos Xirotiris but an attempt to simulate his genuine signature". Mr Thomas laid stress on the similarities between the questioned and control signatures. Dr Giles, on the other hand, observed that a forger intended to achieve similarity and that the differences in the signatures were more revealing. In my view Dr Giles’s evidence on this issue was far more compelling. She identified 3 distinct differences in structure and drew attention to the lack of fluency in the questioned signature. She identified line breaks in the pen line of the signature and points where the pen was put down heavily and then moved away. As she put it in evidence: "This is a slow signature where the pen is put down heavily and then moved away from – completely lacking in fluency". The lack of fluency is apparent without the assistance of a microscope. Mr Thomas appeared to accept that the signature was lacking in fluency but thought this might be due to the importance of the document being signed. He also, surprisingly, said that the genuineness of the document reinforced his view that the signature was genuine.

I accept Dr Giles’s evidence on the 9April Agreement signature and reject Mr Thomas’s evidence. Dr Giles’s evidence was cautious and the reasoning was clear. The same could not be said of Mr Thomas’s evidence.

I reject the evidence of Mr Ghiolman that this was a contemporary document signed by Mr Xirotiris. On the contrary I am quite satisfied that the document was created for the purposes of the action and that Mr Xirotiris’s signature was deliberately forged. The fact that Mrs Ghiolman was prevailed upon to add her signature (although not on the stated date of the Agreement) reflects no credit on Mr Ghiolman.

In my view the 9 April Agreement provides no support for the Assureds’ belief that the vessel was worth $1.8m, rather the contrary.

The MOA for the sale of the MV "Seniorita" was dated 23 June 1998. The sellers were named as Navionic and the buyers as GVC. The price was stated to be US $1,800,000. Although the MOA was on amended Norwegian Sale Form 1987 many of the standard provisions were subject to specific terms. So far as the price was concerned, Clause 16 provided:

The Buyers shall pay:

1.

An advance of US $180,000 upon receiving confirmation by sellers that the documentation for the legal transfer of the vessel has been concluded and copies of the same have been forwarded to the buyers.

2.

US $1,060,000 upon delivery of the vessel.

3.

Certain existing debts declared by the sellers up to total of US $300,000 as per list provided.

4.

The outstanding balance of the purchase price equal to US $260,000 12 months after delivery.

Should any claim be enforced against buyers and/or the vessel for the period the sellers were owners of the vessel the buyers shall be entitled to withhold the amounts claimed until dispute is solved.

The amount credited shall be paid as provided hereinabove plus interest of 7% pa. Payment shall be secured by a second preferred mortgage to be registered on the vessel and second assignment of the earnings and insurances. The seller agree that Mr. Michael Ghiolman shall manage the vessel pursuant to the terms of a managing agreement to be signed for period of at least 1 year where (sic) the balance of the purchase price shall be paid in full.

Mr Berry QC engagingly and accurately described the MOA as ‘not a model of consistent or clear drafting.’ Among many odd features of the MOA are the following: the absence of the list described in Cl.16.3, the absence of a second preferred mortgage or assignment of earnings as envisaged in Cl.16.4, and Mr Dimitropoulos’s inability to offer an explanation for Cl.16.4 or why the sum of $180,000 was paid without the confirmation required under Cl.16.1. In addition, the Bill of Sale was executed on 28 October 1998 and the delivery of the vessel took place on 2 December. Nevertheless, and despite the clear provisions of Cl.16.2, it was the Assureds’ case that the sum of US$1,060,000 was paid before the delivery date and without any security being obtained. Furthermore, although he signed the MOA on behalf of the buyers on 17 July, it is clear that Mr Ghiolman had no authority to do so until 2 September. These points eroded my confidence in the Assureds’ case on the purchase transaction.

It is convenient at this stage to concentrate on two issues: how the price of $1.8M was arrived at and how the payment of the price was made?

The first question can be disposed of quickly. Although the price is said to have been negotiated between Mr Ghiolman and Mr Dimitropoulos and although the terms on which the price was to be paid are described in a letter from Mr Lamaris dated 15 June 1998, no documents of any kind relating to the negotiations have been disclosed. The evidence of negotiation of the price was both inconsistent and lacking any of the detail one would have expected in an arms-length transaction. In his initial affidavit Mr Ghiolman denied that he was involved in the negotiation of the MOA. In his fifth statement he said that he was involved on behalf of the buyer in the negotiations with Mr Dimitropoulos on behalf of the seller. There was no explanation for the inconsistency. There are no drafts or contemporaneous correspondence or notes on proposed terms. The Insurer is right to describe the complete absence of such documentation as "unusual".

The Assureds’ case as to the payment of the price was as follows:

The Assureds face an initial difficulty over the first payment: it is difficult to reconcile a payment of US$180,000 on 29 July with a letter from Mr Xirotiris to Mr Lamaris dated 31 July:

... there is a slight problem with the moneys transfer from this end, therefore we will have to forward hard cash.

There is also a lack of credible evidence showing how GVC (and, in particular, Mr Xirotiris) was able to fund payments equivalent to US$1,240,000. Mr Xirotiris did not give evidence to explain how his fruit importing business was able to generate such a large surplus of cash; and the documents which were disclosed in order to show the profitable nature of his business are highly suspect in themselves and fail to prove the profitability of his business. I would have been very sceptical about Mr Xirotiris’s ability to fund this purchase even were it not that I am quite satisfied by other evidence that no such payments were made.

It is convenient to start with the payment of $180,000 said to have been made on 29 July.

The notarised payment document is in the following terms:

Today the 29^th July one thousand nine hundred and ninety eight in my presence, Valeriy Georgiyevich Yurkovskiy a representative of the company Game Video Co transferred to Anatoliy Vasilyevich Kargin, a representative of the company Navionic Enterprises SA, a sum in Russian roubles equivalent to 180,000… USA dollars, which according to the exchange rate of the Russian Federation Central Bank for the 29^th July 1998 amounted to 1,121,760 … roubles. The said sum of money represents 10% of the sale price of the vessel Seniorita and was transferred pursuant to a contract dated 23.06.98 for the sale of that vessel.

The document is signed by Mr. Yurkovskiy and Mr. Kargin and underneath is written:

"both representatives produced documents confirming their authority; their identities were established in the validity of their legal powers verified …"

The round seal and signature of Notary LM Popova appears beneath together with a statement that the document has been entered in the register under number 2D 1023 with a fee charged of 84 roubles and 70 kopecks.

The payments of 16 and 30 November are in similar terms.

The only witness who gave evidence as to the transfer of funds was Mr Dimitropoulos. Mr Dimitropoulos was a particularly unimpressive witness. He declined to give truthful evidence about the sale of the vessel by Seniorita Shipping to Navionic and told a deliberate lie about the price so as to avoid further questioning. He also gave self-contradictory evidence about Mr Kargin who, on the Assureds’ case, was receiving the money on Mr Dimitropoulos’s behalf.

Throughout the trial Mr Yurkovskiy and Mr Kargin remained strangely elusive figures. The Insurer strongly contested the genuineness of the notarised payment documents: they contended that the signature of Ms Popova was forged. The expert evidence on this was equivocal. Mr Thomas’s conclusion was that it was possible that the questioned signatures and the control signatures were written by the same person but that to be more certain he would need more samples of control signatures. Dr Giles substantially agreed. Before reaching a conclusion on the questioned signatures it is necessary to consider the other factual evidence as to how the documents came into existence and came to be signed and to note that there is an issue as to whether Ms Popova has disavowed the signatures as hers.

In the course of his evidence Mr Dimitropoulos advanced an entirely new story as to how Mr Xirotiris paid for the vessel. He said that this was done over a long period in tranches of the equivalent in roubles of US$50,000-60,000, and that some of the money had been paid in US$. This version of events was inconsistent with both his witness statement and the Assureds’ case.

Cl.16.3 refers to the payment of debts up to a total amount of $300,000. A considerable amount of time was spent on analysing these debts. I can state my conclusions on this aspect of the case shortly. First, because it is clear that even on the Assureds’ case the debts were only US $170,000. Secondly, because I accept the analysis carried out of the documents in the Insurer’s closing submissions that, on the Assureds’ own evidence, the sellers’ debts were of the order of US $27,500.

In order to meet the shortfall (US $130,000) between the US $300,000 of debts referred to in the MOA and the US $170,000 of debts which the Assureds accepted, the Assureds pleaded at a relatively late stage (October 2002) that the Mr Xirotiris had delivered a consignment of Oranges to Mr Dimitropoulos in Rostov in June 1998. Mr Dimitropoulos’s evidence about this was both confused and highly unconvincing, and I reject it.

During the course of his evidence Mr Dimitropoulos also said that the sum of US $170,000 had been paid by Mr Xirotiris before the date of the MOA. I reject this evidence as another of Mr Dimitropoulos’s inventions: no receipt was given for this payment, there is no reference to such a payment in the MOA and such a payment would have been entirely unsecured.

On the Assureds’ case Mr Dimitropoulos was at the centre of the sale and purchase of the vessel. His lack of candour in important areas of the story significantly undermines the Assureds’ case that the vessel was purchased for $1,800,000.

In the light of the above I have concluded that the MOA was not a document which reflected the true nature of the transaction between the parties, that the payments which were said to have been made were not in fact made, that the price stated in the MOA was not a true price and that the MOA does not support the value of $1,800,000. Any attempt to reconcile the payments with an obligation to pay suggests that the sale transaction was in fact at a very much lower figure. I am alsosatisfied that the notarised payment documents are not genuine and contemporaneous documents, that the signatures on the notarised document are unlikely to be the genuine signatures of Ms Popova and that these documents were created so as to give the false impression that substantial funds had been transferred to the sellers when in fact they were not. For the sake of completeness I should also record that I find that 3 documents purporting to be receipts for $1,080,000 paid by GVC to Navionic are also false documents.

The Charterparty between GVC (as owners) and Casinomar (as charterers) was on an amended "Barecon A" form and dated 20 July. The Charterparty terms included the following:

Box 2. Place and date: London …

Box 4. Charterers: Casinomar SA Panama (Operation 34 Bachlerstrasse CH. 8802 Kilchberg, Swiss.

Box 5. Vessels name: TBR “ Gameboy” now “Senorita”. Flag Greek.

Box 8. Type of vessel: Motor Passenger/Gambling boat.

Box 12. Class: Hellenic Register of Shipping.

Box 16. Time for delivery: 15.9.98-20.12. 98.

Box 17. Cancelling date: 31.12.98.

Box 21. Trading Limits: Coastal Med-Red Sea as per flag regulations as daily passenger/gambling amusement boat. Intention Adriatic, coastal Albania.

Box 22. Charter Period: 4 years.

Box 23. Charter Hire: $1,800 per day pro rata.

Box 26. Bank Guarantee/Bond: $500,000 cash as Purchase option. $300,000 B(ank) G(uarantee) 7 days prior delivery.

Box 27. Mortgage, if any: FPM $1.0 mill Chrts favour.

Box 28. Insurance (State value): US$ 1.8 million.

Box 29. Additional insurance cover for owners account: Owners interest insurance US$400,000.

Box 30. Additional insurance cover for charterer’s account: Mortgage interest insurance $1 million incl. 360 days German Clause.

Box 31. Brokerage commission and to whom payable: 2.5% to Ghiolman Greek Ltd. and ATL. 1.25% to Master Maritime Intl. and 1.25% to Central Marine Ltd.

Box 35. Hire Purchase Agreement: Anytime purchase value $1.8 mill less hire paid.

Clause 21. Bank Guarantee.

The Charterers undertake to furnish, before delivery of the vessel a first class bank guarantee or bond in the sum and at the place as indicated in Box 26 as guarantee for full performance of their obligations under this Charter.

There were a number of additional typed clauses:

Clause 37. The owners warrant that they have not effected any mortgage other than stated in Box 27 … All the payments of the semi-monthly bareboat hire will be duly/fully paid by the Charterers to the mortgagees who will keep the monthly payment owned to them resulting from the Owners loan agreements thus the loan will be served without delays.

Clause 42: The vessel shall be insured by the Charterers via first-class brokers and with first-class underwriters in the London market and with a P+I club being a member of the international group of P+I clubs. In all cases and at all times, the Charterers shall seek the prior approval in writing of the owners to all insurance terms and arrangements. The owners shall be named as assured members as the case may be in the insurance but upon terms that they shall not be liable for any unpaid premiums and/or calls.

Clause 46. Vessel has been inspected originally accepted. Vessel is under modifications, supervised by the managers Messrs. Giolman (sic) following BB Charterers plans for their specific trading requirements attached to this agreement. Expenses for the modification and refurbishment shall be equally shared by Owners/Charterers.

Clause 49. The bare boat charter hire shall be payable to owners in US dollars to their nominated bank free of charges, every 15 days in advance. Charterers shall pay hire to owners without any deductions, counter-claim or set-off or any reason whatsoever. Hire shall be deemed earned by owners as and when if falls due for payment ...

Clause 52. With regard to insurances, Charterers shall procure that with regard to any total loss there under any claim therefor shall be made and payable to the owners (or their mortgages (sic)) who upon receipt thereof should apply the same first as to the sum of US$ 1,800,000 to themselves and the sum of US$1 million to the Charterers. The Charterers shall be entitled at their own cost for their own safe benefit to take out loss of earnings and/or passage money insurance.

Clause 53. The Charterers shall concurrently with signature of this charter pay to the owners the sum of US$ 500,000. Seven days prior to delivery Charterers shall pay or provide a bank guarantee for $300,000 in a form acceptable to the owners. The total amount of US$800,000 advanced by the Charterers to the owners shall be paid back to the Charterers in 16 equal consecutive quarterly instalments of $50,000 each, plus accrued interest of 7% per annum. The 1^st instalment shall be paid on March 1^st 1999. The default interest rate is fixed to 9% per annum for all the default period. A first preferred mortgage for USD 1,000,000 shall be registered on the vessel to secure the repayment of any and all amounts due to the Charterers. The Charterers have the option to settle any outstanding balance of the principal amount at any time they decide to exercise their purchase option. Charterers shall procure that with regard to any total loss hereunder, any insurance claim thereof in excess of the outstanding balance due to them shall be payable to the owners. However every calendar year or proportionally for a part of the year, the insured sum of the Owners will be reduced by US$500,000 and same sum will be added to the Charterers account.

In the light of the number of documents which I have found not to be contemporaneous and genuine, I have resolved my doubts about the 11 February Agreement by concluding that it is not a contemporaneous and genuine document. In view of this finding it is unclear how the terms of the Charterparty were negotiated. Like the MOA the Charterparty appears only in its final signed form.

In his interview with Mr Goldsworthy Mr Ghiolman stated that he was not involved in the negotiation of the charterparty. This disavowal was repeated in his first affidavit. However, in §43 of his fifth statement he said that he was the main negotiator for the new owners.

Mr Ktistakis signed the Charterparty on Casinomar’s behalf. His evidence about his involvement was both confused and contradictory. He initially distanced himself from the negotiations and then said he was involved. However, when asked to explain the commercial purpose of some of the clauses, he was unable to do so. This was partly because these clauses were commercially inexplicable. Although he described himself as the "Attorney in Fact" of Casinomar he was unable to point to any business plans (such as described in Cl.46), project documents or correspondence dealing with how Casinomar were going to operate the vessel commercially. The lack of any such documentation in relation to a long term contract containing significant financial obligations is surprising.

There are a number of other perplexing features of the Charterparty, which the witnesses were unable satisfactorily to explain.

These points are enough give rise to a justifiable suspicion that the Charterparty could not have been intended to operate. The suspicion is confirmed by a number of other matters.

First, the Assureds’ witnesses were very diffident about naming the beneficial owners of Casinomar. Mr Ktistakis was particularly insistent in not being pressed to give any names. All of this gave rise to an increasing and justifiable inquisitiveness by the Insurer. On the morning of 15^th day of the trial, Mr Laspopoulos (who described himself as a minority shareholder in Casinomar) volunteered the name of John Boutsinakis as his partner and the principal of Casinomar. However, the impression of candour was rather reduced by his inability to remember Mr Boutsinakis’s name later in his evidence. While I can understand that witnesses can forget names in the course of giving evidence, I formed the view that Mr Boutsinakis’s name was simply a name taken at random to dispel suspicion. The result was, of course, simply to reinforce it. Furthermore, Casinomar have persistently ignored their disclosure obligations and have given misleading evidence about the involvement of Mr Delafontaine in Casinomar’s business.

The extraordinary steps taken to conceal the beneficial interest in Casinomar followed by the blatant lies told by Mr Laspopoulos in order to correct the impression of deliberate concealment, gave me further cause to doubt the honesty of any transaction to which GVC and Casinomar were a party, and the authenticity of any document which purported to evidence it.

Secondly, it is unclear how the vessel was going to be able to perform her charter service without substantial work. Despite this there were no specifications or detailed drawings, no quotes from shipyards. The only documents relied on were an undated worksheet and an invoice dated 30 December 1998 from Avlis Shipyard. Despite the insistence of Mr Leonidopoulos that the Worksheet was prepared in 1998 to show work which was to be done in the future, the Assureds rightly accepted in §36.1 of their Closing Submissions that the worksheet was prepared in 1993-94 and showed work which had been done in the past.

Thirdly, there is the striking incongruity of the Purchase Option. By the terms of box 35 Casinomar had the option to purchase the vessel for $1,800,000 less sums paid by way of hire. Such an option would have been exercisable after approximately 2 years and 9 months ($1,800 x 1000 days = $1,800,000). It follows that, if the vessel had been purchased for $1,800,000 (as the Assureds contend) and Casinomar exercised the Purchase Option, the owners would make nothing from the purchase transaction. On the contrary they would make a loss, since they had, on the Assureds’ case borrowed a substantial sum (at least $500,000) from Casinomar which they had to pay back over a period of 4 years with interest under Cl.53. Mr Ghiolman’s justification for this anomalous provision, that it was not in Casinomar’s interest to exercise the option, was wholly unpersuasive. The purchase provision of the Charterparty only makes commercial sense if the price which the owners had paid was very significantly less than $1,800,000. I am quite clear that such a provision would never have been agreed by the owners if the price they had paid for the vessel had been US $1,800,000.

In the light of the matters set out above I have concluded that the Charterparty was not a genuine and contemporaneous document and did not reflect a genuine commercial transaction between the parties to it and that Mr Ghiolman and Casinomar were aware of this. It follows that the Charterparty does not support a value of the vessel in the sum of $1,800,000.

The terms of the Charterparty (Boxes 26-30 and Cl.53) and the evidence of the Assureds’ witnesses suggested that Casinomar had advanced the sum of $500,000 to GVC. It is the Assureds’ case that the sum was remitted to National Development Corp (a company associated with Mr Tolakis) in two tranches: $180,000 on 21 July and $320,000 on 26 October 1998, and were used to pay for the benefit of GVC and the vessel. They also point to a letter from Mr Xirotiris to Mr Lamaris dated 17 July which refers to the payment of "the big debt".

The Insurer submits that the loan is illusory and that, contrary to the Assureds’ case, only a very small part of the $500,000 can have been used to pay off the sellers’ debts.

I accept for present purposes that there are banking documents which evidence payments totalling $500,000 from Casinomar to National Development Corp.. However, the analysis of the documents carried out by the Insurer in its closing submissions suggests that only about $90,000 of the sum of $500,000 can have been paid over to GVC or used to make payments in relation to the vessel. I accept the Insurer’s analysis. The Assureds’ case on this aspect of the case was undermined by evidence from the Assureds’ witnesses that the debts were either paid from other sources or at a time before Casinomar had made the advances to National Development Corp.

The purpose of the $500,000 advance by Casinomar to National Development Corp is unclear. However I am satisfied that the money was not used to any significant extent to defray the vessel’s expenses or pay off previous creditors.

The $500,000 advance was the basis for the mortgage of $1,000,000 and for Casinomar’s Mortgagees Interest Insurance. Casinomar have made a recovery under that insurance and it is no part of my task to investigate the circumstances of that recovery. It is sufficient for present purposes simply to note that the letter written by Casinomar to their brokers on 21 December 1999 in relation to that claim presents an entirely different basis for Casinomar’s financial involvement in the vessel to that advanced in the present case.

The fact that the basis, the nature and the extent of Casinomar’s advance cannot be identified is further reason to doubt the genuineness of the Charterparty.

By 31 July there is evidence that the work to reconstruct the vessel as a casino was going to be put in the hands of Avlis shipyard under the supervision of Mr Manzariotis of Evia Yachts.

At some time in November GVC assigned the earnings and insurances on the vessel to Casinomar in consideration of $800,000 advances.

The preamble of the assignment agreement between GVC as owners and Casinomar as assignees contains the following provisions:

(A). By a charter agreement (“the agreement”) dated 20^th July 1998 and made between (1) the owner (2) the assignee, the owner agrees to charter the MV Gameboy for a period of 4 years and granted the assignee the option to purchase the vessel upon the expiration of the charter period pursuant to the terms of the agreement.

(B)

Pursuant to the agreement the assignee has advanced the refundable amount of USD 800,000 (Hereinafter called “the outstanding indebtedness”) against charter hires and/or purchasing options to be exercised in order to facilitate the owners to carry out certain agreed renovation works and to pass the vessel special survey and as a security for the payment of the outstanding indebtedness, the owner has agreed to register a first preferred mortgage over the vessel in favour of and to assign to the assignee the insurance, and the requisition compensation of its vessel “Gameboy” provisionally registered under Honduras flag.

Clause 2 of the assignment agreement provides as follows:

Paragraph 2.1 “By way of security for payment of the outstanding indebtedness, the owner hereby assigns and agrees to assign to the assignee all its rights, title and interest in and to the vessels insurances and the requisition compensation and interests present and future therein….”

There followed various provisions in relation to “continuing security” and the powers of the assignee.

Clause 6 provided that the deed was to be governed by and construed in accordance with the Laws of England: and unlike many of the documents, shows signs of being drafted by English lawyers. Notices of Assignment of the insurances in favour of Casinomar up to the sum of US$ 1,000,000 and the loss payable clause were notified to underwriters on the 10^th November 1998.

At some time in November the vessel was towed from Chalkis to Avlis. A booklet published by the shipyard at Avlis says that Avlis (or Aulis) was the place where the Greek fleet met before sailing for Troy without adding that, according to the same tradition, there were protracted delays and the ships were unable to leave until a human sacrifice had been performed.

On 27 November the vessel was moored at the old yard before being towed, on 23 December, to the dry-dock area where she was moored next to the "Hamilton".

There is an Invoice dated 30 December 1998 from Avlis Shipyards signed by the President of Avlis Shipyards SA showing that the sum of $101,197 was ‘paid in full’. The Assureds rely on this document as showing that work was to be carried out at the Avlis shipyard under the supervision of Mr Manzariotis.

The Invoice is broken down by items: $15,631 for the docking and services provided, and the balance in relation to various items of repair.

In a fax letter from the Avlis Yard dated 2 February to Ray Ashton Associates the Yard wrote:

According to our discussions with owner’s/agents representatives (Mr Leonidopoulos and Mr Grous) owner’s intention was to carry out repair works and to convert the vessel to a Casino-bar. According to these discussions we have been informed that owners were waiting for a financing approval before starting the conversion work.

In a fax dated 8 February the Yard added:

… no work was carried out on subject ship by yard’s workers or yard’s subcontractors after the ship’s arrival. As far as we know no works were carried out by the owner and subcontractors during the vessel’s staying in our Yard. Yard supplied only services to the ship such as riggers, fire watchman etc …

This was consistent with the evidence of the watchman (Mr Tsantiris) who said that no significant work was carried and is confirmed by Mr Lelakis in a statement to the police on 10 February 1999. In addition there is a letter dated 1 March 1999 from Mr Lamaris in which he says that from the time the vessel was delivered until the incident "no repair works effected". In his witness statement Mr Lamaris tried to distinguish between repairs and the conversion work which Avlis carried out. I simply note that the Avlis Invoice is headed "For Repairs and Services rendered".

There is abundant further evidence that no work was carried out at Avlis and that the repair and reconstruction work was going to be carried out elsewhere.

The Invoice itself duplicates work set out in the 1993/94 work-sheet (fresh water lines etc) and includes work which must have been done earlier (dismantling and cleaning away old crew cabins on the lower and main deck).

The Assureds’ case that the Invoice evidences work which was actually carried out is further undermined by inconsistencies in the evidence as to how and in what sum the invoice was paid. The Assureds’ pleaded case is that two payments were made (a) $10,000 by Casinomar (b) $100,000 by Mr Tolakis to Mr Lelakis. Mr Leonidopoulos’s evidence was that the total payment was $101,000, of which $10,000 was by cheque and $91,000 in cash. Mr Laspopoulos’s witness statement of 10 October says that he paid the sum of $91,197 in drachmas from his personal money. Mr Ghiolman’s evidence was that the cash payment was in fact $80,000 because of a discount. I have concluded that the Assureds’ witnesses were untruthful in their evidence about the payment of the invoice. There may have been a payment of $10,000 in respect of dockyard services; but the invoice itself is bogus and was, at all relevant times, known by the Assureds to be bogus.

Although a number of points were taken on the form of the pleading, it was clear throughout the trial that the Insurer contended that the value of the vessel was misrepresented. It was the Insurer’s case that the true value of the vessel at the time of insurance contract (and, if material, after works were carried out) was, to the knowledge of the Assureds, not $1,800,000 but very much less (approximately $100,000).

It was common ground between the parties that value is a matter of opinion and that a statement of value can only amount to a misrepresentation if made in bad faith: see s.20(5) of the Marine Insurance Act 1906 and Economides v. Commercial Union Assurance Co. plc [1998] QB 587 (CA), Gibson LJ at 606g:

Once statute deems an honest representation as to a matter of belief to be true, I cannot see that there is scope for inquiry as whether there were objectively reasonable grounds for that belief. Of course the absence of reasonable grounds for belief may point to the absence of good faith for that belief. But in a case such as the present where the bad faith of the plaintiff is not alleged, I can see no basis for the implication of a representation of reasonable grounds for belief.

In the light of the findings of fact set out above, I have concluded that the Assureds had no genuine belief that the value of the vessel was $1,800,000. My reasons can be stated shortly: the documents which were said to form the basis for the Assureds’ stated belief were, to their knowledge, not genuine. They were not created to support a genuine belief in the value of $1,800,000; they were created because the Assureds knew very well that the valuation of $1,800,000 could not be justified without them. In my judgment the true value of the vessel (at the time of the contract of insurance) was the value estimated by the experts without the benefit of what I find to have been the fictitious Charterparty: approximately $100-150,000; and I further find that the Assureds knew this. I specifically reject Mr Ghiolman’s evidence that he believed that the vessel’s value was $1,800,000 and that he had good grounds for that belief.

Mr Berry QC submitted that there was no obvious motive for any fraudulent valuation. He points out that there is no allegation that the Assureds intended deliberately to cast the vessel away, and therefore no reason to overvalue. He submits that, unless there was an ulterior motive, the overvaluation does not make commercial sense: it simply resulted in the payment of an inflated premium. This argument is superficially attractive. However, it seems to me that Mr Malins QC is right to say that, while a clear motive for an overvaluation would assist him, the absence of a clear motive is not decisive, not least because an overvaluation creates its own hazards. This point was referred to in Ionides v. Pender (1874) 9 QB 531 at 538 where Blackburn J, giving the judgment of the Court said:

It is to be observed that the excessive valuation not only may lead to suspicion of foul play, but that it has a direct tendency to make the assured less careful in selecting the ship and captain, and to diminish the efforts which in case of disaster he ought to make to diminish the loss as far as possible, and cannot therefore properly be called altogether extraneous to the risks …

My conclusions on the issues of materiality and reliance can be stated shortly.

The underwriting experts (Mr Hart for the Assureds and Mr Outhwaite for the Insurer) did not significantly disagree. Both experts agreed that an insurer relies on the assured being honest. In Mr Hart’s view an overvaluation was only material if extreme. Mr Outhwaite thought it was material if the overvaluation was in multiples. In view of my finding that the vessel was only worth (and was known to be worth) in the order $100-150,000, I have concluded that the misrepresentation was material. Mr Outhwaite also said that if the value had been up to $500,000 the overvaluation would have been material. Although there was justification in Mr Berry’s objection that the evidence was not adduced in a satisfactory way, I accept Mr Outhwaite’s evidence on this point: it was consistent with his view that overvaluation in multiples was material, seemed to me to be a matter of common sense and was consistent with Ionides v. Pender (above).

Mr Bridges (the Insurer’s underwriter) said that he would not have accepted the risk if he had known there was an "extreme overvaluation". This evidence was both credible and consistent with the expert evidence and I therefore find that the Insurer relied on the representation. For the sake of completeness I should record my understanding that Mr Bridges evidence extended to an overvaluation in which the assured has no genuine belief.

It follows that I find that the Insurer is entitled to avoid the contract of insurance.

It is the Insurer’s case that a number of further representations were made in the Miric fax and the Tolakis Particulars: namely that (1) the Tolakis Particulars had been prepared recently, (2) the vessel and her machinery were in a readily serviceable condition, requiring only repairs of a "routine maintenance" nature before she could be put into the intended service, (3) the owner intended or reasonably expected to complete those repairs within 3-4 months, (4) the vessel had recently (or at least within the last year) passed a special survey as a restaurant café following expenditure of Dr.140 million.

It seems to me that the Assureds are correct in their submission that, although stated to be separate and independent of the value issue, these allegations of misrepresentation of the vessel’s condition are, on analysis, aspects of the Insurer’s case on the valuation fraud. The Insurer’s case is, in summary, that the vessel was in such poor condition that she was worth a fraction of her declared value and that no one could honestly believe that her value was $1.8 million. This view is reinforced by the Insurer’s case on materiality in its Opening Skeleton Argument. This focuses on the condition of the vessel.

Mr Hart considered that none of these representations were material, since this was a Port risk with a stringent SA warranty. Mr Outhwaite did not say they were material in his Report. His evidence was confined to an opinion on the basis that the vessel was in "very poor condition".

For these reasons, and in the light of the findings that I have already made, I can deal with the additional misrepresentation points briefly.

In relation to these representations the following questions arise: () were the representations made, (ii) were the representations statements of fact, (iii) were they false, (iv) materiality and inducement.

In relation to these questions I make the following findings:

A number of non-disclosures were relied on. Some of these were simply restatements of the misrepresentation claims in the form of non-disclosures. For example, as already set out above, the Insurers rely on a misrepresentation that the Tolakis Particulars had been prepared recently. The Insurers also make a plea of non-disclosure in relation to the Tolakis Particulars: namely, that they were prepared in 1995. In relation to the non-disclosure plea I reach similar conclusions to those that I have already reached in relation to the misrepresentation plea: the fact was immaterial and cannot have induced Mr Bridges. My conclusions on the misrepresentation issue also dispose of the Insurer’s case that the Assureds failed to disclose the nature of the vessel’s condition and the work required.

At the beginning of the trial the Insurer amended to plead that the vessel was not on cover at the time of the casualty as follows:

Upon its true construction the Policy only covered the Assured in respect of the vessel "whilst being repaired at Avlis shipyard" and until the completion of the repairs which were "of general maintenance nature".

The words quoted appear in the Information section of the Policy. The Insurer submits that it is clear that the vessel needed substantial work to convert it from a partly re-furbished and static bar/discotheque into a first class seaworthy casino vessel; and that this work could not properly be described as "repairs of a general maintenance nature". I agree with this simply as a matter of fact.

However it does not follow that the risk was not covered. First, as already noted, the location section of the Policy provided coverage:

Whilst laid up at Chalkis Greece, or held covered … Also while being repaired at Avlis shipyard.

The location clause was amended on 4 September to read:

Whilst stern to Port Authorities dock at Chalkis and or at Avlis …

There were no words confining the cover to a period while actual repairs were taking place.

In any event, as Mr Berry points out, the Insurer was well aware that conversion and refurbishment work was being carried out as well as repair work. The 5 June SA Survey Report, which was seen by the Insurer, stated that the vessel was surveyed "whilst laid up awaiting conversion, since April 1998" and there were numerous other documents and communications of which the Insurer was or should have been aware showing that the vessel was undergoing conversion. It follows that I reject the Insurer’s coverage argument.

The Insurer’s case is that the Assureds warranted that all the Salvage Association recommendations in SA Certificate EMO 301/98 would be complied with, including the ongoing recommendations. They submit that two of the Ongoing Recommendations were breached. First, contrary to recommendation 13, there was no telephone available at all times. Secondly, contrary to recommendation 22, there was no security watchman in attendance at the entrance to the vessel at all times.

The Assureds’ case is that, on the proper construction of the Slip, the Salvage Association recommendations only had to be complied with prior to attachment in July 1998 or, possibly, at the end of November/beginning of December, when the cover was extended for a further 4 month period; and that, in any event, the warranties were not breached.

By s.35(2) of the Marine Insurance Act 1906;

An express warranty must be included in, or written upon the policy, or must be contained is some document incorporated by reference to the policy.

In this case the enquiry is as to the terms which were incorporated by reference into the policy.

This involves the proper construction of the policy wording:

Warranted approval of Lay-up arrangements, Fire Fighting Provisions and all movements by Salvage Association and all recommendations to be complied with prior to attachment

It is necessary to construe the clause so as to elicit its commercial purpose. The purpose was plainly to ensure that the Assureds would comply with and continue to comply with the express terms of the Salvage Association’s recommendations throughout the period on risk. It would make no commercial sense that the Assured would agree to comply with the recommendations only on the date that the risk attached, but not thereafter. Ongoing Recommendation 6 required that all fire fighting was to remain in position for immediate use. It would plainly have been a breach of warranty to remove all the fire fighting equipment the day after the risk attached. In my view the words prior to attachment are to be read as meaning that the Assureds warranted prior to attachment that they would comply with the Salvage Association recommendations made at the time of the attachment of the risk. Such a construction is consistent to the language and does not lead to the commercial absurdity implicit in the Assureds’ construction.

In any event, the movement to Avlis on 2 December was expressly on the basis:

Warranted all LSA (Salvage Association) recommendations to be complied with (my emphasis)

These would include the Ongoing Recommendations.

Mr Tsantaris’s evidence was that he was the watchman on board the vessel at all material times, including on 12/13 January 1999, and that there was a telephone on board which was linked to the shipyard. He said that, whenever he left the vessel someone stood in for him: the watchman on the "Hamilton" (Mr Dalietos), the yard electrician, the yard fireman, or visitors to the vessel. He also left the vessel twice on the 12 January: on the first occasion (between 1700-1800) when he went to buy soft drinks and on the second occasion (at about 2200) when he went to telephone his wife. It is the Assureds’ case that, on each occasion, Mr Tsantiris was replaced by someone and that the warranty was therefore complied with.

In his contemporaneous interviews with the police and Mr Goldsworthy Mr Tsantiris never mentioned that anyone else replaced him on the vessel. Since the police were investigating a serious crime this was a surprising omission, particularly since he included much detail of less relevance. It was only after the breaches of warranty were raised that Mr Tsantiris said that others had stood in for him when he was ashore. I found Mr Tsantiris to be an unreliable witness and his evidence to be both inconsistent and inherently unlikely.

In his witness statement Tsantiris said that Mr Leonidopoulos had replaced him when he went to Halkida to purchase soft drinks. In the course of his evidence Mr Leonidopoulos agreed. However, in cross-examination Mr Tsantiris said that Capt Grous had replaced him on this occasion. The reason for the change of story was that the documents showed that Mr Leonidopoulos had left the yard at 1500. However, Capt Grous told Mr Goldsworthy that he had not been on board the vessel in the two days before the explosion and the yard records do not show any attendance at the yard after 30 December 1998.

In the Reply and Defence to Counterclaim the Assureds pleaded that Mr Tsantiris was replaced at about 2200 hours by the yard’s foreman. In his witness statement Mr Tsantiris was less specific but suggested that the watchman on the "Hamilton 1" was the most likely stand-in. In his evidence he initially said that the foreman took his place and later that the watchman on the "Hamilton 1" had done so. Subsequently he said that it was the fireman who had been on the vessel as watchman.

I am quite satisfied that Mr Tsantiris was not replaced when he left the vessel. I doubt that he or anyone else thought that he needed to be. The fact that Mr Tsantiris had to leave the vessel to telephone his wife also indicates that there was no telephone on board the vessel and I so find.

It follows that I find that the Assured were in breach of the two warranties, and that accordingly the Insurer is entitled to refuse to indemnify the Assureds.

I have found that the following (among other) documents are not authentic: the Tsapes Report, the MOA and the Bareboat charterparty. It is Insurer’s case that these documents were knowingly and fraudulently presented in support of the claim and that, as a consequence, the claim can be avoided.

Before considering this submission I must consider two further sets of documents on which the Insurer wishes to rely: the 3 notarised payments and 3 Style Bank receipts. At the start of the trial an application was made to rely on these documents in support of the fraudulent presentation defence. I decided that the amendment was made too late and would cause disruption to the trial. A renewed application was made in the course of the Closing Submissions on the basis that to allow that application would not now be prejudicial since the facts had now become clear and the witness from whom new evidence might have been required (Mr Xirotiris) did not in the event give evidence. It seems to me that it would not be right to allow the renewed application. While I am not aware of any principle which precludes a renewed application; there are practical objections. It is likely that those representing the Assureds acted in the course of the trial on the basis that an application to amend had been made and refused, and that there had been no appeal from that decision. It seems to me potentially unfair that, having acted on this basis, they should now have to deal with the case that they could reasonably have assumed was not being pursued. I therefore refuse the renewed application to amend.

The reason for the common law rule regarding the making of fraudulent insurance claims has been described by Lord Hobhouse in The Star Sea [2003] 1 AC, 469 at 499 §62:

The fraudulent insured must not be allowed to think: if the fraud is successful, then I will gain; if it is unsuccessful, I will lose nothing.

The extent of the rule has been recently considered in Agapitos v Agnew [2003] QB 556. There are two aspects of the rule which it is necessary to distinguish: the making of a fraudulent claim and the use of fraudulent devices.

What is said by the Insurer is that, even if Assureds had a valid claim, the claim must fail because the Assureds have used fraudulent devices to promote the claim. The rule is in some ways anomalous since it only applies between the making of the claim and the start of litigation. After litigation has commenced an insured may advance false documentation and lie without the drastic consequences which follow if the deployment of false documentation and lies are less well timed. Nevertheless, the rule is presently well-established and was expressed by Mance LJ in Agapitos v Agnew at §30 the following terms:

A fraudulent device is used if the insured believes he has suffered the loss claimed, but seeks to improve or embellish the facts surrounding the claim by some lie.

The rule applies to fraudulent devices used during the course of an insurer’s investigation of a claim, see Roche J’s direction on fraud to the jury in Wisenthal v. World Auxiliary Insurance Corpn Ltd (1930) 38 Ll L Rep 54 at 64

Fraud … was not mere lying. It was seeking to obtain an advantage, generally monetary, or to put someone else at a disadvantage by lies and deceit. It would be sufficient to come within the definition of fraud if the jury thought that in the investigation deceit had been used to secure payment or quicker payment of the money than would have been obtained if the truth were told.

The consequences of using fraudulent devices will be the defeat of the claim.

The Assureds submit that: (1) there was no claim on foot when the documents were handed over, (2) there was no device or lie and (3) if there were, it was not designed to improve or embellish the circumstances surrounding the claim (4) nothing that was done prejudiced the position of Casinomar.

The documents were handed over to Mr Goldsworthy as follows: the Charterparty on 28 January 1999, the Tsapes Report on 1 February and the MOA on or about 12 February. Each of these events took place after Mr Ghiolman had instructed the Assureds’ brokers to "take the necessary steps" and after, as the Assureds knew, Mr Goldsworthy had been appointed by the Insurer to investigate the claim. I reject the submission that the Assureds "reluctantly" opened their files to Mr Goldsworthy. They were asked for documents and they handed over the documents whose contents were deceitful. They used fraudulent devices in order to advance the claim, with the intention and expectation that that the Insurer would accept the documents at face value, be reassured and promptly pay the Assureds. I also reject the contention that Casinomar was not involved in the fraudulent devices. Casinomar was closely involved in some of the documentation and Mr Ghiolman was acting on their behalf when he was improving or embellishing the claim, just as much as he was when procuring their mortgage interest insurance.

Accordingly I find that the Insurer is discharged from liability in respect of the present claim.

For these reasons I find that the Insurer is entitled to the declarations that it seeks and the Assureds’ claim for an indemnity must be dismissed.