North Star Shipping Ltd. & Ors v Sphere Drake Insurance Plc & Ors

On 6 July 1994 the Claimant’s vessel, NORTH STAR, which was under repair at Drapetsona, near Piraeus, was damaged by an explosive device which opened a hole in its hull in way of the engine room. That resulted in the rapid flooding of the engine room and adjacent cargo spaces with the effect that the vessel was in danger of sinking at her berth. The owners claimed for a constructive total loss under their war risks policies and the war risks insurers rejected the claim. The vessel was sold for scrap by the owners and was towed to Turkey for delivery. It is alleged that in the period between the explosion and the delivery of the vessel in Turkey the owners incurred sue and labour expenses and other expenses in the course of taking reasonable measures for the purpose of averting or minimising the loss and/or protecting the vessel.

On 30 June 1995 the owners’ agents sent to the owners’ placing brokers in London, Bain Hogg International Ltd, a letter stating that the vessel had been sold for scrap for US$450,000 and detailing expenses incurred in preparing the vessel for sale and taking her to Turkey. These expenses included sue and labour US$459,168. There followed a long itemised list of costs, including, for example “Dock Fees” $76,156 and “Watchman fees and victualling” $62,135, as well as “Protection of Mechanical Parts” $117,867 and “Box water tightness” $120,150. Large as this claim was, it was dwarfed by the claim for US$4 million for the constructive total loss. I infer that the brokers showed this letter to the leading underwriters.

On 15 March 1996 the claimants issued a writ claiming US$4 million in respect of the constructive total loss of the NORTH STAR and under paragraph (3):

“(3)

Sue and labour costs and/or expenses particulars of which will be provided in due course incurred by the First Plaintiff in taking reasonable measures for the purpose of averting and/or minimising the loss of and/or damage to the vessel and/or saving and/or protecting and/or recovering the vessel;”

On 25 April 1996 the claimants served their Points of Claim.

At paragraph 5 it was pleaded as follows:

“At about 0230 hours on 6 July 1994 the vessel became a Constructive Total Loss by reason of the operation of an insured peril, viz damage caused by terrorist(s) or person(s) acting maliciously or from a political motive.

Particulars

(1)

At about 0230 hours on 6 July 1994, whilst the vessel was lying stern-to at the fourth berth from the seaward end of the repair jetty at Drapetsona, Piraeus, the vessel was severely damaged by an explosion.

(2)

The explosion was caused by a bomb which had been placed against the outside of the vessel’s portside shell plating, slightly aft of the bulkhead between hold no.6 and the engine room (frame 49) and at about the level of the main floor of the engine room – ie. approximately one metre below the waterline.

(3)

The immediate effect of the explosion was to cause substantial penetration of the vessel’s side shell plating in the way of the explosion, together with surrounding buckling and distortion as well as further blast and shrapnel damage to the vessel’s internal structures, portside hopper tank, and engine room, and also the flooding of (in particular) the vessel’s engine room and hold no.6. In consequence the vessel was a Constructive Total Loss.

(4)

The bomb was placed by terrorist(s) or person(s) acting maliciously or from a political motive.”

Paragraph 7 was in the following terms:

“7.

In the premises the First and/or Second Plaintiffs are entitled pursuant to the contract of insurance to be indemnified by the Defendants in the sum of US $4,000,000 in respect of the Constructive Total Loss of the vessel and/or in respect of salvage and P&I/sue and labour items.”

It will at once be observed that there is nothing in the preceding paragraphs of the pleading that provides a factual basis for the claims for salvage, P&I or sue and labour items. Nor is there any reference back to the 30 June 1995 letter.

Points of Defence were served on 24 May 1996. The insurers pleaded that the vessel had been fraudulently damaged by or with the complicity of the insured, raised various defences on the scope of cover, such as barratry, and relied on various non-disclosure allegations on the basis of which they claimed to be entitled to avoid the policies. In paragraph 10 it was pleaded that “in the premises”, that is, on the basis previously pleaded, the claims in paragraphs 7 and 9 (statutory interest) were denied.

In the Amended Points of Claim served on 13 November 2000, paragraph 7 of the original pleading, numbered 10, apart from including the Third and Fourth Plaintiffs who had then been joined as parties, contained no material amendments to the original pleading.

In am informed by Counsel on behalf of the claimants that amongst the very substantial number of documents disclosed by the claimants at an early stage in these proceedings were vouchers and other documents which evidenced the sue and labour claim.

However, the only reference in the witness statements exchanged by the claimants to sue and labour expenses is to be found in the third claimant’s witness statement at paragraph 168 where he stated:

“In a fax to Mr Peter Walpole of Bain Hogg International Ltd (ie. Hoggs) of 30 June 1995, I set out financial losses incurred by owners due to the explosion and its aftermath (see ‘HP1 tab 82).”

Up to the start of the trial the claimants had served no particulars as envisaged in paragraph (3) of the writ. I am told that after the trial had commenced such a schedule has been served but not yet in final form pending further instructions from the claimants.

At the close of his cross-examination of the third claimant, Mr H Petrakakos, Mr Nicholas Hamblen QC, on behalf of the insurers, stated that he did not propose to cross-examine on the sue and labour claim because it had not been sufficiently pleaded or particularised and the relevant documents had not been put before the court by being included in the bundles.

Mr Goldstone maintained on behalf of the claimants that the claim had been sufficiently advanced in the 30 June 1995 letter and in the pleadings as well as in Mr Petrakakos’s witness statement. He had also maintained it in his written submissions.

A claim on insurers under a marine policy for sue and labour expenses under the sue and labour clause, in this policy clause 13 of the Institute Time Clauses – Hulls incorporated into the Institute War and Strike Clauses by clause 4.2, is a cause of action distinct from a claim for indemnity in respect of the loss of the vessel, in particular its constructive total loss. It is not a claim ancillary to that for the loss of the subject-matter insured, but is a claim of a quite separate nature, as is evident from the fact that a claim for sue and labour expenses can arise even if there is no other insured loss, either total or partial. Accordingly, since it represents a separate cause of action, it is essential that it be pleaded as such and that the pleading should contain the factual basis said to give rise to the claim in the sense that it identifies what measures were taken to avert or minimise an insured loss and on what grounds it is alleged that each measure was reasonable. It must then set out the cost of each of the measures relied upon.

The claimants’ pleading comes nowhere near an adequate formulation of a sue and labour claim. The deployment in paragraph 7 of the Points of Claim of the constructive total loss of the vessel as itself a factual basis for the sue and labour claim is self-evidently misconceived. Additionally, the pleading does not set out the measures relied upon or those facts relied upon in support of the proposition that they were reasonable or the cost of the measures. It does include the particulars referred to in the writ and it does not even refer to the letter of 30 June 1995.

If the claimants were now to be permitted to amend their pleading either to supply these deficiencies or even to refer to particulars or to a schedule in final form, this would be to inject into the trial a claim which during the eight years since the issue of the writ had never been adequately formulated and which, if now permitted to be cured, would inevitably involve a great deal of investigatory work by those representing the defendants, the possible injection of further evidence by the defendants, and further cross-examination of the claimants’ witnesses. It is difficult to see how a seriously disruptive effect could be avoided with the probable need to adjourn the trial at considerable expense to enable the defendants to investigate this issue and prepare their defence.

In these circumstances, I have no doubt that the balance of fairness and justice is very heavily weighted in favour of the defendants. They never asked for further and better particulars of this claim, but they were entitled not to do so. The claimants had expressly stated in the writ that particulars of the sue and labour claim were to be served and these never have been served and even now a schedule has not been produced in final form. The defendants were for these reasons also entitled to ignore the reference in paragraph 168 of Mr H Petrakakos’s witness statement. The function of a witness statement is not to act as a substitute pleading but to adduce evidence relevant to that which has already been properly pleaded. The claimants have throughout been advised by solicitors and counsel experienced in marine insurance for whom the need to put forward this claim in the proper way ought to have been apparent.

For these reasons I conclude that it is now too late to permit the claimants to raise the claim for sue and labour expenses in the proper way and I direct that such part of paragraph 10 of the Re-Amended Points of Claim as refers to sue and labour expenses be struck out.