Talbot Underwriting Ltd. v Nausch Hogan & Murray

The parties agreed and the Court ordered, on 29^th July 2005, that there be a trial of preliminary issues by reference to the parties’ contentions as set out in their respective statements of case, on the basis of specified documents, agreed assumed facts and the facts admitted in the statements of case, all without prejudice to other issues raised by those statements of case.

For the purposes of this judgment I shall refer to the Claimants as the London Insurers, to the Defendants as NHM, to the London placing brokers as NMB and to the Shipyard responsible for outfitting the pipe laying barge, the Jascon 5, as Sembawang. The London Insurers sue in the capacity of assignees of the causes of action of CPL (an admitted assured which gave instructions to NHM as its brokers) and of Sembawang (the ship repairers who, through the agency of CPL sought to obtain insurance via NHM), in contract and tort. They make no claim in their capacity as Insurers.

The assumed facts are as follows: -

The specified documents referred to are as follows:-

The Sembawang Completion and Outfitting Contract dated 5^th October 2002. (The Sembawang contract).

The Builders’ Risk Policy (The Slip Policy).

The Settlement Agreement dated 28^th April 2004 between CPL and Sembawang.

The Assignment Agreement dated 26^th July 2004.

Steege Kingston’s 3^rd report dated 20^th May 2004.

The issues to be determined are:-

Issues 5, 7 and 10 are effectively summary judgment points taken by NHM and evidence was permitted in relation to these issues with the result that statements were served by both the London Insurers and NHM, all of which I take into account. Reference is made in this judgment to documents other than specified documents for this reason. Issues arose between the parties because some of the evidence adduced by NHM also set out background to the issues of construction of the Slip Policy in dispute, and the London Insurers wished to adduce evidence to counter that. I ruled that the issues should be determined in accordance with the terms of the order made at the Case Management Conference, since the parties had, after considerable thought, and with a view to saving costs, decided to eschew extrinsic evidence, save as set out in that order, for the purpose of the arguments on construction and points of law arising out of the appended documents.

Paragraph 7(2) contained a saving provision, should the Court be unable to answer any preliminary issue on the basis of the material before it, with an invitation to answer the question to the extent possible, identifying facts which would have to be proved at trial for the issue to be determined in a particular way. Paragraph 7(3) contained another saving provision should further evidence come to light later which might change the position. I expressed the view that the saving might have to apply to evidence available to the parties now, but ruled out for the purposes of this hearing, but made no ruling on that.

The insurance which was obtained by NMB on the instructions of NHM, took the form of a Slip Policy which was subscribed by the London Insurers on dates between 21^st and 27^th May 2003 after quotations had been given by the leader on earlier dates. The relevant parts of the slip read as follows: -

The underlying problem which gives rise to this litigation is that the Slip Policy which incorporated the Institute Clauses for Builders’ Risks made no mention of the outfitting yard, Sembawang in circumstances where, it is common ground, CPL had agreed with Sembawang that Sembawang should be included as a co-assured and had instructed NHM accordingly. NHM’s cover note to CPL referred to the insured as “Sea Trucks Group and/or Sembawang Shipyard PTE Limited Singapore and/or Contractors and/or subcontractors for their respective rights and interests”. Whilst this clearly reflected the insurance placed in other markets (Scandinavia and Russia), the issue arose as to whether or not it correctly reflected the 40% placement in the London market. The London Insurers maintained that they never agreed to insure Sembawang and in their pleadings referred to the Slip Policy and to a letter from NMB dated 24^th December 2003, in which NMB corroborated the London Insurers’ case that they had been shown a 13 page fax of 23^rd October 2002 which expressly referred to insurance taken out by Sembawang in the shape of a Ship Repairers’ Legal Liability insurance for an amount of $5M any one accident. In another NMB letter of 14^th January 2004, relied on by NHM in its Rejoinder, NMB repeated this and stated that NMB did not have a copy of the Sembawang Contract, nor any information relating to any individual assured or waiver of subrogation requirements at the time of placement, and that it had not been asked for any such information by insurers.

The same letter of 14^th January referred to a letter of 13^th January 2004, in which Mr. Parsons, of NMB who effected the placement with London Insurers stated, after the issue had arisen and NHM had contended that Sembawang was covered by the part of the Slip Policy which referred to “Additional Assureds”: -

We can only restate our previous comments that this Policy of insurance includes a facility for Additional Assured and Waivers of Subrogation to be included, as may be required. It is under this provision that the Assured is exercising the requirement to name Sembawang pursuant to contract between the parties.”

Although the only agreed facts are as set out in the Assumed Facts referred to in paragraph 3 above there appears thus to be some measure of agreement between the parties, by reference to NMB’s stated position on these aspects. The formal position is however that the London Insurers have alleged that NMB had no intention to obtain cover for Sembawang and had not been instructed to do so. This was denied by NHM, who relied on the Additional Assureds wording in the Slip Policy, whilst maintaining that the intention of NMB was irrelevant and that it was only the intention of CPL and Sembawang which mattered.

The evidence of Mr. van der Linden of NHM is that he understood the cover note which he received from NMB as showing that insurance had been arranged which was apt to include Sembawang under the “Additional Assured” clause in the policy. Thus, notwithstanding the difference between the Slip Policy and the NMB cover note on the one hand and NHM’s cover note and the placement in the Scandinavian and Russian insurance markets on the other, NHM maintains that Sembawang was covered and that its cover note was accurate.

Paragraphs 9-13 of the assumed facts effectively state that unless the form of the Slip Policy dictates otherwise, neither NMB nor the London Insurers can be taken to have had any intention that Sembawang should be insured, an inference that, at least on the current material, appears to me to be inevitable. In the absence of any other evidence, it seems that the inference to be drawn from all of this (and from the NMB January letters and the form of policy wording in particular) is that NMB and the London Insurers were never told expressly that cover was required for Sembawang, as the outfitting yard. If NMB and the London Insurers had been told expressly, it seems that Sembawang’s name would have appeared as an insured in the Slip Policy and in the NMB cover note. In fact, the cover note issued by NMB to NHM reflected the terms of the Slip Policy, with the Assured defined in the manner of the Slip and with the conditions set out in the same way as in the Slip, including “Additional Assured and Waivers of Subrogation as may be required”.

It is unnecessary to set out in any detail the terms of the correspondence which passed between CPL and NHM but it is clear that NHM was given the relevant pages of the Sembawang contract which set out the insurance obligations of both CPL and Sembawang. Between 9^th October 2002 and the date of placement, there were exchanges of faxes (at intervals) between NHM and CPL about CPL’s requirements for insurance of the pipe laying barge whilst on tow from China to the Sembawang yard and whilst at the yard. It was on 23^rd October 2002 that NHM sent NMB the fax to which I have already referred, which included a reference to Sembawang’s Ship Repairer’s Legal Liability insurance in the sum of $5M any one accident and enclosed parts of the outfitting contract which set out the barge description and design criteria.

On 6^th November, Mr. Roomans of CPL/Sea Trucks Group referred Mr. van der Linden to the terms of Article 15 of the Outfitting contract and the insurances there referred to and enclosed copies of the relevant pages “to enable you to obtain the required coverage in accordance with the contract requirements”. The fax promised to send the attachments via mail also. In a fax of 10^th January 2003, Mr. van der Linden stated that he had copies of the liability and insurance Articles of the Sembawang contract which he had received on 13^th November and referred to Article 15.12 requiring CPL to arrange a Builders’ Risk insurance whilst the vessel was at the yard, “naming Sembawang… as Co-Assured”. The subsequent e-mails and faxes between them referred to the need to name Sembawang as Additional Assured or co assured, including the email in which Mr van der Linden referred to the meeting at which he was instructed to place the insurance at best possible terms with immediate effect.

Whilst the matter proceeded before me on the basis set out at the Case Management Conference, on assumed facts only, the facts as set out here appear to be uncontroversial or unlikely to be controverted and are of some importance in the context of the summary judgment applications.

It will be necessary, later in this judgment, to refer to the terms of the Sembawang Contract in more detail but for current purposes it is enough to set out the terms of Article 15.12 which is headed “Policies of Insurance Procured by the Company” (CPL).

The contract requirement therefore was for CPL to arrange insurance which included Sembawang as Co-Assured with a waiver of subrogation rights but did not expressly require Sembawang to be named. Although I have heard no evidence of oral discussions and instructions, the correspondence made it clear that what CPL/Sea Trucks wanted was for Sembawang to be named. It goes without saying that this was not a matter about which CPL or Sembawang wished there to be any doubt, room for argument or scope for litigation. NHM were engaged to achieve the insurance of CPL and Sembawang on the terms discussed.

Arguments did however arise in that regard on the wording of the Slip Policy when, on 14^th October 2003, the Vessel and her equipment and machinery were damaged by flooding at the yard. The evidence before me (which is limited) is that the damaged occurred when the drydock was being flooded following work to the thrusters. As the drydock was flooded, it was noted that the Vessel gained a port list and almost all of the forward compartments ahead of frame 140 were then found to be flooded with damage to numerous mechanical and electrical systems, damage to exposed insulation on the bulkheads and deposition of muddy sediment in the tanks and open pipe work. It seems that sea suction valves on the forward sea crossover line in Generator Room number 1 had been left partially open. To compound this, 4 blanks were found to be missing on the portside strainer and several pipe stubs were open where sections of generator pipe were missing. Flooding of the Generator Room caused an increase in the forward draft of the Vessel and brought the shipside access openings and the box cooler openings located at void spaces number 3 and 4 down to water level. Seawater then flowed through these openings into the void spaces and, through incomplete pipe work and bulkhead pipe penetrations, into adjacent compartments.

Sembawang carried out all the necessary repair work which delayed completion of the contract but the London Insurers refused to admit any claim by Sembawang on the basis that it was not an assured under the terms of the Slip Policy.

It appeared to all those involved, other than NHM, that the problem had been caused by NHM’s failure to obtain a policy which expressly named Sembawang as a Co-Assured. NHM maintained and still maintain that the London Insurers were entirely wrong in refusing to pay since Sembawang was an Assured under the Slip Policy. NHM also contend that the compromises agreed between CPL, Sembawang and the London Insurers were agreements which CPL and Sembawang should never have concluded. The compromises took the form of a Settlement Agreement dated 28^th April 2004 between Sembawang and CPL and an Assignment Agreement between the London Insurers, CPL, Sea Trucks and Sembawang dated 26^th July 2004.

The Settlement Agreement of 28^th April 2004 recited the past history which had led up to the settlement. It referred to the Sembawang contract of 5^th October 2002 and to Article 15.12 under which CPL agreed to arrange “Builders’ All Risks” insurance including Sembawang as an Additional Co-Assured with the necessary waiver of subrogation. It referred to the flooding incident and to the London Insurers’ refusal to pay Sembawang’s claim for remedial work because it was not a named Co-Assured. The proportion of Sembawang’s losses applicable to the London market’s 40% share of the total was referred to as “SSPL’s Claim”, which could well be the subject of further adjustment. Without any admission of liability, CPL agreed to pay Sembawang the sum of $850,000 in full and final settlement of SSPL’s Claims. CPL, with Sembawang’s assistance, was to recover any losses in relation to SSPL’s Claim from relevant third parties including NHM and the London Insurers, with all recoveries enuring to CPL’s benefit. This was a full and final settlement between CPL and Sembawang with respect to SSPL’s Claim (and, by clear inference, to any failure by CPL to obtain insurance as required by Article 15.12) and any claims arising under Clause 15.7.5, which provided for Sembawang to obtain ship repairers’ insurance in an amount of not less than $5M per incident, occurrence or event. Each waived all rights and claims against each other in respect of these matters.

In the Assignment Agreement of 26^th July 2004, the history was again recited, including the London Insurers’ refusal to pay because of its contention that Sembawang was not an assured. The proportion of Sembawang’s losses was referred to as $1,253,132.00 after adjustment. CPL, Sea Trucks and Sembawang absolutely assigned to the London Insurers all their claims against NHM and/or its agents for failure to take out insurance in the name of Sembawang, entitling the London Insurers to sue in their respective names. In consideration of that, the London Insurers agreed to pay CPL and Sembawang the sum of $501,252.80, amounting to 40% of the adjusted figure. Provision was made for application of any proceeds of pursuing claims against NHM, the first $501,252.80 being payable to the London Underwriters, the next portion up to a maximum of £75,000 being payable to the London Insurers in respect of costs incurred and the remainder being payable to CPL/Sembawang. Except as provided by the Agreement, the parties fully and finally settled all rights and claims that they might have under the Slip Policy or by way of subrogation, save for payment of any outstanding premium.

Paragraph 7(7) of the Amended Defence and Counter-claim avers that Sembawang was a Co-Assured under the Slip Policy because Sea Trucks and/or CPL intended to include Sembawang as a Co-Assured under the policy on three alternative bases:

because Sembawang was an “associated” and/or an “interrelated” company and/or a “Joint Venture” within the meaning of the “Assured” clause,

because it was an “Additional Assured” within the meaning of the policy,

because Sea Trucks and/or CPL were authorised to place the insurance on behalf of Sembawang by reason of Article 15.12 of the Sembawang contract.

In paragraph 3 of the Assumed Facts for this hearing, the parties have agreed that the only legal relationship between Sembawang and CPL and/or Sea Trucks was constituted by the Sembawang contract and the fact that Sembawang was undertaking works in respect of the Vessel at its shipyard. Paragraph 5 of those Assumed Facts relates that Mr. Roomans, CPL and Sea Trucks were authorised by Sembawang and intended to place Builders’ All Risk insurance on behalf of Sembawang and to include Sembawang as a Co-Assured. Furthermore, Assumed Fact 8 states that at all material times they intended to include Sembawang as a Co-Assured as required by the Sembawang contract.

Paragraphs 9 and 10 of the Assumed Facts show that there is an issue as to whether NMB entertained an intention that Sembawang would be covered as a Co-Assured but in reality, on the current state of the pleadings, it does not appear that there is any contention that NHM instructed NMB to obtain cover for Sembawang as such and paragraphs 11 – 13 of the Assumed Facts require the Court to proceed on the basis that, unless the terms of the Slip Policy dictates otherwise, the London Insurers are to be taken as being ignorant of any intention on the part of others that Sembawang should be a Co-Assured and as having no such express intention themselves.

In short, NHM reply upon the express terms of the Slip Policy, and nothing else, as showing that, as a matter of law there was not only an intention to cover Sembawang as a Co-Assured but that this intention was achieved.

NHM’s case is that Sembawang was an “Associated Company” or a “Joint Venture” with Sea Trucks and/or CPL. It is said that the Association or Joint Venture contemplated by the Assured clause is not one which requires there to be a subsidiary ownership or group affiliation, because such companies are covered by the words “Subsidiary” and “Affiliates”. The Association or Joint Venture does not therefore require any element of co-ownership or corporate relationship. It is then said that the Association or Joint Venture may be established by a commercial contract such as the Sembawang contract which provided for the fitting out of a newly built vessel in a context where the insured marine adventure or its analogous equivalent under Section 2 of the Marine Insurance Act is the exposure to building risks. Thus a ship builder and a ship owner can be said to be “associated” or in a “joint venture” when engaged in a common enterprise, and there is for this purpose a “community of interest”.

In this context NHM relied upon the Martin P [2004] 1 LLR 389 at paragraphs 124 – 127 where Richard Siberry QC, sitting as a Deputy Judge held that, on the facts, a ship-owner qualified as a “affiliated and/or associated company” of the manager of its ship, in circumstances where the manager had entered into an insurance of the vessel under the terms of a Management Agreement. Under that agreement, it contracted to manage the vessel and to fulfil extensive responsibilities in relation to maintenance, equipping, repair, survey, classification, crewing, provisioning, operation and navigation of the vessel. It was not given possession or the right to possession of the vessel but the provisions gave the manager considerable control over the vessel and its operation. On the request of the owners, the managers were to provide or procure the provision of “special management services” which included the arrangement of insurances.

The Slip described the Assured as “ABC Maritime as managers and/or affiliated and/or associated companies for their respective rights and interests”. In the context of a ship’s manager obtaining insurance cover, it may be that the ship-owner can, on given facts, be held to be an “associated company”. The Deputy Judge drew particular attention to the close relationship of the ship-owner and the manager of its ship. I do not think that this decision assists me much however on the wording of the Slip Policy, where the Clause contains other terms and the factual situation is very different. I do gain some assistance from the Marine Sulphur Queen [1970] 2 LLR 285, a decision of the US District Court for the Southern District of New York where it was held that, in an open cargo policy negotiated by Time Charterers, the expression “the Assured and/or affiliated and/or associated and/or allied Companies and/or corporations” did not include the demise charterers who had time chartered the vessel to the named policy holder. Their relationship was described as being “a simple and arms length contractual one as evidenced by the charter-party” (page 299). Some importance was placed on the need for some element of “control” of one entity over the other or some “stake in the ownership” of the other, when speaking of these terms and the notion of a “Joint Venture” (see footnote 72).

Given the Assumed Fact that the only legal relationship between CPL/Sea Trucks and Sembawang was the Sembawang Outfitting contract, I am unable to see how Sembawang can bring itself within the wording of the Assured Clause. The Clause sets out specific named entities and then refers to additional unnamed entities with various types of relationship to them. The overall colour of the adjectives used suggests a familial relationship or the sharing of a common enterprise. Mr. MacDonald Eggers did not persist in arguing that Sembawang could be an “interrelated company” and focused on the word “associated”. This word is sandwiched between others which plainly have a familial ring to them (including “interrelated”) and the expression “associated company” is one which is well-known in other contexts, including statutory contexts where an element of common ownership or control is required. The expressions used are intended to cover members of the Sea Trucks Group.

A “Joint Venture” is a legal arrangement whereby two or more entities carry out a business activity under some form of common control or management or at least share a common aim and common interest in pursuing a common enterprise. The Sembawang contract was not a Joint Venture in this sense because all the work was to be done by Sembawang and there was no profit sharing arrangement or common control or management of any kind. There was no joint enterprise in the accepted sense of those words and it would not be apposite to call the relationship a “Joint Venture”. If it was, any contract for the repair of a ship, car or motorbike could be so named.

For this purpose it is nothing to the point that the insurance was to cover the barge whilst in the process of repair. The cover operated against a variety of risks being an “All Risks Policy”, including those risks which related to builders’ work and the usual fortuities covered by ordinary Marine policies.

In my judgment it is clear that, absent a familial relationship, absent some element of common ownership, and absent some degree of control or common enterprise, Sembawang does not come within the wording of the Assured Clause. An arms length commercial contract in the shape of a ship building or outfitting contract does not give rise to the necessary type of relationship between Sembawang which is required by this clause. The “Assured” is essentially the Sea Trucks Group and any Joint Ventures into which its members had entered. The Insurance covers the Group in respect of the Jascon 5 and the various insurable interests which members of that Group might have in it by virtue of ownership, possessory, chartering, maintenance, management or other such rights and obligations.

The first point to be noted is that the provision in which the words “Additional Assured” appears is separate from the “Assured” clause. It forms part of the conditions to the Slip Policy which incorporates various Institute Clauses, a provision for various amendments to be agreed with the leading underwriter and other miscellaneous provisions such as a brokers’ cancellation clause. The Assured has been defined in the Assured Clause whilst this provision, in the Conditions, appears to qualify that. Included amongst those referred to are the interests of mortgagees who have a proprietary interest in the barge and loss payees who would be considered assignees of the right to the proceeds of claims under the policy or beneficiaries of the trust of a promise by the insurers to make payment of claims to them. In each case, some notice in practice would be required for them to receive direct payment of the proceeds of the insurance. It is noteworthy that the reference is to “interest of mortgagees (and notices of assignment in respect thereof) [and] loss payees”. The inference to be drawn from this reference to “interest” is that, in the same way as Loss Payees do not become parties to the insurance, nor do the mortgagees. Their interests are however included in the sense of being accepted by insurers for payment, “as may be required”, alongside the Assured and Additional Assured.

It is significant, in my judgment, that the Slip Policy makes reference to the Sembawang ship yard as the location where the works are to be done in the period covered by the insurance. The subscribers were made aware of the location of the barge and of Sembawang’s involvement. It is argued that there was a limited category of potential additional persons who could have an insurable interest in the barge. The only possible candidates for insurable interests, were said by NHM to be members of the Sea Trucks Group, their assignees, mortgages and the builders/ outfitters. Who else can the Additional Assured clause have in mind, it is said, if not Sembawang? This argument works against NHM, in my view.

Express reference is made in the Slip Policy to Sea Trucks and its group members which include CPL. Express reference is made to the interest of mortgagees and to loss payees. Yet there is no reference in the context of the Assured clause or in the provision in the Conditions to Sembawang or to builders/outfitters as a category of assureds. The Slip refers expressly to Sembawang but not in the context of an assured or potential assured, but merely in the context of the location and duration of the risk. If the outfitters were such an obvious insured, it appears to me to be inevitable that they would have been included as a class, if not by name, had there been any intention that they should be included. In my judgment, this insurance was deliberately framed essentially as a Group cover, with limited “add ons” for joint ventures, mortgagees and loss payees. If builders are such an obvious category (and they are) in policies of this kind, it is almost inconceivable that there would be no reference to them by name or class in the context of Assureds.

The question arises as to whether the words “as may be required” provide any assistance to the meaning of “Additional Assured”. Those words appear both in the Assured Clause and in this condition. They are unlikely to carry different meanings in those two clauses, which are plainly interrelated.

NHM contends that the words “as may be required” mean “as required” or “intended” by the already described assureds, namely Sea Trucks and CPL. This requires no notification of any requirement to the insurers. If so, according to NHM, they simply allow the existing assureds to add further assureds as they feel they need to, whether such additional assureds fall within the wording of the Assured Clause or not. On this footing the words “Additional Assureds” mean persons additional to the wholesale definition in the Assured Clause, namely persons who fall outside the range of the specified names and the categories referred to in the latter half of the clause. Without any agreement on the part of the insurers, persons additional to these can be covered by the policy, provided they have some insurable interest.

Alternatively, NMH contend that the phrase “as may be required” refers merely to the contract requirement to obtain insurance for others which falls on Assureds who do fall within the definition in the Assured Clause. This would then permit the addition of Sembawang because Article 15.12 of the Sembawang contract “required” CPL to obtain insurance for it.

Neither of these constructions can, it seems to me, be right, since they provide for the addition of strangers to the Sea Trucks Group, falling outside the careful definition of the Assured, without any agreement on the part of the insurers or any need for any notification to insurers. The Assured clause was, on the construction which I have held to be correct, clear in defining the Assured as the members of the Sea Trucks Group and joint ventures into which they had entered. The ambit of this policy cannot simply be extended at will by the insured, to incorporate persons it would like to have covered, without any reference to the insurers, even if they do have an insurable interest.

I do not consider, as was argued, that the words “as may be required” in the Conditions, when read with (or contrasted with) “as may be required as their respective rights and interest may appear” in the Assured clause, have the same effect as the very wide form of words in the SG form of marine policy, as held in many authorities. There is a specific definition of the “Assured” in this particular Slip Policy which allows for insureds beyond those named but only in the form of a specified class of potential insureds. In these circumstances the words cannot be read so as to admit persons outside that class which defines the limits which the parties agreed, when addressing their minds to the subject, for the entities to which cover was to be afforded. This clause in the Conditions section of the Slip cannot, in my judgment, fundamentally change the identity and character of the Assured, as defined, being intended only to be a qualification and explanation of the provisions in it.

In Glencore International AG v Alpina Insurance Company Limited [2004] 1 LLR 111 there was an open insurance cover for goods in transit which were automatically insured as soon as the policy holder acquired an interest in them. It was an “all risks” policy. Additionally however, “if required” goods in storage and blending prior to shipment or after final discharge could be included in the cover at additional premium rates which were set out. This latter element was a form of Facultative/Obligatory cover which the insured could elect to take and in those circumstances, it was conceded and the Judge held that a requirement for such cover had to be communicated to the insurers. Without a communication of some kind there was no means of telling whether the insured wished to invoke his right to obtain cover for goods in storage. The learned Judge also held that communication had to take place before a loss was incurred since the element of risk is fundamental to a contract of insurance and some unequivocal step of some kind attaching the risk to the cover had to be taken before the insured knew of the loss.

Here, it was argued that there was a similar option on the part of the known Assureds if there was some form of entitlement to add new policy beneficiaries. If Sembawang could be added as an “Additional Assured” by CPL, with a waiver of subrogation, without the agreement of the insurers, there would have to be a provision for communication of that so that the insurers knew who it was that was covered. In those circumstances the words “as may be required” could be construed as meaning notification of the requirement to insurers. In such a case this notification would have to take place before any loss was claimed, in exactly the same way as set out in the Glencore decision. On this footing Sembawang would have no claim under this policy in respect of the flooding incident because no notification was given prior to that incident.

Since, however, there is no requirement for insurers’ agreement to the incorporation of “Additional Assureds” as beneficiaries under the policy, it appears highly unlikely that the insurers would, by the terms of the policy, be accepting any Additional Assureds involving an increase in risk or a change in the nature of the risk. It is noteworthy that there is no increase in risk in the case of mortgagees or loss payees whose interest in the subject matter is derivative from that of the owners/the named Assureds and their related companies who will have proprietary or commercial interests in the vessel. The Sea Trucks Group is recognisably different from the entity responsible for carrying out work to a vessel in which members of that group have, proprietary, possessory or contractual interests relating to its commercial use. A ship yard which is responsible for the repairing work and against which rights of subrogation would ordinarily fall to be exercised in the event of damage caused by its negligence, is a different proposition. The community of interest of those in the Group can be seen in contrast to that of Sembawang, which would often be liable to them for damage sustained by the vessel whilst at its yard.

In my judgment, the provision in the conditions must be read together with the Assured Clause. The Assured Clause provides for the named entities to be beneficiaries of the insurance and also for entities which fall within the categories listed in the latter half of the clause “as may be required as their respective rights and interests may appear”. Self-evidently, although there must in practice be some notification of any unnamed entity which wishes to claim (when it claims) and which the latter half of the clause covers, I do not consider that this is the meaning of the words “as may be required”. These words, when combined with the words “as their respective right and interests may appear”, simply mean as needed and cover all entities within the categories described where their interests in the vessel require cover.

Similarly, in the provision in the Conditions, the words must have similar meaning, but without the reference to their respective rights and interests, which is significant in suggesting that a further category of assureds is not envisaged beyond the categories already listed in the Assured Clause. When the Assured clause has specifically listed the categories of potential assureds, there is no room for the suggestion that the Insurers would give the Assureds carte blanche to add whomsoever they wished. It cannot be that new persons outside those categories are to be added, without the Insurers agreement.

In such circumstances, there appear to me to be two realistic possibilities:

Either the “Assured” in this provision refers to the named Assured in the Assured clause, with the words “Additional Assureds” referring to those in the second half of that clause, or

As I consider is the case, the “Assured” in this provision refers to the whole range of assureds referred to in the Assured Clause which has defined that term as including named and unnamed entities within the classes outlined, and the words “Additional Assureds” here refer to those entities that fall within the second half of the Assured Clause but cannot be parties to the insurance at inception because they are not yet in existence at the time of subscription to the Slip, or because they only subsequently fall into the categories listed and require cover.

Whichever construction is correct, Sembawang are not included and if the latter construction is correct, as I consider to be the case, this Slip Policy makes provision in the area to which Colman J refers at page 596 of the report of National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 LLR 582 (NOW v DOL), to which I refer later in this judgment.

The effect is to include as beneficiaries of the Slip Policy, the named Assureds, their subsidiaries, affiliates associated and interrelated and/or Joint Ventures, whether existing or future - i.e. present and future members of the Sea Trucks Group and their joint ventures- and those who take derivative title from them in the shape of legal or equitable assignments, mortgages and loss payees clauses. In each case although notification must be given when claims are made so that insurers know to whom they must pay a claim and against whom they have waived any rights of subrogation, this is not a matter for which the wording expressly provides here.

The idea that Sembawang could be insured in the way suggested by NHM, not being specifically identified as an Assured or able to fit within a class mentioned in the Slip, but then incorporated as an Assured by means of the wording in relation to “AdditionalAssured”, appears to me to be inconsistent with the Slip as a whole and its emphasis on Group coverage. Moreover, if the evidence establishes that the insurers were informed, by virtue of their receipt of the fax of 23^rd October 2002 or otherwise, that Sembawang had a $5M ship repairer’s legal liability policy this would present a very strong additional factor in construing the policy against it and NHM. The insurers would be proceeding on the basis that they had valuable rights of subrogation against Sembawang which had a valid legal liability policy which would respond in the event of negligence on its part, even if Sembawang (a substantial entity) could not.

The idea that insurers would agree to cover Sembawang under either the Assured Clause or the Conditions Clause on CPL’s unilateral decision to include Sembawang, in such circumstances, appears to me to be fanciful. The presentation of information about Sembawang’s own legal liability policy strongly militates against the idea that Sembawang could be insured without an express reference to it in the Slip Policy itself.

Moreover, if Sembawang could be incorporated in the insurance in the manner that NHM suggest, is it to be said that all subcontractors could likewise be incorporated? There would be no contractual requirement on CPL to do so but if there was an entitlement to bring in additional assureds for commercial reasons, there is no reason why there should be a restriction to an entity such as Sembawang, merely because of a direct contractual relationship, as opposed to any other entity in any way involved in the construction work at the Sembawang yard, with duties owed to the Assured. Other entities involved in work on the vessel would equally have insurable interests.

In my judgment therefore, NHM cannot bring Sembawang within the Slip Policy wording as an “Assured” or as an “Additional Assured”.

The general position was stated by Lord Denning MR in Teheran-Europe Co. Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 545 at 555 where he said: -

This general principle has been held to be applicable to Marine Indemnity Insurance contracts by Lord Lloyd and his fellow members of the Privy Council in Siu Yin v Eastern Insurance Co. Ltd[1994] 2 AC 199 at page 210, where he said that no case had been cited which decided or even suggested that a contract of insurance was an exception to the general rule that an undisclosed principal might sue on a contract made by an agent within his actual authority. He referred to Browning v Provincial Insurance Co. of Canada(1873) LR 5 PC 263 in support of the proposition that this principle was not wholly dependent upon the wide words of the SG Form. The Privy Council decided that there was no sufficient ground to distinguish between contracts of marine insurance and mercantile contracts generally.

What is also clear from a run of authorities which, for the most part, are concerned with persons who fall within the wide wording of the SG Form, is that it is the agency of the named contracting party to the insurance which is determinative in deciding whether or not a person who claims to be an undisclosed principal, or an unidentified principal, can take the benefit of the contract. Whilst, at first blush, it might be thought that what matters is the agency of the placing broker, this is not the case if he is not party to the insurance, since it is the party to the insurance who in fact is acting as agent for the undisclosed principal. Since the principal is, by definition, undisclosed or unidentified, as the case may be, it is the intention of the party to the contract and his authority to act for that principal, when concluding the contract through his subagents, which matters.

Thus in Boston Fruit Co. v British & Foreign Marine Insurance Co.[1905] 1 KB 637 where the policy was expressed to be effected by the Brokers John Holman on the instructions of Messrs R. Craggs & Sons, who were agents for the owners, the wording was wide enough to include the Plaintiffs but it was held that Craggs had no intention to effect the insurance on the Plaintiffs’ behalf and that this prevented a claim by the Plaintiff as undisclosed principal. The Court made it plain that it was not the intention of John Holman which mattered but that of Craggs. The decision was upheld by the House of Lords.

Equally, in Small v UK Marine Mutual Insurance Association[1897] 2 QB 42 a ship was insured on the instructions of a Mr. Wilkes and his co owners through the firm Carlsen & Co. where Mr. Wilkes had mortgaged his shares in the ship to Mr. Small. Mathew J found that Mr. Wilkes intended to enter into the insurance to cover both his interest as mortgagor and that of Mr. Small as mortgagee but he had not communicated that intention to Carlsen & Co. He found that the latter’s intention mattered not a whit and that what counted was Mr. Wilkes’ intention when he instructed them to insure.

In National Oilwell (UK Ltd) v Davy Offshore Ltd [1993] 2 LLR 582, Colman J, after a review of the authorities set out 3 principles as follows: -

This was followed by a further paragraph to which I have already made reference earlier in this judgment in the context of persons who could not be ascertained at the time of the policy but who subsequently fell into the class of persons referred to in it. That read as follows: -

In the present case paragraphs 5 and 8 of the Assumed Facts recite that CPL and Sea Trucks were authorised by Sembawang and intended to place the insurance on its behalf and to include it as Co-Assured. On this basis, NHM contends that, whether or not Sembawang fell into the class of Co-Assureds described in the Slip itself, it was entitled to step in and take the benefit of the contract as undisclosed principal. The London Insurers argue that the terms of the Slip Policy do not allow for this and run an argument similar to that which was put forward and rejected in Siu (ibid).

Lord Lloyd there held that the insurance contract was an ordinary commercial contract and that the entity claiming to be undisclosed principal could sue unless its agents should have realised that the insurers were unwilling to contract with anyone other than themselves, and that Courts should not be too ready to construe written contracts as contradicting the right of an undisclosed principal to intervene as this would go far to destroy the beneficial assumption in commercial cases to which Diplock LJ had referred in Teheran-Europe (ibid). In Siu, the Privy Council held that there was nothing in the terms in the proposal form or policy which expressly or by implication excluded the right of the undisclosed principal to take the benefit of the contract of insurance.

In my judgment this is one of those cases where it can properly be said that the terms of the insurance contract prevent Sembawang, as an undisclosed principal, from taking its benefit. The reasons which I have already given in relation to the construction of the Slip Policy apply with equal force here. The insurance was drafted to cover the interest of the Sea Trucks Group, together with any joint ventures into which the members of that Group might enter, as the terms of the Assured clause show. That was the express limitation given to the Assured and I have found that the wording in the Conditions of the Slip Policy do not have the effect of extending the definition of the Assured, save insofar as the insurers agreed to take into account derivative interests and further Assureds who fell into the same categories as those in the Assured clause. The failure to include Sembawang, whether by name, or by including a category of “builders/outfitters” in a policy which was designed to cover the ship during the period of outfitting is, as I have already found, highly significant. If there was no intention to cover Sembawang directly in the policy, it appears to me that the intention cannot be circumvented by an application of the doctrine of the undisclosed principal. The very terms of the Slip Policy militate against this and prevent the operation of such a contrivance.

Thus, the terms of the Slip Policy does satisfy the fifth principle of the summary of the law on undisclosed principals given by Lord Lloyd in Siu (ibid) where he said: -

In the words of Diplock LJ, the insurers did manifest their unwillingness to contract with Sembawang and the circumstances were such that CPL, through their subagents who placed the cover and had direct contact with the insurers (NMB) should have realised that the insurers were not so willing.

I have not of course heard any evidence of market practice or understanding, nor any direct evidence as to the information given to the insurers but once again point out that, if it is shown that the insurers received a copy of the fax of 23^rd October 2002 which stated that Sembawang had its own ship repairers’ legal liability insurance, that circumstance in itself not only provides a foundation for saying that the insurers did not intend to contract with Sembawang but also that they would be unwilling, and obviously unwilling, to do so with the consequent loss of subrogation rights, as it would have appeared to them. There is, in my judgment plainly a sharp distinction to be drawn between ship owners and their derivative interests on the one hand when the vessel is undergoing work at a ship builder’s yard and the interest of the ship builder on the other, so far as insurers are concerned. As Mr Kealey Q.C. pointed out for the London Insurers, their interests would be seen as being in competition, one with the other, unless the policy was broked on a Joint Assured basis, since the possibility of a claim by ship owners (and the insurers by way of subrogation) against the ship builders would be obvious.

Thus, the very fact that the insurance was not, on its proper construction, an insurance for the benefit of the builders here provides a strong reason for disapplying the doctrine of an undisclosed principal in the shape of the builders, it being plain that there is the possibility of a loss of subrogation rights and consequent impact on the premium which would be charged. The issue thus bears some relation to the issues of non-disclosure which fall to be determined as Issues 3-6.

This issue only arises if Sembawang was not a Co-Assured under and therefore a party to the Slip Policy. Nonetheless, it is an essential part of any trust of the kind suggested that there should be a promise of which Sembawang was the beneficiary and of which CPL or some other Assured was the trustee. The basis for such causes of action appears in Les Affreteurs Reunis v Walford[1919] AC 801 where there was an express provision for a commission of 3% on the estimated gross amount of hire to be payable to the broker in a charter party between owners and charterers.

I have already found that Sembawang was not an Assured within the meaning of the contract and in those circumstances it is impossible to construe the contract as containing a promise in its favour. Since Sembawang was neither a party to the Slip Policy as an undisclosed principal, and does not fall within the category of “Assured” or “Additional Assureds” there is no basis upon which the principles of the Walford case can apply. CPL could not be, nor declare itself to be, a trustee of a promise by the London Insurers to pay Sembawang, since the only promises to pay operated in favour of those who were properly within the definition of the “Assured” or were mortgagees, loss payees, or “Additional Assureds”.

A trustee holds property for a third party and can sue to protect an asset owned by him in law but owned in equity by the beneficiary. There is no difference in the subject matter held by the trustee in law and that owned by the beneficiary in equity. Where CPL claims under the insurance however, it claims for its own interest and on the insurers promise to it, not on any promise made for Sembawang’s benefit in respect of its interest which is separate, albeit related. If Sembawang’s interest was not insured, there could be no trust of a promise to pay in respect of it in its favour.

In response to NHM’s plea that Sembawang was a party to the Slip Policy as a principal and/or was entitled to enforce the policy as the beneficiary of a trust, CPL and Sembawang pleaded that the London Insurers were entitled to avoid the insurance on the ground of non-disclosure of Sea Trucks/CPL’s intention and authority to obtain insurance for Sembawang. By further amendments to the pleading after the Order for preliminary issues, NHM was included as an entity whose intention and/or authority should be disclosed, whilst asserting that NHM were in breach of duty and/or negligent in failing to disclose that intention and/or authority to cover Sembawang as a Co-Assured. Equally it was pleaded that if Sembawang was entitled to claim on the Slip Policy as a beneficiary of the London Insurers’ promise of an indemnity, then there was again a failure on the part of Sea Trucks, CPL and NHM to disclose their intention for Sembawang to be included in this way. It was alleged that there was thus material non- disclosure and that the London Insurers could and would have avoided the Slip Policy in consequence.

In answer to this plea, NHM contended that the London Insurers, by reason of the terms of the Slip Policy, waived disclosure of these matters, or abandoned their rights to avoid, or affirmed the insurance, by concluding the Assignment Agreement an/or commencing this action and/or serving statements of case in it. NHM also maintained that there was no real prospect that the London Insurers could succeed in their allegation that they could have and would have avoided the insurance. NHM also contended that, on the current state of the pleadings without amendment, as the claim against NHM was made for failure to obtain an insurance which covered Sembawang and not for failure to disclose the intention and authority to insure for Sembawang, (allowing it to intervene as an undisclosed principal), the question of non-disclosure was irrelevant.

On the hypothesis that Sembawang was entitled to intervene as an undisclosed principal, despite not falling within the definition of “Assured” or “Additional Assured”, CPL was the agent for Sembawang in giving instructions to NHM which in turn instructed NMB. A duty of good faith and, as part of that, duties of disclosure would be owed in the context of a Marine policy. The question arises as to the ambit of the duty of disclosure in the context of an undisclosed principal.

If the insurance does admit of the possibility of an undisclosed principal, then, notwithstanding that, it is said by the London Insurers that an intention to contract on behalf of Sembawang, as the builders, so that it could intervene, was a material fact which the London Insurers would wish to know and which would affect their underwriting judgment. A number of extreme examples were raised in argument such as an agent contracting for an undisclosed principal who turned out to be an owner with an appalling record for scuttling ships. Obvious questions of moral hazard arise in relation to such a person. Whilst at the outset, I expressed the tentative view that, if the insurance admitted of the possibility that an undisclosed principal could be a party, there must be a waiver of the intention to contract for that other, I am persuaded that there is scope for this argument.

It was conceded by Counsel for NHM that a potential loss of subrogation rights could be material, a concession which, in my judgment, was rightly made on the authorities. The London Insurers contended that an intention to enter into an insurance contract on behalf of Sembawang, with authority to do so, without disclosure to the underwriters was a breach of the duty of utmost good faith because the effect would be to add a party to the insurance against whom there would otherwise be valuable rights of subrogation. Whereas the other entities referred to in the Slip Policy were either companies in the same group as the Assured or closely related to it and sharing the same type of interest in the vessel or entities with derivative interests such as mortgagees or loss payees, Sembawang, as a builders’ yard, was of an altogether different character. It was self-evident that damage to the vessel occurring during the period covered by the insurance, whilst at the shipbuilders yard, would very likely be caused by negligence on the part of Sembawang for which it would be liable. Sembawang was thus the most likely target for the exercise of any subrogated rights on paying out under the all risks policy.

In Siu (ibid), after summarising the general principles which applied to undisclosed principals, Lord Lloyd went on to deal with an argument raised by the insurers that a contract of insurance was a contract of a special kind which of its nature was inconsistent with the intervention of an undisclosed principal. At page 210 he referred to the short answer to the argument which lay in a finding by the first instance Judge that the actual identity of the employer of the crew in question was a matter of indifference to the insurers. “It was not material to the risk”, because the insurers would have been content to insure the employer of the crew whoever it was. Despite going on to deal with questions of general principle in the context of undisclosed principals and Marine insurance, he then referred at page 210(h) to the need, when a vendor took out insurance for a purchaser, to give disclosure of information relating to the purchaser and not the vendor.

Although NHM relied upon the general statements of principle at pages 207 and 210 in the opinion of the Privy Council given by Lord Lloyd in Siu (ibid) with regard to undisclosed principals in Marine insurance, this does not touch upon the point at issue. In this connection I was referred to three articles or text books where Professor Merkin was either author or co-author.

In the first article in the All England Annual Review 1994, he and Professor Palmer referred to the decision of the Privy Council in Siu, the judgment of Colman J in NOW v DOL [1993] 2 LLR 582 and pointed out the difficulties which arise in reconciling the concept of an undisclosed principal with the duty of utmost good faith. They comment that “if the Assured’s identity is a material fact, (whether by virtue of moral hazard or otherwise) it is hard to see how, as a general principle, the doctrine of undisclosed principal can operate, given that the Assured’s own identity is being withheld.” They conclude that although the decisions may be explicable on their facts, “in many, indeed in most cases, it is likely to be the case that the Assured’s identity is a material fact and that if it is not disclosed the insurer can avoid the policy where there is any attempt to invoke the undisclosed principal doctrine.

In his joint work with John Butler on Reinsurance Law, at paragraph A-0636 the authors make much the same point in stating that it is surprising to find that English law has endorsed the application of the doctrine of the undisclosed principal to insurance contracts. The authors suggest that these two decisions are difficult to reconcile with general principle and should not be taken as authority for the proposition that the identity of the Assured is not a material fact.

As the author of Colinvaux’s Law of Insurance (7^th edition) Professor Merkin refers to the Moonacre [1992] 2 LLR 501 as an example of authority for the proposition that the true identity of the Assured is a material fact which is relevant to both the physical and moral hazard. Having referred to the Privy Council decision, he states that it may be that, if the duty of disclosure is taken into account, the true rule is that an undisclosed principal can take the benefit of a contract provided that the insurer is aware that the person entering into the contract is a mere agent or is likely to be insuring other interests as well as his own. It is then suggested that if the insurer chooses not to enquire as to the identity of the Assured, he thereby waives that information.

It is in my judgment, self-evident that, as a matter of principle, disclosure is required of anything which is material in relation to the intervention by an undisclosed principal. This may relate to the characteristics of the entity concerned or to the role or function fulfilled by that entity or to any of the other wide range of circumstances which could influence the insurers’ judgment. The role of the undisclosed principal as the builder and the fact that subrogation rights might he affected, are both capable, in my judgment, of being material facts for this purpose.

As is plain from decisions such as Marc Rich v Portman at first instance [1996] 1 LLR 432 at page 442 ff, as upheld in the Court of Appeal, there must be a fair presentation of the risk before there can be any waiver of the disclosure obligation. Whether or not, on the facts here, there was a fair presentation of the risk may depend upon the materiality of CPL’s intention and authority and the potential for Sembawang to take up the contract as an undisclosed principal. As the authorities show, matters relevant to subrogation can be material to a prudent underwriter, but whether the potential for Sembawang, as a builder, with potential impact on subrogated rights, to take up the insurance cover was material here is a question which can only be decided on proper investigation.

Paragraph 11 of the Assumed Facts states that unless the contrary can be said by reason of the terms of the Slip Policy, the London Insurers were not notified that Sembawang was intended to be a Co-Assured and paragraphs 12 and 13 of the Assumed Facts shows that the London Insurers had no intention to include Sembawang specifically and could not be said to have had such intention unless the terms of the Slip Policy required it. For Sembawang then to come in as an undisclosed principal obviously raises potential issues of materiality.

Whilst NHM relied upon the decision in Glasgow v Symondson (1911) 16 Com Cas 109 and the dictum at page 119-120 of Scrutton J to the effect that it was not necessary to disclose the name of the person interested in the ship which was being reinsured, he also said that the material facts included the perils to which the ship was exposed which could include the potential negligence of Sembawang and the loss of subrogated rights, should Sembawang be entitled to claim under the Slip Policy.

In my judgment, none of the provisions of the Marine Insurance Act 1906 upon which NHM relied, assist NHM in its argument. Section 14(2), which provides that any person having an interest in the subject matter insured may insure for the benefit of other interested persons, Section 23(1) which makes it clear that either the name of the Assured or the name of the agent can be in the policy and Section 26(2) which provides that the nature and the extent of the Assured’s interest in the subject matter need not be specified have no direct impact upon the obligations which arise under Section 17 of the Act.

So far therefore as concerns issue 3, both subparagraph (a) and subparagraph (b), an investigation of fact would be required to see if a fair presentation was made and whether the broad reference in the Assured clause and the Additional Assured clause in the conditions could amount to a waiver in all the circumstances of the placement. It seems to me that the issue would turn on the question of fair presentation of the risk since, if the wording of the Slip Policy was not apt to include Sembawang, the insurers could not be on notice as to that possibility nor express any contentment with the possible intervention of an undisclosed principal such as Sembawang. Moreover any reference in placement to Sembawang’s own Ship Repairers’ liability policy would work to the opposite effect. Waiver is therefore unlikely to arise. Either there will be material nondisclosure or there will not.

Issue 4 raises questions of affirmation and contractual abandonment. The principles of affirmation are set out conveniently by Mance J (as he then was) in ICI v Royal Hotel Ltd[1998] LRIR 151 at pages 161-163. In order to affirm, there must be not only knowledge of the facts not disclosed and knowledge that the nondisclosure gives rise to a right to avoid but there must also be an unequivocal communication to the insured (Sembawang) by words or conduct that an informed choice has been made to affirm the contract of insurance. The communication itself or the circumstances must demonstrate objectively or unequivocally that the party affirming is making an informed choice.

I am unable to see how the London Insurers could lose any entitlement to avoid by affirmation by reason of entering into the Assignment Agreement, commencing these proceedings or serving their statements of case herein. Throughout the whole period, London Insurers maintained that there was no contract with the Yard in a context where it is recognised that, if there was insurance for CPL and Sembawang, the insurance would be composite not joint. Recognition of the validity of a contract with CPL is therefore neither here nor there and paragraph 8 of the Assignment Agreement specifically contained a denial of any insurance contract with Sembawang. At no time was the existence of the contract with Sembawang ever accepted or affirmed.

Equally, reliance upon paragraph 3 of the Re-Amended Particulars of Claim which alleges that NHM were authorised by CPL, Sea Trucks and Sembawang to place insurance for them does not amount to affirmation. Once again, at paragraph 13(1) it is made plain that NHM failed to place a policy which provided insurance for Sembawang.

Absent an unequivocal communication of affirmation of the insurance, there can be no loss of the right to avoid. Whilst the London Insurers maintained that there was no contract, it is hard to see how they could avoid and the point at which the need to elect arises would presumably be when it became plain that Sembawang was a party to the Slip Policy. It is self-evident that a breach of the duty of good faith, in failing to make proper disclosure, would not automatically negate the existence of a contract of insurance to which Sembawang was, as undisclosed principal, a party. It would only be upon acquiring knowledge and the exercise of the London Insurers’ election that the Slip Policy would be avoided.

Mr. MacDonald Eggers argued however that the Assignment Agreement amounted to a contractual abandonment of the right to avoid. I have already referred to the essential provisions of the Agreement earlier in this judgment but the critical part of this Agreement, for this purpose is to be found at paragraph 13 which reads as follows: -

Whilst recital F to the Agreement set out the London Insurers’ position that Sembawang was not a Co-Assured, the effect of paragraph 13 is to waive any rights which might have existed in respect of any such insurance. In doing so, as a matter of contract with Sembawang, the London Insurers did waive any right to avoid the insurance.

The Agreement was made on 26^th July 2004 but the plea in paragraph 6(a) of the Re-Amended Reply and Defence to counterclaim was to the effect that, insofar as Sembawang was entitled to intervene as undisclosed principal and there was nondisclosure of the intention and/or authority which permitted that, the London Insurers “could and would have avoided for material nondisclosure”. This presents a hypothetical situation in the absence of the Assignment Agreement. If Sembawang had pursued a claim against the London Insurers, claiming to be an undisclosed principal, instead of settling their claim, then no doubt NHM could have relied on the nondisclosure argument in addition to maintaining that Sembawang was not a party to the insurance. The Assignment Agreement does not therefore affect that argument although the answer to Issue 4 is in my judgment that the London Insurers did lose their entitlement to avoid on 26^th July 2004 and could not now effect such avoidance.

Issue 5 is a summary judgment issue inasmuch as NHM say that the London Insurers cannot succeed in any argument that they would be entitled to avoid the Slip Policy by reason of the nondisclosures to which I have already referred. NHM say that the London Insurers have not established, let alone pleaded all of the elements of their entitlement to avoid.

The evidence before me on this issue consists of two statements from Mr. Atkin, the underwriter at the Talbot Syndicate, a joint statement from two of the following underwriters, together with a witness statement from an expert, all of which have been adduced by the London Insurers. NHM have produced a statement from Mr. van der Linden.

There are issues between Mr. Atkin, Mr. Riches (the expert) and Mr. van der Linden as to what is suggested by the presentation of a Slip for an owner arranged Builders’ Risk policy which contains no express reference to the Builder as a Co-Assured. There is an issue as to what a reasonable broker would know and understand in relation to the parties insured under a Slip Policy which took the form of the Slip in question. I have already decided the pure issues of construction of the Slip.

Mr. Atkin, in his first statement, says that not only did he have no intention to cover Sembawang when writing the insurance and that had he been told by NHM, prior to inception, that the intention was for Sembawang to be covered by this form of words, it would have affected his assessment of the risk and the terms upon which he would have written any cover. Equally, he states that if he had been informed after placement that the intention was that Sembawang be covered and that there was authority given and exercised to achieve that, he would consider the nondisclosure of those matters on placement as material and if an opportunity to avoid the policy arose, he would avoid it. He made it clear that he did not consider whether to avoid the policy at the time as the insurers considered there was no cover at all. Two of the following underwriters confirmed that evidence for their own syndicates and stated that they would not have written the risk in the manner they did had they understood that Sembawang could be an insured. Reliance was placed upon the information given that Sembawang had its own ship repairers legal liability insurance and the value of the subrogated rights which would arise, should damage to the vessel occur in circumstances for which Sembawang was responsible.

In my judgment, notwithstanding anything Mr. van der Linden says, there is plainly an issue as to the materiality of the nondisclosure and issues as to inducement. Although there is no direct evidence from the fourth underwriter of the London Insurers, on a summary judgment application where three underwriters give evidence of inducement, it is legitimate for the Court to infer that there is an arguable case upon inducement for the fourth, not least because of the decision in St. Paul Fire & Marine v McConnell Dowell [1995] 2 LLR 116 at 127. Although there is no presumption of law that an insurer is induced to enter into a contract by a material nondisclosure, the facts may however be such that it is to be inferred, even in the absence of evidence from him (see Assicurazioni Generali v Arab Insurance Group[2003] LRIR 131 at paragraph 62).

NHM maintains that the London Insurers knew of the relevant facts from December 2003 onwards but took no steps to avoid, even though they knew of the undisclosed principal issue. They could, says Mr. MacDonald Eggers, have maintained their primary case of no contract with Sembawang but given notice of avoidance in the alternative, if they were wrong on their primary case. Whilst it would no doubt be possible to do this, the evidence of the London underwriters is that they considered that there was no contract with Sembawang. They also state that if the point had been concluded against them and it had become known to them then, as a fact, that Sembawang was truly the undisclosed principal, they would have avoided at that point. Until then they say that they could not know that they had the right to avoid in law or if there were truly facts in existence which justified it. Difficult issues of knowledge arise here of the kind discussed by Mance J (as he then was) in ICI (ibid) at page 162. It is nothing to the point, says Mr. Kealey Q.C. on behalf of CPL/Sembawang (as represented by the London Insurers in subrogation) that there may have been a contractual abandonment of the right to avoid in July 2004 since all of this argument proceeds upon the hypothesis put forward by NHM, namely that Sembawang was an undisclosed principal. If it had become plain at any stage prior to the Assignment Agreement, that Sembawang was truly an undisclosed principal to the insurance, then the London Insurers would have avoided at that point.

It is clear to me that this issue raises issues of fact and arguments in relation to a hypothetical situation which cannot be determined on a summary judgment basis without full evidence and testing of that evidence. For summary judgement purposes I have no doubt that the evidence so far adduced is sufficient to show that the London Insurers have realistic prospects in succeeding on these issues.

Issue 6 is a pleading issue, inasmuch as the London Insurers have pleaded a claim against NHM in negligence in failing to include Sembawang as a Co-Assured under the policy or specifically to identify Sembawang as such on the face of the policy. At the time of the Order for preliminary issues, no claim had been pleaded against NHM of any failure to disclose material facts which rendered the insurance voidable. A late amendment, for which I understand no permission has been given makes such a case.

The issue proceeds upon the basis that Sembawang is an Assured as a result of being an undisclosed principal and not because it falls within the wording of the Assured or Additional Assured clauses. Alternatively it proceeds on the basis that the Court has decided that CPL was trustee of a promise of cover in favour of Sembawang. Self-evidently, if the London Insurers could and would have avoided for material nondisclosure of the intention to include Sembawang as a Co-Assured and of the existence of authority in Sea Trucks and/or CPL to do so, this would make no difference to the claim as framed prior to amendment.

The re-amendments to paragraph 6(d) and paragraph 7 of the Amended Reply and Defence to counterclaim plead a claim that NHM were in breach of duty and/or negligent in failing to make disclosure and, if such a claim is pursued, then self-evidently any Court decision that avoidance could and would have occurred on this basis is on point.

Insofar as an application was made, tentatively, at the hearing for this amendment and to add (for the sake of clarity only) NHM’s failure to give disclosure (because failure by CPL was already pleaded) I refused to make any decision on the application so as to preserve the status quo for the hearing of the preliminary issues. It is hard to see how any application for amendment could be successfully resisted in the future however.

In my judgment it is clear that, if NHM, through NMB, did not obtain cover which, as a matter of law, clearly did include Sembawang as Co-Assured, without room for significant debate, this represented a failure to act with due care and skill in the placement of the insurance.

A number of authorities make it clear that the duty of a broker is, so far as possible, to obtain insurance coverage which clearly and indisputably meets its clients’ requirements.

In FNCB Ltd v Barnet Devanney (Harrow) Ltd [1999] LIRL 459 (CA) Morritt LJ at paragraph 21 said this: -

Reference was then made to Dixey & Sons v Parsons(1964) 192 EG 197 which was, like Levy v Spyers (1856) 1 F & F 3, an action involving a negligent solicitor who had failed to secure the clients’ position with consequent expense in argument and litigation. Whether or not the argument advanced by the broker or solicitor is ultimately found to be correct, the fact remains that, by not doing what a competent professional person would do to avoid such argument, cost and expense can be incurred. In those circumstances liability for loss and damage which flows from that negligence and is not too remote must be recoverable.

NHM contends that it was only instructed to arrange cover for Sembawang in accordance with Clause 15.12 of the Sembawang contract. That Clause, as set out earlier in this judgment, provided that CPL was obliged to “include the contractor (Sembawang) as an Additional Co-Assured”. This meant no more than that Sembawang would be covered as a Co-Assured, not that it had to be named.

The Re- Amended Particulars of Claim plead that NHM failed to place a policy which expressly named Sembawang and/or failed to ensure that it was sufficiently identified as a co- assured on the face of the policy with sufficient or any clarity. Loss and damage is alleged to follow. In paragraph 21, it is alleged that CPL paid $850,000 to Sembawang in settlement of its claim for such failure by NHM and the potential breach of Article 15.12. Whilst it is true that the breach of Article 15.12 would be the failure to obtain cover for Sembawang and not the failure to name Sembawang in the policy, the settlement agreement was a compromise in circumstances where there was dispute. The issue is not necessarily whether CPL was in breach, of Article 15.12 but whether it reasonably settled a claim that it was in such breach as a result of the failure of NHM to obtain insurance for Sembawang which was clear on the face of the policy.

The written instructions given and the exchanges of correspondence to which I have already referred talked in terms of “naming” Sembawang as Co-Assured and this would be the ordinary and natural way to achieve the desired result. This NHM did not do and Mr. van der Linden’s protestations in his statement about his instructions and his understanding of the position do not, arguably, assist NHM at all. Insofar as Mr. Van Der Linden’s evidence raises issues about the nature and terms of his instructions, which do impact on the duties undertaken, this raises issues of fact which are not capable of determination on a summary basis.

The argument which has taken place about the wording of the Slip Policy and whether or not Sembawang was or could be covered by it illustrates the consequence of NHM not taking the step which Mr. Riches, the London Insurers’ expert, states is that which any competent broker would take to insure that Sembawang was covered – namely to ensure that it was expressly named as a Co-Assured.

It matters not that arguments are open to NHM as to whether or not the Slip Policy did cover Sembawang or allowed for Sembawang to take up the contract as an undisclosed principal. If NHM had done its job properly, no such argument would have been necessary. In such circumstances, there would have been no dispute about whether CPL was in breach of Article 15.12 and no compromise agreement would have been concluded, nor any payment made.

Whether or not the Agreement was reasonably concluded in mitigation of loss, following NHM’s breach might be open to argument but matters of fact arise here, which cannot be resolved on a summary judgment application. Issue 7 only asks me to decide whether there is a real prospect that the London Insurers would succeed in their claim on the grounds that NHM failed to obtain cover which expressly named Sembawang or to ensure that it was identified as a Co-Assured on the face of the Slip Policy with sufficient clarity. I find that there is such a real prospect. Whether or not NHM could envisage success on arguments as to whether or not Sembawang was included within the wording of the Slip Policy, was the beneficiary of the trust of a promise or could intervene as undisclosed principal, it seems that it was their negligent action in failing to procure the naming of Sembawang as a Co-Assured that gave rise to all the arguments and losses, subject to any issues of failure to mitigate.

Issues 8 & 9

Did CPL suffer no loss (by way of a liability to Sembawang for breach of clause 15.12 of the Completion Contract) as a result of any alleged breach of duty on the part of NHM on the grounds set out in paragraph 16C of the Amended Defence and Counterclaim?”

It is suggested by NHM that, regardless of whether or not Sembawang was a Co-Assured under the Slip Policy, it suffered no loss by reason of any breach of duty on the part of NHM. The arguments centre upon the construction of the Sembawang contract and the suggestion that Sembawang was not liable to CPL under the Sembawang contract and so could have no loss of its own to claim from the London Insurers. At the very least it is said that, had it been sued by CPL, it could have set off against any liability under the contract its claim for damages for CPL’s failure to obtain insurance for it.

In my judgment, NHM’s contentions as to the proper construction of the Sembawang contract are to be rejected. The idea that Sembawang was exempt from liability to CPL in respect of the damage to the vessel by reason of the requirement for CPL to take out insurance for Sembawang under Clause 15.12 fails to take account of the other provision of the contract. It is possible that Sembawang might have a claim for damages against CPL for failure to obtain that insurance but that is different.

Under Articles 2.2, 5 and 8 of the Sembawang contract, Sembawang undertook to perform the specified work in accordance with the project schedule and to complete it by the completion date, eight and a half months after arrival of the barge at the yard. The contract provided for the work to be done in a professional and workmanlike manner with due diligence in every respect, for the work to be prosecuted continuously and diligently in a proper professional and workmanlike manner using suitably qualified personnel in strict conformity with the contract (Article 11).

Under Article 13, title to equipment, materials, goods and drawings supplied or prepared by Sembawang was to vest in CPL as soon as it became identifiable but all remained at the sole risk of Sembawang until unconditional acceptance. Similarly title to any value added or work or materials added by Sembawang or any subcontractor to materials furnished by CPL would pass to CPL on acceptance, with Sembawang remaining responsible for defects, losses or damage.

Article 15 set out the respective liabilities of the parties and the insurances to be taken out. The relevant parts are as follows: -

The CONTRACTORS shall be responsible for, and indemnify and hold harmless the COMPANY GROUP, from all claims, losses, damages, and expenses resulting from and/or arising out of: -

The CONTRACTOR shall assume full responsibility and be liable for loss of or damage to: -

The BARGE; and/or

any materials or equipment in the care, custody or control of the CONTRACTOR GROUP;

It will be noted that the obligation of Sembawang was “to be responsible for” and “indemnify and hold harmless” CPL in respect of “claims, losses, damages and expenses” or “costs” in a number of areas. Specifically, under Article 15.2.2, the obligation was to indemnify and hold CPL harmless from claims, losses, damages and costs resulting from loss or damage to CPL’s property arising out of or in connection with Sembawang’s negligence. Likewise, under Article 15.4, Sembawang was to assume full responsibility and be liable for loss of or damage to the barge and any materials or equipment in its care if such resulted from, arose out of, or in connection with, its negligence.

There cannot be the slightest doubt that the primary obligation upon Sembawang was to indemnify CPL and hold it harmless and to undertake full responsibility and liability for loss or damage to the barge caused by its negligence.

I was referred to the decision of the House of Lords in The Fanti & The Padre Island (No. 2) [1990] 2 LLR 191 and to Lord Goff’s explanation of the meaning of an indemnity: -

The scheme of this contract is plain. If damage occurs to the vessel as a consequence of Sembawang’s negligence, it is automatically in breach in failing to hold CPL harmless and it is required to remedy that forthwith.

It is, in any event, required to complete the contract in the time specified, and could not rely on its own breach in failing to do the necessary work to achieve that. It was because the yard was, under the Sembawang contract, required to do the repair work that it required and was to be afforded insurance cover. Under Article 15.7.5, it should in addition have procured a ship repairers insurance in respect of its contractual liabilities so that this cover would respond. In addition however, CPL was to arrange insurance cover which would include Sembawang as an Additional Co-Assured which would enable Sembawang to claim on that policy as well as its own ship repairer’s policy. There is however no doubt that Sembawang, as between itself and CPL, had to put matters right because of the nature of the substantive obligations undertaken, regardless of any question of insurance. Where there is a provision for both parties to take out insurance, which cover the same event, namely damage to the vessel caused by Sembawang’s negligence, although the policies differ in nature as one is for “all risks” and the other insures against liability, there can be little doubt that the insurance provisions are subordinate to the liability provisions in the contract. Thus Sembawang was obliged to put matters right where it had been negligent and caused damage before any claims were made under any policy for which the contract provided.

This is in fact what happened so that Sembawang suffered loss in incurring the expense of reparation work. CPL were in breach in failing to take out the All Risks Cover to which Article 15.12 referred with the result that Sembawang could have a valid claim against CPL for the amount which it would have recovered under the policy, had CPL fulfilled its obligations to obtain it. However CPL would have a cross-claim for Sembawang’s own failure to insure in accordance with Article 15.7.5. Moreover, there would be a sum of $325,000 by way of deductible under Article 15.12 which Sembawang would have to bear, subject to any question of recovery under its own policy. It is probable that the 2 insurances constituted joint insurance and that one insurer could have claimed a contribution from the other had either existed. In fact Sembawang had failed to take out its own ship repairer’s cover and it was, on my findings, not covered by the CPL policy.

In these circumstances it is nothing to the point that Sembawang might have sued CPL for breach of Article 15.12, regardless of the above. It also had a valid cause of action against NHM, if NHM owed it a duty, as Sembawang, through its assignees, the London Insurers, alleges. The consequence of NHM’s alleged breach of duty is that Sembawang could not recover under the Slip Policy in circumstances where its claim against the London Insurers was refused solely on the ground that it was not an Assured under that policy (see Assumed Fact 17). Assumed Fact 15 sets out Sembawang’s expense by way of cost of repair of the vessel and Assumed Fact 20 states that Sembawang received $850,000 from CPL in respect of the recoverable repair costs and its claims against CPL for failure to obtain the Builders’ Risk Insurance, under the Settlement Agreement. That sum therefore falls to be credited against the loss incurred by way of cost of repair.

Although CPL could have made a monetary claim against Sembawang in respect of the damage to the vessel, then even if Sembawang would have been entitled to set off its own claim for CPL’s breach of Article 15.12, (ignoring its own breach of Article 15.7.5) no such claim was actively made by CPL. Thus Sembawang, in accordance with the terms of the contract fulfilled its primary responsibility to repair the vessel and thus suffered loss and damage. Sembawang’s liability to do so was not exempted by the insurance provisions at all although Sembawang would, had the Slip Policy named it as an Assured, have been able to recover under it.

It matters not that Sembawang had no “established liability” in the shape of a judgment or Settlement Agreement because that would be unnecessary for a claim under the Slip Policy, which was not a liability policy, but an All Risks Property policy, covering loss in respect of an insurable interest in the barge.

NHM also contends that CPL suffered no loss by reason of any breach of duty on the part of NHM. NHM maintains that CPL was clearly an Assured under the Slip Policy and that it was always open to CPL to recover an indemnity from the London Insurers for the damage done to the vessel amounting to the cost of repair. This argument founders because CPL never did incur any loss in relation to the cost of repair inasmuch as Sembawang bore it, and rightly bore it under the terms of the Sembawang contract. As set out already, CPL was never liable to reimburse Sembawang for the repair costs under the terms of the policy although it could arguably have been liable to Sembawang for failure to obtain the insurance that Article 15.12 required. A claim for failure to insure was not covered by the “All Risks” policy.

CPL therefore suffered no direct loss in relation to the cost of repair but faced a claim from Sembawang in respect of its breach of Article 15.12. CPL paid $850,000 to Sembawang in full and final settlement of that claim under the Settlement Agreement. That is a sum which it would never have had to pay if NHM had not failed to obtain a Slip Policy in which Sembawang were named as a Co-Assured. CPL has recovered sums from the London Insurers under the Assignment Agreement which still leave a shortfall against the sum it has paid out to Sembawang.

In addition, both Sembawang and CPL allege that they have incurred costs and expenses as a result of NHM’s breach and, to the extent that these are established, they are in principle recoverable.

Issue 10

Once again this is effectively a summary judgment application made by NHM. two items of “repair costs” are claimed relating to “yard extended project management” (item L) and “yard extended general services and facilities” (item M). Mr. Roger Law of Steege Kingston, the adjusters instructed by the London Insurers, explains in some detail how the sums in question were calculated at paragraphs 19-26 of his statement. He concludes that the figures in question represent “the actual costs of repairs or supervision of repairs alone”. They represent 80% of the project management costs and the cost of general yard services and facilities over a 60 day period which was the time taken for the repairs to be carried out, as adjusted by Steege Kingston.

NHM, for the purposes of the argument, accepts that items L and M may arguably be within the costs of repair referred to in section 69(1) of the Marine Insurance Act 1906, whilst reserving its position to argue otherwise at a later stage, following full disclosure. Nonetheless, NHM maintains that these costs are excluded from cover under the policy pursuant to Section 55(2)(b) of the 1906 Act which reads: -

NHM maintains that the Marine Adventure being insured is the project under the Sembawang contract itself and that the policy contemplated that the project period would be 6½ months. I do not consider that it is right to say that the Marine Adventure insured is the completion and outfitting contract as such. The insurance does not cover the doing of the work – it covers the vessel whilst it undergoes completion outfitting and the like at the yard over the anticipated period during which that work is carried out. This is a Marine Hull policy covering all risks whist the work is being done.

There is no doubt that the damage to the vessel caused delay in the completion of the work because of the need to carry out repairs. The insurance was undoubtedly extended for a period to ensure that cover continued throughout the period of work and remedial work.

The issue here is a question of fact and determination of proximate cause. It is inevitable that if repairs have to be done, there are not only costs of labour and materials in effecting the work itself but project management costs in the shape of planning and supervision of the repairs and the provision of yard services which are calculated on a time basis. This does not mean that they are costs of delay or amount to a “loss proximately caused by delay”.

Whether or not the costs are truly costs of repair or costs proximately caused by delay is a question of fact where the London Insurers have adduced evidence which gives them a realistic prospect of success. Furthermore, in my judgment, on the evidence currently available, this is a matter upon which they are likely, rather than NHM are likely, to succeed.

For the reasons given, I answer the preliminary issues as set out in this judgment. On the central issue and indeed on most of the issues, the London Insurers have succeeded. Whilst I wait to be addressed on costs, it seems to me at present that the London Insurers will be entitled to an order in their favour, subject to any arguments about discrete issues or matters of which I am unaware.