Sun Alliance & London Insurance Plc & Ors v PT Asuransri Dayin Mitra TBK

On 17 February 2006, Tomlinson J, upon the application of the Defendant/Part 20 Claimant (“ADM”) ordered that the Part 20 claim brought by ADM against the Part 20 Defendant (“Pelumin”) should be tried on affidavit evidence on the first available date after 3 April. Tomlinson J made provision for the evidence and submissions filed by ADM to be served upon Pelumin at a time and in a manner which has been duly effected.

Pelumin did not attend the hearing before Tomlinson J and has stated, by its solicitors in Singapore, that it intends to take no part in the trial. It has not served a defence or taken any steps in these proceedings. I have, however, read a number of letters of some length, to which I was properly referred, in which the solicitors for Pelumin have put forward grounds for contesting the claims made by ADM and the jurisdiction of this court to try them.

The trial took place before me on 6 April. As anticipated, Pelumin did not appear and was not represented. ADM was represented by solicitors and counsel, Mr Julian Kenny.

ADM is an Indonesian insurance company. Pelumin is an Indonesian ship operator. ADM agreed to insure a tanker called the No 1 Dae Bu (“the Vessel”). The insurance was on the terms of an Endorsement No 2 evidenced by a broker’s cover note dated 14 July 2004 (“The Endorsement”). The Endorsement extended the cover under a contract of marine hull insurance (“The Policy”) dated 25 August 2003 which covered two other vessels owned by Pelumin for the period 10 August 2003 to 9 August 2004. The cover for the Vessel was stated to be with effect from 28 June 2004 to “common expiry” on 9 August 2004. ADM was reinsured by the Claimants.

At the time the insurance cover was agreed, the Vessel was in port at Yeo Su in South Korea. Pelumin bought the Vessel from Korean sellers and she had been delivered to Pelumin at Yeo Su on 28 June 2004. Pelumin intended to sail the Vessel to Indonesia and use her for coastal trading there.

On 4 July, the Vessel was struck by a typhoon. At the time she was anchored half-a-mile off-shore at Yeo Su. Work was being carried out on the engine preparing for the voyage to Indonesia. The anchor dragged and the Vessel went aground on a breakwater just off-shore.

Pelumin claimed under the insurance for the losses suffered as a result of the grounding. ADM has rejected the claim and sought to avoid the cover.

The present proceedings were begun by the Reinsurers in February 2005. Reinsurers sought Declarations that they were not liable to indemnify ADM under the reinsurance for the losses claimed by Pelumin. ADM, in August 2005, issued the Part 20 proceedings seeking the same relief against Pelumin. The Part 20 proceedings were served on Pelumin in early January 2006. In the meantime Pelumin had issued a claim in Indonesia against ADM and against Marsh (the brokers who acted for Pelumin in placing the insurance and for ADM in placing the reinsurance).

The claim in Indonesia continues. It is presently the subject of compulsory mediation. If there is no settlement, ADM will be required to serve a defence probably during May 2006. At that stage (and not before) ADM will have the opportunity to challenge the jurisdiction of the Indonesian courts, an opportunity it intends to take.

The Policy includes a schedule and specification which contain the details of the cover provided. There were three types of cover: Hull, Increased Value and War Risks. The terms of each cover were all Institute of London Underwriters’ standard clauses with some specific variations. “Coverage” was “MAR 91”, a reference to the new Lloyd’s Marine Policy Form.

The Endorsement was first issued by ADM on 7 July 2004 (after the loss). But Marsh suggested one minor and immaterial amendment which was agreed and incorporated in Marsh’s cover note dated 14 July 2004. The Endorsement named Pelumin as the Insured. It expressly provided “FORM: New Marine Policy Form”. It recorded that it was agreed that the Vessel was included in the insurance provided by the Policy. The Vessel was described as an “Oil/Chemical Product Tanker” and her Class was stated to be “KR” a reference to the Korean Registry of Shipping.

The Hull cover was for “Trading” in “Indonesian waters only”. An additional premium was payable for cover for the delivery voyage from Korea to Indonesia which was “subject to vessel being in class and crewed to class standards”. “All other terms and conditions” were as provided for by the Policy.

The Reinsurance was also extended to cover ADM’s exposure under the Endorsement by an Addendum No 04 to the main cover. Notably, the Addendum, in contrast to the Endorsement, included cover for the Vessel “whilst in Korea, her sea trial and a delivery voyage from Yeo Su Port … ETD 04 or 05/07/04 to Batam, Indonesia ETA between 15-20/07/04” (the emphases are mine). It appears that whilst Marsh negotiated an extension of the reinsurance in the underlined terms they forgot to do the same for the insurance.

ADM was in fact fronting for Reinsurers. 99.67% of the risk was ceded to Reinsurers. The reason was Indonesian regulatory requirements. The consequence was that the leading role in evaluating and pricing the risk was taken by Reinsurers (and, in particular, by “Sun Alliance”) and Marsh negotiated the reinsurance before placing the insurance with ADM.

ADM rely upon affidavits from 4 witnesses: Welly Kaurow; Matthew Cannock; David Humphreys and Ricardo Simanjuntak. Mr Kaurow is employed by ADM as a marketing broker and was involved in arranging the insurance of the Vessel and in events following the loss. Mr Cannock was the underwriter for Sun Alliance who negotiated the terms of the reinsurance. Mr Humphreys is a surveyor employed by the Salvage Association who surveyed the Vessel both before and after the loss. Mr Simanjuntak is ADM’s lawyer in Indonesia. It is his evidence that a judgment in favour of ADM in this country would provide useful evidence in support of a challenge in Indonesia to the jurisdiction of the Indonesian court.

The Hull cover provided by the Policy is expressly on the terms of the “Institute Time Clauses – Hulls” (the “ITCH”). The ITCH provides that “this insurance is subject to English law and practice”. The IV and War Risks cover are, by express reference to other Institute Time Clauses, also subject to English law and practice. The Endorsement was subject to the terms and conditions of the Policy.

The Rome Convention as implemented by the Contracts (Applicable Law) Act 1990, applies to contracts of insurance covering risks situated outside the EEA. Article 3(1) of the Convention provides that a contract is governed by the law chosen by the parties. The choice must be express or demonstrated with reasonable certainty. In my judgment, the provisions of the insurance to which I have referred amply fulfil that requirement. There was an express choice of English law.

“MAR 91”, the Maritime Policy Form, provided expressly that:

“This insurance shall be subject to the exclusive jurisdiction of the English courts, except as may be expressly provided herein to the contrary.”

Both the Policy and the Endorsement incorporated the Marine Policy Form. Neither contained any express provision to the contrary. The terms of both the Policy and the Endorsement were put forward to ADM and agreed by Marsh acting as brokers for and on behalf of Pelumin. Marsh would, of course, be fully familiar with the Marine Policy Form and its jurisdiction provisions.

It follows that the claims by Pelumin under the insurance and by ADM in these proceedings are, by agreement, subject to the exclusive jurisdiction of this court.

The Endorsement provided for both time and voyage cover, as Mr Kenny submitted. The time cover was for 43 days from 28 June to 9 August 2003, but subject to a limitation of trading in Indonesian waters only. The delivery voyage cover was from Yeo Su Port in Korea to Batam in Indonesia.

The loss occurred whilst the Vessel was at Yeo Su Port. If it is recoverable, it can only be recovered under the delivery voyage cover because the trading cover is only effective for trading in Indonesian waters.

The Korean Registry of Shipping (KR) is, on the evidence before the court, one of the leading Classification Societies with a reputation for high standards. Before September 2003, the Vessel was classed with KR. In September 2003 the Vessel had been hit by another typhoon (Maemi) and severely damaged. On 31 March 2004, the Vessel’s class with KR was suspended. On 1 July 2004 it was cancelled.

On 28 June 2004, the day the Vessel was delivered by the sellers to Pelumin, the sellers entered the Vessel with the International Maritime Bureau Inc (“the IMB”) of Panama, which issued interim class certificates on that day.

It is Mr Cannock’s evidence that the IMB is in the lowest category of classification societies such that it is not a classification society at all “by any international standards”. His evidence is that vessels entered with the IMB “probably would be viewed with suspicion by most port authorities and certainly by any international marine underwriter.” Mr Cannock said that if he had been told before the reinsurance incepted that KR Class had been suspended he would not have written the risk but would have instructed that a detailed survey of the Vessel first be carried out.

When Marsh presented the risk to ADM, ADM was told the Vessel was in class with KR. That was also written into the Endorsement. How that came about is not material to the issues before this court save to note that it has not been suggested that ADM was in any way aware of a mistake, if such it was.

Mr Kenny submitted that ADM was not liable to indemnify Pelumin for the damage to the Vessel for five reasons:

The Warranty Issue

The Endorsement expressly provided “Class: KR”. Mr Kenny referred the Court to the general rule, stated in paragraph 681 of Arnould, 16^th Edn, vol 2, that every statement of fact contained in a policy relating to the thing insured “amounts to a warranty and as such must be literally fulfilled”. Whilst it is of no relevance to the present law, in the light of Mr Cannock’s evidence, there could be no real doubt that the reference to Class KR was a warranty even if the test in law did involve (which it does not) a requirement that the relevant statement affect the underwriter’s judgment of the risk.

I can see no possible answer to ADM’s submissions on the Warranty Issue. It follows that on this ground alone ADM is not liable to indemnify Pelumin for the damage to the Vessel.

The Voyage Cover Issue

The Endorsement clearly stated that cover for the delivery voyage was “subject to vessel being in class and crewed to class standards”. As a matter of construction, as Mr Kenny submitted, this must be a reference to the class declared and provided for, and so to KR. It cannot be read as “some or any class”. As the claim by Pelumin can only be advanced under the voyage cover it follows that ADM were off-risk at the time of the loss as the Vessel was not in class. ADM is, therefore, entitled to succeed for this reason also.

The Clause 4(1) ITCH Issue

I am not satisfied that ADM has made out its case on this basis. In my judgment Clause 4(1) is addressing a change in class following inception of the Policy. The original suspension of the vessel’s entry in KR ante-dated inception. Insofar as the cancellation of the entry postdated inception (which is itself doubtful) I do not think it affected the position. The evidence appears to be that at inception the Vessel was entered with the IMB and it remained so thereafter.

The Coverage Issue

The only cover which might assist Pelumin is the delivery voyage cover. But that was cover “from Yeo Su … on 4 or 5 July”. The Vessel was not proceeding from Yeo Su when it grounded. Indeed it was not in a condition to do so. Schedule 1 to the Marine Insurance Act, 1906 provides that:

“From

2 Where the subject-matter is insured “from” a particular place, the risk does not attach until the ship starts on the voyage insured.

At and From

3(a) Where a ship is insured “at and from” a particular place, and she is at that place in good safety when the contract is concluded, the risk attaches immediately. ”

The risk insured by the delivery voyage cover had not attached and would not have done so until the Vessel had started on its intended voyage to Indonesia. There was, therefore, no cover for the loss and ADM is also entitled to succeed on this basis.

The Seaworthiness Issue

In view of my decision on the previous issue, this Issue does not arise. However, on the evidence of Mr Humphreys, it is clear that the Vessel was not in fact in a seaworthy condition at the time it was caught in the typhoon and grounded. The main engine was under repair and the Master had been told that it would not be available prior to arrival of the typhoon. It is also Mr Humphrey’s opinion that if the Vessel had been able to use the engine “in all likelihood it would have been able to avoid going aground.”

At the present hearing, the relief claimed by ADM was essentially declarations of non-liability. The grant of such relief is discretionary. The factors which the court needs to consider are stated in New Hampshire Insurance Company v Phillips Electronics [1999] Lloyd’s Rep IR 58 and, in a context similar to the present one, Dornoch v Mauritius Union [2000] Lloyd’s Rep IR 127. I have no doubt that this is an appropriate case for the court to exercise its discretion to grant negative declarations. This country is the agreed exclusive forum for the resolution of claims under the Policy and Endorsement. ADM (and Pelumin) therefore have agreed to pursue the issues only before the UK courts. The insurance is also agreed to be subject to English law and so an English court is well placed to address and determine the issues of law (including questions of construction) which arise. Further it is the evidence of Mr Simanjuntak that an English judgment might be important additional evidence to support the application ADM proposes to make in the Indonesian courts. These are quite sufficient reasons for granting declarations to reflect the conclusions I have reached. ADM is the claimant because Pelumin has sought to pursue its claim in another non-contractual forum and because ADM faced claims by the Reinsurers in this jurisdiction.

There is attached to this judgment the Order which the Court has made to reflect its terms.