Argo Systems FZE v Liberty Insurance (PTE) & Anor

This is the trial of preliminary points about a marine insurance claim arising out of the total loss of the vessel Copa Casino in March of 2003. The points concern construction of a warranty and claims that the defences put forward by the First Defendant are no longer open as a result of affirmation, waiver or estoppel.

The vessel was a floating casino which had been purchased for scrap and was to be towed as a dead ship from the U.S. Gulf to India. The Claimant (“Argo”) owned the vessel and obtained insurance for the voyage with the First Defendant (“Liberty”) through a U.S. producing broker DeWitt Stern (“DSI”) and an English placing broker the Second Defendant (“LSR”). The voyage began on 3 March 2003 but on the twelfth day the vessel developed a list which increased and on 16 March the vessel sank in 8,000 ft of water in the Caribbean Sea. Argo’s claim on the policy was declined in July 2003 and the parties have been in litigation in the United States and more recently in England since May 2004.

The policy dated 11 March 2003 incorporated the Institute Voyage Clauses, provided cover for total loss of the vessel caused by perils of the sea and was subject to English law and practice. The Schedule described the Period of insurance as “from time of taking in tow by tug “Fair Play xiv” at Gulfport, Mississippi, in single tow on or about date to be agreed to Alang, India and until safe arrival there.”

The warranties included:-

“Warranty no release, waivers or “hold harmless” given to Tug and Towers.”

The insuring conditions were “as per Institute Voyage Clauses as modified in certain respects.” The clauses adopted were those in the edition of 1 October 1983.

Clause 1.1 of the Institute Voyage Clauses headed “NAVIGATION” reads as follows:

“The Vessel is covered subject to the provisions of this insurance at all times and has leave to sail or navigate with or without pilots, to go on trial trips and to assist and tow vessels or craft in distress but it is warranted that the Vessel shall not be towed, except as is customary or to the first safe port or place when in need of assistance, or undertake towage or salvage services under a contract previously arranged by the Assured and/or Owners and/or Managers and/or Charterers. This Clause 1.1 shall not exclude customary towage in connection with loading and discharging.”

The 1995 Edition, which Argo’s Counsel originally relied on in the U.S. proceedings believing it to be applicable was the 1995 form which after 1.1 provides as follows:

“This insurance shall not be prejudiced by reason of the Assured entering into any contract with pilots or for customary towage which limits or exempts the liability of the pilots and/or tugs and/or towboats and/or their owners when the Assured or their agents accept or are compelled to accept such contracts in accordance with established local law or practice.”

The sum insured was $1,225,000. The premium was substantial, a basic rate of 12%, some $160,000 in all.

The contract for the tow was unsurprisingly made subject to the “Towcon” International Towage Agreement (Lump Sum). Clause 18 of this standard form agreement provides as follows:-

“ 1.(a) The Tugowner will indemnify the Hirer in respect of any liability adjudged due or claim reasonably compromised arising out of injury or death occurring during the towage or other service hereunder to any of the following persons:

(i)

The Master and members of the crew of the Tug and any other servant or agent of the Tugowner;

(ii)

The members of the Riding Crew provided by the Tugowner or any other person whom the Tugowner provides on board the Tow;

(iii)

Any other person on board the Tug who is not a servant or agent of the Hirer or otherwise on board on behalf of or at the request of the Hirer.

2.(a) The following shall be for the sole account of the Tugowner without any recourse to the Hirer, his servants, or agents, whether or not the same is due to breach of contract, negligence or any other fault on the part of the Hirer, his servants or agents:

i)

Loss or damage of whatsoever nature, howsoever caused to or sustained by the Tug or any property on board the Tug.

ii)

Loss or damage of whatsoever nature caused to or suffered by third parties or their property by reason of contact with the Tug or their property by reason of contact with the Tug or obstruction created by the presence of the Tug.

iii)

Loss or damage of whatsoever nature suffered by the Tugowner or by third parties in consequence of the loss or damage referred to in (i) and (ii) above.

iv)

Any liability in respect of wreck removal or in respect of the expense of moving or lighting or buoying the Tug or in respect of preventing or abating pollution originating from the Tug.

The Tugowner will indemnify the Hirer in respect of any liability adjudged due to a third party or any claim by a third party reasonably compromised arising out of any such loss or damage. The Tugowner shall not in any circumstances be liable for any loss or damagesuffered by the Hirer or caused to or sustained by the Tow in consequence of loss or damage howsoever caused to or sustained by the Tug or any property on board the Tug.

(b)

The following shall be for the sole account of the Hirer without any recourse to the Tugowner, his servants or agents whether or not the same is due to breach of contract, negligence or any fault on the part of the Tugowner, his servants or agents:

i)

Loss or damage of whatsoever nature, however caused to or sustained by the Tow.

ii)

Loss or damage of whatsoever nature caused to or suffered by third parties or their property by reason of contact with the Tow or obstruction created by the presence of the Tow.

iii)

Loss or damage of whatsoever nature suffered by the Hirer or by third parties in consequence of the loss of damage referred to in (i) and (ii) above.

iv)

Any liability in respect of wreck removal in respect of the expense of moving or lighting or buying the Tow or in respect of preventing or abating pollution originating from the Tow.

The Hirer will indemnify the Tugowner in respect of any liability adjudged to a third party or any claim by a third party reasonably compromised arising out of such loss or damage but the Hirer shall not in any circumstances be liable for any loss or damage suffered by the Tugowner or caused to or sustained by the Tug in consequence of loss or damage, howsoever caused to or sustained by the Tow.

3.

Save for the provisions of Claues 11,12, 13 and 16 neither the Tug owner nor the Hirer shall be liable to the other party for loss of profit, loss of use, loss of production or any other indirect or consequential damage for any reason whatsoever. “

On 28 March 2003 following a request from Insurers, Argo warranted as follows:

“With respect to the above claim.

1.

The Copa Casino was being towed as a single tow only;

2.

The Copa Casino had no cargo on board;

3.

No release, waivers or hold harmless has been given to Tug or Towers;

The above warranties have been fully complied with.”

On 11 June 2003 insurers sought and later received documents from Argo including the towage contract. On 18 July 2003 Fowler Rodriguez & Chalos attorneys for the insurers, wrote rejecting the claim. This is an important letter. The attorneys although based in New Orleans have an office in London and were writing, without hesitation, about an English law policy. I see no reason to make any allowances for the words chosen in this letter. The letter states that Liberty (although in practice Marine Insurance Services) (“MIS”) “hereby denies coverage for claims by the assured arising from the sinking” and then puts forward a number of grounds. First “Initially it is the assured’s burden to demonstrate a loss of an insured peril. None of the information provided to us by the assured’s offer any indication as to the cause of the sinking, much less that the sinkingwas due to an insured peril. Absent such evidence there is no basis to support a claim under the policy.” Secondly there is reliance on the weather state warranty. Thirdly the lawyers state that the information that they have received “also indicates that the assured made several misrepresentations through their dealing with MIS. The misrepresentations include but are not limited to the following:” There follows a list of six alleged misrepresentations including what is said to be an omission from the attestation of warranties of 28 March (but not about the question of release, waivers or hold harmless). After drawing attention to various matters MIS therefore “reserves the right to alter its position in light of discovery of previously undisclosed information which would materially alter the facts and circumstances presently known… the foregoing is without prejudice to all the remaining terms and conditions of the policy, along with any other defences which may be discovered after further investigation.”

There is no suggestion that information has since come to light which had been previously undisclosed. On 24 November 2003 Bynane & Co. wrote to Liberty making a detailed claim under the policy. Fowler Rodriguez replied on 3 February 2004 rejecting the claim on the same grounds as set out previously and in May 2004. Argo sued Liberty DSI in the United States District Court for the Southern District of Alabama.

Before the start of the voyage the vessel had been moved from Gulfport to Mobile, Alabama to be made ready for her final journey. Towards the end of 2004 Liberty applied to the Alabama court to be dismissed from the case for want of jurisdiction. This was on the basis that the policy made no mention of Alabama at all but referred instead to a tow from Gulfport, Mississippi. The case moved towards trial but after fifteen months or so, in March 2006, the Court granted Liberty’s jurisdiction application and released it from the action. The case proceeded against DSI alone and Mr Bynane and his colleague conducting the case were confident that they could succeed by taking a single ground, that DSI had failed to obtain coverage from the correct port of departure.

The trial took place in September 2006 and just over a year later on 27 September 2007 the Alabama Court gave judgment and dismissed the claim against DSI on the merits. In May 2008 Argo’s appeal was dismissed and on 24 February 2009 the claim form was issued in this action. Liberty made an application to challenge the jurisdiction of this Court which was dismissed by His Honour Judge Chambers QC on 22 March 2010.

Liberty relies in its Defence to this action, served on 21 May 2010, on grounds put forward previously but also on two new breaches of warranty. Liberty would dispute that the facts have become clear. They are still running the point, so it has not fallen away, although the allegation of waiver has. Secondly Liberty alleges that there has been a breach of the warranty that “Warranted no release, waivers or “hold harmless” given to tug or towers” because Argo accepted the provisions of the Towcon which formed part of the towing contract. In the Defence Liberty also contends that as a result of non disclosures and misrepresentations which it has raised before it was entitled to avoid the policy. This claim to avoid has not been made before.

Against this background the parties agreed and the Court directed a trial of the following preliminary issues:-

The only evidence at the trial, leaving aside various written depositions which Liberty had reserved the right to rely on, was from Mr Michael Bynane, Argo’s attorney. Mr Bynane practises in Houston but is also qualified as an English solicitor. He has represented Argo throughout and, with his Co-Counsel appeared for his client in the Alabama proceedings. Mr Bynane was courteously and effectively cross-examined by Mr Davey, Counsel for Liberty. Apart from some confusion between points of substance and those of procedure Mr Bynane’s evidence was straight forward and also clearly completely honest. Mr Bynane had been surprised and disappointed by the outcome of the trial against DSI. He had gone to trial on only one issue. That was a consequence of the view that the Alabama Court had reached about jurisdiction. He was adamant that if Liberty had raised the hold harmless point in or before the U.S. proceedings he would in turn have pursued that matter against DSI, as it would have been unwise not to do so. Tactical considerations in U.S. proceedings are sometimes the same as those in England but sometimes they are not. I have no reason to doubt the truth of what Mr Bynane said about what Argo would have done in the Alabama proceedings if the hold harmless point had been introduced sooner.

I now turn to the submissions of the parties about each preliminary point.

“hold harmless warranty”

Mr Lord QC and Mr West for the Claimant contend that conventional rules of construction should be applied to construe the clause against the commercial background and on the basis that the more unreasonable and absurd the result of a particular interpretation the more likely it is to be rejected if there is a feasible alternative, see Schuler v Wickman [1974] AC 235. The Towcon form is the standard form in the industry as the Defendant’s solicitors have expressly accepted. It is commercially absurd to construe the warranty so that the policy for which the assured pays a substantial premium is worthless from inception, simply because the assured contracts with the tugowner on the industry standard form. The Claimant therefore submits that the wording refers to express waivers, releases or hold harmless provisions given by the assured after and other than in the contract itself.

Turning to Clause 18 itself the Claimant contends that none of the wording amounts to a waiver or release in the sense of an existing right and the words “hold harmless” need to be construed eiusdem generis. The Claimant relies on the 1995 version of the Institute clauses not as part of the contract to be construed but as guidance to the parties.

It is said that the hold harmless warranty should be subject to an implied condition that it is not to apply where the vessel accepts contracts limiting the liability of a tug in accordance with standard practice. Alternatively the warranty should be read as applying only to those releases different from the standard Towcon form.

Mr Davey for the Defendant points out that Clause 18 of the form is one of a series of provisions well known to amount to a “knock for knock” agreement with the parties mutually releasing each other, waiving the right to bring claims and holding each other harmless. The policy is clear that there would be no such release. This is a breach of warranty discharging Liberty from liability as Section 33(3) the Marine Insurance Act 1906 makes clear. The Defendant contends that there is no room for implication. A natural construction is not commercially absurd. Standard forms can be amended.

In my judgment the Defendant’s interpretation is clearly correct. The warranty is explicit. So is Clause 18. Argo obtained a policy warranting that no release or waivers would be given to the tug or the towers. Clause 18 contains comprehensive releases which will have the effect of sparing the tug and the towers from what might otherwise be liability to Argo which Liberty through subrogation would have been able to pursue. The difficulty lies not in the construction of the policy but in the fact that Argo’s towing contract contains releases which Argo warranted in the policy would not be accepted. As I see it in construing the policy of insurance I cannot impress upon Liberty both knowledge of the standard form and also a willingness to accept that the wording of the explicit warranty it has required should be read subject to that form. It was for Argo, or its advisers, to ensure that the policy of insurance it took out was consistent with the towing contract it had entered into. The fact that the 1995 version of the clauses contains what is now 1.2 does not seem to me a guide to the construction of the 1983 version but is, if anything, an indication that the new 1.2 was not implicit in the old 1.1.

I therefore decide this point in the Defendant’s favour.

waiver/estoppel of breach of the ‘hold harmless’ warranty

The Claimant submits that Liberty has waived its right to allege a breach of warranty by reason of its conduct, particularly in the U.S. action.

It is common ground that a breach of warranty may be waived by the insurer – see Marine Insurance Act Section 34(3). Any waiver of a breach of warranty is by estoppel. The reason is that, unlike in the case of non-disclosure or misrepresentation, where the Insurer has a choice whether to avoid or affirm the policy, a breach of warranty operates automatically to discharge the policy (The Good Luck [1992] 1 A.C. 233). Any waiver of such a breach thus requires an estoppel. The Claimant must therefore establish (a) a representation (whether by words or conduct) to the effect that Liberty is not relying on the breach of warranty defence: and (b) such reliance by the Claimant on that representation as would render it unfair or unconscionable for Liberty to be permitted to go back on it later (see Arnould on Marine Insurance, 17^th Edition § 19-38.)

Liberty was given a copy of the Towage contract in June 2003 but the hold harmless point was not taken in the letter of 18 July 2003, despite other allegations of breach of warranty, or in Liberty’s answer to the U.S. proceedings in June 2004 or in a response to interrogatories dated 13 December 2004. Asked to disclose “each and every separate ground on which you base the denial of the claims”. Liberty gave details of two alleged breach of warranties but not of the hold harmless provision. Furthermore Paragraph 21 of the Claimant’s complaint in the US action as against DSI stated, with reference to section 1.1 of the Institute Clauses “only a careful analysis of the cover notes and the Institute Clauses, as modified, calls into question whether Argo actually received the insurance coverage that it believed it was paying for”. Argo says that Liberty had every opportunity to take the hold harmless point but did not do so. The Claimant says that that is why it pursued only the port of departure to trial against DSI. Argo’s potential claim against DSI has now been finally decided in Alabama and cannot be reopened. The claim against LSR also seems doomed for the limitation reasons been pleaded in its Defence. It follows that an estoppel arises.

The Claimant contends that this is a matter of straightforward application of the authorities but it also places particular emphasis on the judgment of the then Mustill LJ in Vitol v Esso Australia [1989] 2 Lloyd’s Rep 451. In that case parties entered into a “without prejudice” agreement to determine calculation of damages in the event that certain arguments were upheld. Later one of the parties, the buyers, argued that it was entitled to reject the cargo on grounds other than those for which provision had been made in the agreement. The Court of Appeal upheld the seller’s argument that the buyers had waived their right to raise the new point. The conclusion of the court was based first on the ground that the without prejudice agreement was intended to crystallise the issues to be resolved. The court also considered that Esso had in any event waived their right to raise the new point or were estopped from doing so. The Claimant relies on a passage from the judgment (at page 460).

“I also reach the same conclusion by a rather different route. Even if, contrary to the view just expressed, one cannot spell out of the without prejudice agreement a formal definition of the matters in suit, I consider that the conduct of Esso, taken as a whole, and including their participation in formulating the terms of the without prejudice agreement, was such that they cannot fairly be allowed to rely on their new point. Whether the principle which leads to this conclusion is expressed in terms of waiver or estoppel does not seem to me of great importance. In either event I would look for conduct of Esso which conveyed that the termination of the contract was not being founded on the shortfall, and for the reliance by Vitol on the impression thus created.”

“As to the representation, I agree that absence of protest about a breach or impending breach of contract, taken completely in isolation, will not normally convey a representation that the breach will never be relied upon: see, for example, per Mr Justice Robert Goff in the Post Chaser, [1981] 2 Lloyd’s Rep 695. But there was more than silence here. By Mar. 10 Esso were in possession of copy documents which made the shortfall obvious. Two weeks later, they advance three propositions, none of them founded on the shortfall. More than two weeks later still, they were ready to sign an agreement which defined the dispute in terms of those three points, and prescribed the consequences which would follow if they prevailed. To my mind this was a clear intimation that these, and no others, were the arguments on which they were going to rely.

I am fortified in this conclusion by the decisions in Bremer Handels-gesellschaft v Mackprang [1979] 1 Lloyd’s Rep 221 and the Post Chaser. For, although I am in general sceptical about the utility of citing previous cases on waiver, given that each turns so particularly on its own facts, these decisions do show that explicit reliance on one contention, and the absence of reliance on another, which could have been advanced on facts already known, is capable of being a tacit representation that the latter would not be relied upon”.

So far as concerns a waiver by conduct, in the Superhulls Cover case [1990] 2 Lloyd’s Rep 431, Phillips J said:

“A party can represent that he will not enforce a specific legal right by words or conduct. He can say so expressly – this of course he can only do if he is aware of the right. Alternatively he can adopt a course of conduct which is inconsistent with the exercise of that right. Such a course of conduct will only constitute a representation that he will not exercise the right if the circumstances are such as to suggest either that he was aware of the right when he embarked on the course of conduct inconsistent with it or that he was content to abandon any rights that he might enjoy which were inconsistent with that course of conduct.”

This leads the Claimant to submit that this was a case where the circumstances suggested that Liberty was aware of its right to rely on the hold harmless point by defence to the claim but acted inconsistently with that right by not pleading it in the US litigation.

Mr Davey for Liberty contends that Vitol can be distinguished by the existence of the without prejudice agreement. He places particular reliance on the decision of the Court of Appeal in HIH Casualty v AXA Corporate Solutions [2003] 1 Lloyd’s Rep for the proposition that silence such as there was in this case, is generally equivocal. The pertinent conclusions in HIH are summarised in Paragraph 3 of the head note as follows..-

Mr Davey contends that Liberty said nothing about whether it would take other points in the future. Pleadings are routinely amended and, subject to the court’s discretion and time bars, a party may always raise a new defence. In this case the hold harmless point was still live at the date of the trial against DSI. The fact that Liberty had not taken other points, did not stop the Claimant from doing so. The Claimant could have taken the hold harmless point as against DSI but elected not to do so. It is as a result of the Claimant’s actions and omissions that its claims against LSR now have limitation problems.

As I see it both Vitol and HIH have features which place them a distance from the facts of this case but both contain relevant and helpful guidance. They both illustrate that as in other areas of estoppel this exercise is highly fact sensitive and I detect no difference in principle between them.

Liberty had, from the outset the material it required to take the hold harmless point. The effect of the letter of 18^th July 2003 was to leave it that Liberty reserved the right to rely upon new matters discovered new information which would materially alter the facts and the circumstances then known. The matter was put as being without prejudice to all the remaining terms of the policy, along with any other defences which may be discovered after further investigation. This indication was not a contractual commitment and close textual submissions can be made about what precisely it means. In substance however Liberty told Argo that other defences would be relied on only if new information came to light.

Liberty has rightly given little emphasis to its pleaded argument that the attestation of warranties given on the 28^th March 2003 had the effect, as it were, of putting Liberty off its guard. To the extent that Argo’s statement about the hold harmless warranty was incorrect it was made in good faith by Argo and what it genuinely believed the position to be.

Liberty, as a party to the Alabama proceedings, knew all the points that were available to be taken and could also see the position being adopted by Argo against DSI. I have accepted the evidence of Mr Bynane that had the hold harmless point been taken by Liberty Argo would have raised it in its claim against DSI and may also have wished to pursue LSR. The point was finally taken by Liberty only after it was too late for Argo to raise it against DSI and probably too late for it to pursue LSR. I do not see these difficulties as being of Argo’s making. Argo was under no obligation to spend resources on taking every conceivable point at every stage and to do so promptly. One would have expected Argo to do no more than give a proportionate response to what it understood Liberty’s claims against it to be. The period of almost 7 years is of itself a powerful factor. In my judgment by not raising the point sooner despite having every opportunity to do so and by standing by while Argo took the steps it did in the US proceedings Liberty represented by its conduct that it was not relying on the breach of warranty defence. Argo relied upon that representation and it would be unfair for Liberty to be permitted to go back on it now. To me that is a consequence of application of principles that are common ground. But the position is in my view fortified by two things. First the broader point taken by Mustill LJ in Vitol at the start of the passage I have referred to above applies here. Secondly the English Courts have in recent years emphasised to a greater degree than before the importance of parties bringing before the Courts all the issues they propose to rely on, placing all their cards on the table at one time. Although the parties are free to seek to amend their pleading at any time, questions of real prospect of success and potential abuse of process make permission for such changes less automatic than they once were. Liberty should not be permitted to introduce a new point almost 7 years after it could reasonably have been expected to raise it and in circumstances where Argo has acted to its disadvantage in the reasonable assumption that it would not have to deal with the issue. It follows that the Claimant succeeds on the second issue.

Loss of the right to avoid

Argo contends that Liberty has lost any right it may have had to avoid the policy for non-disclosure or misrepresentation. Liberty denies this. This aspect of the dispute raises questions of election as well as of estoppel. The question is whether Liberty has elected to affirm the contract so that it can no longer claim to avoid as it has now sought to do in the Defence. The relevant legal principles are not in dispute but they are expressed slightly different by each party.

Waiver by election takes place where a party has the choice of inconsistent rights and acts in a way in which is consistent with his having chosen to rely on one of them: Kammins v Zenith [1971] AC 850, 882-883 per Lord Diplock. An election may be communicated by words or conduct, provided that conduct is clear and unequivocal. There is an election where “with knowledge of the relevant facts he has acted in a manner which is consistent only with his having chosen one of the two alternative and inconsistent courses then open to him”. The “Kanchenjunga” [1990] 1 Lloyd’s Rep 391, 398-399 per Lord Goff. Election typically arises where the parties need to know where they stand, whether the contract lives or dies; but where it is merely a defence to a claim which is in question, there is not the same necessity to choose timeously and irrevocably between reliance or not on the defence: Kosmar v Trustees of Syndicate 1243 [2008] Lloyd’s IR 489, at 499 and 504 per Rix LJ. Affirmation does not depend on the actual state of mind of the other party, but on the objective manifestation of a choice; the communication of affirmation must demonstrate an informed choice, i.e. that the person with the right being given up was aware of that right: ICCI v Royal Hotel [1998] Lloyd’s Rep IR 151, 162-163 (Mance J) and Kosmar. For there to be election the representation must communicate a choice of whether or not to exercise a right.

The Claimant submits that Liberty has affirmed the policy in a number of ways. First Mr Lord relies upon the terms of the 18^th July 2003 letter which, despite making assertions of misrepresentation, proceeds on the basis only of a denial of “coverage”. No notice of avoidance was given and any reasonable person in the position of the Claimant would therefore have concluded that Liberty had elected not to avoid the policy. Further Liberty had full knowledge of the facts. The allegations of misrepresentation and non-disclosure were identified in the July letter and the notice of avoidance now given in the Defence is based on no new information. Liberty was legally represented throughout and so can be taken to have been fully aware of its legal rights, as Colman J pointed out in Moore v Hermes [2003] 1 Lloyd’s Rep 163 at paragraphs 102 and 103. Further Liberty has never offered to return the premium. Mr Lord relies on a passage in Clarke on Insurance Contracts at Para 23-18E “normally a person seeking to rescind a contract must give back as well as take back what has been transferred under the contract to be rescinded, failing which rescission may be barred. Thus the insurer who seeks rescission from misrepresentation or non-disclosure must hand back the premiums”. The passage derives from Section 84 Marine Insurance Act which deals expressly with return of premium. Argo contends that Liberty cannot be allowed to hold on to the premium in the hope that its policy defences prevail while at the same time reserving the right to seek to avoid. The delay of approximately 7 years is so extreme as of itself to be evidence of affirmation.

Liberty contend that the central unequivocal representation required for an election is absent. It refused to pay on grounds which included non-disclosure and misrepresentation. It never took a step to indicate that the contract was continuing. It was implicit in the claim for misrepresentation that the contract was avoided. Furthermore where the misrepresentation is discovered after a total loss of a vessel the question of election is of no practical importance. Mr Davey cites a passage in Arnould at 15-145 where the editor observes that after a total loss has become known the question of election “per se (as opposed to the related questions of affirmation and estoppel) is of no practical importance to the insured and has never arisen”. The editor contrasts that with the situation before the voyage has come to an end where it may make a great difference to the assured whether the underwriter makes his election at once or delays making it. Delay in itself is no bar to the exercise to the right to avoid. Delay will only be affirmation if so much time has elapsed that the necessary inference is one of affirmation or the assured has been prejudiced by the delay and that has not happened in this case. Furthermore the Claimant would not be interested in a return of the premium as there is no claim to its return. Mere failure to return the premium is no representation at all and therefore no waiver. Mr Davey relies upon a passage in McGillivray on Insurance Law at 17-090 of the 11^th edition. That in turn is drawn from a summary of principles set out by Mance J in an earlier case. The passage in McGillivray reads “failure to return the premium is not per se a waiver of the right to avoid for non-disclosure. But refusal to pay a claim while not declaring avoidance and making a return of premium is evidence of an intent to affirm the contract”.

Liberty has, as I see it elected to affirm. The contract has not come to an end simply because there has been a total loss. The insurer is refusing to pay. Is it refusing to pay relying on its rights under an existing policy or is it instead avoiding the policy seeking to treat it as no longer in existence? The extent of the rights under the policy has been actively contested ever since the loss. The policy is not, it is true, in an active mode and silence is not therefore as deafening as it might be during the voyage. But it is a very long running silence. Furthermore the letter of July 2003 is significant in that it identifies the misrepresentation but neither seeks to avoid the policy nor to tender the premium. I do not think that it assists Liberty to point out that the authors of the July 2003 were their US attorneys. Those lawyers, with an office in London, asserted, without hesitation, their client’s position under an English Law contract. Liberty might not have applied its mind directly to the avoidance issue but the test is objective. The absence of an offer to return the premium is of itself not determinative but it is a powerful factor, particularly in a case where the amount of the premium is high and there would be a reason, other than clerical inefficiency, for insurers to retain it. Furthermore while I accept that silence has to be significant to amount to an election, particularly after the total loss, it is in this case almost seven years of silence, a very long time. I therefore conclude that Liberty has elected to affirm.

Argo contends that Liberty’s claim for damages for misrepresentation, if it is no longer able to avoid the policy, is “bad in law”. Mr Davey points out that the authorities and texts proceed on the basis that a remedy of damages is available even though there is no reported case of an award. The claim is therefore not “bad”. Mr Lord contends that the appropriate, and only, remedy for material misrepresentation is avoidance relying on observations by Steyn J (as he then was) in Highlands Insurance Co v Continental Insurance Co [1987] 1 Lloyd’s Rep 109 at 118. He recognises however that there are cases – see HIH Casualty & General Insurance v Chase Manhattan Bank [2001] 1 Lloyd’s Rep 30 at para 90 and the earlier decision of the Court of Appeal in the Banque Financiere – which proceed on the assumption that damages is a remedy available for misrepresentation. In Highlands Steyn J said this:

“I ought, however, to make clear that even if I had made findings of fact favourable to the Continental on each of the above matters, I would still have declined to grant relief under s. 2(2). Where a contract of reinsurance has been validly avoided on the grounds of a material misrepresentation, it is difficult to conceive of circumstances in which it would be equitable within the meaning of s. 2(2) to grant relief from such avoidance. Avoidance is the appropriate remedy for material misrepresentation in relation to marine and non-marine contracts of insurance. See Arnould, Law of Marine Insurance and Average, 16^th edition, vol. 2, p. 626. The rules governing material misrepresentation fulfil an important “policing” function in ensuring that the brokers make a fair representation to underwriters. If s. 2(2) were to be regarded as conferring a discretion to grant relief from avoidance on the grounds of material misrepresentation the efficacy of those rules will be eroded. This policy consideration must militate against granting relief under s. 2(2) from an avoidance on the grounds of material misrepresentation in the case of commercial contracts of insurance.” (See also Arnould §§ 17-104 to 17-112).

Argo contends that the same reasoning applies to a misrepresentation. Indeed section 20 of the Marine Insurance Act provides that, in the event of a material representation proving untrue “the insurer may avoid the contract”.

Argo argues that even if damages are in theory recoverable under The Misrepresentation Act 1967 they are not available to an insurer who has affirmed. Mr Lord argues that the election covers not only the avoidance itself but the equivalent remedy by a conceptually different route. He says that the effective cause of any losses lies not in any misrepresentations made before the contract was concluded, but in the insurer’s voluntary act of having affirmed it. It is therefore not surprising that Arnould states at 17-104 “it is difficult to envisage circumstances where either party to a marine policy would find it advantageous to claim damages for misrepresentation”.

Mr Davey responds that the Marine Insurance Act of 1906 is not relevant to construction of the 1967 Act. There is no authority to support a claim that an affirmation precludes a claim for damages.

This point was argued before me only briefly, as the skeleton arguments show. This court proceeded in HIH, on the basis that a claim for damages for misrepresentation based upon section 2(1) of the 1967 Act could be made in the context of a contract of insurance. In the absence of good reason to the contrary I follow that approach. So it is not open to me to hold at this point that the claim for damages is “bad in law”. A separate question is whether, assuming such damages are available, they would be awarded in a case where the usual remedy for misrepresentation in a policy of insurance, avoidance, has been lost. If that remedy were available in a case of this kind it is very surprising that there has, apparently, never been an award before now. This issue demands a much more detailed debate than it has received. If resources are now to be devoted to arguing this point in more detail it will be more useful for that hearing to be in the Court of Appeal than in a further hearing before me. I will decide only that on the facts known to me about this case the claim for damages which may in theory be open to Liberty will not be available where the right to avoid has been lost by avoidance. If it is not just for Liberty to be able to avoid it is not just for it to be able to receive damages equivalent to the benefit it would have received from avoidance.

I therefore conclude, first that there was a breach of warranty and Liberty’s interpretation is to be preferred, secondly that Liberty is estopped from pursuing the point, and thirdly that Liberty has waived its right to avoid the policy. I tentatively decide the final point in Argo’s favour.

I shall be grateful if Counsel will let me have, not less than 48 hours before the hearing, corrections of the usual kind, a draft order preferably agreed and a note of any points to raise at the hand down of this judgment. If the parties are able to agree all outstanding points then they need not attend the hand down.

I am grateful to Counsel and solicitors for the admirable way in which this application was prepared and conducted.