JHA | Causation and Context

Causation and Context

September 25, 2018

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Causation in a contractual dispute is governed by application of the contract. In law context is everything. These principles were of central importance to the decision of the UK Supreme Court in Navigators Insurance Co Ltd v Atlasnavios-Navegacao Lda (The B Atlantic) [2018] 2 WLR 1671. Persons unknown, probably associated with a drugs gang attached three bags of cocaine weighing 132 kg to the hull of the B Atlantic in Venezuela which was loading a cargo of coal for Italy. The drugs were discovered, the vessel detained and this led to the master and the chief officer being convicted by a local jury and sent to prison for 9 years, when they were innocent. This miscarriage also resulted in the confiscation of the vessel. The shipowners who had lost their vessel through no fault of their own or the crew, claimed on the War Risks Policy, which incorporated the Institute War and Strikes Clauses Hulls—Time (1/10/83):

“1. PERILS
Subject always to the exclusions hereinafter referred to, this insurance covers loss of or damage
to the vessel caused by

1.2 capture seizure arrest restraint or detainment, and the consequences thereof or any attempt
thereat

1.5 any terrorist or any person acting maliciously or from a political motive
1.6 confiscation or expropriation.

3. DETAINMENT
In the event that the Vessel shall have been the subject of capture seizure arrest restraint detainment
confiscation or expropriation, and the Assured shall thereby have lost the free use and disposal of the
Vessel for a continuous period of [6] months then for the purpose of ascertaining whether the Vessel
is a constructive total loss the Assured shall be deemed to have been deprived of the possession of
the Vessel without any likelihood of recovery ….

4. EXCLUSIONS
This insurance excludes
4.1 loss damage liability or expense arising from

4.1.5 arrest restraint detainment confiscation or expropriation … by reason of infringement of any customs or trading regulations
…”

These are standard terms used internationally which were the product of the reform by Lloyd’s of its marine insurance forms in 1983, using words from the earlier forms. The problem for the shipowners was the Exclusion. The case law, on the basis of which the parties are taken to have contracted, established that infringement of customs regulations included smuggling. The shipowners asserted that the persons unknown were persons “acting maliciously” and that the detention and confiscation of the vessel was not “by reason of….[the] infringement…”, it was caused by the malicious act .

In the lower courts it had been common ground that the persons unknown acted “maliciously”. Arnould on Marine Insurance (18th edition, 2013) stated its opinion that spite or ill will against the shipowners or their ship was not required.

The Supreme Court dismissed the owners’ claim holding: (1) contrary to the concession made by the insurers before the trial judge and Arnould’s opinion, that “maliciously” was governed by precedent decided nearly 50 years ago, deciding in this context that spite or ill will against owners or the vessel was required, that the Supreme Court should decide the case on the correct meaning, and that there was no malice by the drug smugglers, only the desire to make a profit out of smuggling; and (2) the loss arose from detention and confiscation of the vessel. Either was sufficient to decide the case, and so shipowners were not prejudiced by the Supreme Court disregarding the concession. It was important for the international insurance market that the correct meaning was applied.

On (1) textbook writers do not have the benefit of adversarial argument and can make mistakes. In this case the editors had misunderstood what had been decided by the case law. On (2), the causation issue had to be determined giving proper contractual scope and effect to the Exclusion, and not so as to disregard or emasculate it. What is insured against is given by the Perils and the Exclusions, read together.

The consequence is that a shipowner if he wants cover if his ship is lost because of a third party smuggling, will need special words to do this. Smuggling by the crew is covered under the Hull Policy as barratry, a wrongful act wilfully committed by the master or crew to the prejudice of the owner.

Shipowners had a labyrinth of points which were, or could have been, deployed. These are examined in “Smuggling,Marine Insurance, Causation and Interpretation” [2018] Lloyd’s Maritime and Commercial Quarterly 482 (Steven Gee QC).

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