ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MR JUSTICE DAVID STEEL
2009 FOLIO 260
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE MOORE-BICK
LORD JUSTICE PATTEN
| Masefield AG
|- and -
|Amlin Corporate Member Ltd
The Bunga Melati Dua
Mr Peter MacDonald Eggers and Ms Sarah Cowey (instructed by Waltons & Morse LLP) for the Respondent
Hearing dates : Wednesday 13th and 14th October 2010
Crown Copyright ©
Lord Justice Rix :
"It is clear that they take vessels in order to ransom them and invariably negotiate with the shipowner or other interested party for the release of the vessel, cargo and crew, in exchange for a payment which represents an economic proportion of the value of the property at stake.
The judge also referred to a circular received by the insured's insurance broker on 19 September which spoke of a "pattern" whereby shipowners usually control negotiations via professional negotiators towards payment of the ransom demanded. The process normally lasted between 6 to 8 weeks. No case was known where ship, crew and cargo had not been released. The pirates were more interested in a ransom than in trying to market the ship or cargo.
"23. It was therefore evident that Somali pirates would demand a ransom and would release the vessel, cargo and crew upon payment. It was also likely that the ransom would be paid and that the vessel, cargo and crew would be released."
The Marine Insurance Act 1906
"57.–(1) Where the subject-matter insured is destroyed, or so damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably deprived thereof, there is an actual total loss…
78.–(1) Where the policy contains a suing and labouring clause, the engagement thereby entered into is deemed to be supplementary to the contract of insurance, and the assured may recover from the insurer any expenses properly incurred pursuant to the clause, notwithstanding that the insurer may have paid for a total loss…
(4) It is the duty of the assured and his agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss."
"In the majority of cases the distinction between actual total loss and constructive total loss corresponds with the distinction which has been drawn between physical impossibility and mercantile impossibility. A merchant trades for profit, not for pleasure, and the law will not compel him to carry on business at a loss. A commercial operation is regarded as impracticable, from the mercantile point of view, when the cost of performing it is prohibitive."
The cargo policy
"In view of this decision the alternative claim for an actual total loss on the basis that the plaintiffs were irretrievably deprived of the Anita is somewhat academic. The question has to be answered as at the date of the writ. It may be true that the order of confiscation divested the plaintiffs of the legal ownership as is the case of a ship by a Prize Court. But the test of irretrievable deprivation is clearly far more severe than the test of unlikelihood of recovery of possession and, despite the gloomy prospects for the future as of Aug 29, 1967, I feel unable to find that the plaintiffs were at that date irretrievably deprived of their vessel."
"On the evidence I have heard, I am satisfied on the balance of probabilities that the costs of salving the vessel would on any realistic basis have exceeded its insured value. However, that is not enough for the plaintiffs to succeed on this issue. The submission of Mr Milligan as I have summarized it appears to me to be in the language of constructive, and not actual total loss."
Piracy and capture
"I am of opinion that, according to English law, the plaintiffs, in conformity with decided cases, are entitled to judgment…In December 1851 she is taken by pirates. Then, in fact, a total loss has occurred. After that, she never is restored to her owners; nor have they had an opportunity of regaining possession. They have lost the possession by events over which they have no controul, and therefore are entitled to the indemnity for which they have paid. The cases referred to establish this principle: that, if once there has been a total loss by capture, that is construed to be a permanent total loss unless something afterwards occurs by which the assured either has the possession restored, or has the means of obtaining such restoration. The right to obtain it is nothing: if that were enough to prevent a total loss, there never would in this case have been a total loss at all; for pirates are the enemies of mankind, and have no right to the possession. The question therefore is, Had the owners ever, after the capture, the possession or the means of obtaining possession?...At what time, in the present case, did there cease to be a total loss? When had the assured the possession or the means of obtaining it?...The notice of abandonment was abundantly early, having been given in quite reasonable time after the receipt of the intelligence of the loss…Under these circumstances, I am of the opinion that the plaintiffs were entitled to abandon."
"I am of the same opinion. There was a capture by pirates; and, if that were all, there would unquestionably be a total loss. The question, therefore, is as to what has occurred since. The vessel is recaptured by an English man of war; a prize master is put on board; and she is brought back to England, not on her original voyage, but with a view to proceedings in the Court of Admiralty. She receives damage, and is ordered to be sold. These are the facts that are material; for we have nothing to do with what occurred in the Admiralty Court; nor is the question of the right to possession material: that right was never out of the plaintiffs. But the material question is, Whether the possession was ever restored to the plaintiffs; and it never was, from the first to the last. As to the notice of abandonment, I agree with my Lord that it is enough if this is given in a reasonable time, and that the time here was reasonable."
"The question here is, Whether that which was at one time a total loss has been converted into a partial one. To make that so, the circumstances ought to be such as either to restore possession to the assured, or to afford them the means of regaining possession: what was done after the capture by the pirates was the act of the recaptor: the vessel remained out of the controul of the assured; the recaptor brought her to another port, where she was sold; and she was then brought to England. The assured, therefore, never had an opportunity of taking possession; and there never ceased to be a total loss…"
"The underwriter engages, that the object of the insurance shall arrive in safety at its destined termination. If, in the progress of the voyage, it becomes totally destroyed or annihilated, or, if it is placed, by reason of the perils against which he insures, in such a position, that it is wholly out of the power of the assured or of the underwriter to procure its arrival, he is bound by the very letter of his contract to pay the sum insured. But there are intermediate cases – there may be a capture, which though prima facie a loss, may be followed by a recapture, which would revest the property in the assured. There may be a forcible detention which may speedily terminate, or may last so long as to end in the impossibility of bringing the ship or the goods to their destination. There may be some other peril which renders the ship unnavigable, without any reasonable hope of repair, or by which the goods are partly lost, or so damaged, that they are not worth the expense of bringing them, or what remains of them to their destination. In all these or any similar cases, if a prudent man not insured, would decline any further expense in prosecuting an adventure, the termination of which will probably never be successfully accomplished, a party insured may, for his own benefit, as well as that of the underwriter, treat the case as one of total loss, and demand the full sum insured. But if he elects to do this, as the thing insured, or a portion of it still exists, and is vested in him, the very principle of the indemnity requires that he should make a cession of all his right to the recovery of it, and that too, within a reasonable time after he receives the intelligence of the accident, that the underwriter may be entitled to all the benefit of what may still be of any value; and that he may, if he pleases, take measures, at his own cost, for realising or increasing that value. In all these cases, not only the thing assured or part of it is supposed to exist in specie, but there is a possibility, however remote, of its arriving at its destination, or at least of its value being in some way affected by the measures that may be adopted for the recovery or preservation of it. If the assured prefers the chance of any advantage that may result to him beyond the value insured, he is at liberty to do so; but then he must abide the risk of the arrival of the thing assured in such a state as to entitle him to no more than a partial loss. If, in the event, the loss should become absolute, the underwriter is not the less liable upon his contract, because the assured has used his own exertions to preserve the thing assured, or has postponed his claim till that event of a total loss has become certain which was uncertain before."
"It is clear at this time the cargo was, by one of the perils insured against, taken entirely out of the control of the assured, under circumstances which rendered it doubtful whether it would ever be restored, or if restored, at what period. Under such circumstances, the assured has a right to elect whether he will retain the property in himself and treat the loss as a partial one, or abandon it to the underwriters and claim for a total loss…and the regular mode according to mercantile usage of notifying such an election, is by giving notice of abandonment."
He next explained that, by electing instead to treat the loss as a partial loss only, the plaintiff had put it out of his power to treat it as a CTL by giving notice of abandonment (at 688/9). The appeal to the Supreme Court was not such a change of circumstance as would entitle the owner to make a fresh election (at 690). Therefore there was no right to claim a CTL. But "the sale by the Prize Court stands on a very different footing", for thereby the property in the cargo was wholly lost "and therefore the necessity of an abandonment was altogether done away" (ibid). Roux v. Salvador at 287 was cited.
"We come, therefore, to the conclusion of fact, that the assured could not by any means, which they could reasonably be called on to adopt, have prevented the sale by the American Prize Court, which at once put an end to all possibility of having the goods restored in specie, and consequently entitled the assured to come upon their insurers for a total loss…"
"Many of these [perils], as for instance men-of-war, enemies, pirates, rovers, and I may add barratry of the master and mariners, do not in themselves necessarily occasion any loss; but when by one of those the subject is taken out of the control of the owners there is a total loss by that peril, subject to be reduced if by subsequent events the assured either do get, or but for their own fault might get, their property back: Dean v. Hornby."
Both parties rely on this observation. Mr MacDonald Eggers relies on the first part of it, and Sir Sydney relies on the second part. However, it was not necessary to the decision, and there was no need for Lord Blackburn to state whether he was referring to an ATL or a CTL.
"Goss v. Withers [2 Burr 683] and Hamilton v. Mendes [1 W Bl 276] were both cases of capture and recapture, and were apparently based upon the principle that the assured should not be obliged to wait till he had definitely ascertained whether his ship had been recaptured or not, but might upon capture proceed at once and, after notice of abandonment, recover his capital, the value of his ship, from the underwriters, provided he was not aware of her recapture when he commenced his action."
"First of all, with regard to an actual total loss, it is said that barratry is analogous to capture, and that capture is an actual total loss, though that loss may be redeemed by a recapture. I doubt if this ever was the true question. I think it was always a question of fact whether capture was an actual total loss or merely a possible constructive total loss. Capture followed by condemnation no doubt was an actual total loss, but that was because the vessel had been condemned; the war was supposed to last indefinitely, and, therefore, there was no chance within any reasonable time of the ship being restored. The capture alone I do not think was ever necessarily an actual total loss. It is possible that if the vessel had been carrying contraband and that condemnation was certain, she might be held to be an actual total loss, but I do not think it is certain, even then, that that result would follow. Normally, I think capture is a constructive total loss, and the confusion which has arisen, with regard to whether it is an actual or a constructive total loss, arose merely because, in the earlier cases, the distinction between those two classes of loss was not kept clear. In the same way, damage may amount to a constructive total loss, but I think will not amount to an actual total loss, though it may amount to an actual total loss if it has been followed by a sale so as to make the position one in which the vessel was lost to her owners by the proper sale after sufficient damage to justify it. The class of case I am referring to is Dean v. Hornby and Stringer v. English & Scottish Marine Insurance Co. However, that may be, whether under the old law capture was or was not an actual or constructive total loss, the case is now governed by the Marine Insurance Act 1906, ss. 56 to 60. That Act provides in sect. 57, amongst its definitions of "actual total loss," "if the vessel be irretrievably lost." In my view, no one could here say that the vessel was irretrievably lost to her owners."
Porter J went on to discuss the claim for a CTL, but held that although a total loss might have been uncertain, it was not likely (at 164/166). He therefore rejected the alternative claim as well, and the action failed.
"Having reconsidered all the relevant authorities I am convinced that passages such as these [Lord Blackburn in Cory v. Burr] cannot be applied literally to facts such as those in the present case, for the following reasons. First, they all occur in the context of a loss resulting from a specifically defined peril such as "capture" or "pirates", and in situations in which the persons who deprived the owners of possession clearly intended there and then to deprive him of possession and ownership forever, if they could. "Deprivation of possession" as such was not an insured peril, let alone a term of art to describe a case of total loss. This expression only took on the semblance of having this effect when it was used as part of the definition of a constructive total loss in section 60 of the Marine Insurance Act 1906. It is therefore dangerous to treat deprivation of possession simpliciter as a cause of total loss subject only to being turned into a partial loss by subsequent recovery. Secondly, even in the Act of 1906 this concept is only a prima facie basis for a case of total loss. It is qualified by unlikelihood of recovery (for which I substitute uncertainty of recovery in the present [non-marine] context) and, as shown by Polurrian v. Young, this in itself is qualified by the notion of non-recovery within a reasonable time. "Wait and see" is therefore to some extent always an essential ingredient of a claim for a total loss in circumstances involving deprivation of possession, unless (perhaps) there is a deprivation within the terms of specifically enumerated perils such as "capture" or one can infer from the circumstances that there was a clear intention at the time of the dispossession permanently to deprive the owner of possession and ownership. This is quite different from a "ransom" situation such as in the present case. It also distinguishes the present case from the case dealt with by Mr. Roskill, which was a case of theft, with the aircraft being flown away to an unknown destination, only being traced subsequently, and where he held that the proximate cause of the loss was the theft. In my view, as was said by Parker J. (as he then was) in Webster v. General Accident (1953) 1 Q.B. 520 at pp. 531/2 every case in which there has been a dispossession must depend on its own facts as to whether and at what stage a total loss has occurred. One must consider the facts concerning the dispossession, the apparent intention of the person or persons concerned, whether or not or to what extent the whereabouts of the subject-matter are known, and allow for a lapse of a period of time to form a view about the prospects of recovery; i.e. whether the loss is total or partial. In the circumstances of the present case I do not believe that any Court would probably have held that the owners of the hijacked aircraft at Dawson's Field were entitled to recover for a total loss if such action had been brought to trial between 6th [when the aircraft were seized] and 12th [when the three were blown up at Dawson's Field] September. I therefore reject the contention that these aircraft were total losses before they were blown up."
"In Rodoconachi v. Elliott, (1873) L.R. 9 C.P. 649 at p. 670 Mr Justice Brett described capture as "the hostile seizure of goods with intent to deprive the owner of them". In case of capture, because the intent is from the first to take dominion over a ship, there is an actual total loss straightaway, even though there later be a recovery: see Dean v. Hornby, (1854) 3 El. & Bl. 179 (a case of piratical seizure), and Andersen v. Marten,  A.C. 334."
I also referred to Lord Blackburn in Cory v. Burr. That might, in the light of the submissions made in this appeal, be too broad a statement, but in its context I had in mind a form of capture in which there was an intention from the first to take dominion over an insured property, such as the Kuwaiti aircraft in that case. KAC v. KIC was, of course, a non-marine case, and Mr MacDonald Eggers rightly observes that the analogy of marine capture which I was there deploying might not transfer easily to non-marine cases, because of the opportunity in the marine context, but not in non-marine cases, of utilising the doctrine of CTL.
"In a non-marine context, where the only recognised form of total loss is an actual total loss, hostile seizure of the property can clearly be treated as giving rise to an immediate total loss notwithstanding the possibility of subsequent recovery; Kuwait Airways Corp v Kuwait Insurance Co  1 Lloyd's Rep. 664 (aviation insurance). The marine cases on capture were relied upon by Rix J., as supporting the view that there is an actual total loss straightaway in a case of marine capture (ibid. at 687). This appears to the Editors to be doubtful, although it may be justified on the facts of particular cases; see e.g. Marstrand Fishing Co Ltd v Beer (1936) 56 Ll. L. Rep. 163, per Porter J, at 172. As a general rule, the loss cannot immediately be said to be irretrievable in a case of capture or similar perils; the better view appears to be that capture results immediately in a constructive rather than an actual total loss."
"Nevertheless, as in Moore v Evans, it is impossible on Langley J's findings to say that BA was irretrievably deprived of its aircraft from the first, whatever the content of that test may be. It was a 'wait and see' situation. Care must no doubt be taken with that expression, because it is capable of being used in two senses. In its real sense, it refers to a situation which is subject to a process of development and change. Will a ransom be paid and honoured and the property be recovered? Will the property be released? That is the sense in which it was used by Mr Kerr in Dawson's Field Award…"
"The great principle, therefore, on which all the cases of actual total loss depend appears to be this – the impossibility, owing to the perils insured against, of ever procuring the arrival of the thing insured. If, by reason of those perils, the assured is permanently and irretrievably deprived not only of all present possession and control over it, but of all hope or possibility of ever ultimately recovering possession of, or further prosecuting the adventure upon it, that is a case of actual total loss, independently of the election of the assured to treat it as such. Notice of abandonment would in such case be a mere formality because nothing remains to be abandoned…"
Moreover, under the heading of "capture and seizure" at para 24-17, the following is found:
"Capture is prima facie a case of total loss which gives the assured an immediate right to give notice of abandonment. The loss cannot, as a rule, be said to be irretrievable at the moment of capture, so as to entitle the assured to treat it as an actual (as distinct from a constructive) total loss for there is no immediate loss of title. It has long been the established rule that the property does not pass, after capture, to a vendee or recaptor, so as to bar the original owner, until there has been a regular sentence of condemnation…"
And at paras 28-05 and 29-14, in its only relevant appearances in the treatise, Dean v. Hornby is treated as an example of a case where capture creates a CTL, entitling a notice of abandonment to be given, with the ultimate fate of such a claim depending on possibilities such as that either the CTL matures into an ATL before action brought, or recovery only post-dates the time of action.
The loss as theft
"A person appropriating property belonging to another without meaning the other permanently to lose the thing itself is nevertheless to be regarded as having the intention of permanently depriving the other of it if his intention is to treat the thing as his own to dispose of regardless of the other's rights…"
R v. Raphael  EWCA Crim 1014,  Crim LR 995 holds that a person who intends to sell appropriated property back to its owner, or otherwise to make its return subject to a condition inconsistent with the owner's right to possession of his own property, falls within this subsection (at ff). That subsection is "properly described as a deeming provision" (at ); but I am prepared to assume that it reflects principles of the common law which preceded the Theft Act. I am not therefore impressed by Mr MacDonald Egger's submission that the Theft Act does not apply outside England and Wales (see section 2 of the Criminal Justice Act 1993). "Theft" in an insurance policy for the international transport of cargo over the high seas cannot depend on the jurisdictional provisions governing the prosecution of theft in England and Wales. For a review of the (inconsistent) authorities as to whether "theft" in a marine policy is to be interpreted in a business sense or in the sense of the criminal law, see Arnould at para 23-30 and in particular footnote 184: the learned editors describe the former test as reflecting the better view.
The public policy of paying ransom
"It is the province of the statesman, and not the lawyer, to discuss, and of the legislature to determine, what is best for the public good, and to provide for it by proper enactments";
in order to conclude that –
"the doctrine should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds."
Moreover, Lord Wright's distinction between rules of common law or equity which are based on considerations of public interest or policy and "public policy in the narrower sense" which is "disabling" and requires the courts "to depart from their primary function of enforcing contracts", is illuminating (at 38).
"There appears to be little doubt that where a payment which is not illegal under any relevant law is made to secure the release of property, this can be recovered even though the persons demanding the payment are not acting lawfully in so doing. Thus, for example, payment to recover property from pirates or hijackers must, it is submitted, in general be recoverable."
In Royal Boskalis the payments in question were the waiver of claims under a dredging contract, extracted from the assured by means of the detention by President Saddam of Iraq of the assured's dredging fleet and its personnel. The argument addressed was not precisely that the recovery of a ransom was against public policy, but rather that a payment by way of ransom is not properly to be counted as suing and labouring.
"Ransom had been marked by formal and recognised procedures remote from modern conditions and I do not consider the old cases of much assistance…but the underlying problem of reconciling ransom payments with public policy remains and is not in my view concluded by the repeal of the Ransom Acts enacted to deal with very different circumstances…
I should like to leave open for further consideration the question not taken in the present case: whether a sue and labour clause covers payments made under threats of total loss, from whatever source, which are totally repugnant to English notions of legality. Is the payment of a type the law should recognise as entitling the payer to claim as sue and labour, given a public interest in the issue of extortion of money from shipowners in circumstances of duress and illegality? Payment in face of such a threat may be reasonable within the meaning of that word in section 78(4) of the Act of 1906 but knowledge that such payment is recoverable from insurers may have the effect of encouraging such threats…"
"At first sight, paying ransoms is an anathema…and we are very familiar with the argument that it might fuel further activity but, as Gavin has mentioned, the priority is around the safety of seafarers…There is, as Gavin mentioned, a conversation emanating from Washington about suggestions to make payment of ransoms in some way illegal…there is a very good international discussion perhaps not to support the American move…We do have a concern that if a view were taken that paying ransoms was illegal, the process would go underground, and that would be far, far worse. None of this is good but this is an extremely difficult situation and at the moment, thankfully, we have had very little loss of life…"
"It is a curious, you might argue, anomaly of international law, that paying a ransom is not illegal. Ship owners say that the ability to pay ransom is absolutely critical to saving the lives of their crews and are universally in favour of it, despite the fact that it, of course, amounts to both an incentive for further hostage taking and a huge tax on their operations. We are very clear that while we recognise this practice goes on, we will not be a party to it. We do not endorse or condone it, we do not participate in it, but it is a reality of this situation."
"82. We support the status quo whereby the payment of ransom to pirates is not a criminal offence under United Kingdom law. We recommend that the Government continue to monitor the potential risks of monies reaching terrorists (paragraph 57).
83. We understand that skilled ransom negotiators can help to keep risk to life and vessels, as well as ransom payments, to a minimum. Where ship owners intend to pay a ransom to recover their vessel and crew, we recommend that they use experienced and effective ransom operators. Where insurance policies do not already insist on experienced negotiators, they should do so (paragraph 58)."
"The Court, in considering the likelihood or unlikelihood of the ship's release, should not take bribery as one of the factors. Bribery was not relevant in this context as it was not one of the steps which a "prudent shipowner" could be expected to take to secure release."
Sir Sydney relied on that argument, and had to submit that Mocatta J had been wrong to reject or overlook it, at any rate so far as the ATL question was concerned (see at paras 21/22 above; a CTL was established).
"The terms in which the duty under section 78(4) is expressed are wide enough on their natural meaning to embrace expenditure necessary to procure the release of a vessel that has been seized and I see no reason of policy or practice why they should not do so. If that is right, then it would be strange indeed if such expenditure did not fall within the sue and labour clause. In my judgment the assumption of the editors of Arnould that payment of a ransom, if not itself illegal, is recoverable as an expense of suing and labouring is well founded."
In my judgment, such straws in the wind as Mr Goff's argument constitutes, however eminent his reputation and, as a judge, his authority, are overtaken by the considered observations of the majority of this court in Royal Boskalis.
Lord Justice Moore-Bick :
Lord Justice Patten :