England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		09 February 1999

Mr. Justice Longmore.

DRY DOCK 7 This is a case about the insurance of a floating dry dock; the dock was built as long ago as 1916 and spent most of its life in Sweden but was bought by the Southampton company of Kirkaldy and Sons Ltd {"Kirkaldy") in 1997. Kirkaldy were a company whose main business was blasting and painting of vessels; they wished to expand their business in south-west England by purchasing their own dry dock and setting it up in Portland, Dorset in competition with ship repair and maintenance companies in Southampton. They obtained insurance for 12 months at Lloyd's with the Coffey and Cox Syndicates on 22 July 1997. It was agreed the risk would incept on 28 July while the dock was expected to be still in Sweden. On 12 August 1997 the dry dock began its voyage under tow and it arrived in Portland on 21 August 1997. Thereafter work was carried out to prepare the dry dock for her final mooring place at Portland. There was stormy weather over the week-end of 8-9 November 1997 but that blew itself out; on the morning of 10 November 1997 mariners in a neighbouring vessel heard a loud noise. That was the noise of one of the dry dock's cranes falling from the top deck on to the pontoon deck. Thereafter the dock sunk at her moorings and could not be raised even by the best efforts of salvors. She became a total loss and the port authority required the wreck to be removed.

The dry dock was insured against both total loss with a valuation of £600,000 and for wreck removal; in order to recover for a total loss Kirkaldy (to whom I shall now refer as "the Owners") had to prove a loss by perils insured against (such as peril of the seas) whereas to recover the expenses incurred by virtue of the removal of the wreck, they only had to show an accident or occurrence during the period of insurance which gave rise to

"10.2.

4. expenses of the removal of the wreck of the Vessel from any place .... occupied by the Assured."

Owners began by suing underwriters for both total loss and wreck removal expenses. But on the 7th day of the trial (25 January 1999) they accepted that they could not prove a loss by perils of the seas or any other peril insured against. The claim as finally formulated in final speeches was, therefore, solely a claim for wreck removal expenses in the sum of £1,000,000, the limit of liability for that particular cover provided in the insurance.

The risk was placed by Lloyd's brokers Swire Blanch pursuant to the terms of a permanent open cover for port risks agreed between their predecessors and the underwriters in January 1997. The open cover was not initially used, but, when the first business (which was Dry Dock 7) became available, it was agreed it would incept on 28 July 1997. The open cover had a limit of £500,000 on any one vessel, so Swire Blanch had to present this declaration for signature to both syndicates. When it was scratched on 22 July 1997 by Mr. Walker of the Coffey Syndicate and Mr. Shrimpton of the Cox Syndicate it was contemplated that the vessel would be towed first to Southampton for work to be done on her and later to Portland. In fact plans changed with the result that the vessel was towed direct from Sweden to Portland but that was only decided after 22 July 1997. The clause of the declaration on which underwriters have relied for their defence in this action reads:-

"Towage of vessel to be undertaken by TSA Tugs Ltd. Towage approval survey - applies to both tows - and condition survey to be performed by Surveyor Peter Curtiss and all recommendations complied with prior to sailing." [The part between the parenthetical dashes was added by Mr. Walker in his pen; the rest of the clause was in type]

Underwriters defence to the claim is that Mr. Peter Curtis (to give him his accurate spelling) performed neither a towage survey nor a condition survey and that the contract of insurance came to an end at latest when the vessel sailed. Alternatively they say that Owners failed to disclose that the vessel was unseaworthy at the time of the contract and that they justifiably avoided the contract of insurance.

Witnesses.

I heard evidence of fact on behalf of the Plaintiffs from Mr. David Figgins, the managing director of and majority shareholder in Kirkaldy, the owning company, from two gentlemen whose services he used for the purpose of deciding whether to buy the Dry Dock, Mr. Alan Vincent and Mr. David Bailey. Mr. Vincent was a friend and Mr. Bailey, an employee, was a marine electrical engineer and more knowledgeable than Mr. Figgins about technical matters to do with ships and docks. I also heard from Mr. Nother who rode on the tow between Sweden and Portland and from Mr. Curtis, the surveyor nominated in the insurance contract. For the defence, I heard from Mr. Walker and Mr. Shrimpton, and also Mr. Tate, Mr. Walker's deputy on the underwriting box. There was little dispute about the essential facts. I read certain statements under the Civil Evidence Act. I had marine engineering expert evidence from Mr. Hart of Aquarius International Consultants for the Plaintiff and Mr. Waite of the Salvage association for the Defendants; I also heard expert underwriting evidence from Mr. Richard Outhwaite and Mr Geoffrey Luben.

The Facts.

Once Mr. Figgins decided he would like his company to acquire a dry dock, he went to look at two available dry docks, one in Copenhagen and the other (the one he eventually bought) at Falkenburg near Gothenburg in Sweden. He took with him Mr. Bob Middle and Mr. Vincent and they decided that the dock at Falkenburg was much the better value. They visited Falkenburg on 6 March 1997 and spent much of the day looking over the dock. It was made clear by Falkvarv AB, the Sellers, that the dock would have to be purchased on an "as is" basis and that the buyers would have to conduct their own inspection of the vessel and decide according to their own judgment whether it was suitable for their purposes. They together examined a number of parts of the dock as follows:-

(1) The surface of the pontoon deck, including the keel blocks;

(2) The inner wing walls of the dock, above the pontoon deck;

(3) The port outer wing wall from the quayside;

(4) The starboard outer wing wall by looking down from the companionways;

(5) The upper deck on each wing wall;

(6) The safety deck (or, as it was sometimes called, the machinery deck) on each wing wall;

(7) The internal wing walls of tank Nos. 3 fore and aft, on port side down to a level about 5 feet above the pontoon deck;

(8) The cranes which were operated for their benefit;

(9) The pipework, the ballast valves and their control arms.

The inspection was both visual and with hammer testing. They did not see inside the tanks under the pontoon deck or the starboard wing tanks, nor any of the port wing tanks apart from Nos. 3 fore and aft.

As a result of this inspection, they became aware that there was some thinning or wastage of steel and some corrosion, particularly in and around the wind and water line. They concluded, however, that the dock was essentially sound in areas which they had seen and which they considered important. There were some holes in the safety deck but not (through Inbro Citygate Insurance Brokers Ltd.) to procure insurance with the Royal Insurance group did not bear fruit; he then obtained an introduction (through personnel at TSA Tugs Ltd.) to Mr. Richard Ellis of Everard Insurance Brokers Ltd. ("Everards"). Everards were not themselves Lloyd's Brokers but knew that Mr. Adrian Walker of the Coffey Syndicate was prepared to write dry dock risks. They accordingly instructed the firm of Swire Blanch Ltd. to obtain quotes and Mr. Jon Suckling of that firm obtained two quotes, one from the Coffey Syndicate which required surveys to take place but not as a pre-condition to inception of the risk and one from another syndicate which required surveys to take place before the risk could incept at all. On 16th July Mr. Figgins indicated that he preferred the Coffey Syndicate's quote and Richard Ellis then sought to find a surveyor to satisfy insurers' requirements. It was he who heard about Peter Curtis (probably from Mr. Middle). Mr. Ellis then telephoned Mr. Curtis and asked if he would inspect the dock to approve it for towage to England. Mr. Curtis agreed and after some further discussion with insurers (via Mr. Suckling) Mr. Curtis was written into the contract of insurance as the nominated surveyor. Mr. Ellis then faxed Mr. Curtis on 18 July 1997 in these terms:-

Further to our telephone conversation on the afternoon of 16th July, I confirm that I have been instructed by Mr. David Figgins, Managing Director of J Kirkaldy & Sons, to place insurance on the above and that you are his nominated Surveyor to carry out the Underwriters required Towage Approval Survey and Condition Survey. Any recommendations you make must be complied with prior to sailing. We are advised that the inception date of the cover will be 28th July and we understand that it is the Owners intention for the survey to be carried out around that date with any work required being carried out within the following 7 days. Thereafter the vessel will sail weather permitting.

The slip was then scratched on 22 July 1997 and the contract of insurance with the term I have already quoted was then in place with the risk incepting on 28th July.

Mr. Curtis flew out to Falkenburg with Mr. David Bailey on 28 July and inspected the dock on 29 July and for a short while on 30 July before flying home. There was a ship ("MADZY") on the dock when he arrived which left the dock on the evening of 29th July. They were met by the dock manager Mr. Johansen who gave them a general tour and then left them to their own devices. Mr Curtis then began his inspection; sometimes Mr. Bailey was with him while at other times Mr. Bailey was looking round by himself. Mr. Curtis could not satisfactorily examine the pontoon deck due to the presence of the MADZY but inspected the following parts of the dock:-

(1) The inner wing walls port and starboard; this was done from the pontoon deck;

(2) The port outer wing walls; this was done from the quayside. The starboard outer wing wall was not inspected since it was on the seaward side;

(3) Some of the port side internal wing tanks down to the internal water line; the tanks he inspected were the port side tanks Nos. 3 fore and aft. The tanks had a walkway which he utilised.

in areas which caused them alarm. Mr. Vincent noted an area of heavy corrosion in the after part of the vessel but did not regard that as of fundamental concern.

Someone at Falkenburg told Mr. Figgins and Mr. Vincent that the dock had a leak and that the dock required pumping every 2 days or so, for about 10-15 minutes. That did not cause them any surprise in a structure that was already 80 years old. Neither of them asked the Sellers what the source of the leak was but Mr. Vincent thought it could be attributed to a leaking gland which he had noticed on one of the pump valves. They also learned that the Sellers had had no programme of planned maintenance - there was no requirement that the dock be classed and it was not classed in fact - but repaired as and when they found it to be necessary, Mr. Figgins was satisfied that the dock would serve his purposes and on 27 March 1 997 he made a contract to buy it "as is" at Falkvarv for the sum of £180,000. He then set about arranging for it to be towed to England and for it to be covered by insurance. On 9th July a contract with TSA Tugs Ltd. was made for towage of the dock from Falkenburg to Portland by the tug TOWING WIZARD.

As far as insurance was concerned, Mr. Figgins relied heavily on Mr. Tony Symons of Paul Jones Insurance Services Ltd. His initial efforts

From this walkway he climbed out towards the walls, using frames or cross-bracings; he also descended ladders alongside the pump shafts down to within about 2 feet of the water in the bottom tanks. Mr. Curtis asked Mr. Johansen whether the dock needed to be pumped and was told that pumping was required for 15 minutes or so every other day. He observed that the pumps were not in use during the day he inspected the vessel or that part of the following day when he was present. He assumed, therefore, that the leak was not serious and that there was nothing which affected the seaworthiness of the dock. Mr. Curtis did not examine

(1) the bottom tanks underneath the pontoon deck;

(2) the starboard wing tanks;

(3) the port side wing tanks apart from No. 3 fore and aft where, however, the ballast pipes were to be found;

(4) the cranes, although they were being used while he was conducting his inspection.

He observed some localised wastage of steelwork in the shell plates and the frames. Overall he was satisfied with what he found and did not think it necessary to examine tanks other than those he inspected.

He did make certain recommendations which are set out in his written evidence to the court (B/102-3); in particular he required doubler plates to be fitted in way of the wind and water line on the inner wing walls wherever he had made chalk marks. He then returned from Sweden to the United Kingdom on 30 July 1 997 together with Mr. Bailey.

He revisited the dock on 10 August 1997 to ensure that his recommendations had been complied and to approve the tug and its towing equipment. He was satisfied that his recommendations had been complied with and he returned to the United Kingdom together with Mr. Figgins and Mr. Bailey who had both arrived in Sweden to see the tug set off with the dry dock in tow.

In his written evidence Mr. Curtis said that he considered his instructions amounted to a requirement for an inspection (or survey) for towage approval only. He also said that his understanding of the words "and Condition Survey" in the context of a Towage Approval Survey was not significantly different to his understanding of the instructions given to him over the telephone by Mr. Ellis on 1 6 July.

"i.e. the sole purpose of my instructions was to attend for towage approval of the dock from Falkenburg to Southampton and to assess the condition of the dock to undergo the towage intended only."

Mr. Curtis drew up a report of his inspection of the dry dock and dating it 11 August 1997, sent it to Everards under cover a fax sheet of 13 August entitled "Re Towage of Floating Dry-dock Sweden to Portland (Dorset)". The relevant content of the fax was

".......herewith towage condition details for the above......"

Everards faxed that on to Swire Blanch whose Matthew Pike then took it to Mr. Walker's box on 14 August. Mr. Walker was away on holiday but his deputy Mr. Tate read Mr. Curtis's report at Mr. Pike's request and, then, also at Mr. Pike's request, signed the Everard's fax, "Noted and Agreed". Owners subsequently paid the premium charged by Mr. Walker of £8250, being 1 % (£6000) for 12 months cover and .375% (£2,250) for (as it turned out) a single tow.

On 21 August 1997 the dock arrived at Portland and made fast to the Outer Coaling Pier. In September two dumb barges were added to the cover; so was a workboat in October.

After the sinking on 10 November, Everard's suggested that an underwriter's surveyor should attend. After some hesitation, underwriters decided to use Peter Curtis since he knew about and had inspected the dock. Divers were in attendance and Mr. Curtis tried unsuccessfully to raise the dock by running the pumps. He decided to invite tenders from salvors for raising the dock and reporting on the damage: he later recommended that a tender from Smit Tak should be accepted. Meanwhile the Owners declared an actual or constructive total loss on the basis that a divers' survey showed that the dock had broken her back. Underwriters declined to accept notice of abandonment but agreed to put Owners in the same position as if a Writ had been issued and asked for curtain further information such as evidence that the vessel had been certified to comply with Harbour Authority Regulations and what, if any, preparations for heavy weather Owners had made in respect of the dry dock. Underwriters agreed to bear the cost in the first instance of Smit Tak raising and recovering the wreck and also instructed the Salvage Association to survey the dock, to determine the cause of the sinking and advise on the prospects of repair. Underwriters wanted to instruct the Salvage Association as fully as possible and asked Mr. Curtis for his condition survey on the telephone. It then became clear there was no condition survey separate from the towage approval survey. On 13 December Smit Tak had begun work (including diving and patching, and also pumping operations) but by 7th January 1998 decided that it was no longer feasible to raise the dock by pumping and patching. In the event the dock had to be cut up on the sea bed before it would be removed; this was done not by Smit Tak but by Scaldis B.V. between 20 April and 21 August 1998 at a cost greater than the limit of £1,000,000 contained in the policy. Mr. Marshall and Mr. Waite surveyed the dock at various stages between 3rd March and 22nd June on behalf of underwriters and they made various reports. Meanwhile on 24 December 1997 underwriters had asserted that no condition survey had been performed and that there was a breach of warranty on the part of the Owners with the result that there was no insurance in place.

The reports of Mr. Waite and Mr. Marshall of the Salvage Association on the state of the dock at the time of the sinking were not seriously disputed. They concluded, and I find, that there was extensive and debilitating corrosion and that there were four areas where ingress to the pontoon deck could have occurred as a result of the wasted condition of the dock. Those areas were (I summarise pages 32-37 of the Salvage Association Report dated 12 October 1998):-

(1) The bottom shell plating. These were specific areas where the bottom shell was not watertight viz. the troughs below the bottom, the port forward areas of No. 7 port tank along the bilge, the No. 6 starboard wing tank, No. 11 port tank and No. 8 starboard centre tank. The ability of the dock to withstand hydrostatic loads in these areas was compromised.

(2) The outer wing walls of the structure. Here the plating was heavily wasted by corrosion between the 2nd and 4th seams (above the height of the pontoon deck). Once the pontoon deck was immersed, the watertight integrity of the dock was compromised.

(3) The pontoon deck plating. This had been subject to severe corrosion over previous years, but obviously corroded and perforated plates had been doubled and, sometimes, trebled. This corrosion is not surprising on a dry dock and, since it occurred in a readily visible area, had been largely remedied. When, however, the dock was immersed, substantial hydrostatic loads had to be borne by the pontoon deck and it is an open question whether the corrosion present would impair the watertight integrity of the dock.

(4) The internal bulkheads. Photographs showed that a number of bulkheads were severely and extensively corroded. When the dock was ballasted, water could therefore migrate to a space adjacent to the space being ballasted. A "free surface effect" could occur which would affect the stability of the dock.

(5) Internal stiffeners. Many internal stiffeners were severely corroded below the level of 4 metres above the pontoon deck. That seriously affected local strength as well as the overall strength of the dock.

The importance of this is that underwriters argued that these defects were present in Sweden, were not noticed or commented on by Mr. Curtis and would have been revealed if a condition survey had been carried out. My finding is that these defects were substantially present before the dock left Sweden. Mr. Curtis did not appreciate the degree of wastage in the bottom shell plating, the outer wing walls, the internal bulkheads and the internal stiffeners because he did not examine them in any detail. Whether the wastage would have been revealed on a condition survey depends on the nature of the condition survey carried out.

The Issues.

(1) Alleged breach of the term relating to the condition survey.

(i) What type of condition survey did the policy require?

(ii) Was the condition survey of the required type carried out?

(iii) If it was not carried out, is there a breach of the term of the policy?

(iv) Does that constitute a breach of warranty so that the insurance contract was discharged?

(2) Alleged breach of the term relating to the towage Approval Survey.

(3) If there was any such breach as alleged was that breach waived by insurers or they are estopped from relying on the breach?

(4) Non-disclosure of the of the fact that the dock had a leak at the time the insurance contract was made on 22 July 1997.

(1) (i) Type of Condition Survey required by the policy.

The term "condition survey" is not a term of art. The question of its meaning in this particular insurance contract is thus a question of construction of the contract on which I would not normally expect to hear evidence going beyond the matrix of the contract, save for any evidence legitimately called to identify the proferor of the phrase "condition survey" for the purpose of the contra proferentem principle. This last evidence was not controversial since Mr. Walker accepted (and indeed alleged) that the requirement for a condition survey was something that was added to the brokers' original draft at his own insistence. If, therefore, there is any ambiguity about the expression, it is to be resolved against him and in favour of the insured.

As far as the matrix of the contract is concerned, I find that both Mr. Ellis of Everard's and Mr. Suckling of Swire Blanch (the Lloyd's brokers) were acting on behalf of the assured in the usual way in their dealings with Mr. Walker of the Coffey Syndicate and Mr. Shrimpton of the Cox Syndicate. Both the brokers and the underwriters were experienced in marine insurance and were operating in a market where the concept of a "condition survey" had a relevant history. Before 1991 it was not commonplace for marine underwriters to require a condition survey for the purposes of a hull and machinery policy; they would normally rely on a vessel being in class as a sufficient protection for their interests. Condition surveys were, however, by no means unknown. The Salvage Association (which was generally regarded in the market as acting on insurers' behalf) were from time to time asked to perform them and, in the booklet they issued in 1979 for surveyors employed by the Association, there was a section devoted to such surveys as well as a section devoted to what were called "warranty surveys". There was also a section dealing with "voyage and towage approval surveys". It was, however, more common in the years before 1991 for P & I Clubs to require a condition survey as shown by the introductory series of definitions to a number of articles collected in a booklet entitled The Nautical Institute on the Work of a Nautical Surveyor published in 1989 and publicly available thereafter. This defines a condition survey as

"A survey of a vessel's machinery and/or hull in particular, or generally, and of the equipment on board to establish the condition and, perhaps, fitness to trade of the vessel. Often required by Protecting and Indemnity (P & I) Clubs, prior to a vessel being entered with the Club, or at regular intervals during entry, or alternatively at the time any Vessel reaches a predetermined age - sometimes 16 years."

After 1989 various problems emerged in the market in relation to losses of bulk carriers (including tankers); hull and machinery underwriters also took advantage of a certain hardening of the market in their favour and started to require a structural condition survey by the use of a structural condition warranty clause. The Joint Hull Committee issued a notice (JH 722) in December 1991 with the aim of setting a faster pace than had previously prevailed towards improving safety; it stated that independent surveys of suspect vessels were the only practical answer and that the Salvage Association was currently drawing up a set of Guidelines for the performance of what the Committee called "Structural Condition Surveys". The notice continued

"The survey will be very thorough and will entail the vessel being empty of cargo and available for a period of at least three days, but probably longer depending on the condition of the vessel.

The survey will concentrate on the likely vulnerable areas of the structure of the vessel and will include thickness gauging of hull plates and frames. Nevertheless the surveyor will not neglect the other requirements of a normal condition survey .....

In order to incorporate Underwriters requirements within the policy conditions the attached Structural Condition Warranty has been drawn up with the help and advice of the Technical and Clauses Committee."

A draft of a clause expressly called "Structural Condition Warranty" was indeed attached; that requires a Structural Condition Survey to be carried out by the Salvage Association after cargo has been completely discharged. Any recommendations are to be complied with and such compliance has to be certified by the Salvage Association.

On the evidence before me there was in 1991 no lesser standard warranty relating to a "condition survey" as such but underwriters began to call for condition surveys with the option for the attending surveyor to recommend an upgrade to a structural condition survey. An appropriate clause was produced in 1993 by the Joint Hull Committee in the following terms :-

"CONDITION SURVEY WARRANTY (JH 115)

Warranted vessel be subject to a Condition Survey, at owner's expense, by the Salvage Association within thirty days and all recommendations complied with.

It being understood that the surveyor's recommendations may include the necessity that this survey be upgraded to a Structural Condition Survey (JH 722) as per warranty attached."

This form of warranty was then amended in March 1994 to enable underwriters to receive a copy of the Salvage Association's recommendations and/or reports (JH 115A).

JH 722 contemplated that the association would issue Guidance Notes in relation to structural condition surveys for both their own and non-Association surveyors. What in fact happened was that the Association did produce Guidance Notes but they were private to Salvage Association surveyors and were not to be released either to shipowners or non-Association surveyors. There were, however, complementary notes for shipowners in relation to preparations required for a JH 722 survey. Once JH 115 had come into regular use, underwriters inclined to prefer it to JH 722 and in July 1994, the Salvage Association issued a new set of Guidance Notes to their own surveyors for, as they described them, "Condition surveys other than JH 722". Again they were not publicly available.

It is against this background that the words "Towage approval Survey - applies to both tows - and condition survey to be performed by Surveyor Peter Curtiss and all recommendations complied with prior to sailing" fall to be construed. It is at once apparent that none of the standard forms approved by Joint Hull Committee was being used, that there is no reference to a structural condition survey and that the survey is to be performed by a nominated surveyor who is not expressed to be a member or employee of the Salvage Association. (As a matter of fact, Mr. Curtis was not an employee of the Salvage Association and did not get any Guidance Notes, although he had done occasional damage surveys at the Association's request in the past).

Mr Teare Q.C. for the Owners submitted that the expression 'condition survey' had no fixed or uniform meaning; that it could mean

(1) that the condition of the dock was to be surveyed for the purposes of the tow;

(2) that a survey of the condition of the dock (including its machinery and equipment) was to be earned out as far as possible with a noting of areas which were inaccessible, without any expression of judgment by the surveyor as to the reasonableness of the risk to the assured by underwriters;

(3) that the condition of the dock was to be surveyed and the surveyor was to exercise a judgment as to whether the dock was fit to operate as a floating dry dock.

He submitted that all these view were reasonable and possible, that Mr. Curtis had adopted the first construction as correct (with Owners' expert Mr. Hart adopting the second and Insurers' expert Mr. Waite adopting the third), that the clause was ambiguous and that the ambiguity should be resolved against the insurer and the first possible construction was the correct one for this case. What was not reasonable or possible was insurers' pleaded construction which amounted to a full structural condition survey which was precisely what the clause did not require.

Mr. Reeder Q.C.. for Insurers submitted that one must have regard to the purpose for which the survey of the condition was required. The towage approval survey was a survey to approve the vessel as fit to be towed; the condition survey could not relate to towage but must relate to suitability (viz. seaworthiness) for the remainder of the risk while the dry dock was in use in port after the comparatively short period of the tow. Mr. Reeder did not support his pleaded case in its extreme form but did submit that, if the surveyor felt that he could not do an adequate condition survey without e.g. inspecting and ultrasonically testing every tank (which would mean that each tank would have first to be cleaned in readiness) then the dock owner would have to do whatever was required.

It will be noted that both sets of submissions fasten on the purpose of the condition survey in order to ascertain what is contractually required. In my judgment they are right to do so, because unless one can focus on its purpose it is not all easy to judge what is required. Once one accepts that it is necessary to consider the purpose of the survey, it must follow that the purpose of the condition survey must be some purpose in addition to the survey for towage approval purposes - otherwise there would be little point in requiring a condition survey in addition to a towage approval survey. It is, of course, true that it may be necessary to inspect and form an opinion about various aspects of the condition of the vessel for the purposes of giving towage approval; if so, that would all be part of a towage approval survey. The requirement for a condition survey in the present case must, however, be a requirement for some purpose in addition to the purposes of towage approval. That purpose can only relate to the requirement for cover of 12 months by way of port risks. This is all the more likely if (as I find) both the broker, Mr. Suckling, and the leading underwriter, Mr. Walker, knew that the vessel was not classed, albeit that there was a warranty that it was or would be certified to be in accordance with Harbour Authority Regulations.

I conclude, therefore, that term "condition survey" in the declaration scratched by Mr. Walker and Mr. Shrimpton meant a survey of the condition of the vessel for the purposes of determining whether it was seaworthy for a 1 2 months port risks cover.

(1) (ii) Was a Condition Survey of the required type carried out?

The only possible answer to this question is that it was not. Mr. Curtis has always accepted that he did not carry out a survey to assess the seaworthiness of the vessel as an operating dry dock during the period of cover. I have already quoted from his written evidence to the effect that he assessed the condition of the dock only to determine whether it was suitable to undergo the intended towage.

In his written evidence Mr. Curtis accepted that he had not done what he called "a full structural condition survey" and stated that he had not been instructed to do so. Insofar as this implies that there is no intermediate stage between a survey of the condition of the dry dock for the purposes of towage and a full structural condition survey of the dry dock, I do not consider that correct because JH 115 contemplates just such an intermediate stage. But, whatever the position as to that, he accepted in his cross-examination that if he had been doing a condition survey for port risks cover, he would have done his survey completely differently because he would then have considered that a structural survey (including ultrasonic testing) was necessary,

Mr. Teare submitted that, because Mr. Curtis assessed the condition of the dry dock for the purpose of the intended towage, he had done a condition survey of the kind required by the terms of the declaration. This submission might have some substance if what was done by way of surveying the ship for the purposes of granting towage approval would inevitably be the same as what would be done by way of surveying for the purposes of spending a year in port operating as a dry dock. But the expert evidence was that a surveyor would, in fact, do at least some different work for each of the requirements. The most obvious difference between the towing of a dry dock and its operations is that one would not expect to ballast for a tow when the dry dock will be towed high in the water. While operating in port as a dry dock, on the other hand, it will often be necessary to sink the dry dock by ballasting it, so that a ship can be positioned on her, and then raise the dock by deballasting it, so that the ship can be repaired and then sink the dock again so that the repaired vessel can float off. A surveyor inspecting the dry dock to satisfy himself that it can operate safely in port will have to consider likely hydrostatic forces and the ability of the dry dock to withstand them in a way that a surveyor inspecting the dry dock for towage purposes will not. Mr. Curtis himself agreed that this was the position.

Owners then argued that (1) Mr. Curtis understood his instructions as being to survey the condition of the dry dock for the purpose of towage (2) that his instructions were in the same terms as the policy requirement (3) that such an understanding was not an unreasonable one (4) that the policy requirement was therefore ambiguous and {5) that the policy should, therefore, be construed against the underwriter.

This argument falls down both at stage (2) and stage (4). It is true that the terms of Mr. Ellis's written fax of 18th July instructed Mr. Curtis to "carry out the Underwriters required Towage Approval Survey and Condition Survey". But Mr. Curtis gave evidence that in prior telephone conversations Mr. Ellis had talked only of a Towage Approval Survey. I do not make any positive finding about that partly because I do not need to and partly because Mr. Ellis was too ill to give evidence. (I received his statement in evidence without objection but he was never cross-examined). It is also the case that the heading of Mr. Ellis's fax read: "J. Kirkaldy & Sons - Towage of Floating Drydock From Sweden to Southampton Water" thus giving sole emphasis to the towage aspect of the matter. Mr. Curtis never saw the insurance terms and so was never in a position to consider the meaning of the survey clause as part of the insurance. Whether his understanding of his instructions was reasonable or unreasonable is not, therefore, a relevant inquiry for me to make; something can obviously be said on both sides about that.

But the argument also breaks down at stage (4).-Even if it were right to say that Mr. Curtis's understanding of his instructions was reasonable (or not unreasonable) and that those instructions tallied precisely with the wording of the contract of insurance so that his understanding amounted to a reasonable (or not unreasonable) interpretation of the insurance wording, it does not follow that the wording is ambiguous so as to require reliance on what I will call the contra proferentem doctrine. There must be a true ambiguity before one can resort to the rule; it would be wrong to create an ambiguity in order to resort to the rule, see Cole v Accident Insurance (1889) 5 TLR 736, 737 per Lindley and Bowen L.JJ. Similarly it is wrong to use one person's view (however informed he may be) to say that a term is ambiguous when, in truth, it is not. As DuParcq J. said in Passmore v Vulcan Boiler & General Insurance Co. (1936) 54 Lloyd's LR. 92, 93

"If, looking at the policy, the meaning appears to be clear, there is no room for the application of that doctrine."

As I read this dictum, it is for the judge to decide whether there is any ambiguity and then apply the doctrine. The fact that a surveyor or even an insurance expert may take a different view of construction does not mean that there is any ambiguity which requires resolution by any doctrine of law.

Mr. Teare further relied on the fact that there was no statement of the purpose of the condition survey and that since both the condition survey and the towage approval survey had to be performed at the same time viz. "prior to sailing" (with the result that, if the warranty was not complied with, the contract would, on sailing, be discharged) both surveys must have had the same purpose viz. to assess fitness for the tow. This reads too much into the fact that it must have been contemplated that both surveys were to be done at the same time. It was also pointed out that the surveyor in Sweden could not know anything about the conditions under which the dry dock would have to operate at Portland. But the fact that insurers did not require (as they might have done) an operational survey to bo performed before the dry dock began operations in Portland does not mean that they only wanted the condition survey to relate to the dock's suitability for tow. Rather the contrary.

The expert underwriters agreed that most underwriters would regard the tow as more risky than the operations in port. It does not follow, to my mind, that the requirement for a condition survey in the contract related only to the tow. The most that could be said to follow is that the condition survey may have been required for both the tow and for port purposes.

Finally it was said that insurers were content to accept the risk of why the dry dock while in Sweden without a condition survey (which was only required prior to sailing and there was, therefore, no reason

why the dry dock while in Sweden without a condition survey (which was only required prior to sailing) and there was, therefore, no reason why they should not be prepared to accept the risk of the dry dock while in Portland likewise without a condition survey done for that purpose but only done for the purpose of the towage. This is not a convincing argument since the parties all thought that the dock would not be operating as a dry dock while in Sweden and would only be there for a short time (during survey and compliance with any recommendations) before sailing to England.

I conclude therefore that what was required by the policy was a survey of the condition of the dry dock with a view to assessing its seaworthiness as an operating dry dock during the period of cover and not merely assessing its suitability for the tow. To my mind this is consistent with the conclusion reached by Colman J. in the case of a yacht insurance with the clause "Subject to survey including valuation by independent qualified surveyor" in Zeus Tradition Marine v Bell (judgment delivered 30 October 1998). He held that what was there required was that:-

"(i) a survey of the vessel should have been conducted for condition and value by an independent surveyor and

(ii) a condition survey should have been satisfactory in the sense that it gave rise to no defects or recommendations in respect of seaworthiness or passenger safety."

(1) (iii) Was there a breach of the policy?

Mr Teare argued that there was no breach of the policy even if a condition survey of the required type was not done. He submitted

(A) that, on the true construction of the terms of the declaration, the parties had agreed to leave it to Mr. Curtis, as the nominated surveyor, to decide what he should do by way of conducting the towage approval survey and the condition survey and that included deciding how he should interpret his instructions; if therefore he had not performed the required type of survey, that did not constitute a breach of condition

(B) that, as a matter of market practice, the nominated surveyor was regarded as acting on behalf of underwriters and that, if there was a failure on the part of Mr. Curtis to do a condition survey of the required type, that failure occurred while he was acting "for" underwriters who could not complain that the requirement of a condition survey was not satisfied.

(A) "Leaving it" to the surveyor.

It is not uncommon for parties to a contract to agree to leave the performance of an obligation under the contract to a third party. When what is left to a third party is a survey, that will require the third party to exercise his skill and judgment in the execution of his task; he may have to exercise his discretion or his judgment in deciding what parts of the vessel to examine, what testing to do and many other matters. It may be that, in such cases, the parties do not intend that a court should examine minutely or at all the decisions made by a surveyor in the course of his survey in order to determine whether the survey was defective (when judged by an objective standard) or indeed whether it was so defective as not to amount to a survey at all. Mr. Teare submitted that it was no part of the court's function to second-guess what the surveyor does or to compare what he does to any objective standard. Mr. Reeder's final resting-place on this aspect of the case was that for a surveyor to fail to do something essential for the purpose of a survey will vitiate the survey to such an extent that it will not constitute a survey at all, while doing something essential in the wrong way will not mean that no survey at all is done. Mr. Reeder's submission opens up almost as many questions as it resolves - how does one decide what is "essential" for the purposes of a survey?

In what is a difficult area, it is appropriate to obtain assistance from those cases where parties to a contract have agreed that relevant decisions in the course of a contract are to be made by a third party such as an expert of one kind or another e.g. a valuer or independent chartered accountant. A surveyor whose duty is to examine a piece of property, make any necessary recommendations and ensure such recommendations are complied with is not, of course, quite the same as an expert entrusted with making a final decision but the analogy is a moderately close one at any rate where the expert is not acting as an arbitrator. This area of the law has been somewhat beset with (1) the difficulties that can arise if the expert makes a mistake of law and (2) a consideration of the question whether a question of construction is a question of law, but the current state of the law seems to be that if a decision is left to an expert and that decision requires the solution of a question of construction the court will not examine the question of construction for itself. The way it was put by Knox J. in Nikko Hotels (UK) Ltd. v M.E.P.C. Plc. [1991] 2 E.G.L.R. 103 was as follows:-

"If parties agree to refer to the final and conclusive judgment of an expert an issue which either consists of a question of construction or necessarily involves the solution of a question of construction, the expert's decision will be final and conclusive and, therefore, not open to review or treatment by the courts as a nullity on the ground that the expert's decision on construction was erroneous in law, unless it can be shown that the expert has not performed the task assigned to him. If he has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity in that case."

After making allowance for the context of the accountant being required in the Nikko case to make a final decision which would bind the parties (which is not, at any rate expressly, paralleled in the clause which I have to construe), I think that the approach of Knox J. can afford useful guidance in this case. The passage I have cited has been followed by the Court of Appeal in both The Glacier Bay [1996] 1 Lloyd's Rep. 370, 377-8 per Neill L.J. and Brown v G10 Insurance [1998] Lloyd's I & R Reports 201, 209 per Chadwick L.J.

This approach enabled Mr. Teare to submit that, when Mr. Curtis misinterpreted his instructions, he was making a decision on a question of construction which was within the ambit of what the parties agreed that he should do and that, therefore, there was no breach of the clause in the insurance contract.

That does not seem to me to be correct. Mr. Curtis did not in the present case answer the right question in the wrong way. He did not ask the right question at all or, to use Knox J's phrase, he answered the wrong question. He answered the question whether the condition of the dry dock was fit for towage across the North Sea; he never answered the correct question viz. whether the condition of the dry dock was suitable for coverage for 12 months under a port risks policy. I do not consider that the fact that Mr. Curtis decided that all he needed to do was a towage approval survey means that there is no breach of the terms of the declaration of insurance.

Acting "for" underwriters.

On this question I heard expert evidence from Mr. Outhwaite for the Owners and Mr. Luben for the insurers both experienced marine underwriters (although Mr. Outhwaite has now retired). This evidence became admissible by virtue of Owners' plea (para 8.5 of Amended Reply) that it was usual or customary underwriting practice to regard surveyors, nominated in the insurance contract to carry out towage approval, condition or other surveys, as acting on behalf of and with the authority of underwriters. On the evidence I was not able to conclude that there was any such usual or customary practice as regards non-Salvage Association surveyors. Of course, in one sense a nominated surveyor, although paid by the vessel's owners (as he was in this case), is looking after underwriters' interests, because the underwriters do not wish to insure a vessel which has not passed whatever type of survey it is that the underwriters require; but it is a far cry from that to say that underwriters' accept responsibility for anything and everything done by the surveyor named in the insurance contract. Mr. Outhwaite did not suggest in his oral evidence that underwriters would be liable if the nominated surveyor damaged the ship and he was quite clear that, if no condition survey of the kind required by the contract was done, the terms of the insurance were not complied with. It would be odd indeed if the surveyor were to have authority to vary the contract of insurance.

I conclude therefore, that the condition of the declaration requiring the performance of a condition survey was not complied with and that, to that extent, there was a breach of the terms of the contract of insurance.

(1) (iv) Breach of warranty.

Mr Teare accepted that the term requiring performance of towage approval and condition surveys was a warranty and that non-compliance with that warranty discharged the contract. The slight curiosity is that the term is contained in the declaration under the head "Conditions" while there is a separate head for "Warranties". Normally that might lead to the conclusion that the survey term was not a warranty in the technical marine insurance sense. But that is not a matter of any consequence since the "Condition" only makes sense if it is construed as a condition precedent to insurers' liability - in other words insurers are not liable unless the relevant surveys have been performed. As Lord Goff of Chieveley said in The Good Luck [1992] 1 A.C. 233, 263A "fulfilment of the warranty is a condition precedent to the liability of the insurer."

(2) Towage Approval Survey.

I permitted insurers to make a late amendment to their Points of Defence to allege that no towage approval survey had been performed, despite the fact the insurers' solicitors had expressly accepted in January of 1998 that there had been just such a towage approval survey.

At first sight the allegation is a little surprising because there is no dispute that (whatever else he may or may not have done) Mr. Curtis at least purported to perform a towage approval survey. He even provided a report (not required by the clause) which said in the final sentence:-

"it is considered that the floating dry dock has been properly prepared and is fit for towage from Falkenburg to Portland."

The dry dock, of course, survived the tow without damage.

Mr. Reeder alleged that the towage approval survey was nevertheless defective because Mr. Curtis failed to do any testing for strength which was an essential part of a proper towage approval survey. This had the merit of being consistent (as an allegation) with the way that Mr. Reeder put the insurers' case as set out in (1) (iii) (A) above. But I have rejected that way of putting the case as being capable of proving a breach of the survey clause in the declaration. In this respect Mr. Curtis answered the right question - he conducted a towage approval survey as required.

In case I am wrong about that I should say whether testing for strength is an essential part of a towage approval survey. On this I had the expert evidence of Mr. Hart for the Owners and Mr. Waite of the Salvage Association for the insurers. They both agreed that it was an important part of any towage approval survey of a dry dock to test it for its ability to withstand environmental loads during the course of the tow, particularly longitudinal bending movements imposed by sea swell and waves. For this purpose it would be necessary to do theoretical calculations on the basis of the as-built drawings of the dry dock, if available, or (if not available) on the basis of a mid-ship section modulus which would have to be built for the purpose. Mr. Curtis did consider the wave strengths likely to be encountered in an August crossing of the North Sea but did not do any theoretical calculations. He was not given any drawings to enable him to do such calculations nor did he make (or cause to be made) a mid-ship section modulus. When asked how he was satisfied the dock would survive the tow he said "I just had a feeling it would". He took a calculated risk and got away with it. On the expert evidence I am satisfied that it is not good practice to do a towage approval survey without doing theoretical stress calculations. Unfortunately neither expert was asked in terms whether such theoretical calculations were an "essential" part of a towage approval survey because Mr. Reader had not by that stage formulated his statement of principle.

Mr. Reeder also submitted that Mr. Curtis never did a survey which would establish that the dry dock had sufficient strength in fact, because he did not enter a sufficient number of tanks and inspect in each tank. He only entered two of the port side wing tanks and did not examine the starboard wing tanks at all nor the bottom tanks below the pontoon deck (because there was a vessel on the pontoon deck during his survey). Mr. Curtis was again criticised for failing to examine a sufficient number of tanks for the purpose of his towage approval survey. Adopting the language of Knox J. in Nikko, it seems to me that examining an insufficient number of tanks is doing the right thing in the wrong way or to an insufficient extent rather than failing to do something essential to the concept of a towage approval survey.

The small number of tanks examined is, however, relevant to the question of doing stress calculations. If the position is that (for whatever reason) only a small number of tanks can be examined, it becomes all the more important to do stress calculations; conversely, stress calculations may be less important if an examination of a large number of tanks is enough to show that the dry dock is sufficiently strong to withstand a contemplated towage.

If, therefore, Mr. Reeder's test were the right test in law I would conclude in this case that, in the light of Mr. Curtis's ability to enter and examine only the port side wing tanks, stress calculations were essential and that a failure to do such calculations was a failure to do an essential part of a towage approval survey.

As it is, however, my view is that Mr. Curtis did, in fact, do a towage approval survey. The fact that such a survey can be criticised is nothing to the point. There is, therefore, no breach of the survey clause in the contract of insurance in this particular respect.

(3) Waiver/Estoppel

Mr. Teare submitted that if no condition survey had been performed with the result that the contract of insurance was discharged on sailing, the contract came back into effect as a result of Mr. Tate's noting and agreeing of Mr. Curtis's report on 14 August while Mr. Walker was away on holiday. It was pointed out that, after that, insurers accepted premium and agreed to add dumb barges and a workboat to the policy. In these circumstances it was said that insurers knew there had been no condition survey and, having expressed no concern at these differing stages, they represented that its absence did not matter. They were therefore estopped from now asserting that it did matter and from relying on the fact that the contract was discharged at the time of sailing. As I have already indicated Mr. Walker did not know the position until about 15 December when either he or Mr. Tate telephoned Mr. Curtis and asked for a copy of the Condition Survey and Mr. Curtis said he had not done one.

Section 33 of the Marine Insurance Act provides for the insurer to be discharged from liability as from the date of breach of warranty. It is therefore, apparent that no question of election arises although by Section 34 (3) the insurers may waive the breach. Since the breach of warranty does not give rise to any election by the insurer e.g. to choose to keep the contract on foot, the doctrine of waiver by election has no application. The Owners must rely on the doctrine of waiver by estoppel, see Clarke, Law of Insurance Contracts 2nd ed. para 20-7A, MacGillivray, Law of Insurance. 9th ed. paras 10-96 to 10-98. Owners must, therefore, show a representation by words or conduct that insurers would not rely on the requirement of a condition survey.

It seems to me that the Owners cannot show this. The mere fact that Mr. Tate read Mr. Curtis's Towage Approval Survey and wrote "Noted & agreed" on Everard's fax beneath Everard's words:-

"We attach for your records, copy of fax from surveyor re towage approval."

cannot be the equivalent of saying 'we accept that the absence of a condition survey doesn't matter'. Neither can any later conduct by the insurers be so construed. The clause did not require the survey or surveys to be shown to underwriters; no insurer (let alone his deputy) can be expected to carry in his mind all the terms of all the insurances currently operative. It will only be if the insurer (or his deputy) addressed his mind to the question of the absence of a coalition survey that any unequivocal representation could begin to arise. As it is, once underwriters became aware that Mr. Curtis had not done a condition survey, they were quick to say that there was no cover.

Non-Disclosure.

In the light of my decision on breach of warranty, underwriters do not need the defence. I should, however, make some short findings. The original allegation related to the condition of the vessel as a whole but Mr. Reeder soon appreciated that Kirkaldy could not be expected to be aware of deficiencies that even the surveyor did not find. Of course Mr. Curtis only examined the dry dock, in any event, after the insurance contract had been concluded and Mr. Reeder accepted that he could only rely on matters shown to Mr. Figgins at the time when the contract was made. He accordingly applied for leave to amend to allege that Owners had not disclosed the fact (known to them) that the dry dock leaked from an unknown source and required to be pumped about every 2 days for about 10-20 minutes. I gave leave. This was the only allegation pursued in Mr. Reeder's final address.

I have already found that when Mr. Figgins went to look at the dock in March 1997 he and Mr. Vincent were informed that there was a leak and that the dock required pumping every 2 days or so for about 10 -15 minutes. They were not surprised at this information relating to such an old dry dock. The question is whether this was material to be disclosed; if this leak meant that the dry dock was or might be unseaworthy, that would normally be a matter which required disclosure. But underwriters were obviously not relying on what the insured did or did not disclose to them in this respect because they required both a towage approval survey and a condition survey. If the condition survey was required for the purpose of determining whether the vessel was fit for 12 months cover in port, then it seems to me self-evident the warranty of the condition survey rendered it superfluous to disclose matters which would be found and, if necessary dealt with by way of recommendation; on this basis, however, the underwriters are in any event not liable in this case.

The same considerations apply even if (contrary to my view) Mr. Teare were correct that the required condition survey was only to see if the dry dock was fit for towage; indeed the presence of a leak and the possible resulting unseaworthiness were, if anything, more material to the tow across the North Sea than to use in port. Once again the underwriter who stipulated for a condition survey relies on the surveyor rather than the assured to deal with any unseaworthiness of the vessel and so it was, in my view, unnecessary to disclose the existence of the leak by reason of the warranty as to a survey by an independent surveyor. Section 18 (3)(d) of the Marine Insurance Act applies. In fact, of course, Mr. Curtis was told that the vessel did require pumping 1 5 minutes or so every other day. He assumed it was not serious; Mr. Figgins can hardly be criticised for taking the same view. This was certainly the view of Mr. Outhwaite (whose evidence on this aspect of the matter I preferred to that of Mr. Luben) and even Mr. Walker said he would not expect an owner to put forward his own opinion on the condition of the dock in general (or, I infer) on the question whether the dock was seaworthy. I also consider that if the broker had mentioned a leak which required attention for 10 -15 minutes every 2 days Mr. Walker would still have written the risk, relying on the surveyor to deal with it as he thought right.

In these circumstances I do not consider that a defence of nondisclosure is available to the insurers, but they are entitled to decline liability due to the absence of a condition survey. There will, therefore, be judgment for the Defendant.

In many ways I am sorry to reach that conclusion. Mr. Figgins has no experience himself of the marine insurance market and will, no doubt, feel he has been let down by his advisers. But sympathy for the Owners cannot divert me from applying what seems to me the right construction of the contract which has been made with marine underwriters on his behalf.