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Cite as: [1999] UKHL 12

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Kuwait Airways Corporation and Another v. Kuwait Insurance Company SAK and Others [1999] UKHL 12 (11th March, 1999)

HOUSE OF LORDS

Lord Browne-Wilkinson Lord Lloyd of Berwick Lord Clyde
Lord Hutton Lord Hobhouse of Wood-borough

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE

KUWAIT AIRWAYS CORPORATION AND ANOTHER
(APPELLANTS)

v.

KUWAIT INSURANCE COMPANY S.A.K AND OTHERS
(RESPONDENTS)

ON 11 MARCH 1999

LORD BROWNE-WILKINSON

My Lords,

I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hobhouse of Woodborough. For the most part I am in complete agreement with his conclusions and reasoning.

The only exception is in relation to question 3 where, unhappily, I disagree with him. Since the question raises a "one-off" point of construction it is pointless for me to consider the matter at any length. I will state my views very shortly. The aircraft and spares were covered by an all-risks policy. That policy excluded certain risks, including war risks. Those excluded risks were then covered to an extent by a separate war risks policy, section 1 of which provides:

"Subject to the terms, conditions and limitations set out below, this Policy covers loss of or damage to the Aircraft nominated in the Schedule against claims excluded from the Assured's Hull 'All Risks' Policy as caused by:

a

b

c

d

e

f

The War Risks Policy extended the indemnity provided by the policy to spare parts save in respect of the indemnity provided by paragraph (a).

At the outbreak of the Gulf War, the armed forces of Iraq took control of the airport in Kuwait including spare parts belonging to the airline. If the only ground under which such spare parts were covered was paragraph (a) above then the airline is not entitled to an indemnity in respect of the spare parts lost. If, on the other hand, the airline is entitled also to claim an indemnity under paragraph (e) above the airline is entitled to indemnity for the spare parts since all that was excluded was paragraph (a). The rest of your Lordships take the view that the case does fall within paragraph (e) as well as paragraph (a).

As I understand your Lordships' reasoning it is that the word "seizure" has a normal and usual meaning. Having reached the view that what took place in Kuwait would fall within that meaning of the word seizure, your Lordships then look for some special reason why the word should have a more limited meaning in the present document and, not having found any such good reason for limiting its natural meaning, decided that the word seizure in paragraph (e) covers the present case.

My Lords, I am unable to adopt that method of construction. The word seizure does not have one meaning that it bears in all normal circumstances. Lord FitzGerald in Cory v. Burr 8 App. Cas. 393 at p. 405 said:

may

Your Lordships take that as being a statement that the normal and usual meaning of seizure includes forcible capture. In my judgment it does not say that: what it says is that seizure as a word is capable of including such behaviour. Whether it does so or not must, in my view, depend upon the context in which the word is used, not starting with a presumption either way.

In the present case it seems to me clear that each sub-paragraph (a)-(f) of section 1 of the War Risks Policy was designed to deal with one particular type of peril, exclusively of perils dealt with by other paragraphs. Paragraph (a) deals with belligerent risks; paragraph (b) with risks caused by civilian gatherings and commotions; paragraph (c) with acts of terrorism and political unrest; paragraph (d) with deliberate damage to property not covered by other paragraphs; paragraph (e) losses from the assumption of control over property by the local government whether national or at a lower rank. To take a risk of a kind which is plainly a war risk and say that it is covered not only by the war risk clause (paragraph (a)) but also by another clause is, in my judgment, to give a false and unnatural meaning to the policy. If the approach adopted by your Lordships is right, I can see no reason why it should not be said that almost any event which occurs in war (and therefore covered by paragraph (a)) is also a "malicious act" within paragraph (d). This would mean that the exclusion from cover of risks under paragraph (a) would be wholly ineffective.

Therefore I differ from the majority of your Lordships on this point. I would hold that on question 3 the loss does not fall within paragraph (e) but only under paragraph (a) and accordingly I would dismiss the appeal. In all other respects I would make the orders proposed by Lord Hobhouse

LORD LLOYD OF BERWICK

My Lords,

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Hobhouse of Woodborough. I agree with it and for the reasons he gives I would answer the questions in the way he proposes and allow the appeal to that extent.

LORD CLYDE

My Lords,

I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hobhouse of Woodborough. For the reasons he gives I too would allow the appeal of the Airline upon the spares disputes. I agree that the questions should be answered in the way which he proposes.

LORD HUTTON

My Lords,

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Hobhouse of Woodborough. I agree with it and for the reasons he gives I too would answer the questions in the way he proposes and allow the appeal to that extent.

LORD HOBHOUSE OF WOODBOROUGH

My Lords,

In the early hours of 2 August 1990 Iraq invaded the State of Kuwait. Meeting only slight resistance the Iraqi forces rapidly overran its territory and by the end of the day the Iraqi forces had effectively conquered the whole of Kuwait. The invasion was aimed at seizing Kuwait's wealth for Iraq. This objective included appropriating the aircraft and spares and equipment which they would find in Kuwait and removing them to Iraq. All this was pre-planned. Thus, Kuwait Airport was one of the primary targets of the invading forces. They wished, as a strategic element in their invasion plans, to establish control of the civilian and military airfields. By 8 a.m. the Iraqi tanks had arrived at the airport. Shortly after 10.00 a.m. an Iraqi officer told the manager of the Airport that the airport was now part of a military zone. By that time Iraqi soldiers and tanks had completely surrounded the Airport as a whole including the terminals and other buildings.

On 2 August, The Kuwait Airways Corporation, which is the national airline of Kuwait and the primary plaintiff in the action, had 15 aircraft on the ground at the Airport and large quantities of spares and equipment. The value of the aircraft was about US $692m and of the spares etc. some US $300m. In accordance with their pre-arranged plan, the Iraqis started to remove aircraft from Kuwait to Iraq on 2 August (using civilian pilots to fly the aircraft). The removal of the aircraft was completed over the following days; one aircraft had to remain in Kuwait longer than the others as it was undergoing an overhaul at the time. Similarly, the spares and equipment were systematically removed and taken to Iraq either by air or by road over the ensuing days.

By these actions the Iraqi Government forcibly dispossessed the Airline of the aircraft and the spares. As will be apparent from the figures which I have already given this represented a very large financial loss to the Airline. At the time, the Airline was insured for war risks with a number of local insurance companies, led by the first defendant Kuwait Insurance Company S.A.K., which were, in their turn, reinsured upon the London market. The Airline claimed for its losses under the relevant insurance contract. It was not disputed that the Airline had suffered losses of the character of the total loss of the aircraft and spares; it does not matter for present purposes whether the total loss was to be treated as actual or constructive. In the following January (at a time when, it will be remembered, Iraq was still in occupation of Kuwait) the Underwriters paid to the Airline US$300m which the Underwriters contended was their maximum liability under the relevant contract of insurance. The Airline was not satisfied with this situation and by a writ issued on 30 July 1991 commenced proceedings in the Commercial Court here in London. The dispute between the parties raised a number of questions of fact and law which were initially tried before Rix J. in October and November 1995. The points of law were primarily questions of construction which arose on the insurance contract. There were also questions of law which arose in relation to subrogation rights and sue and labour. These latter points arose from the fact that, following the successful recapture of Kuwait and the conclusion of the military campaign against Iraq, the Airline had been able by litigation and other means to recover some of the aircraft and to commence proceedings directed to their recovering some indemnity from third parties in respect of their losses. These latter questions have not been fully tried but have been dealt with so far on the basis of preliminary issues of law directed by the Commercial Judge.

Rix J. in a judgment reported at [1996] 1 Lloyd's Rep. 664 made various findings of facts and decided the issues of law which arose upon them. On some questions of law he decided in favour of the Airline, on others in favour of the Underwriters. His overall conclusion was favourable to the Underwriters and effectively upheld the adequacy of the payment that had earlier been made before the action had been commenced. The Airline was dissatisfied with this outcome and appealed to the Court of Appeal challenging certain of the decisions of points of law of the Judge. The decision of the Court of Appeal, Lord Justices Staughton, Otton and Schiemann, (reported at [1997] 2 Lloyd's Rep. 687) was not unanimous. They decided some of the legal issues differently to the Judge. However, the outcome was effectively the same as before. The Airline, with the leave of Your Lordship's House, has appealed further on certain of the questions of law. The Underwriters have also argued before Your Lordships certain of the points on which they failed in the Court of Appeal.

The points which in my judgment your Lordships have to consider are all points of the construction of the insurance contract. They are mostly points upon which there has already been a difference of judicial opinion. They are all points which could easily have been avoided by the exercise of care in the preparation and drafting of the insurance contract. Very large sums of money are involved and it must be a matter of comment and concern that those involved on both sides of this transaction should have seen fit to set out their contractual intention in a way that is inadequately structured and expressed and so obviously capable of giving rise to dispute. Such disputes are unnecessary. They can be avoided, as has been repeatedly pointed out by those before whom such disputes come for determination, by the exercise of proper care in the drafting of the documents which create and define the relevant contractual obligations.

The demerits of such lack of precision and clarity are not confined to the uncertainty that it produces but extend to the wholly undesirable delay before the disputes between the parties are fully determined. This appeal has been heard in the latter part of 1998 but relates to a dispute which arose in 1990. This is not satisfactory either from a commercial point of view or for the purposes of administration of justice. It cannot be in the interests of any participant in the insurance market that there should be such uncertainties and delays. Nor can it be satisfactory that an assured should be left in such doubt about the extent of his cover or should have to wait for so long before receiving an indemnity or have to engage in costly litigation to ascertain and enforce his rights. Sometimes litigation may be inevitable, as where some wholly unforeseen event occurs; but that is not the case here. This is a contract of insurance: the disputes have arisen from matters which should have been well within the contemplation of those preparing a war risks contract.

The Insurance Contract: The anniversary date of the Airline's cover was 1 July. At the time of the events in question no new contract of insurance for the period 1 July 1990 to 30 June 1991 had yet been drawn up; however, a renewal quotation dated 14 June 1990 had been obtained and accepted. This document is therefore the contractual document for the relevant year. It is an outline document in letter form which cross-refers to the expiring cover. It therefore has to be read with the expiring cover in order to understand what its effect is. The expiring cover is entitled "Aviation Hull and Spares War Risks and Allied Perils". It is a contract which, in market terms, is written by Underwriters who are active in the war risks sector of the market. The general cover for the Airline is provided for in a separate contract of insurance which is as a matter of practice referred to as the "All Risks" policy.

The insurance of aviation risks has historically developed from the marine market as a distinct class of business. Much of the terminology and practices of the aviation market derive from the marine market and therefore need to be understood by reference to the equivalent terminology and practices of the marine market although there are differences between them, not least, that the marine market is governed by the codifying statute, the Marine Insurance Act 1906, whereas there is no similar statute governing the non-marine market (which includes aviation). The normal market practice is to insure risks in comprehensive terms in what is sometimes called an "All Risks" cover which is then cut down by exclusions; the excluded perils are then covered by more specific insurance contracts or extension clauses according to the needs of the relevant assured. There are no doubt market reasons for adopting this approach, not least to assist the structure of rating risks.

An example of this approach in the marine market is the treatment of war risks. Historically the "S G" policy (as scheduled to the 1906 Act) covers war risks but these risks are then excluded by the standard "FC&S" clause. This led to the practice in the market of insuring war risks defined as being the risks which were excluded by the FC&S clause. This approach over the years gave rise to many disputes many of which could have been avoided had a more direct approach been adopted. The historical approach has been departed from in many sectors but its influence is still to be observed in the contracts which your Lordship's House has to consider on the present appeal.

The relevant All Risks policy in the present case is a relatively structured document as can be seen from the contents list with which it starts. It thus recognises much of what I have said earlier about the need for care in the preparation of documents of this character and importance. It covers both aircraft (clause 1.1) and spares and equipment (clause 1.2). It also covers various classes of liability risks. It is not necessary to go into the detail of this. The policy includes a General Exclusion expressed in these terms:

4.1 War and Allied Risks in accordance with the following war, hijacking and other perils exclusion clause (Aviation) AV48B (not applicable to spares and equipment and passenger entertainment systems whilst in transit as defined in the applicable Institute Clauses):-"

The policy then sets out the clause referred to--paragraphs (a) to (f)--which we find again set out in the war risks cover: see below. In respect of spares and equipment the geographical cover is comprehensive and not confined to spares in transit. It is however subject to express limits--US$10m any one item, US$30m any one sending, and US$150m any one location.

The All Risks Policy includes a number of clauses extending the cover provided. One is the "Extensions of Cover" clause 1.5:

"This section of the policy is also to cover:

1.5.2 Sue, labour and costs and expenses and salvage charges and expenses incurred by on or on behalf of the assured in or about the defence, safety, preservation and recovery of the insured property and also [extraordinary general average sacrifice and expenditure] and costs and expenses arising out of all search and rescue operations. Provided always that these costs and expenses shall be included in computing the losses hereinbefore provided for, notwithstanding that the company may have paid for a total loss."

A dispute has arisen as to the effect of this proviso.

The expiring war risks cover covers the interests set out in the schedule in section 6. The schedule identifies the assured, including the Airline. The aircraft insured are listed with agreed values ranging between US$5m and US$66m. It states: "newly acquired aircraft are automatically covered hereunder." It then continues:

"The maximum agreed value any one aircraft shall not exceed US$80m--and the maximum sum insured in respect of ground risks is US$300m--any one occurrence, any one location applicable to this policy and policy number AV/HW/GK/256."

It is thus a valued policy for the aircraft. The assured is given a liberty to add aircraft to the policy subject to their not being valued higher than US$80m. (The spares are dealt with in a separate wording which it would appear was attached to the war risks policy and to which I will revert.)

Continuing with the wording of the policy which applies to the hull risks (i.e. the aircraft), section 1 of the policy is headed "Loss of or damage to aircraft." It provides:

"Subject to the terms, conditions and limitations set out below, this Policy covers loss of or damage to the Aircraft nominated in the Schedule against claims excluded from the Assured's Hull 'All Risks' Policy as caused by:

a

b

c

d

e

f

"Furthermore this Policy covers claims excluded from the Hull Policy from occurrences whilst the Aircraft is outside the control of the Assured by reason of any of the above perils. The Aircraft shall be deemed to have been restored to the control of the Assured on the safe return of the Aircraft to the Assured at an airfield not excluded by the geographical limits of this Policy, and entirely suitable for the operation of the Aircraft (such safe return shall require that the Aircraft be parked with engines shut down and under no duress)."

This is the primary war risks cover. As will be appreciated it cross-refers to and quotes the war risks exclusion in the All Risks policy.

Section 2 of the policy extends the scope of the cover in connection with hi-jacking and extortion. Section 3 includes certain general exclusions which qualify the cover provided by section 1. Thus, wars between major powers are excluded as are all consequences of atomic or nuclear explosions. General exclusion (c) follows the wording of (e) of section 1 so as to exclude acts by or under the authority of any Government in clause 4 of the schedule to the policy, that is to say, the Government of registration. This must mean the registration of the insured aircraft; they were in fact all registered in Kuwait. Section 4 incorporates the terms and conditions of the All Risks policy (so far as appropriate). Section 5 gives the Underwriters the power on 7 days' notice to cancel the policy on various dates or to vary the rate of premium or geographical limits. Nothing arises on these clauses which are usual in a war risks cover.

So far there has been no reference to spares. Spares are dealt with in an express clause which is unnumbered and appears simply to be an attachment to the policy like various other sets of standard clauses. It reads so far as material:

"AIRCRAFT SPARES AND EQUIPMENT EXTENSION

a

Subject to a limit of US$10,000,000 any one item, US$30,000,000 any one sending and US$150,000,000 any one location.

The maximum limit under this Policy for Hull War Risks and Spares Combined any one Aircraft is limited to US$80,000,000.

a

.........

"Whenever the term 'Aircraft' is used in the Policy to which this extension applies the same will also be deemed to mean Aircraft spares and equipment."

(It will be noticed as a curiosity that the cover in respect of spares whilst in transit has been duplicated with the cover in the All Risks policy.)

Points of construction arise in relation to the aircraft spares and equipment extension in conjunction with section 1 of the War Risks policy. Questions of construction also arises under paragraph (e) of section 1.

The final document to which I need to refer is the quotation letter of 14 June 1990. This letter is in summary form and sets out the terms of the quotation under various headings which correspond to those which one would expect to find on a slip presented by a broker to an underwriter. Thus the headings include "type", "assured", "period", "interest", "sum insured", "situation", "conditions", and "information". There is a general incorporation of all the existing terms of the expiring cover, subject of course to the variations set out in the letter. The only part of the letter which it is necessary for the purposes of this appeal to refer to is the entry opposite "sum insured":

"Max. agreed value US$80,000,000 any one aircraft

Max. ground limit US$300,000,000

Spares/Equipment--not exceeding US$10,000,000 any one item/US$30,000,000 any one sending/US$150,000,000 any one location."

The dispute which arises under this document relates to the application of the "max. ground limit": whether it just applies to the aircraft or it also includes spares. Underwriters submit that it is an overriding limit on all losses that occur otherwise than in the air and that therefore, once they have paid out US$300m in respect of the loss of aircraft on the ground, there can be no scope for any further liability in respect of spares on the ground.

The Issues: The remaining questions which the parties have argued on this appeal have been formulated by them in the following terms.

Spares, Question 1: Does the ground limit of US$300m apply to a loss on the ground of aircraft and all spares, or only to a loss of aircraft? This question was answered by Rix J. in favour of the Underwriters and by the majority of the Court of Appeal in favour of the Airline.

Spares, Question 3: Was the loss of spares caused by a peril within section 1(a) alone or was it caused partly or wholly by a peril within (e)? The relevance of this question is that, if it was (a) alone, the Airline could not recover in respect of spares; if it was (e) alone the Airline could recover whatever the answer to Question 4; but if it was partly (a) and partly (e), the answer to Question 4 became critical. Question 3 was answered in favour of Underwriters by Rix J. and unanimously in favour of the Airline by the Court of Appeal.

Spares, Question 4: Is cover in respect of spares on the ground altogether excluded if the loss is by war, invasion, acts of foreign enemies, or hostilities, or can a claim nevertheless be based on some other peril such as seizure? This question was answered in favour of the Airline by Rix J. and in favour of Underwriters by a majority of the Court of Appeal. Schiemann L.J. agreed with the Judge on this question.

The other group of questions were those relating to sue and labour. Only the first of these questions raised a pure point of construction. This was:

"Are sue and labour expenses subject to the ground limit of US$300m or (when they are incurred to recover spares) subject to the US$150m limit for any one location?"

Both the Judge and the Court of Appeal decided this question in favour of the Airline and then went on to consider certain other questions of law which on that hypothesis arose for consideration. In my judgment the question should be answered in favour of the Underwriters and I therefore do not need to set out or express any view about any of the other questions relating to sue and labour which were discussed in the Court of Appeal and before Rix J.

The Surrounding Circumstances Relevant to the Construction of the Insurance Contract:

No surrounding circumstances were relied upon by either party beyond those which would be apparent from a general description of the parties, the character of the business of the Airline and the ordinary practices of the insurance market. There was however one additional aspect which was relied upon by Mr. Pollock QC on behalf of the Underwriters although it was not treated as significant by either of the courts below.

In 1982, having reconsidered the extent to which underwriters at Lloyds should be prepared to write war risks, clauses were prepared designed to limit the exposure of underwriters to war risks on goods. A general principle was to confine cover to goods in transit and to define what amounted to transit in narrow terms. Inter-underwriter agreements existed: the War Risk Waterborne Agreement, the War Risk Airborne Agreement. It can be seen that these agreements may have influenced the willingness of reinsurers to cover goods in transit more favourably than goods not in transit, as occurred in the present case. But they contemplate that cover will still be provided for goods not in transit subject to suitable safeguards, such as cancellation clauses. These documents are not persuasively favourable to the adoption of one construction of the relevant contracts with which Your Lordships are concerned in the present case rather than another. Further, such documents, which are essentially underwriters' documents, cannot be relied upon by them to affect the rights of assureds under contracts of insurance unless those documents are incorporated into the insurance contracts themselves, which they were not. In fairness to Mr. Pollock, his argument recognised the very limited use that he could make of these documents. In my judgment they did not assist at all.

Spares: Question 1:

The argument of the Underwriters was that, looking at the quotation letter dated 14 June 1990, it was simply providing for an overall ground limit of US$300m. It was said that this was the fair reading of the words "max ground limit". Leaving on one side for the moment whether this is a fair reading of the quotation letter in isolation, it is clearly not right to read it otherwise than in conjunction with the existing cover for which it was providing the renewal and to which it refers. When this is done it can be seen that the figures appearing under the rubric "Sum Insured" correspond to sums which are to be found in the expiring war risks cover. Thus the "Max. agreed value US$80,000,000 any one aircraft" relates to the provision in paragraph 2 of the schedule in section 6 relating to the maximum agreed value that any newly acquired aircraft can have if it is to be automatically covered by the policy. The "Max. ground limit US$300,000,000" relates to the words "the maximum sum insured in respect of ground risks is US$300,000,000--any one occurrence, any one location." That is where the figure in the quotation (which happens to be unchanged) is to be inserted. Similarly, the three figures in the letter relating to spares/equipment relate to the figures to be inserted in the second paragraph of the "Aircraft Spares and Equipment Extension." The clear import of the quotation letter is that the relevant figures in the expiring cover are to remain unchanged in the renewed cover.

The argument of the Underwriters on this question involves the submission that there has been a major reduction in the extent of the cover between the expiring policy and the renewal. There can be no serious doubt that in the expiring cover the US$300m figure applied only to aircraft and that the differently defined limits set out in the Spares Extension mean what they say and are additional to whatever recovery the assured may be entitled to in respect of the loss of aircraft on the ground or elsewhere.

Accordingly on this question I agree with the decision of the Judge and of the Court of Appeal.

Spares: Question 3

On this question the Court of Appeal unanimously reversed the decision of the Judge. It is not disputed that a cause of the loss of the aircraft and of the spares was an event falling within paragraph (a) in section 1 of the policy. It is accepted that the causes of the Airline's loss included, for example, the invasion of Kuwait by Iraq and the acts of foreign enemies, that is to say, of Iraq. The issue is whether it can also be said that the Airline's losses were caused by the seizure of the aircraft and spares by a government within the meaning of paragraph (e). The Airline submits that its loss was also caused by, indeed, most immediately caused by the seizure of the aircraft and spares by the Iraqi government.

The ordinary meaning of the word "seizure" is the act of "taking forcible possession either by a lawful authority or by overpowering force" and this is its ordinary meaning in an insurance policy. (Cory v. Burr 8 App. Cas. 393) The Judge confirmed that the word "seizure" was a "perfectly acceptable description of what happened to the aircraft on 2 August". (p. 689) Notwithstanding that he accepted that this was the ordinary meaning of the word and that it had been recognised by authority, the Judge came to the conclusion that in the context of this clause a different interpretation must be adopted. He did not accept the Underwriters' submission that section 1 was to be construed as containing a well-graduated "ladder" of risks but he does seem to have been inclined to treat the various paragraphs as exclusive of each other. He gave his reasons for deciding this point in favour of Underwriters at pp. 690-691 of the report of his judgment:

a

e

a

e

viz.

e

a

e

a

e

The Court of Appeal unanimously took a different view. Like Rix J. they all started from the premise that what occurred was properly described as a seizure of the aircraft and spares by the Iraqi government. Staughton L.J. rejected the arguments based upon the context in paragraph (e) and that the word seizure must be confined to non-belligerent seizure. He recognised the force of the argument that there might be an intention to exclude the consequences of war and invasion in relation to spares when these overlap with the risks in the other paragraphs but he rejected the argument that this justified giving a meaning to those other paragraphs, themselves derived from the All Risks policy, other than their proper meaning. Thus, he did not accept the conclusion that the seizure must be peaceable. Schiemann L.J. agreed with Staughton L.J. on this point without adding reasons of his own.

Otton L.J. gave his reasons for agreeing with Staughton L.J. and disagreeing with the Judge. He commented upon the degree of overlap both internally within the various paragraphs and as between the various paragraphs. He referred to the Underwriters' arguments. He said:

"I see no reason to construe the word narrowly, or to deprive the relevant peril of its usual meaning; the peril of 'seizure' within this policy has no different meaning from that which would normally be ascribed to it. The word has a well accepted commercial usage in the context of insurance . . . ."

e

He also rejected the argument based upon the exclusion of confiscation by the government of registration of the aircraft saying that it did not assist the Underwriters but rather confirmed that the reference to any government must be to a foreign government. He concluded that there was no justification for giving the word "seizure" in paragraph (e) a restricted interpretation:

"I am satisfied that 'seizure' is an appropriate peril to describe the events which have caused the loss of the aircraft and spares, i.e. forcible dispossession."

Thus, the conclusion of Rix J. was that the whole of category (e) must be understood as relating to peaceable activities of a government occurring within the territorial jurisdiction of that government. The arguments in favour of this conclusion were said to be the contrast between paragraph (a) and paragraph (e) and the view that they should be construed so as not to overlap, the word "nationalisation" which occurs in (e) coupled with the omission of the word "capture" and the reference to "public or local authority" which, it was submitted, should colour the understanding of the paragraph as a whole and therefore exclude any belligerent activity and, specifically, "belligerent seizure". It is argued that it should be inferred from the fact that, in relation to aircraft, the general exclusion of acts of the government of registration leads to the expectation that (e) would not in practice apply to aircraft while they were within Kuwait, that there should be a similar territorial exclusion in respect of spares--that (e) would not apply to spares whilst they were in Kuwait.

Effectively the same arguments were urged upon us by Mr. Pollock. It is convenient to take these arguments in the reverse order. The argument that the acts of the Kuwaiti government were not covered under this policy does not assist Underwriters. No one suggests that the Airline's loss was caused by any act of the Kuwaiti government or that it was caused by anything other than the acts of the Iraqi government. The Iraqi government was on any view for the purposes of this policy a foreign government. Similarly, if it were the intention to exclude from the cover provided by this policy anything which occurred within the territorial boundaries of Kuwait, nothing would have been simpler than to say so. This contract contains no such exclusion.

As regards the relationship between paragraphs (a) and (e), (a) is not confined to acts of governments. It relates to situations which may or may not impact upon the assured or its property. Any effect of such situations upon the assured will be through some more specific consequence, typically the destruction or damaging of its property. The confiscation of property is not an ordinary incident of war whereas its destruction or damage is; and those ordinary incidents are the consequence of activities of the combatants. A contrast therefore already exists between the obvious contemplation of paragraph (a) and that of paragraph (e). Paragraph (e) deals with matters which affect the title to or possession of property--the actual loss of possession not some anterior situation which may or may not give rise to a loss. The reference to governments and other authorities in (e) distinguishes between the acts of individuals and the acts of governments. This was also one of the points stressed in Cory v. Burr (sup) where it was pointed out that seizure can include the taking of a ship by insurgent slaves: Kleinwort v. Shepard 1 E. & E. 447. Another illustration is the discussion of the point by Mustill J. in Spinney's (1948) Ltd. v. Royal Insurance Co. Ltd. [1980] 1 Lloyd's Rep. 406; he drew the distinction between looting by soldiers and other individuals in the course of hostilities or disorder or their aftermath and seizures by governments as occurred in the present case. Paragraph (e) is concerned with the latter, not the former.

The ordinary meaning of the word seizure as used in marine policies was the subject of the decision of your Lordships' House in Cory v. Burr. It was argued that the word seizure was confined to belligerent seizure. Lord FitzGerald (in line with the opinions of the Earl of Selborne L.C., Lord Blackburn and Lord Bramwell) rejected this argument, saying at p. 405:

"'Seizure' seems to be a larger term than 'capture' and goes beyond it, and may reasonably be interpreted to embrace every act of taking forcible possession either by a lawful authority or by overpowering force."

He is thus giving the word "seizure" an inclusive meaning. It includes both belligerent and non-belligerent forceable dispossession. That is its ordinary meaning.

Thus far there has been nothing to cut down the ordinary meaning of the word seizure. But it is argued that the list of perils in (e) leads to the conclusion that a more restricted use of the word is intended. It must be accepted that the word "nationalisation" is a word which has nothing to do with warlike activities and does connote some lawful or purportedly lawful act under a municipal legal power. But other words used in the paragraph carry, by contrast, an inference of some warlike or hostile situation. The word "restraint" is one which has historically appeared and still commonly appears in policies covering war risks. (See the SG policy annexed to the 1906 Act and rule 10 of the Rules for Construction.) The omission of the word "capture" is fully explained by the fact that it is an inappropriate word to use in aviation insurance as opposed to marine insurance where, historically, takings at sea had been covered and the subjects of marine insurance--ships and cargoes--were (and still are) properly treated as objects of war to be taken in prize or by way of reprisal: this was the meaning of the word capture in marine policies. (Anderson v. Martin [1907] 2 K.B. at 253).

The phrase "requisition for title or use" is strongly supportive of the normal meaning of the word seizure. Requisition is typically something which occurs in the time of war or hostilities involving an exercise of executive or military power. It is precisely analogous to the type of seizure which took place in the present case. From the point of view of the assured it would make no difference whether the aircraft (or spares) were requisitioned to assist the war effort of the foreign government, as, for example, by providing transport for their armed forces, or by way of outright seizure. The situations are directly analogous as are the consequences. The word "appropriation" is similarly unhelpful to the Underwriters' argument as are the references to "military" and "de facto" governments.

Were the ordinary meaning of the word seizure confined to peaceful seizures, it could certainly be said that the context was not clear enough to widen that meaning so as to refer also to all forcible seizures. But where, as here, the ordinary meaning of the word is any forcible seizure, the context does not suffice to show that the word must have been used in some special or restricted sense. At the best from the point of view of the Underwriters, the context within paragraph (e) is neutral and does not suffice for their purpose. However, in my judgment, it is not neutral but supports the ordinary use of the word and the case of the Airline.

I therefore agree with the unanimous decision of the Court of Appeal that the word seizure is to be understood in its ordinary sense and it follows that the loss in this case comes within paragraph (e) as well as paragraph (a).

Spares: Question 4:

On this question the split of judicial opinion was between Rix J. and Schiemann L.J. on the one hand and Staughton L.J. and Otton L.J. on the other. The argument of the Underwriters addressed this question at two levels. The first type of argument was based upon the wording of the aircraft spares and equipment extension clause; the second type of argument was based upon rhetorical assertion that it would be commercially absurd for the Underwriters to have covered the spares whilst on the ground against risks consequent upon wars or other hostile activities: Staughton L.J. said "repugnant to common sense". (p. 695).

It is not disputed in the present case, and it is the law, that where there are a number of perils covered by the policy it suffices for the assured to prove that his loss was proximately caused by any one of the perils covered. Similarly, if there is an exclusion, the assured is not entitled to recover under the policy if the excepted peril was a proximate cause of the loss. Thus, for present purposes the point at issue can be paraphrased as being the question whether the risks in paragraph (a) were simply omitted from the cover for spares when not in transit or were, on the true construction of the policy, excepted perils. In the former case the Airline succeeds; in the latter the Underwriters succeed.

The opening words of the extension are "it is noted and agreed that the indemnity provided by this Policy other than Paragraph (a) of Section One is extended to include loss of or damage to Aircraft Spares. . . ." It is therefore an extension clause providing for a qualified extension of the cover. It is not an exclusion clause. The relevant and only exclusion (as that term is properly understood) is to be found in the All Risks Policy. The language is plain. It means that the risks enumerated in paragraphs (b) to (f) are covered. The fact that the clause has been worded as extending the cover to all the paragraphs other than paragraph (a) has precisely the same effect. The language of the extension clause does not assist the Underwriters.

There is a technical argument which was included in the submissions of Mr. Pollock but not placed in the forefront of his case; it refers back to the traditional structure of marine cover and the inter-relation of the SG form, the F C & S clause, and the commonly used printed clauses whereby war risks are then covered. Whilst such arguments are not wholly alien to the construction of aviation policies which to an extent follow the same structure, the spares extension clause in the present contract is more simply drafted and does not necessitate or justify having resort to such methods of interpretation. Where the wording used is straightforward and has a plain meaning, that is the meaning which, save in exceptional circumstances, should be adopted.

This leads to the second way in which the Underwriters' case was argued and which clearly was influential with the majority in the Court of Appeal. It is submitted that to construe the contract as providing cover for spares not in transit where a cause of the loss was the occurrence or existence of a war would produce exorbitant risks which, so it is said, cannot have been intended to be covered by this contract.

This argument, to which I hope I have done justice, is not one which should be readily accepted. The purpose of insurance, particularly war risks, insurance, is to cover against the exceptional catastrophes. The Underwriters' position is already protected to some extent by the exclusion of wars between major powers and is further protected by clauses which give the Underwriters the right during the currency of the policy to restrict the scope of the cover by notice or, again by notice, to cancel the policy. It can also be commented that, however the first question was answered, there is a limit to the liability of the Underwriters. Their maximum exposure is known any one location. They are not accepting an unregulated or open-ended exposure. But it must in any event be stressed that it is not for the courts to tell the parties what contract they should have made nor, after the event, to evaluate the merits and demerits of their bargain. If, as here, the parties have used plain language to express their intention, that should be an end of it: the courts should enforce the contract in accordance with its terms.

Therefore I would answer the fourth question in favour of the Airline.

Spares: Conclusion

It follows that I would answer all of the three remaining questions relating to the cover for spares in this contract in favour of the Airline with the result that upon the agreed facts the Airline is entitled to recover from the Underwriters in respect of the loss of spares. The overall limit is, on this basis, agreed to be US$150m. We are not concerned with the question of subrogation rights or recoveries. The assumption of the parties is that they will not reduce the Airline's loss below the US$150m figure. Any other questions remaining outstanding will have to be disposed of in the Commercial Court action.

The Sue and Labour Question:

As indicated earlier there were a number of questions, possibly hypothetical, which were argued before the Judge and the Court of Appeal concerning the right of the Airline to make some supplementary recovery over and above the US$300m and, as it now appears, the US$150m. Unless this question is decided in favour of the Airline, the other questions on sue and labour do not arise. Both Rix J. and the Court of Appeal did go on to express views about those further questions because they unanimously decided the first sue and labour question in favour of the Airline. The Underwriters on the appeal to your Lordship's House have contended that the courts below were in error and that on the particular wording of this contract the right was subject to a limit.

It is not in contention that the ordinary purpose and understanding of a sue and labour clause is to authorise the assured to take reasonable steps to recover the insured property or reduce the extent of the insured damage or loss. Indeed it is ordinarily to be inferred that the assured has a duty to take these steps. The law was worked out in various 19th century decisions and codified in the Marine Insurance 1906 section 78. Section 78 (1) provides:

"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, or that the subject matter may have been warranted free from particular average, either wholly or under a certain percentage."

Just as the authority and obligation to sue and labour are supplementary to the contract of indemnity so also is the Underwriters' liability to reimburse sue and labour expenses reasonably incurred. Provided those expenses have been reasonably incurred, it does not matter whether they were in the end successful or not. They may not succeed in averting a total loss of the subject matter of the insurance. But, having properly sued and laboured in accordance with authority given by the clause, the assured is entitled to look to the underwriter to reimburse him the expenses so incurred. The fact that the underwriter is also having to pay for a total loss does not alter this position.

Thus far the law is wholly in favour of the Airline but it is not possible to stop there because the sue and labour clause incorporated into this particular contract contains a proviso. This reads:

"Provided always that these costs and expenses shall be included in computing the losses hereinbefore provided for, notwithstanding that the Company may have paid for a total loss."

Why the parties should have chosen to include this proviso is not something we can fathom. But it appears to be capable of having only one meaning. That meaning is that the limits on the liability of the Underwriters are to apply not only to the primary indemnity but also so as to include any sue and labour expenses incurred. The "losses hereinbefore provided for" must mean the losses in respect of the primary obligation to indemnify. The ordinary rule continues to apply that payment for a total loss does not exclude the right to recover sue and labour expenses. But this proviso requires that any sue and labour expenses be included with the primary losses for which cover is provided in the contract. It follows that, where there is a limit on the indemnity, that limit must be applied to the aggregate of the primary loss and the sue and labour expenses. We asked counsel for the Airline to say what was the effect of the proviso if it was not to be that which I have just stated. He was unable to suggest any alternative meaning. He submitted that the effect of the proviso was confined to allowing sue and labour expenses to be recovered in addition to the insured value of the relevant subject matter. However. as already pointed out this does not adequately or satisfactorily explain the proviso. Rix J. and the Court of Appeal seem to have had a similar difficulty in ascribing an acceptable meaning to the proviso and they chose to decline to give it any effect beyond that which would be implied by law in any event.

The proviso appears to be a one-off type of wording. I do not doubt that it has been used before but there is no suggestion that it is a standard wording nor is any plausible explanation given of it other than that which I have adopted. Here again, it is for the parties to define their respective rights and obligations in their contracts with an adequate degree of certainty. That this proviso should have given rise to a dispute is scarcely surprising. But, having done so, its language has to govern.

It follows that in my judgment the Underwriters succeed on this point. The right to add sue and labour expenses to their primary right to indemnity is subject to the same limits as their primary right. On the facts of this case those limits have already been exhausted and it follows that the Airline's right to claim reimbursement of sue and labour expenses (if any) has also been exhausted.

Conclusions:

It follows that upon the spares disputes, the Appeal of the Airline should be allowed and Spares Question 4 be answered in favour of the Airline. Upon the sue and labour disputes, the appeal of the Airline should be dismissed and Sue and Labour Question 1 be answered in favour of the Underwriters. The Order of the Court of Appeal will be varied in accordance with your Lordships' judgments and the order that the action of the plaintiffs against the first to fourth defendants be dismissed will be set aside.

Having considered the written submissions of the parties it should further be ordered that the Respondents shall pay the Appellants their costs before this House and two thirds of their costs in the Court of Appeal and one third of their costs before Rix J.