Excessive speed

Excessive speed

IN a case recently before the courts in Denmark, a carrier which undertook to perform three voyages from Denmark to Ireland with a total cargo of thirty wind turbines faced damage claims from cargo insurers.

The carrier assigned performance of the carriage to a second carrier, who undertook to perform the voyages with a time-chartered vessel. Identical bills of lading were issued for the three carriages on the time-charterer’s form, signed by the master.

The bills of lading contained the notation ‘stowed on deck at shippers’ risk’. In addition, the bills of lading contained a standard himalaya clause, whereby the shipowner was entitled to rely on the provisions of the bills of lading in the event that the time-charterer’s principal or third party brought a claim directly against the owner.

For the carriage if the first ten turbines from Esbjerg, a report was prepared by a surveyor on behalf of the cargo insurers concerning the securing of the turbines on board the vessel. According to the report, the turbine towers had been placed on planks and cross-secured by chain lashings. The surveyor approved the positioning and securing of the towers. No survey was performed for the second shipment, although the towers were reportedly secured in the same way.

During the second voyage, the vessel encountered stormy weather, and when it arrived at Belfast the turbine towers were found to be damaged. A report by the cargo insurers attributed the damage to excessive speed on the part of the vessel, which had caused vibration, leading the tower supports to break the planks lying underneath and resulting in a loosening of the chains that secured the towers.

A surveyor acting for the cargo insurers calculated that the average speed of the vessel had at no time been less than 6.8 knots. In his opinion, the reduction in speed that appeared in the vessel’s logbook was not attributable to a reduction in engine power but to a deterioration in weather conditions.

The cargo insurers instituted proceedings before the Maritime and Commercial Court in Copenhagen against the carrier and the shipowner, but not the time-charterer, claiming that they should jointly pay for the damage to the turbines. The carrier and owner denied liability.

The carrier and owner argued that there had been no error or negligence on their part, and that, even if the vessel had been going too fast, that was a question of nautical error in the handling of the vessel for which they could not be held responsible under the Danish merchant shipping act.

The court held both the carrier and shipowner liable, noting that it had not been proved that the weather had seriously deteriorated during the voyage, or that unusual or sudden weather changes had occurred. Also, neither the carrier nor owner had proved that the speed of the vessel was not the cause of the damage, and speed, moreover, could not be deemed to be a nautical error as it was a matter of importance to the cargo and not to the vessel’s safety. (Jesper Windahl, Dragsted Schluter Aros, Denmark. Source: International Law Office newsletter)

Fraud not material to claim

IN a dispute recently before the Commercial Court in London (K/S Merc-Scandia XXXX11 -v- Lloyd’s Underwriters & Ors (2000) Lloyd’s Rep 357), it was held that, even though an assured had acted fraudulently, the fact that the fraud was immaterial to the claim meant that its legal liability insurance policy could not be avoided by insurers.

The assured, a shiprepairer in Trinidad, had cover against legal liability in respect of negligence. A shipowner claimed against it for negligent repair and consequential loss. Proceedings were started in the English courts by the shipowner, and permission was obtained to serve the proceedings out of the jurisdiction. The assured then provided the solicitors appointed by insurers to defend the claim with a forged document which the assured thought would help on the issue of the jurisdiction of the English courts. The forgery was discovered before there was any hearing on the jurisdiction issue.

The insurance policy provided that, “In the event of any occurrence which may result in a claim … the assured shall give prompt written notice … and shall keep the underwriters fully advised.” When the assured’s fraud was discovered, the insurers sought to avoid the policy for breach of the duty of the utmost good faith and/or for breach of this provision. The insurers claimed that there had been a post-contractual breach of the duty of utmost good faith. The assured, meanwhile, argued that, for the period after the contract of insurance had been concluded, the operation and scope of the duty was limited to a duty not to make a fraudulent claim and not to prosecute litigation based on such.

In giving his judgment, Mr Justice Aikens reviewed the case law since the Litsion Pride decision, in which the assured did not inform insurers that the insured vessel had entered a war zone, thereby increasing the risk to the vessel. In that case it was found that the assured had a continuing duty to disclose all material facts to insurers, and that failure to do so entitled insurers to avoid the claim and/or the policy. Particular attention was paid to the decision of the Court of Appeal in Manifest Shipping Co. Ltd v Uni-Polaris Insurance Co. Ltd and La Reunion Europeene: "The Star Sea" [1997] 1 Lloyd's Rep 36, an appeal from which has just been heard by the House of Lords. Reference was also made to the decision of Mr Justice Rix in Royal Boskalis Westminster NV v Mountain [1997] LRLR 523. On the basis of these authorities, Mr Justice Aikens concluded that there was no English authority which supported the contention that the duty of good faith operated in this case. The notion of a broadly construed post-contractual duty was also rejected. Such a duty would only arise where insurers had been given information for the purpose of taking on a new or increased risk under an existing policy or where the assured was making a claim under the policy. In either case, the remedy for the breach of duty was avoidance of the policy as a whole.

The court decided that, for the fraud to be material, it had to relate either to an increase in the risk or to the presentation or pursuance of the claim. Here the fraud related to the ancillary matter of jurisdiction, with the result that there was either no duty at all or there was a duty which had not been breached.

The judge concluded that the policy could not be avoided on the grounds of immaterial fraud because to do so would elevate such immaterial fraud to the status of a material fact. Insurers also had to show that the fraud had induced them to take a particular course of action in relation to their handling of the claim. No such evidence was available as the fraud was immaterial to the claim.

As regards the notice/claims provision, it was found that a breach of this clause had occurred, because insurers had been supplied with a forged document, and the assured had failed to keep insurers fully advised. However, Mr Justice Aikens concluded that the clause was not a true condition precedent, and that insurers would in fact have been in the same position with or without the production of the forged document. The breach had not seriously prejudiced insurers’ position, and they could not treat the claim as having been repudiated by the assured. (Lawrence Graham Insurance & Reinsurance Division)