DMC Category Rating: Developed
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In May 1997, Everbright obtained from Wilcom a cover note for the insurance of about 6000 cubic metres of vitex round logs to be shipped from the Solomon Islands to Tuticorin in India. The cover note was on Institute Cargo Clauses (A) (‘All Risks’) terms. The cover note included the Institute Classification Clause (‘ICC’). In June 1998, Everbright chartered on a voyage basis, a ship called the ‘Sirena I’ to carry the shipment..
The loading of the logs commenced on July 2 1998 and on that day, Everbright sent a fax to the insurer’s agents, informing them of the loading, and giving details of the Sirena I. Loading was completed on July 21 and the ship eventually sailed on August 12 1998. In the meantime, the owners of the Sirena I had taken her into Indonesian waters and refused to sail her to the discharge port. Despite negotiations with the owners and Everbright paying advance freight, the ship eventually disappeared with all the cargo on board her.
On 2 December 1998, Everbright submitted a formal claim under the cover note for the total loss of the cargo, in the amount of US$1.3 million. AXA rejected the claim on the grounds that the Sirena I was not an ‘approved vessel’ and did not comply with the terms of the ICC.
The ICC read in material part as follows:
(4) Cargoes…. carried by mechanically self-propelled vessels not falling
within the scope of the above are held covered subject to a premium and on
conditions to be agreed.’
At first instance, the trial judge dismissed the claim. She held that the Sirena I was not an ‘approved vessel’ for the purposes of the insurance, in that she did not comply with the requirements of the ICC. Neither did the ship fall within the provisions of the held covered clause of the ICC as it was a chartered ship and – under the provisions of the ICC – all chartered vessels must comply with the classifications specifically set out in the ICC. Even if the Sirena I did fall within the scope of the held covered clause, it was impossible to obtain a reasonable commercial rate of premium for insuring the cargo shipped on board. Consequently, there was no contract of insurance between Everbright and AXA in relation to this shipment. Everbright appealed.
It was not disputed that the Sirena I was a chartered vessel and did not have a classification listed in the ICC. The question then was whether she came within the held covered clause. The court held that the words in paragraph 4, namely ‘not falling within the scope of the above’ should be construed as referring both to ships under paragraph 1 of the clause and to chartered ships under paragraph 2. To construe the wording in paragraph 2 as requiring all chartered ships to meet the conditions set out in paragraph 1 would not ‘give effect to the commercial purpose of the ICC and would give rise to difficulty in practice.’ The commercial purpose of the "held covered" clause was to provide a fall back position to maintain the insurance cover under the cover note, in the event that the vessel does not meet the classification and age requirements, upon the payment of additional premium and/or imposition of other conditions. The "held covered" clause could therefore apply to a chartered vessel.’ The court recognised that this interpretation rendered paragraph 2 of the ICC in effect ‘superfluous.
Given the finding that the Sirena I fell within the held covered clause, it
was then necessary to determine whether a reasonable commercial rate of premium
was available for the coverage of the shipment, in the light of the increased
risk involved. This had to be examined in the light of the facts that were
available to the parties when loading commenced on July 2 1998, even if all
those facts were not actually known to the parties at that time. The court held
that the following were the relevant and undisputed facts about the Sirena I
which could have been known to the parties on July 2:
The court concluded that, when confronted with these facts, ‘a reasonable and prudent underwriter would be put on enquiry and upon enquiry, would find that there was no record of the Sirena I and what emerged would be a vessel with a highly suspect background….. In our judgment, in the circumstances, a reasonable commercial rate of premium would not be available for insuring a shipment of logs on board the Sirena I.’
The court held accordingly that Everbright could not successfully invoke the held covered clause.
An alternative argument advanced by Everbright was that AXA was estopped from denying the contract of insurance, as Everbright had duly informed Wilcom about the vessel undertaking the carriage and of the loss of cargo. In the course of these communications, Wilcom/AXA had not informed Everbright that the vessel was not approved and that the contract was invalid. The Court held that there was no estoppel as there was no duty on the part of AXA to inform Everbright whether the vessel so declared fell within the terms of the ICC.
Therefore, the Court concluded that there was no contract of insurance between Everbright and AXA.
The latest version of the ICC, introduced with effect from 1 January 2001, makes no specific reference to chartered ships.
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