Miruvor v. National

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Note: in a judgement given on 21 February 2003, the Hong Kong Court of Appeal upheld the decision at first instance on the 'election' point but overruled the judge at first instance on the Cl.16.1 point. For a note on the Court of Appeal decision, click here

DMC/INS/11/02
Miruvor Ltd v. National Insurance Co Ltd
Hong Kong Court of First Instance: Stone J.: [2002] HKEC 1033: October 2001
INSURANCE: INSTITUTE CARGO CLAUSES (A) – ALL RISK: WHETHER LOSS IN STORAGE EXCLUDED UNDER DURATION CLAUSE 8: WHETHER SUFFICIENT ATTEMPT TO SAFEGUARD GOODS UNDER MINIMISING LOSSES CLAUSE 16
Summary
This case determined that prolonged storage of cargo in the Customs’ warehouse at the Brazilian port of discharge, pending payment by the buyer of the purchase price, did not amount to an ‘election’ by the Assured to use the warehouse for ‘storage other than in the ordinary course of transit’ under Institute Cargo Clauses (A) – All Risks – Clause 8.1.2.1. However, failure to alert the carrier to the situation in an attempt to avert the loss did amount to a failure to take reasonable steps to avert or minimise the loss, contrary to Clause 16.1 of the ICC Clauses.

This case is contributed by Mary Thomson, previously member of the firm of Paul Hastings/Koo and Partners, former International Contributors for Hong Kong

DMC Category Rating: Developed

Facts
Miruvor shipped goods to a Paraguayan buyer. Delivery was to be at either Santos or Paranagua port in Brazil. The buyer did not collect the original bills of lading from the correspondent bank against payment for the goods. Instead, forged bills of lading were presented to the carrier’s agents, who released the goods from the bonded warehouse.

Miruvor claimed on the all risk marine insurance incorporating the Institute Cargo Clauses (A). The insurer, National, refused payment. It maintained that cover had terminated before the time at which the loss occurred. National’s argument was that the storage in the bonded warehouse was at Miruvor’s election and was "other than in the ordinary course of transit", within the meaning of Clause 8.1.2.1.1 Miruvor had chosen to keep the goods in the bonded warehouse, not only for custom’s clearance but also for extended storage until the buyer eventually made payment for the goods. National relied on evidence that Miruvor was aware, from previous shipments to the buyer, that there were likely to be substantial delays in payment. Even though there was only one customs warehouse in both Santos and Paranagua, it was Miruvor’s ‘use’ of the warehouse for the purpose of storage pending payment that constituted an ‘election’ for ‘storage other than in the ordinary course of transit’.

National’s second argument was that Miruvor had not taken reasonable measures to avert or minimise its loss, as required under the Minimising Losses clauses of the policy2. This duty, it was argued, required Miruvor to travel to Paraguay and obtain whatever legal practical assistance it could in order to avoid any further theft of the cargoes after it had knowledge of what was happening, including, if necessary, a court ordered injunction against release of the remaining cargoes.

1. DURATION
8.1 This insurance attaches from the time the goods leave the warehouse or place of storage at the place named herein for the commencement of the transit and continues during the ordinary course of transit and terminates
8.1.1 on delivery to the Consignees’ or other final warehouse or place of storage at the destination named herein
8.1.2 on delivery to any other warehouse or place of storage, whether prior to or at the destination named herein, which the Assured elect to use either
8.1.2.1 for storage other than in the ordinary course of transit or
 8.1.2.2 for allocation or distribution, or
8.1.3 on the expiry of 60 days after completion of discharge overside of the goods hereby insured from the oversea vessel at the final port of discharge,
whichever shall first occur.

2. MINIMISING LOSSES
16. It is the duty of the Assured and their servants and agents in respect of loss recoverable hereunder
16.1 to take such measures as may be reasonable for the purpose of averting or minimizing such loss, and
16.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved.

Judgment
The Judge found that the delay in the collection of the cargo did not render it as stored "other than in the course of transit". All that was happening was that the ordinary course of transit was taking longer, as in certain circumstances it might. He also found as "ambitious and wrong" the argument that goods stored pending payment constituted an "election". An election would require a supervening conscious decision by the assured and its communication to the carrier or warehouseman. The goods remained at all times within the ordinary course of transit.

On the Minimizing Losses defence, the judge held that the requirement to enjoin the release by judicial means was to pitch the assured’s obligation too high. However, after knowledge of the facts has come to the assured, there is a duty to at least communicate to the carrier in order to prevent release, even if it proves to be unsuccessful or is expected to be so. The judge relied on the observation of Everleigh J in ICS v BTI (1984) 1 Lloyd’s Rep. 154 that the words of section 78 (4) of the Marine Insurance Act (mirroring Clause 16.1 of ICC(A)) impose "a duty to act in circumstances where a reasonable man intent upon preserving his property, as opposed to claiming upon insurers, would act."

Miruvor attempted, albeit unsuccessfully, to prevent the release of one of its cargoes by a fax message to the carrier. However, its failure to send a specific fax in relation to a subsequent shipment was held to be a failure ‘to take such measures as may be reasonable for the purpose of averting or minimizing such loss’ and therefore a breach of Clause 16.1. Miruvor was allowed recovery under the former but not the latter shipment.

 

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