Miruvor v. National Insurance CofA

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DMC/INS/04/06
Miruvor Ltd v. National Insurance Co Ltd
Hong Kong Court of Appeal: Rogers VP, Le Pichon and Yuen JJA.: 21 February 2003
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 concerned claims for the total loss of consignments of electronic goods that had been delivered at the ports of discharge against forged bills of lading. The appeal court held, upholding the decision at first instance, that in the absence of a voluntary decision or act within the control of the insured, a 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 interruption or termination of the 'ordinary course of transit' insured under the policy;  nor did it 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.) - which would also have brought the cover to an end on delivery of the cargo into the warehouse.  Furthermore, the Court of Appeal held, contrary to the decision at first instance, that failure to alert the carrier to the situation in an attempt to avert the loss did not amount to a failure to take reasonable steps to avert or minimise the loss under Clause 16.1 of the ICC Clauses, unless that failure was the dominant cause of the loss. That was not the case here.

DMC Category Rating: Developed

Facts
Miruvor shipped goods to a Paraguayan buyer. Delivery was to be at either Santos or Paranagua port in Brazil. Before the goods could continue their journey into Paraguay, the original bill of lading had to be presented. The bill of lading could only be obtained by making payment. The exporter, in a case where goods arrived at Paranagua or Santos and the bill of lading was not immediately presented, had no option but to leave the goods at the bonded warehouse until such time as the bill of lading might be presented unless he either waived his right to demand presentation of a bill of lading or arranged to retrieve the original bill of lading from the collecting bank so that he might move the goods from the bonded warehouse for his own account. In this case, 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. Miruvor had chosen to keep the goods in the bonded warehouse, not only for customs’ 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 policy. 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.

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.

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 at First Instance
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.

National Mutual appealed against the judgment holding it liable on all but one of the policies sued on; Miruvor appealed against the judgment holding National Insurance not liable under the one policy.

Judgment on Appeal
The judgment in the Court of Appeal was given by Le Pinchon JA, with whose opinion the other members of the court agreed. The judgment substantially upheld that given at first instance.

On the issue of storage in the ordinary course of transit, the court held, after examining authorities from South Africa and Australia, that interruption or termination of the insurance cover had to be brought about by a voluntary decision or act within the control of the assured. "Absent such a voluntary decision or act as described to interrupt or terminate it, the ordinary course of transit would continue". In the present case, the insurer had not formulated its defence on this basis.

The insurer had also argued that the assured had "elected" to use the customs warehouse for storage other than in the ordinary course of transit (under cl.8.1.2 of the policy). That election, it said, had been made prior to delivery of the goods to the warehouse so that, on delivery of the goods to the warehouse, cover terminated. The court held that, on the facts, the insurer had failed to make good its case on this point.

Finally, the court overruled the decision at first instance in relation to the one policy. In order to establish a defence under c.16 of the policy, the insurer had to show 
a) that the assured had failed to take reasonable steps to avert or minimise the loss and also
b) that the failure to take those steps was the dominant cause of the loss.
Again, in the court’s view, the insurer had failed to establish this point.

Judgment was accordingly given in favour of Miruvor on all the insurance policies.

     

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