Sunport v. Atkin
Note that this decision has been upheld on appeal. The Court of Appeal judgment is dated 24 January 2003 and can be accessed by clicking here
Following the case of the Anita  1 Lloyd’s Rep 487, the court held that the meaning of "Customs regulations" under Institute Clauses (Hulls – Time) of 1.10.83 was wide enough to include provisions having the force of law in the country concerned (i) as to import or export duties or licences and (ii) as to import or export of controlled drugs and other prohibited goods, substances or materials.
Case Note based on an Article in the April 2002 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA.
DMC Category Rating: Confirmed
The "Kleovoulos of Rhodes" was detained in Greece in August 1998 following the discovery of nearly 200kgs of cocaine in a sea chest below the waterline. The master and crew were charged with drug offences but were eventually acquitted in January 2000. In the interim, however, the vessel had been detained for long enough to be deemed a constructive total loss under the terms of its insurance.
The policy insured the vessel against war and other perils for a period of 12 months from 15 March 1998. The policy incorporated the Institute Clauses (Hulls-Time) of 1.10.83 and covered, amongst other things, loss of or damage to the vessel caused by its detainment. Clause 3 provided that, if the vessel was detained for a continuous period of 6 months, the insured would be deemed to have been deprived of its possession without any likelihood of recovery. Clause 4.1.5, however, excluded "arrest, restraint, detainment, confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations".
The issue was whether this exclusion applied, and the argument boiled down to what was meant by "customs regulations". The claimants (the owner, the manager and the mortgagee) argued that it only covered rules of law concerning duties levied on imports from abroad and not breaches of criminal law that happened to be policed by Customs. Nor was the detainment the proximate cause of the loss, as the vessel would only have needed to be detained a short time to recover the drugs. The true cause of the loss was the criminal proceedings against the master and crew. Consequently, the exclusion should not apply.
The insurers argued for a wider interpretation of "customs regulations", as had been allowed in The Anita ( 1 Lloyd’s Rep 487). In that case, the vessel was detained in Vietnam after the discovery of smuggled transistor radios and other unmanifested goods on board. The detention was not pursuant to Vietnam's Customs Code but to an order of a Special Court. Nevertheless, both the High Court and the Court of Appeal found the detainment was "by reason of an infringement of customs regulations". The court took into account that the Institute clauses are used in a wide variety of jurisdictions, and took the view that the phrase should be given a businesslike interpretation and should not be restricted to what, in any particular jurisdiction, may be designated as a Customs Code.
Mr Justice Cresswell agreed with the insurers’ approach. Where an expression in a standard form policy used in marine insurance has acquired a settled meaning, the courts will generally apply that meaning in the interest of certainty. Following the authoritative guidance given in The Anita  1 Lloyd’s Rep 487, he found that the term "customs regulations" was wide enough to include provisions having the force of law in the country concerned (i) as to import or export duties or licences and (ii) as to import or export of controlled drugs and other prohibited goods, substances or materials.
Having found there was an infringement of customs regulations, he was satisfied that the loss was caused by that infringement. He specifically rejected the argument that the vessel need only have been detained for a short time. The Greek court had refused the owners’ application for release on the grounds that detention was necessary for as long as the investigation continued.
Consequently, insurers succeeded in showing that the loss came within exclusion 4.1.5 and the claimants were unable to recover under the policy.
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