JUDGMENT
Global Process Systems Inc and another
(Respondents) v Syarikat Takaful Malaysia Berhad
(Appellant)
before
Lord Mance
Lord Collins
Lord Clarke
Lord Dyson
Lord Saville
JUDGMENT GIVEN ON
1 February 2011
Heard on 28 and 29 July 2010
Appellant Respondent
Steven Gee QC Gordon Pollock QC
Peter Stevenson Claire Blanchard QC
(Instructed by Hill
Dickinson LLP)
(Instructed by Watson,
Farley & Williams LLP)
Page 2
LORD SAVILLE
1. This case is concerned with a marine insurance policy on cargo dated 5 July
2005, which incorporated the Institute Cargo Clauses (A) of 1 January 1982. The
policy covered “all risks of loss or damage to the subject-matter insured except as
provided in Clauses 4, 5, 6 and 7…” Clause 4.4 excluded “loss, damage or expense
caused by inherent vice or nature of the subject matter insured” from the cover
provided by the policy.
2. The subject matter of the insurance was the oil rig “Cendor MOPU.” This
oil rig had been laid up in Galveston, Texas. In May 2005 it was purchased by the
respondents (the assured under the policy) for conversion into a mobile offshore
production unit (“MOPU”) for use in the Cendor Field off the coast of East
Malaysia. The insurance covered the loading, carriage and discharge of the oil rig
on the towed barge “Boabarge 8” from Galveston in the United States to Lumut in
Malaysia. The total sum covered was Malaysian Ringgits 38m (US$10m) with a
deductible of US$1m. The premium was US$378,000.
3. The oil rig, originally called the “Odin Liberty”, was built in Singapore in
1978. It is what is called a “self elevating mat supported jack-up rig,” consisting of
a watertight working platform called the jackhouse, which can be moved (jacked)
up and down three legs extending to the seabed, according to the sea depth at the
drilling location. There is a mat at the bottom of the legs that sits on the seabed
when the rig is in operation.
4. The legs are massive tubular structures, made of welded steel cylindrically
shaped, with an outside diameter of 12 feet and a length of 312 feet. Each weighed
404 tons. The jacking system worked by engaging steel pins into what were called
pinholes in the legs. These pinholes were apertures some 16 inches wide and 10
inches high. Each leg had 45 sets of pinholes at 6 foot intervals.
5. The rig was carried on the barge with its legs in place above the jackhouse,
so that the legs extended some 300 feet into the air.
6. The voyage began on 23 August 2005. On 10 October 2005 the tug and
barge arrived at Saldanha Bay, just north of Cape Town. There some repairs were
made to the legs and the voyage resumed on 28 October. North of Durban on the
evening of 4 November 2005, the starboard leg broke off at the 30 foot level and
fell into the sea. The following evening the forward leg broke off at the same level,
Page 3
and some 30 minutes later the port leg broke off at the 18 foot level. Both these
legs also fell into the sea. It is the loss of the three legs that is the subject matter of
the claim under the policy.
7. The loss resulted from metal fatigue in the three legs. Fatigue is a
progressive cracking mechanism resulting from repeated or fluctuating (cyclic)
stresses each at a level lower than that required to cause fracture of an uncracked
component. Generally, there are three stages to the fatigue failure of any
component, namely initial cracking, propagation of the cracking and finally
complete fracture.
8. The initial cracking occurs in regions of stress raising features, such as
corners or notches, where stresses are concentrated. In the present case, the corners
of the pinholes were stress raising features. The initial fatigue cracks occurred
there and then propagated until they reached a point where they were subjected to
what was described as a “leg breaking” stress that completely fractured the
weakened leg. Once the first leg had failed, the stresses on the remaining legs
increased.
9. The stresses in the present case were generated from the effect that the
height and direction of the waves had on the pitching and rolling motion of the
barge and thus on the legs. It was common ground that what the barge experienced
was within the range of weather that could reasonably have been contemplated for
the voyage.
10. That the legs of the rig were at risk of fatigue cracks during the voyage was
known from the outset and the legs were inspected at Galveston by experts
appointed by the assured and approved by the insurers. It was a condition of the
policy that the appointed surveyors Noble Denton approved the arrangements for
the tow. These surveyors issued a Certificate of Approval on 23 August 2005. In
this certificate they required that the legs be reinspected when the barge reached
Cape Town (roughly the half way point) for crack initiation in way of the six
levels of pinholes above the mat; so that remedial work could be undertaken
should it be found necessary.
11. When the rig was examined at Saldanha Bay it was found that there had
occurred a considerable degree of fatigue cracking around the pinholes; and some
repairs were made in order to reduce the stress concentrations in these areas. Selfevidently, however, the repairs did not prevent the final failure of the legs a few
days later.
Page 4
12. The insurers rejected the claim for the loss of the legs and the matter came
for trial before the Commercial Court. At the trial one of the arguments advanced
by the insurers was that the loss was the inevitable consequence of the voyage, and
that since insurance was against risks, not certainties, they were under no liability
for the loss of the legs. The judge, Blair J, [2009] 2 All ER (Comm) 795, rejected
this argument, concluding at para 87 “that the failure of the legs as this rig was
towed round the Cape was very probable, but it was not inevitable.” As he put it:
“…a developed crack would not, on its own, have been sufficient to
cause one of the legs to come off. That required in addition a ‘leg
breaking’ or ‘final straw’ stress that finally fractured the weakened
steel. As Mr Colman [one of the experts called at the trial] put it,
‘you’ve got to catch it just right, if you want to make it actually fail
all the way round.’”
13. The insurers do not challenge the judge’s conclusion.
14. One of the arguments advanced by the assured at the trial was that the loss
resulted from the failure to effect adequate repairs at Saldanha Bay. This argument
too was rejected by the trial judge, on the grounds that the loss occurred despite the
repairs and not because of them. The assured does not challenge this conclusion.
15. What Blair J decided was that the insurers had proved that “the proximate
cause of the loss was the fact that the legs were not capable of withstanding the
normal incidents of the insured voyage from Galveston to Lumut, including the
weather reasonably to be expected.” In his judgment this meant that the cause of
the loss was inherent vice within the meaning of the policy and that accordingly
the insurers were not liable for the claim.
16. The Court of Appeal [2010] 1 Lloyd’s Rep 243, para 64 took a different
view and concluded that the proximate cause of the loss was an insured peril in the
form of the occurrence of a “leg breaking wave”, which resulted in the starboard
leg breaking off, leading to greater stresses on the remaining legs, which then also
broke off. The insurers now appeal to the Supreme Court.
17. Both at first instance and in the Court of Appeal, the judges expressed their
task as seeking to find the “proximate cause” of the loss. The reason for this is to
be found in the Marine Insurance Act 1906, which was entitled “An Act to codify
the Law relating to Marine Insurance.” Section 55(1) of this Act provides that:
Page 5
“Subject to the provisions of this Act, and unless the policy
otherwise provides, the insurer is liable for any loss proximately
caused by a peril insured against, but, subject as aforesaid, he is not
liable for any loss which is not proximately caused by a peril insured
against.”
18. In general terms therefore, whether or not a loss is covered by a marine
policy depends on ascertaining its proximate cause.
19. Although there were some authorities before the Marine Insurance Act 1906
that appeared to proceed upon the basis that the relevant cause was that closest in
time to the loss, it is now well settled that this is not the test for proximate cause:
Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC
350. The proximate cause is that which is proximate in efficiency; and, as
Bingham LJ put it in T M Noten BV v Harding [1990] Lloyd’s Rep 283, 286-287:
“Unchallenged and unchallengeable authority shows that this is a
question to be answered applying the common sense of a business or
seafaring man.”
20. It was common ground between the parties that it was for the insurers to
prove that the loss was proximately caused by inherent vice or nature of the subject
matter insured. The central issue before this court was as to the meaning of this
exception to the cover.
21. Although in the present case, as pointed out above, this exception is spelt
out in the Institute Cargo Clauses, it also appears in section 55(2)(c) of the Marine
Insurance Act 1906, which provides:
“Unless the policy otherwise provides, the insurer is not liable for
ordinary wear and tear, ordinary leakage and breakage, inherent vice
or nature of the subject matter insured, or for any loss proximately
caused by rats or vermin, or for any injury to machinery not
proximately caused by maritime perils.”
22. It is not suggested that the exception under consideration bears a different
meaning from that in the Marine Insurance Act 1906, though if there are two
proximate causes, one of which is covered and the other which is (as here)
specifically excepted, it appears settled that the loss is not recoverable under the
insurance: Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corpn
Page 6
Ltd [1974] QB 57; J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd
(The “Miss Jay Jay”) [1987] 1 Lloyd’s Rep 32.
23. In the present case the two remaining candidates for “proximate cause” are
perils of the seas, in the form of the stresses put upon the rig by the height and
direction of the waves encountered by the barge, and inherent vice or nature of the
subject matter insured.
24. Both parties to this appeal relied upon the definition of inherent vice or
nature of the subject matter insured given by Lord Diplock in Soya GmbH Mainz
Kommanditgesellschaft v White [1983] 1 Lloyd’s Rep 122. In that case a cargo of
soya beans was insured against risks of heating, sweating and spontaneous
combustion. The goods arrived in a heated and deteriorated condition. The insurers
denied liability on the grounds that the proximate cause of the damage was
inherent vice or nature of the subject matter insured, for which they were not liable
under section 55(2)(c) of the Marine Insurance Act 1906; and that the cover only
extended to heating, sweating or spontaneous combustion brought about by some
external cause. The House of Lords decided that as a matter of construction the
policy did “otherwise provide” within the meaning of the opening words of section
55(2)(c) so that the perils of heating, sweating and spontaneous combustion arising
from inherent vice or nature of the subject matter insured were covered. It was in
this context that Lord Diplock, at p 126, stated that:
“This phrase (generally shortened to “inherent vice”) where it is used
in section 55(2)(c) refers to a peril by which a loss is proximately
caused; it is not descriptive of the loss itself. It means the risk of
deterioration of the goods shipped as a result of their natural
behaviour in the ordinary course of the contemplated voyage without
the intervention of any fortuitous external accident or casualty.”
25. The insurers submitted that applying this definition to the present case, the
first question was whether at Galveston, assuming the ordinary course of the
contemplated voyage, without any intervening adverse fortuity, the rig had within
itself internally the risk of deterioration, which they described as “the inherent vice
at Galveston”; while the second question was whether the inherent vice at
Galveston was the proximate or one of the proximate causes of the loss. They
submitted that Lord Diplock had made it clear that it was not enough to negative
inherent vice to have some external fortuity. The external fortuity had to intervene
so that it negatived causation of the loss by the unfitness of the goods which
existed on shipment. In the present case, it was submitted, the actual sea
conditions, albeit themselves fortuities, were within the range that could
reasonably have been contemplated for the voyage. In other words, it was
submitted that those sea conditions occurred in and as part of the ordinary course
Page 7
of the contemplated voyage. The submission was, therefore, that there had been no
intervention of any fortuitous external accident or casualty, so that the loss was
proximately caused by the inherent vice at Galveston.
26. The insurers sought support for these submissions from some passages from
the judgment of Donaldson LJ in the court below in the same case ([1982] 1
Lloyd’s Rep 136, 150); from the decision of the Court of Appeal in T M Noten BV
v Harding [1990] 2 Lloyd’s Rep 283; and from the decision of the British
Columbia Court of Appeal in Nelson Marketing International Inc v Royal and Sun
Alliance Insurance Co of Canada (2006) 57 BCLR (4th) 27.
27. There is nothing to suggest that Lord Diplock was in agreement with the
definition of inherent vice suggested by Donaldson LJ, namely that a loss is
proximately caused by inherent vice if the natural behaviour of the goods is such
that they suffer a loss in circumstances in which they are expected to be carried.
Such a definition pays scant regard as to how and in what circumstances the loss
occurred.
28. In T M Noten BV v Harding [1989] 2 Lloyd’s Rep 527; [1990] Lloyd’s Rep
283 industrial leather gloves were shipped from Calcutta to Rotterdam. On arrival
the good were found to be wet, stained, mouldy and discoloured. The judge at first
instance (Phillips J) decided that the damage had been caused by moisture, which
had been absorbed by the goods in the humid atmosphere of Calcutta and had then
evaporated and condensed on the top of the container, before falling back on the
goods and damaging them. Phillips J decided that the proximate cause of the
damage was external to the goods, even if a characteristic of the goods had helped
to create that external cause; and that accordingly the defence of inherent vice
failed.
29. The Court of Appeal overruled this decision. As already observed, it was in
this case that Bingham LJ made clear that the ascertainment of the proximate cause
was a question to be answered applying the common sense of a business or
seafaring man. The answer that the Court of Appeal gave was that the goods
deteriorated as a result of their natural behaviour in the ordinary course of the
contemplated voyage, without the intervention of any fortuitous external accident
or casualty. “The damage was caused because the goods were shipped wet.” It is
noteworthy that in that case it was accepted on behalf of the assured that if the
damage complained of had been caused by excessive moisture in the gloves, but
without the intervening process of condensation on the roof of the containers, the
position would have been different. Bingham LJ described this suggested
distinction as “owing more to the subtlety of the legal mind than to the
commonsense of the mercantile.” This case therefore is one where, applying
commonsense, the proximate cause of the damage was the moisture in the cargo,
Page 8
and the fact that it evaporated from the cargo before condensing and falling back
on the cargo was neither here nor there. There was, as Bingham LJ pointed out, no
untoward or unusual event of any kind. It was not unusually hot in Calcutta or
particularly cold in Rotterdam. “There was, on the evidence, no combination of
fortuitous events, and the defendant never undertook to insure the plaintiffs against
the occurrence of hot and humid weather in Calcutta during the monsoon.”: p 289.
30. The British Columbia Court of Appeal in Nelson Marketing International
Inc. v Royal and Sun Alliance Insurance Co of Canada 57 BCLR (4th) 27 followed
this decision in a case where shipments of laminated truck flooring were damaged
by moisture absorbed by the flooring in the course of manufacture, which on the
voyage had evaporated and condensed in circumstances which were not
established to be other than what was expected in the ordinary course of the
voyages in question. There was no fortuitous external occurrence causing the
deterioration. As Lowry JA put it, at p 35: “Rather, on the evidence adduced, it
was attributable to the nature of the subject matter of the insurance.”
31. In the two cases under discussion, there was simply no external fortuitous
event or series of events which could sensibly be described as the proximate cause
of the damage. In my judgment these cases do not provide authority for the
proposition that inherent vice or nature of the subject matter insured is established
by showing that the goods in question were not capable of withstanding the normal
incidents of the insured voyage, including the weather reasonably to be expected.
What they do establish is that where the only fortuity operating on the goods
comes from the goods themselves, the proximate cause of the loss can properly be
said to be the inherent vice or nature of the subject matter insured and so (in the
absence of provisions to the contrary) falls outside the cover.
32. However, the case that is authority for the proposition contended for by the
insurers is the decision of Moore-Bick J in Mayban General Insurance v Alstom
Power Plants Ltd [2004] 2 Lloyd’s Rep 609.
33. In that case the cargo was a transformer, which was seriously damaged by
the violent movements of the vessel due to the action of the wind and sea.
However, Moore-Bick J held that goods tendered for shipment must be capable of
withstanding the forces that they can ordinarily be expected to encounter in the
course of the voyage and that if the conditions encountered by the vessel were no
more severe than could reasonably have been expected, the conclusion must be
that the real cause of the loss was the inherent inability of the goods to withstand
the ordinary incidents of the voyage. The judge went on to find that the conditions
encountered were neither extreme nor unusual in the sense that they were
encountered often enough for mariners to regard them as a normal hazard. He
accordingly held that the insurers were not liable for the damage, since the cover
Page 9
excluded loss damage or expense caused by inherent vice or nature of the subjectmatter insured. In the present case Blair J regarded this case as applying the correct
test; the Court of Appeal declined to do so.
34. In my judgment Mayban General Insurance v Alstom Power Plants was
wrongly decided. It should be noted that it was apparently common ground
between the parties to that case that an inability of the cargo to withstand the
ordinary perils of the seas amounted to inherent vice, so that the meaning of
inherent vice was not argued out. Furthermore, none of the authorities on the
meaning of perils of the seas was cited to the judge.
35. The assured submitted, in my judgment correctly, that the effect of applying
the test adopted by Blair J would be to reduce much of the purpose of cargo
insurance, for the cover would then only extend to loss or damage caused by perils
of the seas that were exceptional, unforeseen or unforeseeable, and not otherwise.
This, it was submitted, would go far to frustrate the very purpose of all risks cargo
insurance, which is to provide an indemnity in respect of loss or damage caused
by, among other things, all perils of the seas.
36. Blair J rejected this submission on the grounds that the real question was as
to the proximate cause of the loss; and that the approach of Moore-Bick J did not
entail that in order to qualify as a peril of the sea, the weather had to be
extraordinary. However, although of course the proximate cause of the loss or
damage is indeed the real question, this does not to my mind answer the point
made by the assured, which is that on the test adumbrated by Moore-Bick J, the
assured is not covered in respect of loss or damage to cargo caused by
unexceptional or foreseen or foreseeable perils of the seas.
37. Put another way, the ordinary form of all risks cargo insurance would, if
Moore-Bick J was right, not provide cover for losses attributable to the
unseaworthiness of the cargo ie loss or damage caused by the inability of the cargo
to withstand the ordinary perils of the seas. The reasons for this are as follows.
38. According to section 39 of the Marine Insurance Act 1906, seaworthiness
means “reasonably fit in all respects to encounter the ordinary perils of the seas of
the adventure insured.”
39. The meaning of “perils of the seas” in the Act is contained in the “Rules for
construction of policy” contained in Schedule 1, where the phrase is defined as
referring “only to fortuitous accidents or casualties of the seas. It does not include
the ordinary action of the winds and waves.” Thus section 55(2)(c) of the 1906 Act
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(and the Institute Cargo Clauses) make clear that ordinary wear and tear caused by
the sea (or otherwise) is something for which the insurer does not provide cover. It
is to be noted that the word “ordinary” attaches to “action” not to “wind and
waves”, so that if the action of the wind or sea is the proximate cause of the loss, a
claim lies under the policy notwithstanding that the conditions were within the
range which could reasonably have been anticipated: the Miss Jay Jay [1985] 1
Lloyd’s Rep 264, 271.
40. Section 39 of the 1906 Act implies a warranty into a policy covering a
vessel for a voyage, that at the beginning of the voyage the vessel shall be
seaworthy for the purpose of the particular adventure insured. The effect of the
warranty is that if the vessel is not seaworthy the insurer is not liable for any loss
or damage, whether or not that was proximately caused by the unseaworthiness. In
a time policy there is no such implied warranty, though under section 39(5) where
the ship is sent to sea in an unseaworthy state with the privity of the assured, the
insurer is not liable for any loss attributable to unseaworthiness. Of course, as
Mustill J pointed out in the Miss Jay Jay, at p 272, where an unseaworthy vessel
sinks entirely through its own inherent weakness, rather than from the operation of
a peril of the seas which it should have been able to withstand, the insurer will also
not be liable.
41. As to goods, section 40(1) of the 1906 Act provides that in a policy on
goods or other moveables there is no implied warranty that the goods or moveables
are seaworthy. Although seaworthiness is not defined in this section, there is no
reason to suppose that it bears a different meaning from that in section 39: E D
Sassoon & Co v Western Assurance Co [1912] AC 561.
42. Under the 1906 Act therefore, the fact that the goods are not reasonably fit
in all respects to encounter the ordinary perils of the seas of the adventure insured,
does not automatically deprive the assured of cover. There is no equivalent to the
provisions relating to time policies, where loss or damage attributable to
unseaworthiness at the outset known to the assured is excluded.
43. The provisions of the 1906 Act do not fit easily with the proposition that
inherent vice or nature of the subject-matter insured means that unseaworthy goods
are not covered against loss or damage attributable to that unseaworthiness. The
effect of that proposition would be that whereas the ship owner under a time policy
would be covered against loss attributable to the unseaworthiness of the vessel at
the outset to which he was not privy, the cargo owner would not be covered
against loss attributable to unseaworthiness of the cargo, whether or not he was
privy to the fact that the cargo was unseaworthy. There is nothing in the 1906 Act
or in the preceding authorities which to my mind lends support to such a
distinction. Furthermore, if inherent vice or nature of the subject-matter insured
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did include unseaworthiness, then, contrary to section 39(5), the insurer could
escape liability under a time policy for loss and damage attributable to
unseaworthiness even if the assured was not privy to that unseaworthiness.
44. Our attention was drawn to a number of authorities relating to the meaning
of perils of the seas, as well as other cases relating to the question of inherent vice
or nature of the subject-matter insured. I can find nothing in those authorities
which lend support to the test applied by Blair J. On the contrary, cases such as
Canada Rice Mills Ltd v Union Marine and General Insurance Co Ltd [1941] AC
55 and the Miss Jay Jay make clear that perils of the seas are not confined to cases
of exceptional weather or weather that was unforeseen or unforeseeable; while
inherent vice or nature of the subject-matter insured has never (before the decision
in Mayban [2004] 2 Lloyd’s Rep 609) previously been defined as encompassing
any fortuitous external accident or casualty that was unexceptional or foreseen or
foreseeable.
45. In these circumstances I do not accept the construction put by the insurers
on the definition given by Lord Diplock in Soya v White [1983] 1 Lloyd’s Rep
122, 126. In my judgment what Lord Diplock was saying, as the assured
submitted, was that where goods deteriorated, not because they had been subjected
to some external fortuitous accident or casualty, but because of their natural
behaviour in the ordinary course of the voyage, then such deterioration amounted
to inherent vice or nature of the subject-matter insured.
46. As already noted, Blair J held that the real question was as to the proximate
cause of the loss. In this he was correct. The question is one of fact, to be decided
on common sense principles. Where in my view the judge erred was in giving the
phrase inherent vice or nature of the subject-matter insured too wide a meaning
and, as the other side of the coin, giving the risk of perils of the seas too narrow a
meaning, by in effect including in the former and excluding from the latter external
fortuities that were unexceptional or which were foreseen or foreseeable; and then
answering the question of fact on this erroneous basis. All or virtually all goods are
susceptible to loss or damage from the fortuities of the weather on a voyage; this
does not mean that such loss or damage arises from the nature of the goods; it
arises from the fact that the goods have encountered one of the perils of the seas.
In my judgment in the present case the proximate cause of the loss, applying
commonsense principles, was not inherent vice nor indeed ordinary wear or tear or
the ordinary action of the wind and waves, but an external fortuitous accident or
casualty of the seas. This took the form of the rolling and pitching of the barge in
the sea conditions encountered catching the first leg at just the right moment to
produce stresses sufficient to cause the leg to break off, thereby leading to
increased stresses on the remaining legs and their subsequent breakage.
Page 12
47. It remains to note that if, as the insurers submitted, and Blair J held, the
proximate cause of the loss was inherent vice because the legs were not capable of
withstanding the normal incidents of the insured voyage from Galveston to Lumut,
including the weather reasonably to be expected, it difficult to see how the case
could be one where there were two proximate causes, since ex hypothesi it would
be the inability of the legs to withstand the stresses, not the stresses themselves,
that would be the proximate cause. Thus in my judgment this is not a case in which
it could be concluded that there was more than one proximate cause of the loss.
48. For these reasons I would dismiss this appeal.
LORD MANCE
Introduction
49. In the Victorian era, the “proximate” cause in marine insurance was readily
associated with the last cause in point of time: see eg Thompson v Hopper (1856) 6
E & B 172, 937; Dudgeon v Pembroke (1877) 2 App Cas 284; in the parallel bill of
lading context, Thomas Wilson, Sons & Co v Owners of the cargo per the Xantho
(The “Xantho”) (1887) 12 App Cas 503, 514, per Lord Bramwell; J J Lloyd
Instruments Ltd v Northern Star Insurance Co Ltd (The “Miss Jay Jay”) [1987] 1
Lloyds Rep 264, 271 per Mustill J, as well as “Fault and Marine Losses” [1988]
LMCLQ 310 (Sir Michael Mustill). The modern focus on the “real efficient cause”
was finally established at the highest level after the enactment of the Marine
Insurance Act 1906, in Leyland Shipping Co Ltd v Norwich Union Fire Insurance
Society Ltd [1918] AC 350. From that moment, the proximate cause became a
matter of judgment and less easy to identify with certainty.
50. Lord Saville has outlined the facts. On the present appeal, the rival
candidates as cause of the loss of the three legs of the oil rig Cendor MOPU are,
on the one hand, a fortuitous external accident or casualty falling within the
concept of “all risks of loss or damage” in clause 1 of the relevant Institute Cargo
Clauses (A) (the respondent insured’s case) and, on the other hand, inherent vice
of the rig within clause 4.4 of the Clauses (the appellant insurers’ case). In the
alternative, if both can and should be regarded as concurrent causes, insurers
submit that the respondents’ claim must fail, because clause 4.4 is a specific
exclusion. This point may not have been clearly identified below, but it is
essentially one of law, and insurers are in my view entitled to argue it.
Page 13
51. By inherent vice, insurers do not mean some characteristic of the rig which
was bound to lead to the loss of its legs. Inevitability is not the test of inherent
vice, just as lack of inevitability is no proof of a fortuitous external accident or
casualty. Inevitability is excluded in this case by Blair J’s finding that the failure
and consequent loss of the legs was, although “very probable, …. not inevitable”
([2009] 2 All ER (Comm) 795, paras 89 and 104). So it is unnecessary to discuss
whether and to what extent there exists a further principle of insurance law, that
loss which is inevitable is irrecoverable. If both parties know that loss is inevitable,
there may be no risk or insurance at all, although in endowment insurance the risk
lies in the uncertainty when death will occur. If the assured alone knows that the
loss is inevitable, one would expect him to fail, if only on grounds of nondisclosure. If neither party knows, then inevitability resulting from inherent
characteristics of the goods will, in the absence of express provision, bar recovery
on the grounds of inherent vice. Whether inevitability resulting from outside
causes will do so seems an open question. Would it be an answer to war risks
insurers to prove that an insurance on cargo was placed at a time when the cargo
was already on an aircraft in flight with a timed bomb due to go off in ten minutes
in its cargo hold? Such questions do not require further examination here.
52. Putting insurers’ case at its highest, it may be argued that, because the
insured rig was unable to withstand all bad weather conditions which it would
foreseeably meet during the insured venture, the assured cannot recover in respect
of the resulting loss of or damage to the rig legs. If presented as a rule of law or
even of evidence, this would make lack of fitness for the insured venture (or lack
of “cargoworthiness”) a condition precedent to recovery for loss or damage which
would not have been suffered had the goods been fit for the venture. This would be
a coherent thesis, but it finds possible support in only one decision, and that recent:
Mayban General Insurance Bhd v Alstom Power Plants Ltd [2004] 2 Lloyd’s Rep
609 (Moore-Bick J). Its acceptance would place a stringent limit on the scope of
marine insurance cover, which could not infrequently lead to disputes about the
fitness of cargo to travel, and leave CIF buyers in doubt about whether to look to
their insurers or sellers or both, quite possibly in different fora.
53. Mindful no doubt of this, Mr Steven Gee QC does not advance any so
definite proposition of law. In his submission, unfitness for the foreseeably bad
weather conditions on the voyage is no more than a powerful pointer towards a
conclusion that loss or damage occurring as a result of such conditions was
proximately caused by inherent vice. When Moore-Bick J said in Mayban, at para
21, that, if the conditions encountered by the vessel were no more severe than
could reasonably have been expected, then “the conclusion must be that the real
cause of the loss was the inherent inability of the goods to withstand the ordinary
incidents of the voyage”, he had in context only been stating a commonsense
conclusion. In every such case, it was a matter of evidence and judgment whether
the loss or damage was due to the peril of the sea or the inherent characteristic or
Page 14
“vice” of the cargo or both. Here, Blair J had taken that approach and had found
that, “Taking the evidence as a whole, ….. the proximate cause of the loss was the
fact that the legs were not capable of withstanding the normal incidents of the
insured voyage …, including the weather reasonably to be expected” (para 111).
There was no basis upon which to disturb this assessment of the facts.
The Marine Insurance Act 1906
54. The statutory background includes provisions dealing directly with the
fitness of the vessel in the case of hull insurance (section 39) and of the goods and
carrying vessel in the case of cargo insurance (section 40). Section 40(1) provides
that that there is no implied warranty that the goods or moveables insured are
seaworthy, while section 40(2) provides that there is an implied warranty that the
carrying ship is, at the commencement of the voyage, not only seaworthy as a ship,
but also reasonably fit to carry the goods or moveables to the contemplated
destination. The historical origins and rationale of these differing approaches need
not detain us, though, looking at them through modern eyes, one could suggest
reasons why they might have been framed in a reverse sense, ie to have provided
for a warranty of the goods’ seaworthiness and no warranty of the ship’s
seaworthiness.
55. However that may be, modern cargo clauses very substantially modify
section 40(2), providing (in the case of the present Clauses) by clause 5(2) that
insurers waive any breach of the implied warranties which section 40(2) contains,
unless the assured or their servants “are privy to such [un]seaworthiness or
unfitness”, and for good measure also excluding by clause 5(1) any loss or damage
arising from unseaworthiness or unfitness of the vessel at the time of loading of the
insured goods where the assured or their servants are so privy.
56. In circumstances where the Act addresses the subject of initial
unseaworthiness or unfitness of both the goods and the carrying vessel by express
provisions, but leaves the parties free to vary and supplement such provisions as
they may wish, it might be thought odd if such unseaworthiness or unfitness could
also be a direct test of insurers’ liability for any particular loss or damage under the
separate heading of inherent vice, dealt with in section 55(2)(c). The answer
advanced by Mr Gee for the insurers is that there is a great difference between a
warranty, which, from the moment of its breach, discharges from all liability for
any loss or damage whether or not causatively linked (Bank of Nova Scotia v
Hellenic Mutual War Risks Underwriting Association (Bermuda) Ltd (The “Good
Luck”) [1992] 1 AC 233) and a qualification or exclusion which only affects loss
or damage arising from the matters covered by the qualification or exclusion. A
historical riposte might then be that the famously and sometimes unfairly stringent
principles governing insurance warranties were themselves the product of the
Page 15
Victorian view of causation referred to in para 56 of this judgment. If the only
relevant cause is the last cause in time, then a prior breach of a simple contractual
obligation regarding fitness could have been regarded as irrelevant. Hence, the
development of the concept of a warranty which, if broken, automatically
discharged from liability for loss or damage, irrespective of how such loss or
damage was in law to be regarded as caused.
57. Even prior to the 1906 Act, however, it is clear that thinking had developed
in at least some areas. In case of deliberate casting away, the law looked behind
the immediate cause of loss. Another, more relevant here, instance is crystallised
in section 39(5), providing that, in a time policy on a ship, there is no implied
warranty of seaworthiness at any stage of the adventure, but that, “where, with the
privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is
not liable for any loss attributable to unseaworthiness”. The Act thus recognised in
relation to hull insurance the possibility of excluding liability for what would
otherwise have been loss or damage by the immediate cause of a peril of the sea,
where the loss or damage could, more remotely, be attributed to unseaworthiness
of the vessel to which the assured was privy. When the Act was passed, the
language “loss attributable to unseaworthiness” catered for the Victorian
reluctance to look behind the last cause in time to any previous cause. How far the
word “attributable” now allows regard to be had to causes which would, under
modern conceptions, not be regarded as proximate appears undecided, and may in
turn depend upon how far modern conceptions of proximity can, in cases of
unseaworthiness, lead the eye back beyond the immediate cause to initial
unseaworthiness as the real, dominant or effective cause. That is of course the
essential issue in this case. However, it can, I think, still be said that the express
treatment of the subject of seaworthiness in hull insurance in section 39(5)
highlights the absence of any like provision in respect of cargo insurance and so
the oddity of treating section 55(2)(c) as, in effect, containing such a provision
when it refers to inherent vice. The oddity is further highlighted under the present
Clauses, when one considers the careful restriction in clauses 5.1 and 5.2 of the
relevance of breaches of the implied warranties of seaworthiness and fitness of the
vessel to circumstances where the assured was privy to such breaches.
58. Under the rules for the construction of an SG policy in the form set out in
Schedule 1 to the 1906 Act “or other like form”: “The term ‘perils of the seas’
refers only to fortuitous accidents or casualties of the seas. It does not include the
ordinary action of the winds and waves”. The present policy was not in or in like
form to the SG policy form, but it covered only fortuitous accidents or casualties,
not the ordinary action of the winds and waves or other elements: T M Noten BV v
Harding [1990] 2 Lloyd’s Rep 283 (see further paras 62-63 below). The term
“inherent vice”, introduced in section 55(2)(c) to define the scope of marine cover,
is not statutorily defined, but Mr Gee relies upon the definition advanced by Lord
Page 16
Diplock in Soya GmbH Mainz Kommanditgesellschaft v White [1983] 1 Lloyd’s
Rep 122, 126:
“It means the risk of deterioration of the goods shipped as a result of
their natural behaviour in the ordinary course of the contemplated
voyage without the intervention of any fortuitous external accident
or casualty”.
Under this definition, the critical questions are what are meant by the “ordinary
course of the contemplated voyage” and the “intervention of any fortuitous
external accident or casualty”. Mr Gee submits that the ordinary course of the
contemplated voyage includes all foreseeable weather conditions; on this basis, the
triggering by foreseeably bad weather of goods’ unfitness for the insured
adventure, giving rise to loss or damage of the goods, occurs in the ordinary course
of the voyage, and there is nothing that can or should be described as a fortuitous
external accident or casualty. Mr Gordon Pollock QC for the assured submits, in
contrast, that, if goods are lost by what would otherwise be an insured peril, in
particular a peril of the seas, then there is a fortuitous external accident or casualty
and, by the same token, an event outside the ordinary course of the contemplated
voyage. It is, he submits, no answer to this that the fortuity consisted in weather
conditions of a foreseeably unfavourable kind, which the goods were not fit to
withstand. It will be observed that, applied to Lord Diplock’s definition: (i) Mr
Gee’s submission would effectively reintroduce the idea of a condition precedent
of fitness, which (as I have noted in paras 52-53 above) Mr Gee actually disclaims,
while (ii) Mr Pollock’s submission effectively means that any intervening
fortuitous external accident or casualty will preclude a conclusion that inherent
vice was the cause of loss, a submission which does not reconcile with the Court of
Appeal authority of J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd
(The “Miss Jay Jay”) [1987] 1 Lloyd’s Rep 32. The danger of treating judicial
dicta as if they constituted statutory definitions is well-known, and it will be
necessary to consider intermediate possibilities between these two positions.
The case-law
59. It is clear from Lord Diplock’s language (“risk of deterioration”) in Soya v
White, [1983] 1 Lloyd’s Rep 122, 126, from the subject-matter of that case and
from authority cited to the House in it (identified by Mr Gee’s diligent research
from the printed case prepared by Robert Alexander QC and Bernard Rix for
insurers) that the focus there was on the simple case of cargo having some inherent
tendency on shipment which simply manifested itself under ordinary conditions of
carriage, for example a tendency to “effervesce and generate the fire which
consumed it” (Boyd v Dubois (1811) 3 Camp 133). In such a case, there is nothing
more than the development of the cargo’s inherent characteristic. Such a case was
Page 17
clearly also in the forefront of the court’s mind in Koebel v Saunders (1864) 17 CB
(NS) 71, where Willes J said, at p 78, that “in the case of an insurance on goods, it
is no answer to say that they were in an unfit condition to be shipped, unless it is
shewn that the loss arose from that unfitness”. Byles J, at p 79, described “the
more ordinary instances” of loss of goods by some inherent vice or weakness as
consisting “of fruit, flour, or rice, which are liable to heat or perish on the voyage”.
But he also referred to the less ordinary instances “of tender animals unfit to bear
the agitation of the sea, gun-cotton, or the like”.
60. Mr Gee relies upon Byles J’s reference to tender animals unfit to bear the
agitation of the sea as indicating that inherent vice includes unfitness to withstand
foreseeably unfavourable weather conditions. This puts too much weight on a
passing reference. It is not clear that by “the agitation of the sea”, Byles J had
anything in mind beyond “the ordinary action of the wind and waves”. If he did,
his dictum stands in contrast with the decisions in Lawrence v Aberdein (1821) 5 B
& Ald 107 and Gabay v Lloyd (1825) 3 B & C 793. In both cases, recovery was
allowed in respect of death of or injury to animals violently occasioned by storm
and consequent agitation of the seas. An exception “warranted free from mortality”
was interpreted as excluding only indirect loss from natural causes which could,
but for such a warranty, have been treated as produced by perils of the seas, for
example being driven off course with consequent exhaustion of the ship’s
provisions leading to the animals’ starvation. The court noted that insurers’
contrary suggestion largely undermined the point of taking out any insurance on
the animals at all. Not surprisingly, there was no suggestion in either of these cases
that the death was due to the animals’ own inability to withstand the voyage.
61. Each side can draw some possible support for their respective positions
from N E Neter & Co Ltd v Licenses and General Insurance Co Ltd [1944] 1 All
ER 341. A cargo of casks and bags of china clay out-turned damaged, as a result of
the stoving in of the casks on a voyage during which there had been heavy
weather. Tucker J dismissed the claim on the ground that the plaintiffs had not
proved that the proximate cause of the loss was the rough weather. It appeared to
him “equally consistent with defects in the casks, accidents during loading, bad
stowage, rough weather, or accidents during or after discharge” (p.343). But he
went on to say that, had it been shown to be the heavy weather, he would have
held there to have been a loss by perils of the sea, even though there was nothing
abnormal or unexpected in the weather on such a voyage in the month in which it
occurred. He said:
“Having regard to Thames and Mersey Marine Insurance Co Ltd v
Hamilton, Fraser & Co (1887) 12 App Cas 484, the Xantho case
(1887) 12 App Cas 503, and Hamilton, Fraser & Co v Pandorf & Co
(1887) 12 App Cas 518, and the recent Privy Council decision in
Canada Rice Mills, Ltd v Union Marine and General Insurance Co
Page 18
Ltd [1941] AC 55, I think it is clearly erroneous to say that, because
the weather was such as might reasonably be anticipated, there can
be no peril of the seas. There must, of course, be some element of the
fortuitous or unexpected to be found somewhere in the facts and
circumstances causing the loss, and I think such an element exists
when you find that properly stowed casks, in good condition when
loaded, have become stoved in as a result of the straining and
labouring of a ship in heavy weather. It is not the weather by itself
that is fortuitous; it is the stoving in due to the weather, which is
something beyond the ordinary wear and tear, of the voyage. This
appears to me to be “something which could not be foreseen as one
of the necessary incidents of the adventure”. It was “an accident
which might happen, not an event which must happen”, to quote the
language of Lord Herschell in the Xantho.”
62. The general description of perils of the sea assists Mr Pollock, but the
dictum that on the facts the stoving in of the casks was due to such a peril, they
being “in good condition when loaded” is consistent with Mr Gee’s case for
insurers. It may be regarded as a precursor of the reasoning and decision in
Mayban [2004] 2 Lloyd’s Rep 609. In contrast, I do not think that Donaldson LJ’s
remarks about inherent vice in Soya v White [1982] 1 Lloyd’s Rep 136, 150 on
which Mr Gee also relied, bear or assist on the present issue. I agree in this respect
with what Lord Clarke says in paras 123-125.
63. Insurers rely strongly on T M Noten BV v Harding [1990] 2 Lloyd’s Rep
283, a case of all risks insurance on the Institute Cargo Clauses (All Risks). The
decision shows that inherent vice can embrace a predisposition to injury by a train
of events that is, firstly, not purely internal and, secondly, depends upon a
combination of external events that it foreseeable, but by no means certain to
occur. Lack of inevitability is, as I have said (para 51 above), no proof that there
was in the insurance sense a fortuitous external accident or casualty. The damage
to the gloves in Noten occurred because, on loading in their cartons into their
container, they had a moisture content reflecting the humidity of the Calcutta
atmosphere, and because the container was in Rotterdam discharged into a
markedly colder atmosphere, where it cooled, setting up convection currents
within the container which carried moist air from the gloves to the container roof
where the air condensed, falling back down in droplets onto the cartons of gloves
and damaging them. The Court of Appeal held that there was no “untoward or
unusual event of any kind”, “no combination of fortuitous events, and the
defendant never undertook to insure the plaintiffs against the occurrence of hot and
humid weather in Calcutta during the monsoon” (p 289, per Bingham LJ). The
same thought was expressed by Roche J in Whiting v New Zealand Insurance Co
Ltd (1932) 44 Lloyd’s Rep 179, 180, when he said: “Moist atmosphere is not an
accident or incident that is covered. It is more or less a natural test or incident
Page 19
which the goods have to suffer and which the underwriter has not insured against”.
That being so, the insurers submit that there was also nothing unusual about the
weather conditions or “leg-breaking wave” in this case, and the real cause of the
loss of the three legs was their unfitness to withstand weather conditions which
were ordinary and foreseeable incidents of the insured voyage.
64. In Noten v Harding [1990] 2 Lloyd’s Rep 283 the damage occurred in
conditions and a way which were both foreseeable and entirely ordinary. The
damage was not covered because the conditions under which it occurred were
entirely ordinary atmospheric conditions, the gloves essentially damaged
themselves under such conditions through their own moisture content, and it was
not sensible to describe them as having sustained any fortuitous external accident
or casualty at all in the sense required under all risks cover. In the present case, the
gradual exhaustion of the legs’ fatigue strength under the ordinary action of wind
and waves during the voyage and the consequent development of cracking can be
analysed in similar fashion (see further at para 81 below).
65. In contrast, the sudden breakage of the first leg, followed by that of the
other two legs, is much more readily understood as involving a marine accident or
casualty. It was neither expected nor contemplated. It only occurred under the
influence of a leg breaking wave of a direction and strength catching the first leg at
just the right moment, leading to increased stress on and collapse of the other two
legs in turn. Each of the three legs was lost in turn overboard to the bottom of the
sea. Such a combination of events was, the judge found, “very probable, but it was
not inevitable” (para 87). The chain of events has many of the characteristics of a
loss by perils of the sea. The questions which remain bearing on the
appropriateness of such a classification relate to (i) the evident probability that the
rig would meet a leg-breaking wave and (ii) the undoubted fact, on the judge’s
findings, that the root problem was the unfitness of the legs for the insured venture,
in that they lacked sufficient fatigue strength to withstand the stresses imposed by
the ordinary motion of the seas and were thus exposed to the very considerable risk
of a leg breaking wave hitting the rig at the right moment. I will return to these
questions later in this judgment (paras 81-86 below).
66. In Thames and Mersey Marine Insurance Co Ltd v Hamilton, Fraser & Co
(1887) 12 App Cas 484, 502 Lord Macnaghten noted that: “In marine insurance it
is above all things necessary to abide by settled rules and to avoid anything like
novel refinements or a new departure”. This rule of conservatism can be carried
too far. Nevertheless, the absence of any clear authority for insurers’ approach
prior to Mayban [2004] 2 Lloyd’s Rep 609 is striking. It seems unlikely to have
been due to unquestioning acceptance, by insurers and assureds alike, of the
correctness of that approach. This is, I think, even less likely when one examines
the hull insurance and carriage by sea cases, upon which the court received
instructive submissions.
Page 20
The hull insurance and carriage by sea cases
67. In Dudgeon v Pembroke (1877) 2 App Cas 284, a vessel insured under a
time policy from 22 January 1872 sailed on 3 February 1872 from London for
Gothenburg, arriving on 7 February but taking on more water than would be
expected. She set out again for London with a cargo of oats on 11 February, but
started to labour and take on so much water in a heavy rolling sea on 12 February
that her fires had to be put out and, when her pumps eventually became clogged
with oats, she grounded on the Yorkshire coast and was lost. The defendant
underwriter argued that she “went to sea without being fit to encounter the
ordinary risks of going to sea, not the extraordinary risks of storms”, that a policy
of insurance was “only a contract of indemnity against risks which could not be
foreseen, or by ordinary care be provided against” and that there was on this basis
no loss by perils of the sea: pp 289-290. Lord Penzance, after recording that in a
time policy there is no implied warranty of seaworthiness, turned to the argument
that the vessel’s unfitness to encounter the perils of the sea prevented the loss
being regarded as one by perils of the sea. Dismissing it, he said, at pp 295-296:
“It will at once occur to your Lordships, upon the raising of such a
question, that it applies as much and as fully to a voyage policy as to
a time policy. If a loss proximately caused by the sea, but more
remotely and substantially brought about by the condition of the
ship, is a loss for which the underwriters are not liable, then, quite
independently of the warranty of seaworthiness, which applies only
to the commencement of the risk (in its several “gradations”, as Erle
J in Thompson v Hopper 6 E & B 172, 181 called them), the
underwriters would be at liberty, in every case of a voyage policy to
raise and litigate the question whether, at the time the loss happened,
the vessel was, by reason of any insufficiency at the time of last
leaving a port where it might have been repaired, unable to meet the
perils of the sea, and was lost by reason of that inability.
If that be the law, my Lords, the underwriters have been signally
supine in availing themselves of it. …… The materials for such a
defence must have existed in countless instances, and yet there is no
trace of it in any case which has been brought to your Lordships’
notice, still less any decision upholding such a doctrine”.
Mr Pollock, understandably, relies on this passage.
68. In Dudgeon v Pembroke, counsel for the underwriter relied before the
House, as Mr Gee does before the Supreme Court, upon Fawcus v Sarsfield (1856)
Page 21
6 E & B 192. In that case, the vessel, leaking water, put into a port to be repaired
in circumstances where she had, on sailing from Liverpool, been unseaworthy and
unsound, and “did not encounter any more severe weather than is usual and
ordinary on such a voyage or than a ship reasonably fit for the voyage could have
encountered without damage or injury: and …. the necessity for her going into port
to be repaired arose from the defective state of the ship when she sailed” (p 204).
The vessel’s owner sought to recover the expense occasioned by reason of putting
into the port for repairs. The Court of Queen’s Bench accepted the defendant
underwriter’s plea and dismissed the claim. Mr Gee relies upon this as indicating
that unseaworthiness can outweigh in significance the impact of subsequent perils
of the seas. That in my view reads too much into the decision. The Court of
Queen’s Bench was at pains to emphasise that the arbitrator had found “most
explicitly that [the loss] did not arise from any peril insured against, but from the
vice of the subject of insurance” and that the only answer attempted by the plaintiff
was that “the unseaworthiness might have arisen from some peril in an antecedent
voyage …, part of an adventure of which the voyage stated in the declaration and
plea was a continuation”. Rejecting this latter suggestion, the court said that it was
“quite clear, from the finding of the arbitrator, that the adventure did begin at
Liverpool: that this was the first voyage; and that the unseaworthiness arose from
the vice of the thing insured, and not from the perils of the sea in any antecedent
part of the adventure” (p 205).
69. Lord Penzance must, as Mr Gee points out, have been familiar with Fawcus
v Sarsfield, having been counsel in it for the underwriter in his earlier incarnation
as Mr Wilde. In Dudgeon v Pembroke he was exact in his loyalty to the basis on
which it was decided. He noted that it was a case of partial loss in which the
decision followed from the arbitrator’s finding, and that there was therefore a
“total absence …. of all authority” for the proposition advanced by the underwriter
in Dudgeon v Pembroke. At first instance in Dudgeon v Pembroke (1874) LR 9
QB 581, 596 Blackburn J had understood underwriter’s plea in Fawcus v Sarsfield
as “an allegation that the loss was from wear and tear, aggravated by the original
bad state of the vessel” and said that, on that basis, “the plea was no doubt good”.
In J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The “Miss Jay
Jay”) [1985] 1 Lloyd’s Rep 264 (Mustill J) and [1987] 1 Lloyd’s Rep 32 (CA),
Fawcus v Sarsfield has been treated as a case of “debility” or “loss …
disassociated from any peril of wind or water, even if these form the immediate
context of the loss, and constitute the immediate agency (for example, the
percolation of water through an existing flaw in the hull) by which the loss takes
place” (per Mustill J, p 272); and see per Slade LJ, p 41. But, whether the case is
described as wear and tear or inherent vice, the arbitrator’s finding in Fawcus v
Sarsfield was treated as the end of the matter, and is explicable on the basis that
nothing that occurred during the voyage could be called a peril of the sea, accident
or fortuity. The case does not help insurers on the present appeal.
Page 22
70. Thomas Wilson, Sons & Co v Owners of the cargo per the Xantho (The
“Xantho”) (1887) 12 App Cas 503 involved a claim under a bill of lading for nondelivery of goods lost by reason of a collision between the Xantho as carrying
vessel and another vessel. The owners of the Xantho relied upon an exception of
perils of the sea. Cargo-owners maintained that “To bring a case within ‘perils of
the sea’, there must be some extraordinary violence of the elements, something
inevitable or overwhelming” (p 507), so that, even if the only cause of the collision
was the negligence of the other vessel, the owners of the Xantho could have no
defence. The House emphatically rejected this submission, saying that it was
beyond question that “if a vessel strikes upon a sunken rock in fair weather and
sinks, this is a loss by perils of the sea” and “that every loss by incursion of the
sea, due to a vessel coming accidentally (using that word in its popular sense) into
contact with a foreign body, which penetrates it and causes a leak, is a loss by a
peril of the sea” (p 509, per Lord Herschell). It said that in this respect the meaning
of the phrase was the same in the case of a bill of lading as in a marine policy (p
510), although in the case of a bill of lading fault of the shipowner leading to the
vessel succumbing to a peril of the sea may, depending upon the terms of carriage,
disentitle the shipowner to the protection of such an exception.
71. There are statements in the speech of Lord Bramwell which may be taken to
suggest that any entry of water in sufficient quantities to sink a vessel is
axiomatically a peril of the sea (see eg pp 513-514). These go too far, as illustrated
by E H Sassoon & Co v Western Assurance Co [1912] AC 561, where an
insurance claim for damage to a cargo of opium failed because the damage was
due the percolation of sea water through the rotten hull of a wooden hulk moored
in a river and used as a store, as well as, more recently, Rhesa Shipping SA v
Edmunds (the Popi M) [1985] 1 WLR 948. A fortuitous external accident or
casualty, whether identified or inferred, is necessary, but it need not be associated
with extraordinary weather. Lord Buckmaster put the matter as follows in the
Privy Council in Grant, Smith and Co v Seattle Construction and Dry Dock Co
[1920] AC 162, 171-172:
“It is not desirable to attempt to define too exactly a ‘marine risk” or
a ‘peril of the sea’, but it can at least be said that it is some condition
of sea or weather or accident of navigation producing a result which
but for these conditions would not have occurred. …..
…..
It is just as though a vessel, unfit to carry the cargo with which she
was loaded, through her own inherent weakness, and without
accident or peril of any kind, sank in still water. In such a case
recovery under the ordinary policy of insurance would be
Page 23
impossible. An insurance against ‘the perils of the sea or other perils’
is not a guarantee that a ship will float, and in the same way in the
present case had such a policy been effected it would not have
covered a loss inevitable in the circumstances due to the unfitness of
the structure, and entirely disassociated from any peril by wind or
water.”
72. In Mountain v Whittle [1921] AC 615, the insured vessel, a houseboat, was
towed alongside a tug some seven and half miles to Northam. Her topside seams
were leaky and defective. The breast wave thrown up by the two vessels caused
water to mount up against the seams and enter and sink the houseboat. Some four
feet of water entered in 100 minutes towing at a moderate speed. Mountain v
Whittle establishes that it is no necessary answer to a claim for loss by perils of the
sea that the loss only occurred because the vessel was unseaworthy. Indeed, after
negativing the existence of any warranty or defence under section 39(5) of the
1906 Act, Lord Birkenhead LC, with whose speech Viscount Haldane and
Viscount Cave agreed, turned without further consideration of unseaworthiness to
the question whether the vessel had met with any peril of the sea (p 618-619). On
this point, it was noted that the fact that “loss caused by the entrance of sea water
is not necessarily a loss by perils of the seas” (p 626, per Viscount Finlay). In the
event, the House upheld concurrent decisions of the courts below that the breast
wave “amounted to a peril of the seas just as must as if it had been occasioned by a
high wind” (p 626), and that sinking by such a wave was “a fortuitous casualty;
whether formed by passing steamers or between tug and tow, it was beyond the
ordinary action of wind and wave, or the ordinary incidents of such towage” (pp
630-631, per Lord Sumner). But the speeches also describe the breast wave as of
“unusual size” (p 619, per Lord Birkenhead), as “wash of an extraordinary
character” (pp 626-627, per Viscount Finlay) and as “exceptional” (p 630, per
Lord Sumner), and Viscount Finlay delivered a dictum that “There must be some
special circumstance such as heavy waves causing the entrance of the sea water to
make it a peril of the seas” (p 626).
73. The extent to which a peril of the sea must involve extraordinary weather
was considered in Skandia Insurance Co Ltd v Skoljarev (1979) 142 CLR 375. The
High Court of Australia was concerned with a loss which occurred a few hours
after leaving port in calm seas and for no apparent reason, after rapid entry of
water into the insured vessel’s engine room. The judge had found that there was no
latent defect (eg in the pipe-work) and that the vessel was seaworthy on leaving
port. The High Court held that, in these circumstances, there was an inference of
some unidentified accident or fortuitous event. Since Rhesa Shipping Co SA v
Edmunds (The “Popi M”), more attention might have been given, in this
jurisdiction at all events, to a finding that no cause had been shown to be more
probable than not. Leaving that aside, in a judgment with which all other members
Page 24
of the High Court concurred, Mason J rejected Visc Finlay’s dictum as a statement
of principle, saying (p 385):
“The old view that some extraordinary action of the wind and waves
is required to constitute a fortuitous external accident or casualty is
now quite discredited (The “Xantho” (1887) 12 App Cas, 509). It is
true that in Mountain v Whittle [1921] 1 AC 615, 626 Viscount
Finlay spoke of the need for the insured to show ‘some special
circumstance such as heavy waves causing the entrance of the sea
water to make it a peril of the sea’, but his Lordship’s remark was
directed to the facts of that case. … Had it not been for the
magnitude of the tug’s breast wave, the loss would have been
attributed to wear and tear or to the ordinary action of the wind and
waves”.
74. The severity of the weather required for a loss by perils of the sea was
further considered, at first instance, in Frangos v Sun Insurance Office Ltd (1934)
49 Ll L Rep 354. A 36-year-old vessel insured under a time policy sank en route
from Cardiff to Istanbul. Insurers alleged that unseaworthiness was a, if not the
sole, cause, relying on the fact that “really the weather was not very severe” and
that “there was a series of happenings with regard to this old ship which were not
naturally accounted for by the weather which prevailed” (p 358). Roche J accepted
that the vessel may not have been seaworthy in various respects, including in the
area of the afterpeak tank and/or No 4 hold (p 368). However, “being satisfied that
there was weather prevailing which, although not extraordinary, was nothing like
the calm weather of a harbour, or anything of that sort”, he found “that the
immediate cause of the springing of the leak was the labouring of the ship”, that
water then entered the hold and afterpeak, causing the coal cargo to shift and the
vessel to list, and leading to the entry of water into the engine room which sank the
vessel. He regarded the case as governed by Dudgeon v Pembroke, “because even
though it is doubtful in this case, as in that case, whether the vessel was, in fact,
seaworthy or not, yet a loss caused by perils of the sea is within the policy, though
it might not have occurred but for the concurrent action of some other cause which
is not within the policy, the other cause which is not within the policy being
unseaworthiness” (p 359).
75. Finally, in J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The
“Miss Jay Jay”) [1987] 1 Lloyd’s Rep 32, a yacht insured under a time policy
suffered damage due to delamination of her hull on a voyage from Deauville to
Hamble in sea conditions “markedly worse than average, but not so bad as to be
exceptional” (p 270). She had been ill-designed and ill-made (p 272). If properly
designed and built according to the manufacturer’s description, she would have
made the passage without damage (p 270). It was “hard to look at the facts …
without being struck by the idea that the root of all the trouble was the act of [her
Page 25
manufacturers] in putting into circulation a boat which was wholly unfit for its
purpose” (p 270). Nevertheless, the owner recovered for the hull damage both
before Mustill J and in the Court of Appeal. In a key, but controversial, passage
on the law, Mustill J said this, at p 271:
“Second, as to causation. It may be that the doctrine of proximate
cause has undergone some reassessment since the days when the
most important cases on the present topic were decided. In those
days the ultimate cause was more readily identified as the proximate
cause than might be the case today. Nevertheless, it is clearly
established that a chain of causation running – (i) initial
unseaworthiness, (ii) adverse weather; (iii) loss of watertight
integrity of the vessel; (iv) damage to the subject-matter insured – is
treated as a loss by perils of the seas, not by unseaworthiness: see,
for example, Dudgeon v Pembroke …. and Frangos v Sun Insurance
Office ….”.
Mustill J went to say that:
“…. the immediate cause was the action of adverse weather
conditions on an ill-designed and ill-made hull. The cases show that
this is sufficient to bring the loss within the words of a time policy in
the standard form” (p 272).
76. In “Fault and Marine Losses” [1988] LMCLQ 310, 350 footnote 101, Sir
Michael Mustill later commented extra-judicially that “A severe critic might
wonder whether the trial judge had in mind just what had happened to the doctrine
of causation since Dudgeon v Pembroke”. This itself may however be too severe,
in view of Mustill J’s express mention of that change in the passage at p 271 cited
above. Further, it might be thought relevant that the 1906 Act, crystallising
statutorily the concepts of perils of the seas and inherent vice, was enacted against
the background of the Victorian authorities, and before the definitive emergence of
the modern conception of proximity (see para 49 above).
77. In the Court of Appeal in the Miss Jay Jay the legal position was, however,
analysed in different terms. The court rejected a submission that any prior
unseaworthiness could be disregarded as irrelevant, but it interpreted the passage
on p 271 in Mustill J’s judgment consistently with that rejection. It understood him
as having been concerned simply to identify whether perils of the sea were a
proximate cause of the loss, not as suggesting that “unseaworthiness, followed by a
loss due to a peril of the seas, can never be relevant”: [1987] 1 Lloyd’s Rep 32, 37,
41 per Lawton and Slade LJJ. The question on this basis was “whether on the
Page 26
evidence the unseaworthiness of the cruiser due to the design defects was such a
dominant cause that a loss caused by the adverse sea [conditions] could not fairly
and on commonsense principles be considered a proximate cause at all” (p 37, per
Lawton LJ). Slade LJ took the same view, regarding it as clear on “a commonsense
view of the facts” that “both these two causes were …. equal, or at least nearly
equal, in their efficiency in bringing about the damage” (p 40). That being so, the
court referred to the general principle of insurance law that, where there are two
proximate causes of a loss, one insured under and the other not expressly excluded
from the policy, the assured will be able to recover: see p 40, per Slade J. Slade LJ
(at p 41) also distinguished cases of debility, where the ordinary action of wind
and waves leads to damage, as cases where the action of wind and waves is treated
as the sole proximate cause of the damage, citing in this connection Fawcus v
Sarsfield 6 E & B 192. Another way of looking at such cases is that there is no
accident or fortuity.
Analysis – law
78. Standing back, it is clear that the hull cases lend no support by analogy to a
submission that, where a cargo is unfit for the insured venture, then loss or damage
which would have been avoided but for such unfitness, falls to be regarded as a
loss due to inherent vice, rather than due to any marine peril which may have
triggered and exploited the unfitness. Mr Gee submits that Lord Diplock’s
reference [1983] 1 Lloyd’s Rep 122, 126 to “the risk of deterioration of the goods
shipped as a result of their natural behaviour in the ordinary course of the
contemplated voyage” is wide enough to cover any case where the goods are unfit
to withstand any weather conditions which may foreseeably be encountered on the
voyage. Only extraordinary weather conditions overwhelming goods fit to
withstand all foreseeable vicissitudes would on this basis attract cover. This is
clearly not the law in hull insurance, as all the cases show; and, if that is right, then
I see no reason why it should be the law in cargo insurance, particularly when the
concept of inherent vice is introduced into the 1906 Act by section 55(2)(c)
covering both types of marine cover.
79. Mr Gee’s more developed submission is more difficult to meet, and has
support in the Court of Appeal’s approach in the Miss Jay Jay [1987] 1 Lloyd’s
Rep 32. It is that it is in any case a matter of “common sense” judgment, whether
initial unfitness or the intervention of a subsequent peril or both is or are the
proximate cause(s) of loss. Despite Slade LJ’s differentiation of pure debility
cases, the Court of Appeal was not presumably suggesting that, where initial
unseaworthiness or unfitness and unfavourable weather conditions beyond the
ordinary action of wind and waves have both played a role, the court must always
treat both as equal or nearly equal proximate causes. That would have been to
recognise a rule of law different in formulation, but nonetheless of a type that the
court held that Mustill J would have been wrong to introduce. There is high
Page 27
authority for the proposition that the real or dominant cause is to be ascertained by
applying the common sense of a business or seafaring man: see eg T M Noten BV v
Harding [1990] 2 Lloyd’s Rep 283, 287 per Bingham LJ. In Noten v Harding,
common sense was applied to identify the point in a single process, not involving
any obvious fortuity, which represented the cause. In circumstances like those in
the Miss Jay Jay or the present case, two separate causes may be identified, initial
unfitness and a peril of the seas through which it works, and it is unclear how in
practice they would be weighed and balanced. This is highlighted by Mustill J’s
comment in the Miss Jay Jay [1985] 2 Lloyd’s Rep 264, 270, cited in para 69
above, that it was “hard to look at the facts without being struck by the idea that
the root of all the trouble was the act of [her manufacturers] in putting into
circulation a boat which was wholly unfit for its purpose”. Yet, in the Miss Jay Jay
the finding that the weather was “markedly worse than average but not so bad as to
be exceptional” sufficed to make perils of the sea an equal cause: see p 41 [1987] 1
Lloyd’s Rep 32, 41 per Slade J. I am not attracted to a solution which depends
upon identifying gradations of adverse weather conditions.
80. More fundamentally, if Lord Diplock’s formulation in Soya v White [1983]
1 Lloyd’s Rep 122, 126 is correct, then it is difficult to find in it any place for the
weighing exercise that is suggested by the Court of Appeal’s approach in the Miss
Jay Jay. If inability to withstand foreseeably bad weather conditions does not
prevent damage sustained as a result being attributed to perils of the sea, (i) that
must be because Lord Diplock’s reference to “the ordinary course of the
contemplated voyage” was not intended to embrace the weather conditions
foreseeable on such a voyage, but was rather used as a counterpoint to a voyage on
which some fortuitous external accident or casualty occurred and (ii) there is no
apparent limitation in Lord Diplock’s qualification “without the intervention of
any fortuitous external accident or casualty” – in other words, on the face of it,
anything that would otherwise count as a fortuitous external accident or casualty
will suffice to prevent the loss being attributed to inherent vice. On this
interpretation, Lord Diplock was laying down a test which appears to me
consistent with the reasoning in Dudgeon v Pembroke 2 App Cas 284, the Xantho
12 App Cas 503, Grant Smith and Co and McDonnell Ltd v Seattle Construction
and Dry Dock Co [1990] AC 162 and of Mustill J in the Miss Jay Jay [1985] 2
Lloyd’s Rep 264. It fits with Tucker J’s identification in Neter [1944] All ER 341,
343 of the “stoving in due to the weather, which is something beyond the ordinary
wear and tear, of the voyage” as “something which could not be foreseen as one of
the necessary incidents of the adventure”. It fits with the definition in the 1906 Act
of perils of the seas as not including “the ordinary action of the winds and waves”,
a definition which draws attention to the question whether the winds and waves
have had some extraordinary effect, rather than whether they were extraordinary in
themselves.
Page 28
81. On this basis, it would only be if the loss or damage could be said to be due
either to uneventful wear and tear (or “debility”) in the prevailing weather
conditions or to inherent characteristics of the hull or cargo not involving any
fortuitous external accident or casualty that insurers would have a defence. In the
scheme of the 1906 Act, that would not appear to me surprising, bearing in mind
the case law against the background of which the Act was enacted and the
juxtaposition in section 55(2)(c) of “ordinary wear and tear, ordinary leakage and
breakage” with “inherent vice or nature of the subject-matter insured” as well as
with “any injury to machinery not proximately caused by maritime perils”. While
not myself attempting any exact definition, ordinary wear and tear and ordinary
leakage and breakage would thus cover loss or damage resulting from the normal
vicissitudes of use in the case of a vessel, or of handling and carriage in the case of
cargo, while inherent vice would cover inherent characteristics of or defects in a
hull or cargo leading to it causing loss or damage to itself – in each case without
any fortuitous external accident or casualty. Ultimately, I am persuaded that
authority and principle do point to the correctness of Lord Diplock’s definition,
and that it bears the meaning indicated by points (i) and (ii) in the preceding
paragraph. If this exposes insurers to risks which they are not prepared to accept,
they may of course seek to provide otherwise, either by special provision or by
amendment of the standard clauses upon which most hull and cargo insurance is
now underwritten.
Analysis – the facts
82. My real concern on the present appeal has been whether the loss claimed
did not fall within even the restricted test which I have stated in the previous two
paragraphs. The case comes close to the line. It is helpful to start with the position
before the first leg fell. Mr Pollock went so far as to submit that, even the cracking
of the legs which occurred on passage across the Atlantic and which necessitated
repair in South Africa constituted a fortuitous external accident or casualty outside
the ordinary course of the contemplated voyage, for which the assured could have
sought to recover under the insurance, apart from the deductible of RM 3.8m each
and every loss. I would not accept that there could have been any such insurance
claim, any more than the Court of Appeal did: see the reference in this connection
to normal wear and tear in para 64 of Waller LJ’s judgment. So far as appears, the
cracking was the simple product of the exhaustion of the fatigue life of the legs on
passage under the influence of the ordinary action of the wind and waves, and did
not therefore involve any fortuitous external accident or casualty. It was also a risk
that was expected as likely to materialise during the voyage (see paras 85-86
below), and one which it cannot sensibly have been thought that insurers would
take on. The critical question is therefore whether the sudden fracturing and loss of
the three legs overboard into the Pacific falls into a different category or was no
more than a loss due to their inherent vice. Mr Gee is entitled to say that, on this
Page 29
point, considerable respect is due to Blair J’s assessment of the facts, so long as he
directed himself by reference to the right test and considerations.
83. Blair J formed a judgment about the proximate cause, treating the facts as
raising two possible candidates. On the one hand, he recorded that once a lot of the
fatigue life had been used up and there were cracks everywhere, “then all you need
is probably the two, three, four-metre sea states that the Cape waters can provide”,
and that the “agreed range of wave heights demonstrates that waves in excess of
three metres were in fact regularly experienced during the second stage of the
voyage” (para 49). On the other hand, he noted that a developed crack would not
itself have been sufficient to cause one of the 300 feet high legs to come off, but
that that “required in addition a ‘leg breaking’ or ‘final straw’ stress that finally
fractured the weakened steel”. As Mr Colman [insurers’ expert] put it:
“‘…. remember we have a leg which is 12 feet in diameter, a
circumference of about 40 feet. So even quite a lot of these little
cracks still leave a very large amount of good steel an inch and a half
thick. This isn’t light plate; this is very heavy steel, and that’s an
enormously strong structure. So you’ve got to catch it just right, if
you want to actually make it fail all the way round’” (paras 48 and
87).
Once one leg failed, the circular motions of the others and the stresses to which
they were subjected increased, and their failure was accelerated. Blair J also
described the weather as being “within the range that could reasonably have been
contemplated (albeit the claimants’ expert puts it at the upper end)” (para 110), a
description covering all foreseeable weather conditions, including those sufficient
to give rise to a loss by perils of the sea. Finally, Blair J chose as the relevant
proximate cause the unfitness of the rig for the voyage, because in his view (para
111):
“The real problem lay with the inherent inability of the legs to
withstand the normal incidents of the voyage. … As [Mr Colman]
put it – ‘I don’t think that these legs were ever going to make it
round the Cape’. That in my opinion is the reality of this case”.
84. Close though these statements come to it, the judge was not actually
addressing the question how far the emergence of a leg-breaking wave striking at
just the right moment in the first leg’s circular movement and leading to fracture
and loss of a leg could be regarded as an entirely normal event, still less how far
the resulting loss of any of the legs could be regarded as an equivalent to wear and
tear or debility. To my mind, however, the bare recital of what happened is
Page 30
difficult to fit into any normal conception of what Lord Diplock [1983] 1 Lloyd’s
Rep 122, 126 described as “deterioration of the goods shipped as a result of their
natural behaviour in the ordinary course of the contemplated voyage”. As I noted
earlier in this judgment (para 64), the loss had many obvious characteristics which
one would associate with a fortuitous marine accident or casualty, and that, in my
opinion, is how the loss of the rig’s three legs can and should be seen.
85. I add this. Although, as Mr Gee urged, the meaning of inherent vice will, at
least normally, be the same in principle under all marine policies, its application in
any particular case must depend upon the nature and characteristics of the goods
being insured and of the insured venture. Here, I note that the assured was asked,
before the policy was placed, to state, under the heading Rig History, whether the
rig had previously experienced any buckling of its legs, and it disclosed that the
port aft leg had indeed experienced buckling during a previous dry tow in 1996
(also in fact off South Africa). Originally, insurers maintained and pleaded that this
had not been disclosed, but the plea was abandoned. It appears that insurers’ sight
of the relevant email disclosing the information was in fact noted on the placement
slip. It was, furthermore, made an express condition of the insurance that
“Survey Clause or Pre Shipment Survey including Loading and
Unloading, Tow Out to be supervised by approved and nominated
Surveyor. Noble Denton has been nominated and approved”.
86. Noble Denton duly surveyed the rig for insurers before it sailed on the
voyage from Galveston. It was well recognised that stresses would be imposed on
the legs by virtue of the motion of the waves, and Noble Denton sought to
establish the legs’ remaining fatigue life. In a report on 23 August 2005, Noble
Denton concluded that the legs in way of the pinholes might have insufficient
fatigue live left to undertake the full tow to Lumut, and required that the legs be reinspected in South Africa and remedial work be undertaken there as found
necessary. Fatigue life is assumed to be expended when a damage ratio of unity
(1.0) is achieved. At the time of the 23 August report, the damage ratio was
thought to be well below unity. But before the rig arrived in South Africa, experts
acting for the assured had completed calculations which led to a spectral analysis
dated 21 September 2005, in which the damage ratio was now put at 2.13, well
above unity. An unsatisfactory feature of this case, as the judge said (para 28) is
that this report never reached Noble Denton, before they concluded that the rig
could commence the second stage of its voyage from South Africa. The judge also
found that the joint inspection in South Africa did not cover the set of pinholes at
the 18 foot level, and that the only repairs were to pinhole corners where a crack
had actually initiated (para 78). However, he found that the latter omissions were
not relevant, in that, whatever repairs were or could practicably have been carried
out in South Africa would have made no difference (para 83).
Page 31
87. Whether disclosure of the spectral analysis of 21 September to Noble
Denton could and would have made any difference does not appear. No suggestion
has in any event been made that this is of any relevance to the scope or validity of
the cover. What does appear from the above is that the parties appreciated both the
need to put into a South African port for inspection and the likelihood that some
cracking would there be found and some repairs would have to be undertaken.
That reinforces the conclusion which I have already drawn that the cost of such
inspection and repairs could not be covered. But it also appears that the parties’
attention was closely focused on the overall risk of carrying the rig with its three
legs protruding over 300 foot into the air in circumstances which could, depending
upon a range of uncertainties, lead to the loss of one or more of the legs. In the
event, the rig suffered the further loss of all three legs, not just because cracking
appears to have developed further or sooner than expected, but ultimately only
after the first, and then each other, leg was caught, in just the “right” way, by a legbreaking wave. To hold that the insurance did not cover such a loss, if it
materialised, would seem to deprive it of much of its utility. These considerations
support a conclusion that there is no incongruity in treating the loss of the three
legs overboard which the rig actually experienced as involving fortuitous external
accidents or casualties insured under this all risks insurance, rather than as due to
inherent vice. In common with the Court of Appeal, although not entirely for the
same reasons, I would therefore reach that conclusion.
Concurrent causes
88. I add some words with regard to the submission made by insurers to meet
the hypothesis, which I have not accepted, that the loss should be attributed to two
equal or nearly equal proximate causes, in the form of both inherent vice and perils
of the seas. Assuming that to be possible, the question would then have arisen as to
the effect of the express exception of inherent vice contained in clause 4.4 of the
Institute Cargo Clauses (A). It was said in the Miss Jay Jay [1987] 1 Lloyd’s Rep
32, 40 that, if there were two causes, one of which was expressly excluded, then
the assured would fail; and reference was made in this connection to dicta in P
Samuel & Co Ltd v Dumas [1924] AC 431, 467 per Lord Sumner and to Wayne
Tank and Pump Co Ltd v Employers Liability Assurance Corpn Ltd [1974] QB 57,
75. I would wish to leave open the applicability of this approach in the present
context. First, clause 4.4 on the face of it simply makes clear the continuing
relevance in the context of all risks cover of the limitation on cover against perils
of the sea provided by section 55(2)(c). There seems to me some oddity in treating
clause 4.4 as leading to a fundamentally different result from that which would
have applied had section 55(2)(c) alone been in question. Second, the focus of the
cases cited in the Miss Jay Jay and of the more recent case of Midland Mainline
Ltd v Eagle Star Insurance Co Ltd [2004] 2 Lloyd’s Rep 604 was upon true
exceptions which took out of cover against an insured risk a specific type of
situation giving rise to such risk. The present hypothesis is of two concurrent risks
Page 32
arising independently but combining to cause a loss. While it may be that the same
principle applies (as the Court of Appeal’s dicta in the Miss Jay Jay suggest), I
would at least wish to hear argument on that. I need not go further into this aspect,
upon which I have formed no concluded views.
Conclusion
89. For the reasons I have given, I would also dismiss this appeal.
LORD COLLINS
90. I agree that the appeal should be dismissed for the reasons given by Lords
Saville, Mance and Clarke. The policy covered “all risks of loss or damage to the
subject matter insured except as provided in clauses 4, 5, 6 and 7…” The exclusion
from cover in clause 4.4 was “loss, damage or expense caused by inherent vice or
nature of the subject matter insured.” Section 55(1) of the Marine Insurance Act
1906 provides:
“Subject to the provisions of this Act, and unless the policy
otherwise provides, the insurer is liable for any loss proximately
caused by a peril insured against, but, subject as aforesaid, he is not
liable for any loss which is not proximately caused by a peril insured
against.”
91. By section 55(2)(c) of the Act:
“Unless the policy otherwise provides, the insurer is not liable for
ordinary wear and tear, ordinary leakage and breakage, inherent vice
or nature of the subject matter insured, or for any loss proximately
caused by rats or vermin, or for any injury to machinery not
proximately caused by maritime perils.”
92. The two inter-related questions are whether the loss was proximately caused
by a peril insured against, namely perils of the seas, or whether cover is excluded
because the failure occurred as a result of the inherent vice in the rig. The
excessive sophistication of the argument on this appeal has been caused by treating
Lord Diplock’s definition of inherent vice in Soya GmbH Mainz
Kommanditgesellschaft v White [1983] 1 Lloyd’s Rep 122, 126, as if it were a
statutory provision. In that case a cargo of soya beans arrived in a heated and
Page 33
deteriorated condition. It was insured against risks of heating, sweating and
spontaneous combustion. It was held by the House of Lords that the policy did
“otherwise provide” within section 55(2)(c) so that the perils of heating, sweating
and spontaneous combustion arising from inherent vice or nature of the subject
matter insured were covered. Lord Diplock said (at p 126) that:
“This phrase (generally shortened to ‘inherent vice’) … refers to a
peril by which a loss is proximately caused; it is not descriptive of
the loss itself. It means the risk of deterioration of the goods shipped
as a result of their natural behaviour in the ordinary course of the
contemplated voyage without the intervention of any fortuitous
external accident or casualty.”
93. It would seem that this definition was derived in part (without attribution)
from British and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41: see p
47 per Lord Birkenhead LC, quoting from the unreported judgment of Rowlatt J at
first instance, which was reversed on the facts. The question of the effect of
weather conditions did not arise in Soya GmbH Mainz Kommanditgesellschaft v
White and the printed cases on that appeal suggest that they did not form any part
of the argument.
94. In this case the policy was for all risks, which included perils of the seas. At
common law and under rule 7 of Schedule 1 to the Marine Insurance Act 1906,
perils of the seas “refers only to fortuitous accidents or casualties of the seas. It
does not include the ordinary action of the winds and waves.” The reason is that
“the purpose of insurance is to afford protection against contingencies and dangers
which may or may not occur; it cannot properly apply to a case where the loss or
injury must inevitably take place in the ordinary course of things”: Paterson v
Harris (1861) 1 B & S 336, 353, per Cockburn CJ. The purpose of the policy is to
secure an indemnity against accidents which may happen, not against events which
must happen: Thomas Wilson Sons & Co v Owners of the Cargo per the Xantho
(1887) 12 App Cas 503, 509, per Lord Herschell.
95. Prior to the abolition of juries in civil cases, the question whether the loss
was caused by perils of the sea or inherent vice would have been a question for the
jury: see, eg, Dudgeon v Pembroke (1874) LR 1 QB 581. Today what was “the real
or dominant cause” or proximate cause is a question to be answered applying the
common sense of a business or seafaring man: T M Noten BV v Harding [1990] 2
Lloyd’s Rep 283, 286-287, per Bingham LJ. In that case industrial leather gloves
shipped from Calcutta to Rotterdam were found on arrival to be wet, stained,
mouldy and discoloured. It was held, applying Lord Diplock’s formula, that the
gloves “deteriorated as a result of their natural behaviour in the ordinary course of
the contemplated voyage, without the intervention of any fortuitous external
Page 34
accident or casualty” (at p 288). The damage was caused because the gloves were
shipped wet, and on the evidence there was “no combination of fortuitous events”,
and the insurers “never undertook to insure the plaintiffs against the occurrence of
hot and humid weather in Calcutta during the monsoon” (at p 289).
96. A comparable case (involving unseaworthiness in hull insurance) on the
other side of the line was J J Lloyd Instruments Ltd v Northern Star Insurance Co
Ltd (The “Miss Jay Jay”) [1985] 1 Lloyd’s Rep 264, affd [1987] 1 Lloyd’s Rep
32. A yacht was insured under a marine policy for loss or damage directly caused
by (inter alia) “external accidental means” (which was treated as being materially
the same as “perils of the seas”: p 272). The yacht suffered damage in the Seine
estuary on a voyage from Deauville to Hamble. The sea conditions in the Seine
estuary “were such as a person navigating in those waters could have anticipated
that he might find” and “the conditions were markedly worse than average, but not
so bad as to be exceptional” (p 270). The yacht was in such a condition, by reason
of defects in design and construction (which were held to be latent defects), as to
be unseaworthy for the passage, but it would have been able to survive if the sea
conditions had been no worse than usual. If properly designed and built according
to the manufacturer’s description, the yacht would have made the passage without
suffering damage. Mustill J held that the loss was due to the fortuitous action of
the wind and waves. The weather was not exceptional but “the immediate cause
was the action of adverse weather conditions on an ill-designed and ill-made hull”
(p 272). The decision was affirmed in the Court of Appeal on the basis that there
were two proximate causes, namely unseaworthiness due to design defects and an
adverse sea. Where there were two concurrent and effective causes, and one was
within the policy, the insurers had to pay. Both Lawton and Slade LJJ treated the
exercise as one of the application of a commonsense view of the facts: pp 37, 39-
40. Slade LJ approved (at 38) Mustill J’s statement that the word “accidental”
made explicit what was in any event implicit, namely that there was no recoverable
loss in the absence of a fortuitous event. There is nothing in the decision of the
Court of Appeal which is inconsistent with Mustill J’s approach or (making due
allowance for the fact that it was not an inherent vice case) with Lord Diplock’s
formulation.
97. In the present case the failure of the legs happened as a result of the effect
of the height and direction of the waves on the pitching and rolling motion of the
barge and therefore on the steel legs. It was known from the outset that the legs of
the rig were at risk of fatigue cracks during the voyage. The weather which the
barge experienced was within the range of weather which could reasonably have
been contemplated for the voyage. The sudden breakage of the first leg, followed
by that of the other two legs occurred under the influence of a leg breaking wave
of a direction and strength catching the first leg at just the right moment, leading to
increased stress on and collapse of the other two legs in turn. The failure was, Blair
J found, very probable, but it was not inevitable. Even though the failure occurred,
Page 35
in Lord Diplock’s phrase, in “the ordinary course of the contemplated voyage” the
way in which it occurred was fortuitous. The proximate cause was the result of a
fortuity, and not the susceptibility of the legs to crack as a result of metal fatigue.
LORD CLARKE
98. Lord Saville has set out the relevant facts and I will not repeat them. I agree
with him that the appeal should be dismissed. I set out the essential reasons which
have led me to that conclusion because this is an unusual case on the facts and
raises an issue of some general importance in the law of marine insurance.
99. The question is whether on the facts found by the judge, the (or a)
proximate cause of the loss of the rig was “inherent vice or nature of the subject
matter insured” within the meaning of clause 4.4 of the Institute Cargo Clauses
(A). That is because loss so caused is specifically excluded by clause 4.4. The
same expression is used in section 55 of the Marine Insurance Act 1906 (“the
Act”), which provides, so far as material:
(1) Subject to the provisions of this Act, and unless the policy
otherwise provides, the insurer is liable for any loss proximately
caused by a peril insured against, but, subject as aforesaid, he is not
liable for any loss which is not proximately caused by a peril insured
against.
(2) In particular,
…
(c) Unless the policy otherwise provides, the insurer is not
liable for ordinary wear and tear, ordinary leakage and
breakage, inherent vice or nature of the subject matter
insured, or for any loss proximately caused by rats or vermin,
or for any injury to machinery not proximately caused by
maritime perils.”
It is common ground that, if the loss was proximately caused by inherent vice or
nature of the subject matter insured, the insurers are not liable even if the loss was
also proximately caused by a peril insured against: see eg the cases referred to by
Lord Saville at para 19 above.
Page 36
100. On the facts, there were as I see it, two physical causes of the loss, the
physical state of the rig and the “leg breaking” stress caused by the state of the sea
at the time the first leg fractured. The judge held that the state of the sea was
within the range of weather that could reasonably have been contemplated on the
voyage. It was thus an ordinary incident of the voyage. However, the judge also
held that, although the failure of the legs was probable, what the Court of Appeal
called a “leg-breaking wave” was not inevitable. The insurers do not challenge this
finding. As I read his judgment, the judge held (or would have held) that, but for
his conclusion that the proximate cause of the loss was inherent vice, the loss was
proximately caused by a fortuity and was thus within the all risks cover in the
policy.
101. The Court of Appeal expressly considered whether, even if the loss was not
inevitable, the loss was caused by ordinary wear and tear and thus not recoverable
under the policy. It held that, on the judge’s findings of fact, the loss was not
caused by ordinary wear and tear but by a fortuity and thus (subject to the correct
approach to inherent vice) by a peril insured against, the cover in this case being
against all risks. As Waller LJ (with whom Carnwath and Patten LJJ agreed) put it
at [2010] 1 Lloyd’s Rep 243, para 64, it was not that the legs simply suffered
severe metal fatigue and cracking, which would be fair wear and tear, but that the
rig met what proved to be a leg breaking wave which was not bound to occur in
the way that it did on any normal voyage round the Cape of Good Hope. The
fortuity was the occurrence of the leg breaking stress which caused the loss of the
legs. For my part, I would accept that analysis. As Lord Mance puts it at para 64,
the sudden breakage of the first leg only occurred under the influence of a leg
breaking wave of a direction and strength catching the first leg at just the right
moment, leading to increased stress on and collapse of the other two legs in turn.
102. It is common ground that all risks cover includes cover in respect of loss or
damage caused by perils of the seas. On the approach of the Court of Appeal, the
leg breaking stress and the loss of the legs were proximately caused by a peril of
the seas because the expression “perils of the seas” is defined in para 7 of the
“Rules for Construction of Policy” in Schedule 1 to the Act as follows:
“The term ‘perils of the seas’ refers only to fortuitous accidents or
casualties of the seas. It does not include the ordinary action of the
winds and waves.”
Mustill J made the position clear in J J Lloyd Instruments Ltd v Northern Star
Insurance Co Ltd (The “Miss Jay Jay”) [1985] 1 Lloyd’s Rep 264, 271 in these
terms:
Page 37
“The cases make it quite plain that if the action of the wind or sea is
the immediate cause of the loss, a claim lies under the policy
notwithstanding that the conditions were within the range which
could reasonably have been anticipated. All that is needed is (in the
words of Lord Buckmaster in Grant, Smith & Co v Seattle
Construction and Dry Dock Co [1920] AC 162, 171:
‘… some condition of sea or weather or accident of
navigation producing a result which but for these
conditions would not have occurred.’
Mustill J then referred to a number of well-known cases to the same effect:
Hamilton, Fraser & Co v Pandorf & Co (1887) 12 App Cas 518, 527, Canada
Rice Mills Ltd v Union Marine and General Insurance Co Ltd [1941] AC 55 and N
E Neter & Co Ltd v Licenses and General Insurance Co Ltd (1944) 77 Ll L Rep
202, 205. The Miss Jay Jay went to the Court of Appeal but these principles were
not affected by its decision: see [1987] 1 Lloyd’s Rep 32.
103. Thus, on the facts of a particular case, the loss or damage may be caused by
ordinary wear and tear or by the ordinary action of the wind and waves, as those
expressions are used section 55(2)(c) of the Act and in para 7 of Schedule 1 to the
Act respectively. In such a case the loss or damage may not be inevitable but will
nevertheless be irrecoverable. The cases make it clear that, at any rate in a perils of
the seas case, the critical question is whether or not the conditions of the sea were
such as to give rise to a peril of the seas which caused some fortuitous accident or
casualty. It is important to note that the cases show that it is not the state of the sea
itself which must be fortuitous but rather the occurrence of some accident or
casualty due to the conditions of the sea.
104. Some of the cases and, indeed, some of the academic writings discuss how
adverse the sea conditions have to be to be capable of amounting to a peril of the
seas: see, for example Mustill J in the Miss Jay Jay and Professor Howard
Bennett’s article entitled “Fortuity in the Law of Marine Insurance” [2007]
LMCLQ 315, 330-331. It seems to me that such a discussion is rarely fruitful,
since the question in each case is whether the sea conditions were such as to have
caused a fortuitous accident or casualty. It is not necessary to discuss this issue
further in the instant case because the effect of the judge’s findings of fact as
interpreted by the Court of Appeal was that the failure of the legs was not
inevitable or caused by ordinary wear and tear or the ordinary action of the winds
and waves but, subject to his conclusions on inherent vice, fortuitous.
Page 38
105. As I see it, the above analysis is entirely consistent with that of Lord
Mance. It follows from it that the insured are entitled to recover under the policy
unless the damage was caused by “inherent vice or nature of the subject matter
insured” within the meaning of section 55(2)(c) of the Act and clause 4.4 of the
Institute Cargo Clauses (A). Put another way, the question is whether the physical
condition of the leg constitutes “inherent vice or nature of the subject matter
insured”.
106. Both parties rely upon the meaning given to that expression by Lord
Diplock in Soya Gmbh Mainz Kommanditgesellschaft v White [1983] 1 Lloyd’s
Rep 122, where the issue was whether inherent vice was a peril insured against, in
so far as it consisted of a tendency for the cargo to become hot, to sweat or to
combust spontaneously. It was held that it was. It was further held that
deterioration from heat and sweat in the course of the voyage was not inevitable.
Lord Diplock’s summary of the facts included the statement that “no incident was
shown to have occurred upon the voyage whereby the moisture content present in
the bulk on shipment had been increased from any external source”. Lord Diplock
said, at pp 125-126:
“The facts as I have summarized them for the purpose of
determining the question of construction of the HSSC policy in the
instant case, assume that the loss resulting from the deterioration of
the soya beans during the voyage was proximately caused by the
‘inherent vice or nature of the subject matter insured’. This phrase
(generally shortened to ‘inherent vice’) where it is used in section
55(2)(c) refers to a peril by which a loss is proximately caused; it is
not descriptive of the loss itself. It means the risk of the deterioration
of the goods shipped as a result of their natural behaviour in the
ordinary course of the contemplated voyage without the intervention
of any fortuitous accident or casualty.”
By “HSSC policy” Lord Diplock meant a policy covering “heat, sweat and
spontaneous combustion”: p 124.
107. It was submitted by the insured that the last few words of that quotation at
pp 125-126 are critical to the definition of inherent vice. It was submitted that it
follows from Lord Diplock’s definition that, where a peril of the seas is a
proximate cause of the damage, there is no inherent vice because inherent vice
refers to the inherent condition of the goods that is the sole cause of loss or
damage. Otherwise the words “without the intervention of any fortuitous external
accident or casualty” would be given no meaning. It would have been sufficient to
say that inherent vice means the risk of the deterioration of the goods shipped as a
result of their natural behaviour in the ordinary course of the contemplated voyage.
Page 39
108. By contrast, it was submitted by the insurers that Lord Diplock was
distinguishing between (1) a loss caused by the internal state of the goods initially
on shipment and (2) a loss caused by an external accident or fortuity in the course
of the voyage. They emphasized Lord Diplock’s references to (1) “… the risk of
deterioration of the goods shipped” and (2) “… without the intervention of any
fortuitous external accident or casualty” (emphases added). It was submitted that,
applying Lord Diplock’s definition, two questions arise on the facts of this case:
first, whether at Galveston, assuming the ordinary course of the contemplated
voyage, without any intervening adverse fortuity (including weather, wind and
waves), the rig had within itself internally the risk of deterioration, which the
insurers called “the inherent vice at Galveston”; and second, whether the inherent
vice at Galveston was the or a proximate cause of the loss of the legs, which they
called “the causation issue”.
109. The insurers invited an affirmative answer to both questions. They
submitted in essence that there was here inherent vice because the rig was not fit to
withstand the wind and waves which might reasonably be contemplated on the
voyage. They submitted that on the causation issue there were to be taken into
account the nature and severity of the unfitness and whether there was some
external accident or fortuity which (a) caused the loss of the legs and (b) prevented
the inherent vice at Galveston from being causative, as either the sole proximate
cause or one of two proximate causes. It was accepted that the stress caused by the
leg-breaking wave was a fortuity but it was submitted it was no more than a
fortuity to be expected in the ordinary course of the contemplated voyage and thus,
as it was put in the insurers’ case “a fortuity within the risk of inherent vice”.
110. For my part, I prefer the approach of the insured. In my opinion, there are a
number of problems with the insurers’ approach. The first is that their approach
fails to give effect to the natural meaning of the words “without the intervention of
any fortuitous external accident or casualty” (emphasis added). The distinction
between different types of external fortuity, namely on the one hand fortuities to be
expected in the ordinary course of the contemplated voyage or fortuities “within
the risk of inherent vice” and on the other hand exceptional fortuities, is in my
view inconsistent with the use of the word “any’ in Lord Diplock’s definition of
inherent vice.
111. The second problem with the insurers’ approach is that it appears to me that
the natural meaning to be given to Lord Diplock’s definition is that, if there is an
“intervention of any fortuitous external accident or casualty” the law treats the loss
as caused by that fortuitous external accident or casualty and not by inherent vice.
In referring to “any fortuitous accident or casualty”, Lord Diplock must I think
have had in mind the definition of perils of the seas in Schedule 1 to the Act which
I have quoted above, namely that it refers “only to fortuitous accidents or
casualties of the seas”. Moreover, there is no reason to think that he did not fully
Page 40
appreciate that perils of the seas include perils caused, as Mustill J put it [1985] 1
Lloyd’s Rep 259, 271, by conditions within the range which could reasonably have
been anticipated. Although the statutory definition of perils of the seas was not
referred to in Soya v White [1983] 1 Lloyd’s Rep 122, which did not involve perils
of the seas, Lord Diplock would clearly have had it in mind in formulating his
definition. As I see it, by in effect invoking the statutory definition of perils of the
seas, he was defining “inherent vice” in opposition to perils of the seas, thereby
avoiding any overlap between the insured risk and the excluded risk. Thus where,
as here, a proximate cause of the loss was perils of the seas, there was no room for
the conclusion that the loss was caused by inherent vice.
112. To my mind that conclusion is supported by the authorities, with the
exception of certain dicta of Donaldson LJ in the Court of Appeal in Soya GmbH v
White [1982] 1 Lloyd’s Rep 136 and of the decision of Moore-Bick J in Mayban v
General Insurance BHD v Alstom Power Plants Ltd [2004] 2 Lloyd’s Rep 609.
113. In para 70 of his judgment in the Court of Appeal in the instant case
Carnwath LJ quoted this passage from the second edition of Arnould’s Treatise on
the Law of Marine Insurance and Average (1857), vol II, pp 782-783:
“… the underwriter is not liable for that loss or deterioration which
arises solely from a principle of decay or corruption inherent in the
subject insured, or, as the phrase is, from its proper vice …”
As Carnwath LJ observed, such views remain relevant because of the fact that the
Act was a codifying statute and Arnould’s approach, with its emphasis on
something inherent in the subject matter insured, as opposed to the impact of
external factors, has proved remarkably resilient over the ensuing 150 years.
114. This is not to say that external factors are entirely irrelevant when
determining whether there was inherent vice, as for example (as Carnwath LJ said
at para 70) atmospheric conditions hastening the deterioration of the gloves in T M
Noten BV v Harding [1990] 2 Lloyd’s Rep 283. I agree with Waller LJ (at para 56)
that inherent vice can be a cause even though some outside agency may have
played a part, as for example the motion of the waves in Byles J’s example (in
Koebel v Saunders (1864) 17 CB(NS) 71, 79) of a cargo of tender animals which
were “unfit to bear the agitation of the sea”. I also agree with Waller LJ that
Arnould almost certainly intended his definition to be understood as meaning that
inherent vice would be the sole cause where any other outside causative factor
would not be a peril insured against. That is in essence what Lord Diplock’s
definition amounts to, at any rate in the context of perils of the seas.
Page 41
115. Both parties relied upon the decision of the Court of Appeal in Noten
[1990] 2 Lloyd’s Rep 283 but in my opinion it provides support for the
submissions made on behalf of the insured. The issue in Noten arose out of wet
damage to gloves stowed in containers. The claim was under an all risks
warehouse to warehouse policy. The gloves had been stowed in the containers in a
wet condition. The cause of the damage was the condensation on the inside of the
top of the containers and falling on to the gloves. The gloves had absorbed
moisture from the humid atmosphere in Calcutta, had either lost or gained a little
moisture within the containers in the course of the voyage to Rotterdam and were
damaged in Rotterdam as a result of the containers being discharged into a
temperature markedly colder than the temperature in the mass of the gloves. The
containers then cooled which in turn caused a convection of air currents which led
to the condensation and thus to moisture falling on the gloves. The judge, Phillips J
[1989] 2 Lloyd’s Rep 527, held that the insured were entitled to recover on the
basis that the damage was caused by the dropping of water from an external
source.
116. The Court of Appeal [1990] 2 Lloyd’s Rep 283, in which Bingham LJ gave
the only substantive judgment, allowed the insurers’ appeal. His reasoning may be
summarised in this way. The question was what was “the real or dominant cause of
the damage”, which was to be answered applying the common sense of a business
or seafaring man, whom Bingham LJ described as a “hypothetical oracle”: p 287.
Such a person would not understand how the water which caused the damage
could be regarded as coming from a source external to the goods but would regard
the gloves as the obvious and sole source of the water. He asked himself this
question. If, then, the damage was proximately caused by the excessively moist
condition of the gloves when shipped, given the conditions in which they were and
were expected to be carried, was that caused by an insured peril or was it within
the exception of inherent vice or nature of the goods?
117. Bingham LJ directed himself by reference to section 55(2)(c) of the Act and
set out Lord Diplock’s definition of inherent vice in Soya v White and then quoted
from para 782 of volume II of 16th edition of Arnould’s Law of Marine Insurance
and Average (1981), which has echoes of the second edition quoted above, as
follows:
“Upon the same ground, the underwriter is not liable for that loss or
deterioration which arises solely from a principle of decay or
corruption inherent in the subject insured, or, as the phrase is, from
its proper vice; as when fruit becomes rotten, or flour heats, or wine
turns sour, not from external damage, but entirely from internal
decomposition. Accordingly, where meat shipped at Hamburg
became putrid through delay on the voyage occasioned by
tempestuous weather, and was necessarily thrown into the sea, it was
Page 42
held to be no loss within the meaning of the policy. So, if
spontaneous combustion is generated by the effervescence or other
chemical change of the thing insured, arising from its having been
put on board wet or otherwise damaged, the underwriter is not liable;
but it lies upon him to show clearly that the fire really arose from this
cause.
The suggestion has sometimes been made that inherent vice means
the same thing as damage that must inevitably happen, but this is not
so. The distinction is between damage caused by any external
occurrence, and damage resulting solely from the nature of the thing
itself. Damage from inherent vice may be just as capricious in its
incidence as damage caused by perils of the seas.”
118. Bingham LJ then expressed his conclusion thus at p 288:
“If the factual cause of the damage to these gloves has been correctly
identified, then I think it plain that that was an excepted peril under
these policies. The goods deteriorated as a result of their natural
behaviour in the ordinary course of the contemplated voyage,
without the intervention of any fortuitous external accident or
casualty. The damage was caused because the goods were shipped
wet. For the reasons already given I regard it as immaterial that the
moisture travelled round the containers before doing the damage
complained of.”
119. Those conclusions seem to me to support the insured’s case in this appeal.
As Arnould put it, the distinction is between damage caused by any external
occurrence and damage resulting solely from the thing itself. On the facts Bingham
LJ concluded that the goods deteriorated as a result of their natural behaviour in
the ordinary course of the contemplated voyage, without the intervention of any
fortuitous external accident or casualty. He was there applying Lord Diplock’s
definition and it is plain that, if he had held, as the judge had done, that there was
such a fortuitous event, the defence would have failed because it could not then
have been said that the damage resulted, in Arnould’s phrase, solely from the
nature of the thing itself. Bingham LJ, in rejecting an alternative basis upon which
the claim was put, further emphasized (at p 289) the importance of establishing a
fortuity if the insured was to succeed. It seems plain that Bingham LJ and (through
him) the Court of Appeal were adopting Arnould’s test, so that if damage resulted
from the fortuity there could be no inherent vice. An application to the instant case
of the analysis of the Court of Appeal in Noten would in my opinion lead to the
conclusion that the insured are entitled to succeed on the basis of the fortuitous
leg-breaking stress found by the judge.
Page 43
120. Both parties placed some reliance on the decision of the Court of Appeal of
British Columbia in Nelson Marketing International Inc v Royal & Sun Alliance
Insurance Co of Canada (2006) 57 BCLR (4th) 27. The facts are similar to those in
Noten. The claim was under an all risks marine insurance in respect of wet
damage to a shipment of laminated hardwood flooring. The laminated wood had
absorbed moisture while awaiting shipment in Malaysia. The heat to which the
flooring was exposed during the course of the voyage caused the moisture to
escape from within the wood and to condense on the surface of the flooring under
the plastic covering.
121. The judge at first instance held that the insured were entitled to recover on
the basis that, although the moisture that damaged the flooring was internal to the
flooring, the external environmental conditions in the holds of the vessels caused
the damage. The Court of Appeal allowed the insurers’ appeal. In setting out the
relevant principles to be applied, Lowry JA, who gave the only substantive
judgment, referred to the passages in Noten set out above. He then summarised the
correct approach at para 13 of his judgment as follows:
“Thus, to succeed on a claim under an ‘all risks’ cargo policy, the
insured must establish, by direct evidence or by inference to be
drawn from the available evidence, that an external fortuitous
occurrence caused the deterioration of the cargo as distinct from the
cargo having simply succumbed to the ordinary incidents of the
voyage because of the cargo’s inherent nature or susceptibility.”
It followed from this, he continued at para 23, that “the issue is only whether what
did cause the loss was fortuitous and not attributable to the inherent nature of the
flooring”. There being no evidence that the conditions in the vessels constituted a
fortuitous occurrence, he concluded that the loss was attributable to the nature of
the wood cargo.
122. As I see it, Nelson provides further support for the insured’s case that the
critical distinction is between damage caused by an external fortuity and damage
resulting solely from the intrinsic nature of the insured goods.
123. Reliance was however placed on the obiter dicta of Donaldson LJ in Soya v
White [1982] 1 Lloyd’s Rep 136. They appear in a part of his judgment in which
he gave reasons for differing from the judgment of Lloyd J [1980] 1 Lloyd’s Rep
491 at first instance on causation. At p 150, Donaldson LJ set out part of that
judgment and said this:
Page 44
“I fully accept his finding that the cause of the loss was the condition
under which the soya beans were carried, but I disagree with his
conclusion that this does not constitute a loss proximately caused by
inherent vice. As I have said, in my judgment a loss is proximately
caused by inherent vice if the natural behaviour of the goods is such
that they suffer a loss in the circumstances in which they are
expected to be carried. This is the test under a contract of
affreightment and the shipowner in this case could have pleaded
inherent vice in answer to a claim for damage to the cargo. In
holding that inherent vice is only proved if the soya beans could not
withstand any normal voyage of that duration, the judge was
introducing a different concept, namely that of certainty of loss. That
is [a] quite different defence. It is in any event subject to the
qualification that it must be a certainty which is, or should be, known
at least to the assured.”
124. The insurers relied upon the proposition that inherent vice was proved if the
natural behaviour of the cargo was such that it suffered a loss in the circumstances
in which it was expected to be carried. Lord Diplock did not express a view upon
that proposition, save to say that the only point of difference between the
judgments at first instance and in the Court of Appeal related to an issue of
causation which, on the view taken by the House of Lords, did not arise and upon
which no argument was heard. In these circumstances Lord Diplock did not
express a view upon the above passage one way or the other.
125. As it seems to me, Donaldson LJ was not considering the issue which arises
on this appeal. He was not considering a definition of inherent vice in the terms
subsequently stated by Lord Diplock, with the agreement of the other members of
the House. In so far as his approach is inconsistent with Lord Diplock’s definition
as explained above, I would not accept it.
126. The same is true of the reasoning of Moore-Bick J in Mayban [2004] 2
Lloyd’s Rep 609, in which cargo in the form of a transformer was damaged in the
course of a voyage. The transformer was insured under a policy which, like this
one, covered all risks and was subject to the Institute Cargo Clauses (A) terms. As
the judge observed at para 97 in a passage quoted by Waller LJ at para 21, MooreBick J said at his para 21:
“It was common ground that the immediate cause of the damage to
the transformer in the present case was the violent movement of the
vessel due to the actions of the wind and sea. These in themselves
were certainly events of a fortuitous nature and they were external to
the cargo, but were they the real cause of the loss? The action of the
Page 45
winds and waves is, of course, an inevitable incident of any voyage
and is therefore a hazard to which all goods carried by sea are
necessarily exposed. Goods tendered for shipment must therefore be
capable of withstanding the forces that they can ordinarily be
expected to encounter in the course of the voyage and these may
vary greatly depending on the route and the time of year. In a case
such as the present, therefore, the competing causes, namely, perils
of the sea and inherent vice, are to a large extent opposite sides of
the same coin. If the conditions encountered by the vessel were more
severe than could reasonably have been expected, it is likely that the
loss will have been caused by perils of the sea (though even then
there might be evidence that the goods would have suffered the same
degree of damage under normal conditions). If, however, the
conditions encountered by the vessel were no more severe than could
reasonably have been expected, the conclusion must be that the real
cause of the loss was the inherent inability of the goods to withstand
the ordinary incidents of the voyage.”
127. Moore-Bick J further said, at para 26, that the relatively short periods of
high wind encountered on the passage were neither extreme nor even unusual in
the sense that they are encountered often enough for mariners to regard them as a
normal hazard, concluding that a cargo that could not withstand exposure to
conditions of that kind could not be regarded as fit for the voyage. In the result, he
held that the loss was caused by the inability of the transformer to withstand the
ordinary conditions of the voyage rather than by the occurrence of conditions
which it could not reasonably have been expected to encounter.
128. The insured submitted that Moore-Bick J was wrong to hold that, if the
conditions encountered by the vessel were no more severe than could reasonably
have been expected, the conclusion must be that the real cause of the loss was the
inherent inability of the goods to withstand the ordinary incidents of the voyage
and was thus inherent vice. I would accept that submission. It does not appear that
the principles were in issue before the court and the only cases cited were British
and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41, Soya v White
[1983] 1 Lloyd’s Rep 122 and Noten [1990] 1 Lloyd’s Rep 283. In particular, the
cases which examine the correct approach to perils of the seas, notably the Miss
Jay Jay [1985] 1 Lloyd’s Rep 264 and the cases referred to by Mustill J (see
above), were not referred to. If they had been, I am confident that Moore-Bick J
would have held that the damage was caused by perils of the seas, that it was not a
case of inherent vice and that it was within the scope of the all risks cover.
129. The 16th edition of Arnould’s Law of Marine Insurance and Average was
published in 1981 and referred, at para 782, to the decision of Lloyd J in Soya v
White [1980] 1 Lloyd’s Rep 491. A third volume of the 16th edition was published
Page 46
in 1997 and contained a discussion of both Soya v White and Noten, at paras 217-
224. It noted at para 222 that Donaldson LJ and Lord Diplock attached
significantly different meanings to inherent vice. As I read the text, it preferred the
approach of Lord Diplock.
130. The 17th edition was published in 2008. In the first two paras of para 22-25
it reproduced the paras from volume II of the 16th edition quoted above (para 116).
It then quoted the parts both of the speech of Lord Diplock and of the judgment of
Donaldson LJ referred to above and stated that the concept of inherent vice was
defined in “somewhat different terms” but this time said that there was no reason
to suppose that Lord Diplock disagreed with Donaldson LJ’s approach or that he
intended to give the concept of inherent vice a narrower meaning than had been
indicated in the Court of Appeal. Para 22-25 concluded by saying that Arnould’s
view, which had been supported in subsequent editions, that a loss can only be said
to be caused by inherent vice when it is solely due to the nature or condition of the
insured property had, therefore, now to be qualified.
131. Para 22-26 was in these terms:
“After Soya v White (above), inability to withstand the ordinary
incidents of the voyage is clearly an appropriate test of inherent vice.
It can no longer be said that inherent frailty is to be distinguished
from inherent vice, or that the concept of inherent vice is necessarily
inapplicable where external factors have contributed to the loss or
damage to the insured.
Inherent vice will afford a defence where the sole cause of loss is the
internal decomposition or deterioration of the subject matter insured,
unless the policy otherwise provides. This is the case envisaged
under section 55(2)(c) of the Act. Where the loss results both from
the inability of the insured ship or cargo to withstand ordinary
incidents of the voyage and from some fortuitous but not unusual
external occurrence, it may sometimes be appropriate to conclude
that inherent vice was so much the dominant cause that it ought to be
viewed as the sole proximate cause of loss; but, in many cases, the
appropriate conclusion will be that the loss was due to a
combination of causes of approximate equal efficiency. In those
circumstances, if the external cause is an insured peril and if there is
no express exclusion of inherent vice, the assured will be able to
recover; if there is an express exclusion of inherent vice, the claim
under the policy will be defeated.”
Page 47
132. Those conclusions undoubtedly support the case for the insurers in this
appeal, although it is right to say that in a footnote to the first part of the passage
that I have italicised, Arnould refers to Mayban [2004] 1 Lloyd’s Rep 609,
contrasts the hull cases which it notes were not cited in Mayban and says that the
“controversial result” of the case, if applied generally, is that it would restrict the
scope of cover in respect of heavy weather damage under the Institute Cargo
Clauses (A) to wholly exceptional weather conditions. In doing so it quotes from
Bennett, Law of Marine Insurance 2nd ed (2006), para 15.54. The footnotes also
refer to the Miss Jay Jay [1985] 1 Lloyd’s Rep 264.
133. Like the Court of Appeal, I have reached the conclusion that the analysis in
para 22-26 of the 17th edition is wrong and that the analysis in volume II of the 16th
edition (and in earlier editions) is to be preferred.
134. In reaching my conclusions I have been much assisted by the article by
Professor Bennett [2007] LMCLQ 315 referred to above, especially at p 346,
where he said that section 55(2)(c) of the Act operates not as an implied
contractual exclusion but as a clarification on the scope of cover. As he put it, it
amplifies the proximate cause rule articulated in section 55(1) and provides an
example of a circumstance of a loss not proximately caused by a peril insured
against.
135. If the approach of the insurers is correct, there is loss as a result of inherent
vice where loss or damage is caused by the inability of the cargo to withstand the
ordinary perils of the sea, or put another way, by the unseaworthiness of the cargo,
since (as Lord Saville has noted at para 38) seaworthiness is defined by section 39
of the Act as being “reasonably fit in all respects to encounter the ordinary perils
of the seas of the adventure insured”. I agree with Lord Saville, for the reasons he
gives at paras 40 to 43 above, that the provisions of sections 39 and 40 of the Act
do not sit easily with the insurer’s submissions.
136. There was some discussion in the course of argument about what were
called the hull cases. However they were cases of hull insurance in which the issue
was usually whether the unseaworthiness of the vessel or an insured peril was the
proximate cause of the loss or damage. The meaning of inherent vice was not
addressed. So they are of no assistance on the issue in this appeal, save perhaps to
note that they support the approach to perils of the seas discussed above. In so far
as they are relevant, I agree with the analysis of Lord Mance at para 66 et seq.
137. The approach of the insured seems to me to have the virtue of simplicity.
The sole question in a case where loss or damage is caused by a combination of the
physical condition of the insured goods and conditions of the sea encountered in
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the course of the insured adventure is whether the loss or damage is proximately
caused, at least in part, by perils of the seas (or, more generally, any fortuitous
external accident or casualty). If that question is answered in the affirmative, it
follows that there was no inherent vice, thereby avoiding the causation issues that
arise where there are multiple causes of loss, one of which is an insured risk and
one of which is an uninsured or excluded risk.
138. The approach also seems to me to accord with commonsense, at any rate in
a case like this. It would be commercially unacceptable if cover for loss arising as
a result of the interaction of perils of the seas and the nature of the goods were
reduced to situations where the conditions of the sea were not reasonably
foreseeable. As Professor Bennett puts it, at p 348 of his article:
“…assureds do not procure insurance against losses that they
consider fanciful. Rather, it is precisely because commercial
experience indicates a certain level of probability of a particular type
of loss that the reasonable person considers insurance a sensible and
prudent investment. If, however, goods have to be fit to withstand
reasonably foreseeable perils or the loss will be considered to be
proximately caused by the inherent vice of the goods, or at least not
by a ‘risk’ within the meaning of the ‘all risks’ insuring clause, much
of the point of cargo insurance disappears. ‘All risks’ cover would be
confined to loss or damage occasioned only by wholly unusual perils
or wholly unusual examples of known perils.”
139. This can be seen on the facts of this case. Both the insured and the insurers
appreciated that there were potential risks of fatigue failure as a result of a
combination of the fatigue strength of the rig’s legs and the stresses induced by the
sea conditions, which would of course depend upon the weather conditions. It was
because of such risks that the insurers insisted upon the rig being inspected by
Noble Denton at Galveston and being subsequently inspected at Cape Town,
where (as Lord Saville explains) fatigue cracking was found and repairs carried
out. Fatigue failure was thus one of the risks which both parties had in mind and
which it seems to me to be fair to say that both parties intended should be the
subject of the insurance. I mention this not as part of a conclusion which depends
upon the particular arrangements made in this case but as an indication of what
commercial men would have expected.
140. For these reasons I too would dismiss this appeal. In doing so, I would
stress two matters. The first is that this seems to me to be a most unusual case. The
critical finding of the judge was that the leg-breaking stress was fortuitous and was
caused by a peril of the seas. It is important to note that if, in this case and contrary
to the findings of the judge, the casualty had been bound to occur the insured
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would have failed. (I express no view on the interesting questions raised by Lord
Mance at the end of para 51 above). The second is that, as I see it, the insured
would not have been entitled to recover in respect of the cost of repairing every
fatigue crack but only in respect of the loss of the legs because only the latter has
been held to be caused by a peril insured against. It is a reasonable inference that
some cracking was bound to occur. This point is not however relevant to the issues
between the parties if, as the judge noted, quantum is not in dispute.
CONCLUSION
141. For the reasons I have given, I agree with Lord Saville and Lord Mance that
the appeal should be dismissed.
LORD DYSON
142. For the reasons given by Lord Saville, Lord Mance, Lord Collins and Lord
Clarke, I agree that this appeal should be dismissed.
