“Where the subject-matter insured commences the transit contemplated by this insurance (in accordance with Clause 8.1), but without the knowledge of the Assured or their employees the ship sails for another destination, this insurance will nevertheless be deemed to have attached at commencement of such transit.”
The new Clause 10.2 does more than neutralize section 44 of the 1906 Act because it positively deems the insurance to have attached. However, it is to be noted that the positive insurance cover provided by the new Clause is subject to two important provisos. Firstly, the subject-insured must have commenced the transit contemplated by the insurance in terms of Clause 8.1 of the revised Clauses which attaches the insurance when the goods are first moved. Secondly, neither the assured nor their employees must know that the vessel is to sail for another destination. So far as the first proviso is concerned, the insurance is deemed to attach if the goods are first moved (e.g., by being taken from the shelf, in terms of Clause 8.1), and start on the journey contemplated on the insurance, most usually on a land transit to the docks where the sea voyage will begin. The Clause provides that where the vessel sails for a different destination in such circumstances the insurance is “nevertheless” deemed to have attached at the commencement of the transit. It is important to note that the Clause approaches the question of attachment in terms of Clause 8.1 and identifies the time at which the contemplated transit is to be tested as that attachment point (i.e., at the time of the first movement of the goods). If the goods are on their contemplated journey at that point in time and the vessel has not yet sailed for another destination, and the goods are lost or damaged during inland transit, then it seems that they are covered. The new Clause adopts that approach and, by use of the word “nevertheless”, then carries that concept forward into the sea carriage making clear the intention to disapply section 44 of the 1906 Act even if the vessel sails for a different destination.
The second proviso for the operation of Clause 10.2 is that neither the assured nor their employees must have knowledge of the fact that the ship is to sail for another destination. It is submitted that the word “knowledge” involves the suggestion of complicity that may be implied by the word “privity”. The word “knowledge”, was presumably chosen as a more modern word than “privity”, which would be quaint and unclear to many foreign users of the Institute Clauses.
It may be objected that section 44 of the 1906 Act does not include the words “unless otherwise agreed” and cannot therefore be altered by an agreement between assured those relating to insurable interest, the policy formalities and illegality. Apart from these provisions, the Act is essentially a code for interpreting standard contracts of marine insurance and, it is submitted, there is no reason why section 44 cannot be altered by agreement of the parties.
It is clear that the new Clause 10.2 is intended to apply to the phantom ship situation where neither the assured nor their servants have knowledge that the ship is to sail for a different destination. It will cover both loss of the cargo during that voyage, the most usual situation, and a situation where the cargo is lost or damaged on that voyage. The question of whether the revised Clause applies more widely to the circumstances will depend on whether the goods begin their contemplated transit in accordance with Clause 8.1. It may be suggested that a purposeful interpretation should be given to the words “transit contemplated” and that this will be more appropriate in modern cargo insurances where less prominence is given to the sea voyage itself.
What constitutes “loss of” the cargo?
Clause 1 of the Institute Cargo Clauses insures against “loss of or damage to” the subject-matter insured. We consider here what amounts to “loss” of the cargo in terms of loss of possession of the goods rather than loss by damage or destruction.
The Marine Insurance Act 1906 provides that there is an actual total loss where the assured “is irretrievably deprived” of the subject-matter insured and that there is a constructive total loss if the assured is deprived of possession of the goods and it is “unlikely” that he can recover them. The question of whether there has been this type of loss of the cargo has become more difficult to determine since the introduction of all risks insurance, which provides cover extending not only to theft but also to unlawful acts of third parties, particularly conversion of the insured goods. Moreover, if goods are abandoned by a third party, for example where a bailee becomes insolvent, it seems that there may be a “loss of” the goods. The following paragraphs discuss these various aspects of “loss”, starting with forcible theft and fraud, before considering the cases where the action by the third party is unlawful but not dishonest. We then look at the case where the goods are abandoned by third parties to whom they have been entrusted. The concept of loss of the adventure is of sufficient importance to be dealt with in a separate section.
Loss by conversion or other unlawful acts by a third party: insolvency
The cover for “loss of” the subject-matter insured is not limited to dishonest misappropriation of the insured goods but extends to wrongful detention of the goods amounting to a civil wrong (i.e., by the tort of conversion in English law or by analogous unlawful acts under a foreign law). There is still a loss of the goods even where the conversion is the result of the insolvency of a bailee to whom the assured has entrusted the goods, as where the trustee in bankruptcy wrongfully withholds goods held by the bailee for processing. Cargo insurers recognised that wrongful misappropriation, even without dishonesty, was an all risks loss, but were alarmed which held that they were liable to pay for loss of cargo flowing from insolvency.
“If goods which are insured against all risks are converted so that the true owner, the assured, is deprived of the possession of the goods, he is any less entitled to recover under the policy than he would be if the goods were stolen. He is deprived of the possession in one case by theft; he is deprived under circumstances which would render the spoliator liable to the criminal law. It is a matter of the state of mind whether there was a felonious mind. In the case of conversion he is equally deprived of his goods and equally wrongfully deprived, but wrongfully only in the sense that a civil tort is committed and not a criminal wrong.”
In terms of first principles, could be explained that the loss was fortuitous:
“Undoubtedly, the goods were lost to the [assured] by a happening not analogous to theft but just as much unexpected, if that be a test to apply, as a theft. I think the circumstances show that the loss fairly falls within the expressions ‘a fortuitous occurrence’, ‘accidental loss’ or ‘casualty’ in the sense . . . that they have been used in so many insurance cases.”
The wrongful action of the administrator was the proximate cause of the loss but, in so far as this was prompted by the insolvency that was of concern to cargo insurers. The question could be left open whether it is necessary for there to be a wrongful loss of possession of the goods or whether losses can also occur under a cargo policy where the insolvent bailee, whether warehouseman or shipowner, simply walks away and abandons the goods exposing them to risk of loss.
It seems, therefore, that the courts will put the onus upon insurers to show a clear loss of benefit if they are to succeed with an argument that the claim fails solely by reason of a lack of Notice of Abandonment. Nevertheless, if in doubt the assured should give such notice albeit that it is likely, in any event, to be met with the admonition that they should “act as a prudent uninsured”.
The abandonment of the goods to the insurers, the effect of which is considered next, is to be distinguished from the procedural Notice of Abandonment. Where, for example, goods are severely damaged, the assured has a choice under section 61 of the Act as to whether to accept the damaged goods and claim for a partial loss or to abandon the goods. If the assured elects to abandon the goods the procedural requirement for a Notice of Abandonment comes into play unless, as is often the case with cargo claims, the Notice could be of no possible benefit to the insurers.
Loss of the adventure
The general principle
There is a long-established principle that in the case of cargo insurance the thing which is insured is not merely the cargo but also the arrival of the goods at the destination specified in the contract of insurance. This is sometimes expressed by saying that the relatives and friends. The insurers argued that no Notice of Abandonment had been given this is unnecessary as at the time in question had been distributed and used. He said that the insurer’s argument that they “could have investigated whether or not to take proceedings” was quite unreal. It seems, therefore, that the courts will put the onus upon insurers to show a clear loss of benefit if they are to succeed with an argument that the claim fails solely by reason of a lack of Notice of Abandonment. Nevertheless, if in doubt the assured should give such notice albeit that it is likely, in any event, to be met in the London market with the admonition that they should “act as a prudent uninsured”.
The abandonment of the goods to the insurers, the effect of which is considered next, is to be distinguished from the procedural Notice of Abandonment. Where, for example, goods are severely damaged, the assured has a choice under section 61 of the Act as to whether to accept the damaged goods and claim for a partial loss or to abandon the goods. If the assured elects to abandon the goods the procedural requirement for a Notice of Abandonment comes into play unless, as is often the case with cargo claims, the Notice could be of no possible benefit to the insurers.
Total loss of the adventure and sue and labour
Before considering the Forwarding Charges Clauses, on which contemporary claims for loss of the adventure are generally based, it is convenient to look at the interrelationship between a claim for a total loss, based on loss of the adventure, and a claim for a partial loss, based on sue and labour expenses incurred to prevent a total loss of the adventure. Nevertheless, it was argued that the opportunity presented by these proposals meant that it was not “unlikely” that the goods could be recovered, in terms of the Marine Insurance Act 1906 section 60.
“In a question of this sort it is necessary to examine all the circumstances. It is clear that ‘goods’ here meant the goods embarked on an adventure for carriage. Recovery of the goods included recovery both of the goods and of the adventure. It is true that the disability of the carrying vessel to complete the voyage would not necessarily involve a loss (except a partial loss for expenses), so long as transhipment into another vessel was reasonably practicable”.
Where “transhipment into another vessel is reasonably practicable” there will be a “partial loss for expenses” which also shows how a claim for a total loss may fail, but a claim for expenses to prevent a total loss of the adventure can still succeed. The question then to be subsequently decided was whether the assured could sue and labour to save the adventure when the goods were safe. It was held that the concept of loss of adventure included partial loss of expenses. Thus:
The Forwarding Charges Clause
In recognition of the liability discussed in the preceding paragraphs, the revised Institute Cargo Clauses provide as follows:
“Forwarding Charges 12.
“Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a port or place other than that to which the subject-matter insured is covered under this insurance, the Insurers will reimburse the Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject-matter insured to the destination to which it is insured”.
This Clause 12, which does not apply to general average or salvage charges, shall be subject to the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from the fault negligence insolvency or financial default of the Assured or their employees.”
The Forwarding Charges Clause covers claims for loss of the adventure where the goods are undamaged as well as other forms of constructive total loss as, for example, where goods have been damaged, the voyage is terminated, and it is necessary to forward the goods to their destination in order to avoid a constructive total loss under section 60(2) (iii) of the 1906 Act. It has been said that the clause is “largely declaratory” as it reflects the right to claim for loss of the adventure and the right to sue and labour to prevent a constructive total loss. However, it is submitted that the Forwarding Charges Clause may provide additional cover by triggering the right to recover expenses simply on the basis that the insured transit has been “terminated” and by broadening the expense recoverable to any “extra charges”. In any event, the clause clarifies the rights of an assured who may be entirely unfamiliar with the concept of loss of the adventure.
“Termination ” of the insured transit
The question of whether the transit has “terminated” at a port or place other than that to which the subject-matter insured is covered under the insurance depends on a consideration of Clause 8 of the Institute Cargo Clauses. Clause 8 sets out the usual termination provisions, for example the insurance terminates on completion of unloading at the destination named in the contract of insurance. Clause 12 is triggered where termination fills outside those normal provisions and takes place in circumstances that are beyond the control of the assured. This would include circumstances where the vessel has been physically disabled or circumstances where the contract of carriage has otherwise been frustrated. As we have seen, there must also be the operation of an insured peril, but subject to that requirement, the Forwarding Charges Clause comes into play and the assured is entitled to be reimbursed for any extra charges properly and reasonably incurred in unloading storing and forwarding the goods to their insured destination. The charges must be ‘extra” (i.e., over and above what would have been paid so that, for example, if freight were only payable at destination, freight paid to complete the insured journey would not in principle be recoverable). Where the termination results from a peril insured, Clause 12 will operate in parallel with Clause 9. Clause 9 provides that the insurance shall remain in force, subject to prompt notice to the insurers, and an additional premium if required, if owing to circumstances beyond the control of the assured the contract of carriage is terminated at a port or place other than the destination named in the contract of insurance. The words “unloading storing and forwarding” in Clause 12 are no doubt intended to cover all reasonable expenses and would include, for example, insurance premiums. Accordingly, if the assured has paid an additional premium under Clause 9 to extend the duration of the insurance cover, that premium will be recoverable under Clause 12 as part of the forwarding expenses.
Insolvency and loss of the adventure
The insolvency exclusion in Clause 4.6 of the revised Institute Cargo Clauses excludes loss damage or expense “caused by insolvency or financial default of the owners, managers, charterers or operators of the vessel”. It is trite law that the existence of exclusion does not, of itself, give cover, so that, for example, deletion of the insolvency exclusion would not be the same as providing cover for insolvency or financial default. At one end of the scale, cover for insolvency could take the form of a direct financial guarantee, but clearly there is no question of financial guarantee under marine cargo insurance which, inter alia, requires an insurable interest in cargo, both by virtue of the 1906 Act and the express provisions of Clause 11, the Insurable Interest Clause. At the other end of the scale, we have clear authority for the proposition that wrongful misappropriation of the cargo by a carrier or bailee is an all risks loss even if such misappropriation is caused by the insolvency of the carrier or bailee. The difficult cases lie between these two extremes when the goods are left at an intermediate port, exposed to the elements, or, if warehoused, exposed to warehouse dues and liens for non-payment, because the carrier or bailee has become insolvent. In such a case no wrongful possession may be asserted by the carrier or third party and the exercise, in due course, of a lien, for example, by a warehouse-keeper for unpaid dues, may be perfectly legal and proper. That lien will lead eventually to the sale of the goods, and the loss of the goods to the assured, if steps are not taken to pay the warehouse dues. The situation is further complicated by the assured’s interest, not only in the goods but also the adventure. The adventure will certainly fail if the insolvent carrier has abandoned the voyage so that the goods will be left indefinitely at some intermediate port or place if they are not forwarded to their insured destination.
It is convenient at this point to touch on the position in relation to perishable cargoes where the situation is more complex as there will inevitably be a combination of causes, delay and the peril or risk causing that delay. Clause 4.5 of the revised Institute Cargo Clauses, and the Marine Insurance Act 1906 section 55(2)(b), both recognise that, in delay cases, there will be concurrent causes of loss, one delay and the other a peril insured. When there are concurrent causes of a loss, one covered and one excluded, the exclusion will prevail. Where a cargo will deteriorate over time, which applies, more or less, to almost all cargoes, it can always be said that one of the reasons for forwarding the goods is to prevent delay. In those circumstances it may be argued that the delay exclusion will apply to almost all cases of loss of the adventure. The law, however, is that it is not sufficient for delay to be one of the causes as the requirement is that delay must be a dominant cause at least equal in efficiency to any other competing cause. It may be submitted, therefore, that apart from the cases where goods are time sensitive, or are forwarded for commercial reasons, delay will today rarely be identified as the proximate cause or even a concurrent predominant cause.
In conclusion, the delay exclusion under the Institute Cargo Clauses has a limited role in relation to sue and labour incurred to prevent a loss of the adventure under Clause 12, the Forwarding Charges Clause. The primary reason for this is that there can be no claim for loss of the adventure if the voyage is merely delayed and not frustrated. In terms of Clause 12, the insured transit must have “terminated”. The authorities suggest that in those circumstances the delay exclusion is not intended to impact on the claim for sue and labour under Clause 12. Where there are current competing causes, it is not sufficient if delay merely be one of the causes, as the exclusion will only come into play if delay is an equally effective cause of the loss as the peril that lies behind the delay. In practice, the exclusion will only apply when the assured incurs expense merely to shorten the period of delay, where the market for the goods is time-sensitive, or it suits the assured for his own commercial reasons to forward the goods more promptly. The exclusion will not apply if the insured transit has terminated as a result of the operation of an insured risk and the action taken by the assured is taken to prevent loss of the adventure by forwarding the goods in ordinary course and in reasonable circumstances in order to prevent a loss of that adventure.
The difficulty arises, in practice, where sue and labour takes place in the face of a casualty. It has been held that the duty under section 78(4) of the 1906 Act in such circumstances “will only have significance in the rare case where breach of that duty is so significant as to be held to displace the prior insured peril as the proximate cause of the loss”. The position is that a failure to sue and labour in the face of a casualty will rarely provide insurers with a complete defence because, in terms of causation, the loss will be attributed to the peril causing the loss and not to the actions of the assured or his agents. A breach of the duty to sue and labour is more likely to go to reducing a claim where the assured has failed, after a casualty, in his duty to contain the loss of or damage to the goods or the parallel duty to preserve recovery rights that would have mitigated the loss.
The Forwarding Charges Clause
The Institute Cargo Clauses make special provision for sue and labour in the context of a potential loss of the adventure by Clause 12, known as the Forwarding Charges Clause. This provides as follows:
“Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a port or place other than that to which the subject-matter insured is covered under this insurance, the Insurers will reimburse the Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject-matter insured to the destination to which it is insured.”
As the issue here is sue and labour to prevent a loss of the adventure this clause is considered in Chapter 13, where loss of the adventure is examined.
Effect of abandonment
The Marine Insurance Act 1906 section 63(1) deals with the effect of abandonment in the following terms:
“(1) Where there is a valid abandonment the insurer is entitled to take over the interest of the assured in whatever may remain of the subject-matter insured, and all proprietary rights incidental thereto.”
The same rule is reflected in section 79(1) of the 1906 Act which, so far as material, reads as follows:
“Right of Subrogation
79(1) Where the insurer pays for a total loss, either of the whole, or in the case of goods of any apportionable part, of the subject-matter insured, he thereupon becomes entitled to take over the interest of the assured in whatever may remain of the subject-matter so paid for, …”
It seems from both of these sections that, if the insurers accept the abandonment, they are “entitled to take over the interest of the assured”. This suggests that the insurer is not obliged to take over the ownership of the goods which may involve the insurer in potential liabilities. This issue, which is not free from difficulty, is discussed further in Chapter 16 in connection with insurers’ rights of subrogation.
Takis Kalogerakos
Marine Cargo Underwriter
