Millers Marine War Risks

Michael Davey; James Davey and Oliver Caplin

Document

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CHAPTER 23 Exclusions

23.1 The War and Strikes Clauses Hulls contain a number of important exclusions. First, there are exclusions of general effect in relation to nuclear weapons of war (Clause 4.1.1), war between the permanent members of the UN Security Council (Clause 4.1.2), and requisition or pre-emption (Clause 4.1.3). Second, there are exclusions which restrict the scope of cover for perils such as capture and seizure, arrest, restraint and detainment, namely: capture, seizure, arrest, restraint, detainment, confiscation or expropriation by or under the order of the government or any public or local authority of the country in which the vessel is owned or registered (Clause 4.1.4); and arrest, restraint, detainment, confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations (Clause 4.1.5). Finally, there are further general exclusions in relation to the operation of ordinary judicial process, failure to provide security or to pay any fine or penalty or any financial cause (Clause 4.1.6); and piracy (Clause 4.1.7). The exclusions for nuclear weapons and war between the major powers are not subject to comment here. Piracy is dealt with in .

General approach to construction

23.2 The exclusions must be given a “business-like interpretation in the context in which they appear”.1 Since the Clauses are to be used worldwide, they must be given a wide meaning to the extent that they are intended to cover laws in force anywhere in the world, and cannot turn on niceties of local law.2 The draughtsmen are to be taken to have had in mind decisions of the courts on earlier editions of the clause which have given the wording a settled meaning.3 The burden lies on underwriters to bring themselves within the exclusion.4 In The Anita 5 Lord Denning M.R. referred to a shifting legal burden, but

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the modern approach is to regard the position as one in which the evidential burden shifts.6 It is an open question as to whether the exclusions are to be construed against underwriters on the basis of the contra proferentem rule. In The Aliza Glacial it was conceded in the Court of Appeal (without adverse comment) that if the task of the Court is to ascertain the extent of the risk in the light of the defined perils read together with the relevant exclusion, there is no room for the operation of that rule.7 However, in The Silva the rule was applied by Burton J. to the “financial cause” exclusion.8 In The B Atlantic the issue did not have to be resolved, but Hamblen J. suggested that there was force in the point that if underwriters have to bring themselves within the exclusion as a matter of fact, one would logically expect the burden to be on them to do likewise as a matter of construction.9 In the Supreme Court, Lord Mance said that what is required is “an exercise of construction of the particular wording, giving effect at each stage to the natural meaning of the words in their context.”10

Requisition (Clause 4.1.3)

23.3 The first event excluded is that of requisition. Requisition is typically something which occurs in time of war or hostilities involving an exercise of executive or military power.11 Many states have laws requiring their citizens or subjects to assist in times of national emergency, and to allow the authorities to use their property in the national interest. In the United Kingdom the Crown has the power by prerogative in times of emergency to requisition British ships.12 In Burma Oil Company (Burma Trading) Ltd v. Lord Advocate 13 it was held that there was no general rule that the prerogative could be exercised, even in time of war or emergency, by taking property without paying for it. 23.4 The exercise of this prerogative power amounts to a restraint of princes.14 It has been exercised many times in recent history. Immediately before the outbreak of the First World War a Proclamation was issued stating that a national emergency existed, and authorizing the Lords Commissioners of the Admiralty to requisition and take up any British ship within the British Isles or the waters adjacent thereto. The requisitioning of a British ship outside British waters was held to be ultra vires the Proclamation by Bailhache J. in Russian Bank for Foreign Trade v. Excess Insurance Co Ltd. 15 The prerogative

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power of requisition was exercised in the Suez crisis in 1956 and most recently in the Falklands War in 1982 by Orders in Council. These Orders in Council referred to British ships “wherever the ship may be”. The territorial scope of these Orders has not been challenged. 23.5 The current legislation is The Civil Contingencies Act 2004, which provides in Part 2, sections 20 and 22(3)(b) for emergency regulations to make provision of any kind that could be made by Act of Parliament or by the exercise of the Royal Prerogative, in particular to enable the requisition or confiscation of property (with or without compensation). Although the prerogative permits ships to be acquired by transferring title to the Crown, in practice it is sufficient for the Crown to requisition “for use”, often on terms set out in a charterparty, whilst leaving title and operations in the hands of their owners.16 23.6 There is no requisition if an authority merely directs a vessel to deviate to a specified port so that the cargo on board may be requisitioned if necessary, the vessel in fact not being employed for government purposes.17 Where a ship is prohibited from discharging, and the cargo is subsequently requisitioned and ordered to be discharged elsewhere, the initial detention is not a requisition, which requires the property to be taken possession of by, or put at the disposal of, the government.18 Mere negative prohibition is not a requisition. 23.7 There is an unresolved issue as to whether a ship can only be requisitioned by the flag-state, and a cargo can only be requisitioned by the State of which the owner is a citizen (or the company incorporated). In the Third Edition,19 Mr Miller described a case where a foreign vessel was “requisitioned” by Brazilian authorities in order to assist in a pollution incident and suffered physical damage as a result of being ordered to load and dispose of a dangerous cargo. The War and Strikes underwriters refused to pay the shipowner’s claim. Whilst it may be doubted whether a vessel can be requisitioned by a State other than the one in which it is registered,20 it is not clear what peril would encompass compliance with an order to undertake positive actions such as loading a cargo. The vessel was neither seized nor subject to the negative restrictions associated with arrest, restraint or detention. The question would only arise in the context of “requisition” amounting to an insured peril, such as war. In such a context, the justification for requisition (such as it is) would be a presumed common purpose between owner and flag-state in defeating an enemy. No such rationale exists between a State and a foreign vessel. 23.8 It should be noted that requisition, whether for title or for use, may terminate the insurance (). The position is different in the case of the two Through Transport Mutual Insurance Associations, where it merely suspends the insurance during the period of the requisition. It is again different in the case of the British Mutual War Risks Associations. Where it is requisition for use only, the insurance can continue.

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Pre-emption (Clause 4.1.3)

23.9 The second event excluded by Clause 4.1.3 is that of pre-emption. This is the right to purchase property. The right arose in the circumstances described by Lord Parker in The Zamora,21 as follows. During the Napoleonic Wars the British took the view that naval stores were absolute contraband and were lawful prize, even when carried in a neutral ship. Other States took the view that such stores were contraband only if destined for use by an enemy government, and if destined for use by civilians were not contraband at all. A compromise was reached whereby instead of condemning such stores they were purchased compulsorily from their neutral owners. This practice subsequently became part of international law. It is a right confined to naval stores.

Exclusion for capture, etc., by the “home” government (Clause 4.1.4)

23.10 This exclusion applies to capture, seizure, arrest, restraint, detainment, confiscation or expropriation by or under the order of the government or any public or local authority of the country in which the vessel is owned or registered. There may be more than one State with the relevant connection to the vessel. First, a vessel may be registered by its owners in one State and by Bareboat Charterers in another State. Second, the exclusion also refers to “the country in which the vessel is owned”. Since registration is not ownership, this is potentially a different State. Although a clumsy phrase, it seems that the vessel is owned where its owner is located, in the domicile of an individual or the place of incorporation of a company. This may, in effect, be a requisition by the State of the owner of a ship which is registered elsewhere. In the Container Clauses, the exclusion refers to the country where the Assured have their principal place of business.

Exclusion for quarantine regulations, customs or trading regulations (Clause 4.1.5)

23.11 This exclusion applies to arrests, etc.,22 in respect of quarantine, customs and trading regulations. The exclusion is not limited in its effect to the perils covered by Clause 1.2 (capture, seizure, etc.) and Clause 1.6 (confiscation or expropriation).23 The exclusion applies to other perils, such as malicious acts, where such an act has resulted in an arrest, etc., under relevant regulations; and it is not subject to any implied limitation that it does not apply where the infringement is due some other peril (such as malicious acts).24 Underwriters bear the burden of showing that the vessel was confiscated for a reason falling within the exclusion, but the insured would bear the burden of showing (if alleged) that the foreign court acted without jurisdiction and simply under political direction.25

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23.12 The first part of the exclusion refers to an arrest, etc., “under” quarantine regulations, whereas the second part refers to arrest, etc., “by reason of” infringement of other regulations. As a matter of ordinary language, a detention “under” a regulation suggests that the regulation is the source of the power, whereas a detention “by reason of” infringement of a regulation suggests a causal link between an actual infringement and the detention. Consistent with this, a detainment “under” quarantine regulations does not require there to be any actual infringement of those regulations.26 However, Lloyd L.J. in The Wondrous considered that the difference in wording was just careless drafting.27 23.13 In The B Atlantic 28 it was common ground that the exclusion did not apply if an infringement of customs regulations was not reasonably arguably a ground for the arrest, etc of the vessel as a matter of the relevant local law, and Hamblen J. agreed that it was unlikely that the exclusion would apply in such circumstances.29 In that case it was assumed, until the matter came before the Supreme Court, that the act of concealing drugs on board the vessel was a malicious act, it being argued that the proximate cause of the loss was the malicious act and not the detention. The Court of Appeal therefore considered whether the phrase “by reason of” involved a question of proximate cause.30 It was argued that “by reason of” asked a question as to “why” the vessel was detained, a question not identical to proximate cause.31 The Court of Appeal did not consider the how/why distinction to be useful, and concluded that the detention was a proximate cause of the loss and was undoubtedly “by reason of” the infringement.32 In the Supreme Court,33 the argument that the proximate cause was the malicious act rather than the infringement of customs regulations was rejected; the putative malicious act could not be sensibly distinguished from the infringement.34 As for the construction of the perils and the exclusion, there are three stages: the first stage is the identification of an insured peril, the second is whether the detention was the means by which the loss was incurred, and the third stage is to ask whether such detainment was by reason of any infringement of customs regulations.35 It is possible for a loss to be proximately caused both by the insured peril (such as a malicious act) and by a detainment within the scope of the exclusion.36 Whilst the general aim in insurance law is to identify a single real, effective or proximate cause of any loss, the correct analysis is in some cases that there are two concurrent causes, particularly where an exceptions clause takes certain perils out of the prima facie cover.37 23.14 The exclusion does not expressly identify by whom any infringement must be committed, but there is no implied implication that the infringement must be one committed by the insured itself or by its servants or agents.38 The clause is unnecessary to cater

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for cases of smuggling by shipowners themselves.39 As for crew smuggling without the knowledge of owners, that is barratry and generally excluded by the conjunction of Clause 4.2 of the Institute War and Strikes Clauses Hulls Time with Clause 6.2.5 of the Institute Time Clauses Hulls, which covers barratry.40 Clause 6.2.5 is subject to a proviso, namely “that such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers”. However, in The B Atlantic, Lord Mance considered it improbable that the Institute War and Strikes Clauses Hulls Time were intended to pick up a narrow band of barratrous conduct, to which owners were not privy, but which they had failed to exercise due diligence to guard against.41 23.15 In The B Atlantic,42 the Supreme Court considered a series of scenarios in which the exclusion might be applied. The first was that of a “put-up job”, a scenario suggested by Lord Denning M.R. in The Anita. 43 The scenario would involve a seizure on a knowingly false basis, without any smuggling taking place, or where the authorities planted drugs on board. Lord Mance considered that to be an obvious case, since there would be no customs infringement in fact.44 The second scenario involved a malicious third party planting drugs in order to blackmail the shipowners. The third scenario involved a third party planting drugs and then informing the authorities in order to get the vessel detained. Lord Mance considered these two examples to be indistinguishable, and suggested that “[t]he centrality of the intentional motivation to the causation of a loss may well be capable as a matter of causation of taking the loss outside the scope of the exception in Clause 4.1.5.” 45 23.16 Smuggling is an infringement of customs regulations within the meaning of the exception.46 Whilst detention for infringement of customs regulations does not necessarily involve smuggling,47 it is a paradigm case48 and more likely to lead to a prolonged detention and a deemed CTL49 than other less heinous infringements.50

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23.17 The exclusion in respect of trading regulations was introduced in the aftermath of the Iran/Iraq War and as a result of the effect on vessels of international sanctions.51 It is to be construed as a general term and not as applying to any regulation which affects the insured in his trade.52 Regulations concerned with the management and conservation of fish stocks were therefore not trading regulations even though they impacted on the trade of fishing.53

Exclusion for “the operation of ordinary judicial process” (Clause 4.1.6)

23.18 The exclusion for “ordinary judicial process” in Clause 4.1.6 reflects Rule 10 of the rules of construction for the S.G. Form, as set out in the Schedule to the 1906 Act. Its origin lies in Finlay v. The Liverpool and Great Western Steamship Company,54 where a shipowner sought to defend a short delivery claim under a bill of lading by relying on a restraint of princes exception, a court having ordered the shipowner to deliver the missing goods to their true owner. Martin B. held that restraint of princes referred to “the forcible interference of a State or of the government of a country taking possession of the goods manu forti” and did not extend to the actions of a court. In the subsequent case of Crew Widgery & Co. v. Great Western Steamship Company,55 Field and Wills J.J. held that a restraint of princes exemption in a bill of lading did not apply to an arrest in respect of a collision claim. Then, in Miller v. The Law Accident Insurance Co 56 the Court of Appeal overturned the decision of Bigham J. that a refusal to allow the landing of cattle was not restraint of princes because it was a matter of the ordinary municipal law. Vaughan Williams L.J. denied that there was any analogy between that case and that of arrest or detention of a ship to enforce the rights of a private individual.57 23.19 In line with these authorities, in The Anita, Mocatta J. said58 that

the words “ordinary judicial process” … refer to the employment of Courts of law in civil proceedings. If a rationale be required for this, it is that in such cases the State is merely providing a service to litigants, rather than exercising its own power through the Courts for its own purposes.

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