Shipping – Actual total loss – Cargo – Piracy

Masefield AG v Amlin Corporate Member Ltd: CA (Civ Div): 26 January 2011

The appellant insured (M) appealed against a decision ([2010] EWHC 280 (Comm), [2010] 2 All ER 593) that the capture of a vessel by pirates did not create an immediate total loss of the cargo.

M’s cargo of biodiesel was being carried from Malaysia to Rotterdam on a vessel which was captured by Somali pirates in the Gulf of Aden. The shipowner commenced negotiations for the payment of a ransom for the release of the vessel, her crew and cargoes. M was not party to those negotiations. The value of the vessel and cargo amounted to $80m. After about four weeks M served a notice of abandonment on the respondent insurer (D). The notice was rejected, but proceedings on the policy were by agreement deemed to have been commenced on that day. The vessel, her crew and cargoes were released some 11 days later on payment of a ransom of $2m by the shipowner. The voyage to Rotterdam was completed. M’s case was that capture by pirates created an immediate actual total loss, whatever the prospects of recovery might be, and, in any event, the law should not take account of the payment of a ransom as a reason for calculating the possibilities of recovery; there was no duty on an insured under section 78(4) of the Marine Insurance Act 1906 to pay a ransom; therefore, since the cargo had not been recovered by the time proceedings were deemed to have been commenced, M was entitled to succeed on its claim against D. D submitted that for an actual total loss M had to show that it was ‘irretrievably deprived’ of the cargo under section 57(1) of the 1906 act and on the authorities that connoted a physical or legal impossibility of recovery; the cargoes were not irretrievably lost when there was a good chance of release on payment of a ransom; payment of a ransom was neither illegal nor against public policy and could therefore be taken into account when applying the test of irretrievable deprivation.

Held: (1) Piratical seizure in the circumstances of the instant case, where there was not only a chance, but a strong likelihood, that payment of a ransom of a comparatively small sum, relative to the value of the vessel and her cargo, would secure recovery of both, was not an actual total loss. It was not an irretrievable deprivation of property. It was a typical ‘wait and see’ situation. The facts would not even have supported a claim for a constructive total loss, for the test of that was no longer uncertainty of recovery, but unlikelihood of recovery. There was no rule of law that capture or seizure was an actual total loss. Piratical seizure, in the absence of a policy of ransom, could amount to an actual total loss, where the pirates escaped with their prize for their own use and there was no prospect whatever of finding or recovering vessel or cargo: but where a chance of recapture remained even such a seizure would not give rise to an immediate actual total loss, and, in any event, that was very far from the instant case, Dean v Hornby 118 ER 1108 QB and Andersen v Marten [1908] AC 334 HL explained and Kuwait Airways Corp v Kuwait Insurance Co SAK (No1) [1996] 1 Lloyd’s Rep 664 QBD (Comm) doubted (see paragraph 56 of judgment).

(2) Theft was a peril within the policy and M submitted that the taking of the vessel and cargo, even with an intention of returning them on payment of a ransom, constituted theft under English law. However, the incidence of a peril was one thing, but for that peril to cause an actual total loss was another: for that to occur, the test of irretrievable deprivation had to be met. In the instant case, M had not been irretrievably deprived of its cargo (paragraphs 57-60).

(3) There was no legislation against the payment of ransoms. If the payment of a ransom could be recovered as sue and labour expenses, it would seem to follow that it could not be against public policy, Royal Boskalis Westminster NV v Mountain [1999] QB 674 CA (Civ Div) considered. The fact that there might be no duty to make a ransom payment did not turn a potential total loss which might be averted by the payment of ransom into an actual total loss. The payment of the ransom in this case was made, and negotiated, by the owner of the vessel, and not by the insured. The fact that the shipowner paid a ransom inevitably defeated the insured's claim (paragraphs 63, 64, 72, 77).

Appeal dismissed.

Sydney Kentridge QC, Andrew Henshaw (instructed by Arbis) for the appellant; Peter MacDonald Eggers, Sarah Cowey (instructed by Waltons & Morse) for the respondent.