Professional Documents
Culture Documents
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Between :
KIRIACOULIS LINES SA Respondent
/Claimant
- and -
DEMETRA K
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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Mr Stephen Hofmeyr, QC and Mr Gavin Geary (instructed by Elborne Mitchell) for the Appellants
Mr Jeffrey Gruder, QC and Mr Philip Edey (instructed by Ince & Co) for the Respondent
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Judgment
As Approved by the Court
Crown Copyright
Lord Phillips MR :
This is the judgment of the Court.
Introduction
1. On 16 April 1997 a passenger vessel called DEMETRA K (the vessel) caught fire and
suffered extensive damage. At the time she was laid up in Piraeus awaiting sale. The
Respondents (the Owners) were the owners of the vessel. The Owners claim that they are
entitled to be indemnified against the loss that they have suffered under a policy of marine
insurance (the policy) underwritten by the two Appellants (the Insurers). The risks against
which that policy afforded cover included loss of or damage to the vessel caused by fire. On
26 October 2001 Aikens J. gave summary judgment in favour of the Owners in the sum of
$700,000 plus interest. This followed from a judgment given by him on 17 October 2001 in
which he decided three preliminary issues in favour of the Owners. The Insurers now appeal
2. It is the Insurers case that the fire which damaged the vessel was started deliberately, although
not by the Owners. The Owners deny this allegation, but for the purpose of the preliminary
issues it has been assumed to be correct. One of the preliminary issues raised the question of
whether, on true construction of the policy, the Insurers were liable. Aikens J. held that they
were, and they do not challenge this decision. They contend, however, that the wording of the
policy did not reflect the prior agreement between those who negotiated the cover on behalf of
the parties as to its scope. These were the underwriter Mr Mitchell and the Owners placing
broker, Mr Lee.
3. The Insurers contend that Mr Mitchell and Mr Lee had agreed that there should be excluded
from the cover loss or damage by acts of vandalism and/or sabotage and/or malicious
mischief. They contend that, by error, the wording of the policy did not give effect to this
common intention and the policy should be rectified so as to incorporate the exclusion. Aikens
J. found that the case for rectification was not made out. It is this finding which forms the
Background facts
5. The vessel was a passenger cruiser, which had been used for cruises around the Mediterranean
Sea. Her owners Greek insurance brokers were Mediterranean Insurances Limited. They
employed London brokers to place the risks in both 1995 and 1996. The London brokers were
TL Dallas (London) Limited. The senior broker at Dallas was Mr David Mason. He it was
who placed the risks in 1995. He was also involved in the initial negotiations for placing the
risks in 1996, but was absent during the final negotiations, when another broker, Mr Paul Lee,
took his place. Hull and Machinery cover was provided in 1995 and 1996 by the two Insurers.
Their business was written through an underwriting agency called Union Maritime
Underwriting Agency Limited. Mr Richard Mitchell was the marine underwriter at Union
Maritime in 1995 and 1996. He wrote the Hull and Machinery policies on the vessel in both
years.
6. During the winter of 1995/1996 the vessel was laid-up. There was a warranty in the 1995
7. At the time of the renewal of the Hull and Machinery cover the vessel was no longer
operational. She was laid-up at Piraeus awaiting sale. She no longer had a night-watchman on
board. She was moored next to a Greek ex-Naval vessel that was being used as a floating
museum.
8. On 22 September 1995 a Hull and Machinery Policy was written by the Insurers for 12
months, commencing as from 8 September 1995. On 27 September 1995, there was a request
from Mediterranean Insurances Limited on behalf of the Owners that the policy should include
War Risks and also the risk of loss or damage by acts of vandalism and/or sabotage and/or
malicious mischief. Those additional risks were agreed by Mr Mitchell on behalf of the
9. Before the amendment of 3 October to cover additional risks, the policy provided, insofar as
material, as follows:
Vessel Demetra K
..
10. Information She is laid up between November and April (inclusive) with a
incorporated in the policy provide cover against the following, among other,
perils:
6 PERILS
6.1.4 jettison
6.1.5 piracy
Provided such loss or damage has not resulted from want of due
diligence by the Assured, Owners or Managers.
11. The final clauses of the ITC make provision for exclusions. They are introduced by the
following statement
23 WAR EXCLUSION
13. The amendment of 3 October added the following, among other, clauses:
It is hereby noted and agreed that with effect from inception coverage
hereon is extended to include War and Strikes etc. risks as per the
following clauses:
Institute War and Strikes Clauses Hulls Time (Clause 281 dated
1/10/83).
14. The Institute War and Strikes Clauses Hulls Time provide cover against the following perils:
1.1 war civil war revolution rebellion insurrection, or civil
strife arising therefrom, or any hostile act by or against a
belligerent power
16. The 1996 Policy was, so far as material, on the same terms as the 1995 Policy, subject to one
important difference. The provisions of the 3 October addendum, which were incorporated in
17. A policy of marine insurance will not normally insure against a casualty regardless of how the
casualty occurs. A policy will normally, by reference to standard clauses, provide cover
against loss or damage resulting from specified causes and also exclude liability for loss or
damage resulting from specified causes. Such causes are of different varieties. Some describe
the physical event which directly inflicts the damage, such as fire, explosion or a peril of the
seas. Others describe types of human intervention which may bring about the physical event
which directly inflicts the damage. Thus negligence of repairers may result in a fire which
damages a vessel, so that the damage is caused by two concurrent causes under the ITC. Civil
strife may result in a terrorist causing an explosion which damages a ship, thereby combining
18. Where a policy provides cover against one of two or more concurrent causes of a casualty, a
claim will lie under the policy provided that there is no relevant exclusion. Where, however, a
policy contains an express exclusion of cover in respect of loss resulting from a specified
cause, underwriters will be under no liability in respect of a loss resulting from that cause,
notwithstanding the fact that there may have been a concurrent cause of the loss which falls
The effect of an exception is to save the insurer from liability for a loss
which but for the exception would be covered. The effect of the cover is
not to impose on the insurer liability for something which is within the
exception
19. We turn to apply these principles to the facts of this case, assuming that the fire on the vessel
was started deliberately. Under the 1995 policy, as it was before the October 3 amendment, the
loss would have been covered. The damage to the vessel was caused by fire and it thus fell
within the cover expressly afforded by clause 6.1.2 of the ITC. The fire was caused by a
malicious act, which was a concurrent cause of the damage. This did not affect the cover, for
the malicious act exclusion in Clause 25 applied only to damage caused by the detonation of an
20. Thus the addition of the October 3 addendum was not necessary in order to cover the loss
which occurred. Its effect was to extend the cover by removing the exclusions in Clauses 23 to
26 of the ITC and conferring cover against loss or damage caused by war risks and by
vandalism, sabotage and malicious mischief, whether or not such loss or damage would
in respect of a fire that was started deliberately, for that cover was not dependent upon the
existence of the addendum. Had there been added to the 1996 policy a clause which expressly
excluded war risks and risks of loss or damage by acts of vandalism and/or sabotage and/or
malicious mischief, cover in respect of damage caused by a fire started maliciously would have
been excluded. It is the Insurers case that such exclusion had been agreed between Mr
Mitchell and Mr Lee and that the policy should be rectified to bring it into accord with that
agreement.
22. Before turning to consider the evidence relied upon by the Insurers in support of their case for
rectification, it is important to identify precisely what it is that they have to establish to make
good that case. The Insurers must show (i) that it was the intention of both Mr Mitchell and
Mr Lee that the policy should exclude liability for loss or damage caused by vandalism,
sabotage or malicious mischief at the time that they drew up the policy and (ii) that they gave
outward expression of this common intent in a manner which made it plain, applying an
objective test, that this was what they wished to achieve by the policy. In American Airlines v
Hope [1974] 2 Lloyds Rep 301 at p.307, Lord Diplock stated, in the context of a claim to
23. The antecedent agreement need not amount to a binding contract but there must be a common
accord as to what the parties mutual rights and obligations are to be, to which they fail to give
effect in their subsequent written contract see the detailed analysis of the authorities by the
necessary to discharge the burden of proving that they made a common mistake in so doing,
(Per Brightman LJ in Thomas Bates & Sons Ltd v Wyndhams (Lingerie) Ltd [1981] 1 WLR
25. It is the Insurers case that, before the slip was amended and scratched by Mr Mitchell, he and
Mr Lee specifically agreed that not merely war risks but all liability for loss or damage caused
by vandalism sabotage and malicious mischief should be excluded from the cover that the
Insurers were about to write. Owners accept that there was discussion between Mr Mitchell
and Mr Lee about the scope of the cover. It is their case, however, that the discussion was by
reference to the terms of the draft slip policy that Mr Lee had brought with him to the meeting
and that what was agreed was that the 3 October addendum should be excluded, that is to say
deleted, from the terms of that policy. Thus it is their case that the slip policy accorded
precisely with what had been agreed between Mr Mitchell and Mr Lee. Alternatively, they
contend that the evidence does not clearly demonstrate that this was not the case.
26. The starting point of the Insurers case is that there was a change of circumstances between
1995 and 1996 which led to a change of attitude on their part to the acceptance of the risk. In
1995 the vessel was still operational, being laid up only in the winter. By 1996 the lay-up had
become permanent, pending the sale of the vessel. In 1995 there had been a permanent
watchman aboard the vessel when laid up. When the risk was placed in 1996 the security
position was not clear. All of these matters increased the risk of vandalism, sabotage and
malicious mischief. Furthermore the Insurers did not normally write port risks it had been
27. It was the practice and policy of the Insurers to reinsure war and vandalism/sabotage/malicious
damage risks. In 1995 they had a facility to do so and reinsured these risks. They had no such
facility in 1996.
28. It is the Insurers case that, for all these reasons, they were not merely unwilling to write the
additional risks that had been imposed in 1995 by the 3 October addendum, they were only
prepared to write the cover if not merely war risks but all risks from vandalism, sabotage or
malicious damage were excluded from the cover that would otherwise be afforded under the
standard ITC. It is their case that such exclusion was expressly agreed between Mr Mitchell
and Mr Lee and that these two fell into error by failing to record this agreement in the written
policy.
29. In summarising the issue as to whether there was an antecedent agreement between Mr Lee
and Mr Mitchell that conflicted with the terms of the policy, Aikens J. said (paragraph 35)
submitted that the Judge erroneously proceeded on the basis that rectification could only be
ordered if there was an antecedent agreement to insert an exclusion clause into the policy. This
was too rigid an approach. The Judge should first have found the gist of the words of the oral
agreement concluded between Mr Mitchell and Mr Lee, then construed that oral agreement
and finally considered whether the subsequent slip policy did or did not accord with the oral
agreement.
32. We agree with Mr Hofmeyr that the Judge appears to have proceeded on the premise that the
discussion between Mr Lee and Mr Mitchell focussed on the specific clauses that should be
included in the slip policy and that he does not consider whether there was discussion in more
general terms as to the extent of the cover to be provided by the Insurers. Equally, however,
Mr Hofmeyrs submissions assume that there was a concluded oral agreement between Mr Lee
and Mr Mitchell as to the scope of cover in general terms rather than by express reference to
the clauses that should or should not be incorporated into the slip policy. While it seems to us
possible, indeed we would say inherently probable, that discussion between Mr Lee and Mr
Mitchell would have focussed on the terms of the slip policy, one cannot preclude the
possibility that there was an anterior oral agreement as to the terms of the cover in more
general terms. Our enquiry must answer the question of which is the true position.
Contemporary evidence
33. We are concerned with considering whether, and in what terms, an oral agreement was
concluded over 5 years ago. In approaching this task, particular weight must be attached to
any contemporary, or near contemporary, evidence of what was said. Mr Lee went to place the
cover with Mr Mitchell on 9 September 1996. He took with him a draft slip which had on it all
the terms of the 1995 policy, including the 3 October addendum. On the same day, after his
Uwr. agreed to renew even though he does not normally write port risks
but Uwr. did not want to include war risks. This is because he does not
write war and would have to re-insure out.
With this placing being for a vessel for sale this would make his
workings very messy if risk cancelled due to vessel sold.
34. Mediterranean Insurances replied on the following day that no war risks were needed but that
malicious acts or terrorist acts should be included. Mr Lee responded on 11 September that
the Insurers were unable to include damage by vandalism, sabotage or malicious mischief.
35. In the event Mr Lee placed separate war risk cover under a policy that included cover against
loss or damage caused by acts of vandalism and/or sabotage and/or malicious mischief. This
cover was, however, subject to the Institute War and Strikes Clauses, Hulls-Time (1/10/83),
36. On 19 September Mr Lee sent to Mediterranean Insurances a cover note which precisely
37. After the casualty, Mr Lee produced a number of memoranda recording what had occurred at
his meeting with Mr Mitchell. The only one to have survived, and it is not apparently the most
Accordingly I took the wording from the slip (applicable to war) and
obtained terms from our war facility Uwrs.
I informed Union Maritime Uwr we had placed war coverage elsewhere
and accordingly the Uwr deleted (crossed out) the applicable
conditions.
38. We make the following observations on these documents. They are entirely consistent with the
Owners case that the discussion between Mr Lee and Mr Mitchell related solely to the 3
October addendum and that what they agreed was that this should be deleted from the policy
and placed with other insurers. The reason given for this was that the Insurers faced problems
in relation to reinsuring war risks. There is no suggestion that, because of a change in the
nature of the risk, the Insurers were no longer prepared to provide cover on terms of the ITC,
insofar as these included an element of exposure to loss or damage caused by malicious acts.
39. There is no contemporary evidence from the Insurers in relation to the meeting on 9 September
1996. The first relevant document from them post-dates the casualty. This is a message faxed
As we believe you are aware, it is not usually our policy to insure port
risks. The 1995 slip contained a warranty Warranted vessel is laid up
from November 1995 to April 1996 alongside with permanent night
watchman. In view of this warranty we were prepared to include in the
cover including risk of loss or damage by acts of vandalism and/or
sabotage and/or malicious mischief for that year. When you presented
the slip for 1996 it contained no warranty with regard to a night
watchman being on board even though the vessel was to be permanently
laid up. We advised you that we were not interested in insuring the
vessel for 1996 but after some discussion with you and only provided it
was agreed that we would not cover the vessel for, inter alia, risk of loss
or damage from acts of vandalism and/or sabotage and/or malicious
mischief we ultimately agreed to renew the policy.
40. We observe that this message is ambiguous. The phrase we would not cover is capable of
indicating a refusal to extend the cover to embrace the risks in question, or a requirement that
the cover should be subject to an exclusion in respect of such risks. We also observe that the
41. We find that the contemporary, or more nearly contemporary evidence, while in no way
42. The evidence of both Mr Lee and Mr Mitchell was adduced by the Insurers. Mr Lees witness
statement was dated 20 December 2000 and that of Mr Mitchell 29 December 2000. No
challenge was made of the honesty of either witness and the Judge expressly found that each
was an honest witness. Nor was the accuracy of either witness statement directly challenged in
cross-examination. Despite this, any court must necessarily have reservations about the
reliability of statements purporting to give details of a conversation held about 5 years earlier.
Furthermore, witness statements today are not simply taken down verbatim in the witness own
words. They are prepared with the assistance of lawyers which tends to de-personalise the
statement and make it more difficult for the court to assess its weight. We believe that it would
have been likely to assist the Judges task had he required each witness to give his evidence in
10. I have seen a copy of the war risks slip for the period 12 months
at 8 September 1996 (the war slip), which I would have had
typewritten up in the office of Dallas after having obtained from
underwriters the rate to be inserted in the slip. This was signed and
dated by Cotesworth on 11 September 1996. I recall that the war slip
used virtually identical wording as those removed from the hull slip and
I remember this was because it was my intention that those risks should
be transferred to the war policy.
44. We observe that this statement suggests that the discussion between Mr Lee and Mr Mitchell
focussed on the terms of the slip. The first sentence of paragraph 8, while ambiguous, uses the
word exclusion in a context which more naturally suggests removal from the policy
document. The second sentence of that paragraph, while ambiguous, could well be intended to
mean that Mr Mitchell stated that the conditions that were being struck out should constitute
exclusions from the policy. The form of the sentence is, however, one that robs it of clarity.
45. Overall, we consider that Mr Lees witness statement supports the conclusion that the
discussion between Mr Lee and Mr Mitchell related to the clauses that should, and should not
be incorporated in the slip policy. Certainly it does not clearly spell out an antecedent
agreement that there should be excluded from the cover afforded by the ITC cover in respect of
When the renewal slip was brought into Union Maritimes office by
Paul Lee of Dallas I reiterated my concerns regarding the lay-up
arrangements and advised that I would only cover the hull whilst laid up
if loss or damage by acts of vandalism and/or sabotage and/or malicious
damage as well as war risks were all specifically excluded. Paul Lee
agreed to exclude these risks and I granted cover on this basis. I crossed
out the conditions relating to the inclusion of war and strikes etc risks
and relating to risk of loss or damage by acts of vandalism and/or
sabotage and/or malicious mischief. Paul Lee agreed to the striking
through since this accorded with our oral agreement to exclude such
risks.
Accordingly, whilst I am now aware that the slip still included the
standard Institute Clauses in full, it was my specific intention to exclude
risks of loss or damage by acts of vandalism and/or sabotage and/or
malicious mischief. I have no doubt that at the time of agreeing the
policy both myself and Paul Lee understood and agreed that such risks
were specifically excluded from the policy.
In fact I recall stressing to Paul Lee the need to obtain cover for the
excluded risks on a war risk policy elsewhere. I cannot recall the first
occasion when David Mason subsequently confirmed that Dallas had
taken out a war risk policy elsewhere, but I can recall that Dallas
advised me that such a policy in fact existed. I have now seen a copy of
that policy and note that the slip includes cover for risks of loss or
damage by acts or vandalism and/or sabotage and/or malicious mischief.
This confirms that Dallas did indeed place cover for this risk elsewhere,
as I had suggested.
47. We observe that, but for the repeated statement that it was agreed that war risks and risks of
loss or damage by acts of vandalism and/or sabotage and/or malicious damage should be
specifically excluded, this statement would be ambiguous. The addition of the adverb does,
however, undoubtedly carry the suggestion that it was agreed that the policy should be subject
to an express exclusion of the risks in question. We view with scepticism, however, the idea
that Mr Mitchell could have recalled using the word specifically. Nor does the use of that
word accord with his observation that striking through the 3 October addendum accorded with
our oral agreement to exclude such risks. Overall, however, his statement supports the
Insurers case.
48. Aikens J. gave seven reasons for finding that the Insurers case as to what was orally agreed on
9 September 1996 was not made out by the oral evidence of Mr Lee and Mr Mitchell. Mr
Hofmeyr criticised some of these reasons as involving a legalistic approach which it was
unrealistic to apply to commercial men. We agree with him that little significance can be
attached to the fact that Mr Lee and Mr Mitchell gave no thought to cover against barratry a
peril of little moment in relation to an unmanned vessel and that the existence on the
Insurers case - of a possible gap in the cover afforded by the ITC hull and machinery policy
and the war risks policy, is not a matter which would necessarily have been appreciated by
them. However, the important reason for the Judges decision was the one that he put at the
forefront:
First, there is the evidence of Mr Lee and Mr Mitchell about what was
said at the meeting on 9 September 1996. There was no hint of a
common continuing intention to add a specific policy exclusion. It is
true that both witnesses talked about, Excluding certain risks. But the
word Exclude, in the context of the draft slip presented by Mr Lee to
Mr Mitchell, was and is ambiguous. It can mean that the particular risks
identified will not be included. Alternatively, it can mean that the
particular risks will be specifically excluded from the scope of the cover
that would otherwise remain after the deletions have been made. In my
judgment, based on the evidence I have heard, the discussions of Mr Lee
and Mr Mitchell proceeded on the basis of the first of these two
meanings. In my judgment, it did not occur to them that what was
needed was a positive, specific exclusion clause that limited the scope of
the remaining cover of the H&M policy, in particular, the perils covered
by Clause 6.
49. Mr Hofmeyr attacked this finding. He submitted that both witnesses made it quite plain in
their oral evidence that they had agreed that all risks of loss or damage caused by vandalism,
sabotage or malicious mischief would be excluded from the cover. For the Owners, Mr Gruder
QC submitted that the Judges conclusion as to the effect of the oral evidence was correct.
References by each witness to exclusion of risks were, in the context of a draft slip policy that
expressly included those risks, ambiguous. It was impossible to spell out any clear accord that
went beyond agreement that the Insurers would not continue to write the risks covered by the 3
50. The comments that we have made about the unreliability of witness statements in relation to an
oral conversation made 5 years after the event apply also to oral testimony. The Judges
assessment was made a day after he finished hearing the evidence with the benefit of the
impression made by the witnesses, but without the benefit of a transcript of their evidence. We
are in the reverse position, but are not persuaded that this gives us an advantage. Counsel for
each of the parties has been able to cherry-pick passages of the evidence that supports his case.
51. Mr Lee:
A. No.
Q. All you discussed was that he wanted to delete the clauses which
appear on page 15 and which you put a line through?
A. Yes
Q. What was agreed was that although war cover was included in
the previous year it was not to be included this year?
A. Yes.
A. Uh huh.
52. Mr Mitchell:
A. Well, it had been put in, added in, and I thought there is a reason
for adding in vandalism and all malicious damage, and I dont
want to find myself paying that claim.
Q. So what you thought was that you did not want to find yourself
paying in respect of those risks which had been added by this
endorsement?
A. Yes.
53. After detailed consideration in the course of cross-examination Mr Mitchell agreed that the
cover note, which reproduced the wording of the slip, reflected his discussion and his
54. Mr Lee:
Q. What we are asking here is, is that not all he attempted: not to
write these risks; not to provide the cover set out here. That is
what he wanted?
A. Yes, the intention was to exclude these risks here as set out.
.
Q. What was your agreement with Mr Mitchell in relation to the
risks which are struck out at the top of page 11?
A. Yes, yes
Mr Mitchell:
Q. Did you consider that you were excluding risks which would
normally be covered by the ITC word?
Q. Exactly?
A. Yes.
Q. What was the effect upon your cover given by the 1996 policy by
the agreement you made with Mr Lee?
Q. Yes.
A. I thought the effect was that there could be no cover on the hull
policy of vandalism and malicious damage, war risks.
Conclusions
55. We have found the task of analysing the evidence difficult, and this reflects the paucity of
contemporary evidence and the passage of time before statements were taken and oral evidence
given. Mr Lee and Mr Mitchell plainly agreed that the 3 October addendum should be deleted
from the slip policy. We do not believe that either of them gave precise consideration to the
effect of this deletion. It may be that Mr Mitchell assumed that it would relieve the Insurers
from all risk arising from vandalism, sabotage and malicious mischief. It may be that Mr Lee
had a similar belief. If they both shared that belief this would not suffice to establish a claim
for rectification of the policy. To establish such a claim the Insurers have to prove
convincingly that both Mr Lee and Mr Mitchell orally agreed that the cover to be granted
would exclude any loss flowing from the perils in question. The evidence that we have
reviewed does not constitute such proof. On balance we are inclined to think all that was
agreed was that the cover added by the 3 October addendum would no longer be provided and
that this clause would be deleted from the policy. At all events, the Insurers have failed to
make out a case that there was an antecedent agreement that conflicted with the terms of the
slip policy.
56. For these reasons, we have concluded that Aikens J reached the correct decision and that this
57. Order:
1. Appeal dismissed.
2. Appellant to pay respondents costs of the appeal summarily assessed in the sum of
34,379.