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QUEENS BENCH DIVISION

(COMMERCIAL COURT)
6; 11 April 2006

SUN ALLIANCE & LONDON INSURANCE


PLC
v
PT ASURANSRI DAYIN MITRA TBK
(THE NO 1 DAE BU)
[2006] EWHC 812 (Comm)
Before Mr Justice LANGLEY
Insurance (marine) Insurance taken out on vessel to
be transported from South Korea to Indonesia
Vessel damaged before voyage commenced
Whether assured in breach of class warranties
Whether policy applied to port risks Whether
vessel unseaworthy Discretion of English court to
grant negative declaratory relief to insurers.
This was the trial of an action on a marine
hulls policy.
ADM, an Indonesian insurance company,
agreed to insure the vessel No 1 Dae Bu owned
by Pelumin, an Indonesian ship operator. The
insurance was on the terms of an Endorsement
No 2 dated 14 July 2004 to a policy of marine
hull insurance dated 25 August 2003 which cov-
ered two other vessels owned by Pelumin for the
period 10 August 2003 to 9 August 2004. The
policy covered Hull, Increased Value and War
Risks, and incorporated the MAR 91 Policy
Form, which provided: This insurance shall be
subject to the exclusive jurisdiction of the Eng-
lish courts, except as may be expressly provided
herein to the contrary. The policy was also
subject to the Institute Time Clauses Hulls,
clause 4.1 of which provided for the insurance to
terminate automatically at the time of any
change of the Classication Society of the Ves-
sel, or change, suspension, discontinuance, with-
drawal or expiry of her Class therein. ITCH
also stated that this insurance is subject to Eng-
lish law and practice.
The endorsement provided: Class: KR (the
Korean Register of Shipping). The policy itself
was for trading in Indonesian waters only. At the
time the endorsement was agreed, the vessel was
in port at Yeo Su in South Korea. Pelumin
intended to sail the vessel to Indonesia and use
her for coastal trading there, and paid an addi-
tional premium for cover for the delivery voyage
from Yeo Su . . . The voyage cover was con-
ditional, subject to vessel being in class and
crewed to class standards.
ADM acted as a front for Sun Alliance, and
ceded 99.67 per cent of the risk by way of
reinsurance.
Before September 2003, the vessel was
classed with KR. On 31 March 2004, the vessels
class with KR was suspended. On 1 July 2004 it
was cancelled. On 28 June 2004, the vessel was
entered with the International Maritime Bureau
Inc (the IMB) of Panama, which issued
interim class certicates on that day.
On 4 July, the vessel was struck by a typhoon.
At the time she was anchored half a mile offshore
at Yeo Su preparing for the voyage to Indonesia.
The anchor dragged and the vessel went aground
on a breakwater just offshore. Pelumin claimed
under the insurance for the losses suffered as a
result of the grounding. ADM rejected the claim
and sought to avoid the cover.
Pelumin issued proceedings in Indonesia
against ADM and the placing brokers. In the
present proceedings the reinsurers sought decla-
rations of non-liability to ADM, and Pelumin
were joined to the proceedings. ADM submitted
that it was not liable to indemnify Pelumin on
ve grounds: (i) the vessel was warranted in class
with KR, but it was not; (ii) the delivery voyage
cover was subject to vessel being in class,
which was to be construed as in class with KR;
(iii) the suspension and then withdrawal of KR
Class before the loss meant the cover terminated
automatically under clause 4.1 of ITCH; (iv) the
delivery voyage cover was only for a voyage
from Yeo Su there was no cover for the
vessel at Yeo Su; (v) the delivery voyage
cover was subject to an implied warranty of sea-
worthiness at the inception of the cover, and the
vessel was not seaworthy at the time of the
loss.
Held, by QBD (Comm Ct) (LANGLEY
J) that the declarations sought by ADM would be
granted.
(1) There was an express choice of English
law. The Rome Convention as implemented by
the Contracts (Applicable Law) Act, 1990,
applied to contracts of insurance covering risks
situated outside the EEA. Article 3(1) of the
Convention provided that a contract was gov-
erned by the law chosen by the parties. The
provisions of the ITCH amply fullled that
requirement (see para 17).
(2) The claims were by agreement subject to
the exclusive jurisdiction of the English court.
Both the policy and the endorsement incorpo-
rated the Marine Policy Form containing the
exclusive jurisdiction clause. The terms of both
the policy and the endorsement were put forward
to ADM and agreed to by brokers for and on
860 LLOYDS LAW REPORTS [2006]
PART 10 Sun Alliance v Pt Asuransri Dayin Mitra TBK [QBD (Com Ct)
behalf of Pelumin. The brokers would have been
fully familiar with the Marine Policy Form and
its jurisdiction provisions (see paras 19 and
20).
(3) There was no real doubt that the reference
to Class KR was a warranty. It followed that
on this ground alone ADM was not liable to
indemnify Pelumin for the damage to the vessel
(see paras 28 and 29).
(4) The endorsement clearly stated that cover
for the delivery voyage was subject to vessel
being in class and crewed to class standards.
That was a reference to the class declared and
provided for, and so to KR. It followed that
ADM were off-risk at the time of the loss as the
vessel was not in class. ADM was, therefore,
entitled to succeed for this reason also (see para
30).
(5) ADM had not made out its case under
clause 4.1 of the ITCH. The clause addressed a
change in class following inception of the policy.
The original suspension of the vessels entry in
KR antedated inception (see para 31).
(6) Under the Marine Insurance Act 1906,
schedule 1 rule 2, the term from meant that the
cover did not attach until the vessel had started
on its intended voyage to Indonesia. There was,
therefore, no cover for the loss and ADM was
also entitled to succeed on this basis (see paras
32 and 33).
(7) The evidence was clear that the vessel was
not in fact in a seaworthy condition at the time it
was caught in the typhoon and grounded. The
main engine was under repair and the master had
been told that it would not be available prior to
arrival of the typhoon (see para 34).
(8) This was an appropriate case for the court
to exercise its discretion to grant negative decla-
rations. England was the agreed exclusive forum
for the resolution of claims under the policy and
Endorsement. ADM (and Pelumin) therefore had
agreed to pursue the issues only before the UK
courts. The insurance was also agreed to be sub-
ject to English law and so an English court was
well placed to address and determine the issues
of law (including questions of construction)
which arose. ADM was the claimant because
Pelumin sought to pursue its claim in another
non-contractual forum and because ADM faced
claims by the reinsurers in this jurisdiction (see
para 35);
New Hampshire Insurance Co v Phil-
ips Electronics [1999] Lloyds Rep IR 58, Dor-
noch Ltd v Mauritius Union Assurance Co Ltd
[2006] Lloyds Rep IR 127, applied.

The following cases were referred to in the


judgment:
Dornoch Ltd v Mauritius Union Assurance Co Ltd
[2006] Lloyds Rep IR 127;
Hampshire Insurance Co v Philips Electronics
[1999] Lloyds Rep IR 58.

Julian Kenny, instructed by Hill Taylor Dick-


inson, for ADM.
Tuesday, 11 April 2006

JUDGMENT
Mr Justice LANGLEY:
Introduction
1. On 17 February 2006, Tomlinson J, upon the
application of the defendant/Part 20 claimant
(ADM) ordered that the Part 20 claim brought by
ADM against the Part 20 defendant (Pelumin)
should be tried on afdavit evidence on the rst
available date after 3 April. Tomlinson J made
provision for the evidence and submissions led by
ADM to be served upon Pelumin at a time and in a
manner which has been duly effected.
2. Pelumin did not attend the hearing before
Tomlinson J and has stated, by its solicitors in
Singapore, that it intends to take no part in the trial.
It has not served a defence or taken any steps in
these proceedings. I have, however, read a number
of letters of some length, to which I was properly
referred, in which the solicitors for Pelumin have
put forward grounds for contesting the claims made
by ADM and the jurisdiction of this court to try
them.
3. The trial took place before me on 6 April. As
anticipated, Pelumin did not appear and was not
represented. ADM was represented by solicitors
and counsel, Mr Julian Kenny.
The claim
4. ADM is an Indonesian insurance company.
Pelumin is an Indonesian ship operator. ADM
agreed to insure a tanker called No 1 Dae Bu (the
vessel). The insurance was on the terms of an
Endorsement No 2 evidenced by a brokers cover
note dated 14 July 2004 (the endorsement). The
endorsement extended the cover under a contract of
marine hull insurance (the policy) dated 25
August 2003 which covered two other vessels
861 INSURANCE AND REINSURANCE [2006]
[LANGLEY J Sun Alliance v Pt Asuransri Dayin Mitra TBK QBD (Com Ct)]
owned by Pelumin for the period 10 August 2003 to
9 August 2004. The cover for the vessel was stated
to be with effect from 28 June 2004 to common
expiry on 9 August 2004. ADM was reinsured by
the claimants.
5. At the time the insurance cover was agreed,
the vessel was in port at Yeo Su in South Korea.
Pelumin bought the vessel from Korean sellers and
she had been delivered to Pelumin at Yeo Su on 28
June 2004. Pelumin intended to sail the vessel to
Indonesia and use her for coastal trading there.
6. On 4 July, the vessel was struck by a typhoon.
At the time she was anchored half a mile offshore at
Yeo Su. Work was being carried out on the engine
preparing for the voyage to Indonesia. The anchor
dragged and the vessel went aground on a break-
water just offshore.
7. Pelumin claimed under the insurance for the
losses suffered as a result of the grounding. ADM
has rejected the claim and sought to avoid the
cover.
The proceedings
8. The present proceedings were begun by the
reinsurers in February 2005. Reinsurers sought dec-
larations that they were not liable to indemnify
ADM under the reinsurance for the losses claimed
by Pelumin. ADM, in August 2005, issued the Part
20 proceedings seeking the same relief against
Pelumin. The Part 20 proceedings were served on
Pelumin in early January 2006. In the meantime
Pelumin had issued a claim in Indonesia against
ADM and against Marsh (the brokers who acted for
Pelumin in placing the insurance and for ADM in
placing the reinsurance).
9. The claim in Indonesia continues. It is pres-
ently the subject of compulsory mediation. If there
is no settlement, ADM will be required to serve a
defence probably during May 2006. At that stage
(and not before) ADM will have the opportunity to
challenge the jurisdiction of the Indonesian courts,
an opportunity it intends to take.
The insurance
10. The policy includes a schedule and specica-
tion which contain the details of the cover provided.
There were three types of cover: Hull, Increased
Value and War Risks. The terms of each cover were
all Institute of London Underwriters standard
clauses with some specic variations. Coverage
was MAR 91, a reference to the new Lloyds
Marine Policy Form.
11. The endorsement was rst issued by ADM on
7 July 2004 (after the loss). But Marsh suggested
one minor and immaterial amendment which was
agreed and incorporated in Marshs cover note
dated 14 July 2004. The endorsement named Pelu-
min as the insured. It expressly provided FORM:
New Marine Policy Form. It recorded that it was
agreed that the vessel was included in the insurance
provided by the policy. The vessel was described as
an Oil/Chemical Product Tanker and her class
was stated to be KR a reference to the Korean
Registry of Shipping.
12. The Hull cover was for Trading in Indo-
nesian waters only. An additional premium was
payable for cover for the delivery voyage from
Korea to Indonesia which was subject to vessel
being in class and crewed to class standards. All
other terms and conditions were as provided for
by the policy.
13. The reinsurance was also extended to cover
ADMs exposure under the endorsement by an
Addendum No 04 to the main cover. Notably, the
addendum, in contrast to the endorsement, included
cover for the vessel whilst in Korea, her sea trial
and a delivery voyage from Yeo Su Port . . . ETD
04 or 05/07/04 to Batam, Indonesia ETA between
1520/07/04 (the emphases are mine). It appears
that whilst Marsh negotiated an extension of the
reinsurance in the underlined terms they forgot to
do the same for the insurance.
14. ADM was in fact fronting for reinsurers.
99.67 per cent of the risk was ceded to reinsurers.
The reason was Indonesian regulatory require-
ments. The consequence was that the leading role in
evaluating and pricing the risk was taken by rein-
surers (and, in particular, by Sun Alliance) and
Marsh negotiated the reinsurance before placing the
insurance with ADM.
The evidence
15. ADM rely upon afdavits from four wit-
nesses: Welly Kaurow; Matthew Cannock; David
Humphreys and Ricardo Simanjuntak. Mr Kaurow
is employed by ADM as a marketing broker and
was involved in arranging the insurance of the ves-
sel and in events following the loss. Mr Cannock
was the underwriter for Sun Alliance who nego-
tiated the terms of the reinsurance. Mr Humphreys
is a surveyor employed by the Salvage Association
who surveyed the vessel both before and after the
loss. Mr Simanjuntak is ADMs lawyer in Indo-
nesia. It is his evidence that a judgment in favour of
ADM in this country would provide useful evi-
dence in support of a challenge in Indonesia to the
jurisdiction of the Indonesian court.
The applicable law
16. The Hull cover provided by the policy is
expressly on the terms of the Institute Time
862 LLOYDS LAW REPORTS [2006]
LANGLEY J] Sun Alliance v Pt Asuransri Dayin Mitra TBK [QBD (Com Ct)
Clauses Hulls (the ITCH). The ITCH pro-
vides that this insurance is subject to English law
and practice. The IV and War Risks cover are, by
express reference to other Institute Time Clauses,
also subject to English law and practice. The
endorsement was subject to the terms and condi-
tions of the policy.
17. The Rome Convention as implemented by
the Contracts (Applicable Law) Act, 1990, applies
to contracts of insurance covering risks situated
outside the EEA. Article 3(1) of the Convention
provides that a contract is governed by the law
chosen by the parties. The choice must be express
or demonstrated with reasonable certainty. In my
judgment, the provisions of the insurance to which
I have referred amply full that requirement. There
was an express choice of English law.
Jurisdiction
18. MAR 91, the Maritime Policy Form, pro-
vided expressly that:
This insurance shall be subject to the exclusive
jurisdiction of the English courts, except as may
be expressly provided herein to the contrary.
19. Both the policy and the endorsement incorpo-
rated the Marine Policy Form. Neither contained
any express provision to the contrary. The terms of
both the policy and the endorsement were put for-
ward to ADM and agreed by Marsh acting as bro-
kers for and on behalf of Pelumin. Marsh would, of
course, be fully familiar with the Marine Policy
Form and its jurisdiction provisions.
20. It follows that the claims by Pelumin under
the insurance and by ADM in these proceedings
are, by agreement, subject to the exclusive jurisdic-
tion of this court.
The cover provided by the endorsement
21. The endorsement provided for both time and
voyage cover, as Mr Kenny submitted. The time
cover was for 43 days from 28 June to 9 August
2003, but subject to a limitation of trading in Indo-
nesian waters only. The delivery voyage cover was
from Yeo Su port in Korea to Batam in
Indonesia.
The loss
22. The loss occurred whilst the vessel was at
Yeo Su port. If it is recoverable, it can only be
recovered under the delivery voyage cover because
the trading cover is only effective for trading in
Indonesian waters.
Class
23. The Korean Registry of Shipping (KR) is, on
the evidence before the court, one of the leading
Classication Societies with a reputation for high
standards. Before September 2003, the vessel was
classed with KR. In September 2003 the vessel had
been hit by another typhoon (Maemi) and severely
damaged. On 31 March 2004, the vessels class
with KR was suspended. On 1 July 2004 it was
cancelled.
24. On 28 June 2004, the day the vessel was
delivered by the sellers to Pelumin, the sellers
entered the vessel with the International Maritime
Bureau Inc (the IMB) of Panama, which issued
interim class certicates on that day.
25. It is Mr Cannocks evidence that the IMB is
in the lowest category of classication societies
such that it is not a classication society at all by
any international standards. His evidence is that
vessels entered with the IMB probably would be
viewed with suspicion by most port authorities and
certainly by any international marine underwriter.
Mr Cannock said that if he had been told before the
reinsurance incepted that KR class had been sus-
pended he would not have written the risk but
would have instructed that a detailed survey of the
vessel rst be carried out.
26. When Marsh presented the risk to ADM,
ADM was told the vessel was in class with KR.
That was also written into the endorsement. How
that came about is not material to the issues before
this court save to note that it has not been suggested
that ADM was in any way aware of a mistake, if
such it was.
ADMs submissions
27. Mr Kenny submitted that ADM was not lia-
ble to indemnify Pelumin for the damage to the
vessel for ve reasons:
(i) The vessel was warranted in class with KR,
but it was not. I shall refer to this as the war-
ranty issue.
(ii) The delivery voyage cover was subject to
Vessel being in class. That is to be construed as
in class with KR. It was not. I shall refer to this
as the voyage cover issue.
(iii) Clause 4.1 of the ITCH provides for the
insurance to terminate automatically at the time
of any change of the Classication Society of
the Vessel, or change, suspension, discontinu-
ance, withdrawal or expiry of her Class therein.
The suspension and then withdrawal of KR class
before the loss means the cover terminated auto-
matically. I shall refer to this as the clause 4.1
ITCH issue.
863 INSURANCE AND REINSURANCE [2006]
[LANGLEY J Sun Alliance v Pt Asuransri Dayin Mitra TBK QBD (Com Ct)]
(iv) The delivery voyage cover was only for a
voyage from Yeo Su. There was no cover for
the vessel at Yeo Su. The loss therefore
occurred before the vessel was covered. I shall
refer to this as the coverage issue.
(v) The delivery voyage cover was subject to
an implied warranty of seaworthiness at the
inception of the cover. If cover had incepted
(contrary to the previous submission) the vessel
was not seaworthy at the time of the loss. I shall
refer to this as the seaworthiness issue.
(1) The warranty issue
28. The endorsement expressly provided Class:
KR. Mr Kenny referred the court to the general
rule, stated in para 681 of Arnould, The Law of
Marine Insurance and Average, 16th Ed, volume 2,
that every statement of fact contained in a policy
relating to the thing insured amounts to a warranty
and as such must be literally fullled. Whilst it is
of no relevance to the present law, in the light of Mr
Cannocks evidence, there could be no real doubt
that the reference to class KR was a warranty even
if the test in law did involve (which it does not) a
requirement that the relevant statement affect the
underwriters judgment of the risk.
29. I can see no possible answer to ADMs sub-
missions on the warranty issue. It follows that on
this ground alone ADM is not liable to indemnify
Pelumin for the damage to the vessel.
(2) The voyage cover issue
30. The endorsement clearly stated that cover for
the delivery voyage was subject to vessel being in
class and crewed to class standards. As a matter of
construction, as Mr Kenny submitted, this must be
a reference to the class declared and provided for,
and so to KR. It cannot be read as some or any
class. As the claim by Pelumin can only be
advanced under the voyage cover it follows that
ADM were off-risk at the time of the loss as the
vessel was not in class. ADM is, therefore, entitled
to succeed for this reason also.
(3) The clause 4(1) ITCH issue
31. I am not satised that ADM has made out its
case on this basis. In my judgment clause 4(1) is
addressing a change in class following inception of
the policy. The original suspension of the vessels
entry in KR antedated inception. Insofar as the
cancellation of the entry postdated inception (which
is itself doubtful) I do not think it affected the
position. The evidence appears to be that at incep-
tion the vessel was entered with the IMB and it
remained so thereafter.
(4) The coverage issue
32. The only cover which might assist Pelumin is
the delivery voyage cover. But that was cover
from Yeo Su . . . on 4 or 5 July. The vessel was
not proceeding from Yeo Su when it grounded.
Indeed it was not in a condition to do so. Schedule
1 to the Marine Insurance Act, 1906 provides
that:
From
2 Where the subject-matter is insured from
a particular place, the risk does not attach until
the ship starts on the voyage insured.
At and From
3(a) Where a ship is insured at and from a
particular place, and she is at that place in good
safety when the contract is concluded, the risk
attaches immediately.
33. The risk insured by the delivery voyage cover
had not attached and would not have done so until
the vessel had started on its intended voyage to
Indonesia. There was, therefore, no cover for the
loss and ADM is also entitled to succeed on this
basis.
(5) The seaworthiness issue
34. In view of my decision on the previous issue,
this issue does not arise. However, on the evidence
of Mr Humphreys, it is clear that the vessel was not
in fact in a seaworthy condition at the time it was
caught in the typhoon and grounded. The main
engine was under repair and the master had been
told that it would not be available prior to arrival of
the typhoon. It is also Mr Humphreys opinion that
if the vessel had been able to use the engine in all
likelihood it would have been able to avoid going
aground.
The relief claimed
35. At the present hearing, the relief claimed by
ADM was essentially declarations of non-liability.
The grant of such relief is discretionary. The factors
which the court needs to consider are stated in New
Hampshire Insurance Co v Philips Electronics
[1999] Lloyds Rep IR 58 and, in a context similar
to the present one, Dornoch Ltd v Mauritius Union
Assurance Co Ltd [2006] Lloyds Rep IR 127. I
have no doubt that this is an appropriate case for the
court to exercise its discretion to grant negative
declarations. This country is the agreed exclusive
forum for the resolution of claims under the policy
and endorsement. ADM (and Pelumin) therefore
have agreed to pursue the issues only before the UK
courts. The insurance is also agreed to be subject to
English law and so an English court is well placed
864 LLOYDS LAW REPORTS [2006]
LANGLEY J] Sun Alliance v Pt Asuransri Dayin Mitra TBK [QBD (Com Ct)
to address and determine the issues of law (includ-
ing questions of construction) which arise. Further
it is the evidence of Mr Simanjuntak that an English
judgment might be important additional evidence to
support the application ADM proposes to make in
the Indonesian courts. These are quite sufcient
reasons for granting declarations to reect the con-
clusions I have reached. ADM is the claimant
because Pelumin has sought to pursue its claim in
another non-contractual forum and because ADM
faced claims by the reinsurers in this jurisdiction.
The order
36. There is attached to this judgment the order
which the court has made to reect its terms.
865 INSURANCE AND REINSURANCE [2006]
[LANGLEY J Sun Alliance v Pt Asuransri Dayin Mitra TBK QBD (Com Ct)]