LLOYDS LAW REPORTS

582
PART 9

The DC Merwestone

QUEENS BENCH DIVISION

(COMMERCIAL COURT)
57, 1114, 21, 27 March; 14 June 2013

VERSLOOT DREDGING BV
v
HDI-GERLING INDUSTRIE
VERSICHERUNG AG
(THE DC MERWESTONE)
[2013] EWHC 1666 (Comm)
Before Mr Justice POPPLEWELL
Insurance (marine) Time policy Institute
Time Clauses Hulls 1983 Institute
Additional Perils Clauses Perils of the seas
Inchmaree clause Negligence of crew
and repairers Due diligence Whether
vessel unseaworthy Measure of indemnity
Fraudulent claim Fraudulent means
and devices Marine Insurance Act 1906,
sections 39(5), 55 and 69.
This was a claim by the assured owners of the
vessel DC Merwestone against the defendant hull
and machinery underwriters for damage to the
vessel, in the sum of 3,241,310.60.
The defendants were the hull and machinery
insurers of the vessel DC Merwestone under a
time policy, issued to the claimant owners, for 12
months at 1 April 2009. The policy included the
Institute Time Clauses Hulls 1/10/83 (ITC) and
the Institute Additional Perils Clauses (IAPC).
Clause 6.1 of the ITC provided that:
6.1 This insurance covers loss of or
damage to the subject-matter insured caused
by:
6.1.1 perils of the seas . . .
Clause 6.2 of the ITC (the Inchmaree clause)
provided that:
6.2 This insurance covers loss of or
damage to the subject-matter insured caused
by: . . .
6.2.3 negligence of Masters Officers
Crew or Pilots. . .
provided such loss or damage has not resulted
from want of due diligence by the Assured,
Owners or Managers.
The IAPC provided that:
1. In consideration of an additional
premium this insurance is extended to cover . . .
1.2 loss or damage to the Vessel
caused by any accident or by negligence,

[2013]
[QBD (Comm Ct)]

incompetence or error of judgment of any

person whatsoever.
2 The cover provided in Clause 1 is . . .
subject to the proviso that the loss or damage
has not resulted from want of due diligence
by the Assured, Owners or Managers . . .
The vessel was a Dutch-registered gearless
cargo vessel. In 2001 major renovation work
was carried out in Romania and then in the
Netherlands. A new bow and midship section
were attached to the old aft part of the vessel; the
only original section which remained was aft of
the engine room bulkhead. There were five port
and starboard double-bottom ballast tanks, which
were divided longitudinally by a duct keel tunnel
which was 62.48 m long, 1.8 m wide and 1.2 m
high. It ran most of the length of the vessel, from
the bowthruster room in the foreship to the engine
room at the aft of the vessel. It had watertight
bulkhead separation from the bowthruster room
and from the engine room. Within the duct keel
were remotely operated ballast valves, ballast
pipes and electrical cables.
On 21 January 2010 the vessel arrived at
Klaipeda, Lithuania, to discharge a cargo of
soya meal and thereafter to load a cargo of scrap
steel. The vessel completed loading her cargo
of scrap steel on 27 January 20.10 and left for
Bilbao at about 09.30 on the following day. At
about 20.58 of 28 January 2010, the Engineer
noticed water rising beneath the floor plates
in the engine room. The master ordered the
Engineer to start pumping out the engine room
bilges, but the water level continued to rise. At
about 10.00 on 29 January 2010 the vessel was
towed to Gdynia. She was pumped out, and in
due course it was determined that there was no
leak in way of the engine room. On 22 February
2010 the vessel was dry docked in Gdynia.
Two days later the vessel was refloated, and on
26 February 2010 she was towed to the Bredo
shipyard in Bremerhaven for permanent repairs
to be carried out. The vessels main engine was
damaged beyond repair and was replaced by a
new engine and gearbox.
The owners claimed under the policy. Their
case was that the proximate cause of the loss
was the fortuitous ingress of seawater into
the bowthruster room, which was a peril of
the seas covered under ITC Clause 6.1.1. In the
alternative, the Owners contended that there
was cover under ITC clause 6.2.3 and/or IAPC
clause 1.2 because: (1) a proximate cause of
the loss was crew negligence in relation to the
emergency fire pump system, which did not
result from want of due diligence by the owners
or managers; and/or (2) a proximate cause
of the loss (other than that in the bowthruster

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The DC Merwestone

room itself) was the negligence of contractors in

failing to seal the cable duct at each end of the
duct keel tunnel, which did not result from want
of due diligence by the owners or managers.
The underwriters case was that the loss was
not proximately caused by a peril of the sea but
was proximately caused by crew negligence in
relation to the emergency fire pump and there
was no cover because the loss resulted from want
of due diligence by the owners or managers in:
failing to promulgate appropriate cold weather
procedures; failing to have a proper and effective
system for the testing and maintenance of the
bilge alarms; failing to inspect and maintain the
forward and aft bulkheads in the duct keel; and
failing to have a proper and effective system for
the maintenance of the bilge and ballast pumping
system. In the alternative the underwriters
asserted that they had a defence under section
39(5) of the Marine Insurance Act 1906 because
the loss was caused by the unseaworthiness of the
vessel to which the owners were privy, namely,
the deficient condition of the engine room
pumping system.
In the further alternative, the underwriters
contended that if the claim were otherwise
valid, the claim was forfeit because the owners
employed fraudulent devices in support of the
claim when presenting it to underwriters in
2010 and 2011. It was alleged that Mr Kornet,
for the managers, deliberately or recklessly
gave a false narrative of the casualty in a
letter to the underwriters solicitors, dated 21
April 2010, in a letter to the first defendant as
lead underwriter dated 27 July 2010, and in a
preliminary report dated 27 January 2011 sent
to the underwriters. The allegation was that
Mr Kornet falsely claimed that the bilge alarm
had gone off at about noon on 28 January 2010;
that the alarm had been ignored because it was
attributed to the rolling of the vessel in heavy
weather; and that he had been told both these
things by the master or crew. It was alleged that
he did that because he had been advised of the
due diligence proviso and understood a need to
distance the owners themselves from any fault
in relation to the casualty, and was therefore
keen to explain the quantity of water reaching
the engine room by a narrative which involved
the bilge alarms working but being ignored
by the crew.
Held, by QBD (Comm Ct) (POPPLEWELL J)
that the claim would be dismissed. The owners
had a valid claim under the policy but it had been
lost by reason of fraud.
(1) The cause of ingress of water into the
engine room during the casualty was not
substantially in dispute. When the crew finished

using the emergency fire hose prior to cargo

operations at Klaipeda, seawater remained in
the emergency fire pump and in the filter located
at the inlet side of the pump. The water froze
and expanded. The expansion caused a crack in
the casing of the emergency fire pump. It also
distorted the bar restraining the lid on the filter,
so that the lid no longer formed a seal with the
filter itself. After the vessel sailed from Klaipeda
on 28 January 2010, the ice in the pump and filter
began to melt. Once the ice melted, seawater
leaked and entered the bowthruster space from
the open sea inlet valve through the crack in the
fire pump casing and the displaced filter cap. The
water then entered the duct keel tunnel through
an aperture where the cables ran through the
bulkhead from the bowthruster room into the
tunnel. Water was free to fill the duct keel tunnel
once it had entered the bowthruster room (see
para 16).
(2) The chain of causation of the loss was as
follows.
(a) At the end of the operation of using
the emergency fire pump system to de-ice the
hatches and deck, the crew did not close the
sea suction and drain the pump, which was
what allowed the water to freeze in the system
and the system to remain open to the sea. The
crew were negligent in failing to do so (see
para 21(1)).
(b) The vessel lost her watertight integrity
in the bowthruster room because the freezing
of the water in the emergency fire pump
system caused the pump to crack and the filter
lid to be displaced; and because water could
enter through both those physical defects as a
result of the open suction valve. That rendered
the vessel unseaworthy. The bowthruster
room was open to the sea, initially subject to
a barrier of ice which would inevitably melt
in the course of the contemplated voyage. In
simple terms there were two holes in a part
of the vessels hull and machinery which
separated the bowthruster room from the sea
(see para 21(2)).
(c) There was ingress of seawater into the
bowthruster room, which occurred once the ice
started to melt (see para 21(3)).
(d) There was lack of watertight integrity
of the bulkheads. The unpacked cable glands
at each end of the duct keel tunnel, and
configuration of the pipe at the aft end, led
to the ingress of water into the engine room
through the duct keel (see para 21(4)).
(e) The vessels engine room pumping
system was defective. Irrespective of whether
or not the engine room bilge alarm went off

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The DC Merwestone
when it ought to have done, or at all, the crew
became aware of the ingress in the engine room
at a sufficiently early stage for the pumping
system to be deployed. The pumping system
should have been able to cope with the rate
of ingress which led to the loss and damage
in the engine room but it failed to do so (see
para 21(5)).
(3) There was a loss by perils of the seas.
(a) The principles applicable to perils of the
seas were as follows.
(i) A marine insurer was liable for any
loss proximately caused by an insured
peril, even though the loss would not
have happened but for the misconduct
or negligence of the master or crew (see
para 30);
Wayne Tank and Pump Co Ltd v
Employers Liability Assurance Corporation
Ltd [1973] 2 Lloyds Rep 237; [1974] QB
57, The Miss Jay Jay [1987] 1 Lloyds
Rep 32, T M Noten BV v Harding [1990]
2 Lloyds Rep 283, The Cendor MOPU
[2011] 1 Lloyds Rep 560; [2011] Lloyds
Rep IR 302, referred to.
(ii) There had to be a peril in the sense
of a fortuity and not something which was
bound to happen or which was intentional
or inevitable. The passage of water through
a hole in the vessel would be a peril of the
seas if the occasion for the water to enter
the vessel was a fortuitous external accident,
notwithstanding that water would enter
the vessel through the hole in any state of
wind, sea or weather. The fortuity might
lie in what caused the hole, or what caused
the seawater to reach or enter the hole, or
a combination of both. If there was such a
fortuity, the entry of the seawater was not
the ordinary action of the wind and waves
because the sea had an extraordinary effect
on the vessel (see paras 31, 32 and 33);
The Xantho (1887) 12 App Cas 503,
E D Sassoon & Co v Western Assurance
Co [1912] AC 561, P Samuel & Co Ltd v
Dumas (1924) 18 Ll L Rep 211; [1924] AC
431, The La Pointe [1991] 1 Lloyds Rep 89,
The Vergina (No 2) [2001] 2 Lloyds Rep
698; [2002] Lloyds Rep IR 51, referred to.
(iii) The peril had to be of the seas. It
was not sufficient that the peril happened
on board a vessel. If it might as well have
happened on the land as on sea it would not
qualify as a peril of the seas (see para 34);
The Inchmaree (1887) 12 App Cas
484, Stott (Baltic) Steamers Ltd v Martin
(The Ussa) [1916] AC 304, referred to.

[2013]
[QBD (Comm Ct)]

(iv) The mere fact of ingress of seawater

into a vessel was not itself a peril of the seas
(see para 35);
P Samuel & Co Ltd v Dumas
(1924) 18 Ll L Rep 211; [1924] AC 431,
Wadsworth Lighterage & Coaling Co Ltd v
Sea Insurance Co Ltd (1929) 34 Ll L Rep
285, referred to.
(v) Provided the immediate cause of the
ingress was fortuitous, then prima facie the
loss would be by perils of the sea, even if
the cause of the ingress was crew negligence.
An ingress of seawater caused by crew
negligence was a fortuitous accident which
normally constituted a peril of the seas
(see para 36);
Davidson v Burnand (1868) LR 4
CP 117, Hamilton, Fraser & Co v Pandorf &
Co (1887) 12 App Cas 518, George Cohen,
Sons & Co v National Benefit Assurance Co
Ltd (1924) 18 Ll L Rep 199, The Stranna
(1938) 60 Ll L Rep 51; [1938] P 69, Canada
Rice Mills Ltd v Union Marine and General
Insurance Co Ltd (1940) 67 Ll L Rep 549;
[1941] AC 55, referred to.
(vi) There was a peril of the seas if the
prior cause of ingress of seawater was
the unseaworthiness of the vessel, unless
the unseaworthiness was a debility of a
kind which prevented the ingress being
fortuitous because it was inevitable in any
sea conditions. It was therefore no bar to
the fortuitous ingress constituting a peril
of the seas that the crew negligence which
had given rise to it rendered the vessel
unseaworthy (see paras 37, 38 and 39);
Davidson v Burnand (1868) LR 4 CP
117, Canada Rice Mills Ltd v Union Marine
and General Insurance Co Ltd (1940) 67
Ll L Rep 549; [1941] AC 55, applied; The
Hellenic Dolphin [1978] 2 Lloyds Rep 336,
The Miss Jay Jay [1987] 1 Lloyds Rep 32,
The Cendor MOPU [2011] 1 Lloyds Rep
560; [2011] Lloyds Rep IR 302, referred to.
(b) In the present case the casualty was a
loss proximately caused by a peril of the seas,
namely the fortuitous entry of seawater during
the voyage. A proximate cause of the loss and
damage was the ingress of seawater, and the
ingress was fortuitous, having been caused
by crew negligence at the loading port (see
para 40).
(i) The proximate cause was not the
antecedent negligence of the crew which
rendered the vessel unseaworthy. Where
there was a fortuitous ingress of seawater,
it was often the ingress itself, rather than

INSURANCE AND REINSURANCE

[2013]
QBD (Comm Ct)]]

585

The DC Merwestone

that which rendered it fortuitous, which

was to be regarded as the proximate cause
of the loss, or at least a proximate cause of
the loss. There was fortuity if the ingress
of water was the result of crew negligence
which was not itself an insured peril (see
paras 42 and 43);
Davidson v Burnand (1868) LR 4 CP
117, Hamilton, Fraser & Co v Pandorf & Co
(1887) 12 App Cas 518, Canada Rice Mills
Ltd v Union Marine and General Insurance
Co Ltd (1940) 67 Ll L Rep 549; [1941] AC
55, George Cohen, Sons & Co v National
Benefit Assurance Co Ltd (1924) 18 Ll L Rep
199, The Vergina (No 2) [2001] 2 Lloyds
Rep 698; [2002] Lloyds Rep IR 51, applied.
(ii) It was irrelevant that the crew
negligence could as easily happened on
land. It was not necessary to establish that
the fortuity which gave rise to the ingress
of seawater was itself of the seas, or
indeed an insured peril in itself. The peril
was not the fortuity which gave rise to the
ingress, it was the fortuitous ingress itself.
Accordingly the fortuity which gave rise to
the ingress need not independently be of
the seas. In the present case the fortuitous
ingress of seawater was a relevant proximate
cause of the loss and there could be little
doubt that that was an accident which
was peculiar to the maritime nature of the
adventure. Whether the crew negligence
which started the chain of causation was of
the seas was not a relevant inquiry. If that
was wrong and it was necessary to classify
the crew negligence as of the seas then it
had that character. The crew were carrying
out a peculiarly maritime operation in using
the emergency fire hose system to de-ice the
hatches and deck in preparation for cargo
operations (see paras 45 and 50);
Hamilton, Fraser & Co v Pandorf
& Co (1887) 12 App Cas 518, The La
Pointe [1991] 1 Lloyds Rep 89, applied;
The Inchmaree (1887) 12 App Cas 484,
The Milasan [2000] 2 Lloyds Rep 458,
distinguished; Anderson v Morice (1875)
LR 10 CP 58, The Marel [1994] 1 Lloyds
Rep 624, referred to.
(iii) Unseaworthiness was not the
proximate cause of the loss. Where there was
initial unseaworthiness, adverse weather,
loss of watertight integrity and damage,
the loss was treated as one by perils of the
seas only. It had long been established that
a vessels unfitness to encounter foreseeable
weather conditions did not prevent the

loss being regarded as one by perils of the

seas and would not normally do so. Under
a time policy, some, but not all, kinds of
unseaworthiness were capable of defeating
a time policy. Those were where there was
a debility or inherent weakness in the vessel
which had come about without any external
fortuity. In those cases, there was no peril
of the seas because the loss was dissociated
from the action of the wind and the waves
and the casualty was simply the result of
wear and tear. A debility would defeat a
claim under a time policy if the debility was
to be associated with normal wear and tear,
whether caused by the sea or otherwise, or
if there had been no more than the ordinary
action of wind and waves as contrasted with
some external fortuitous event which had
allowed entry of seawater. Thus debility
was sometimes paraphrased as inherent
weakness, The distinction was between
a deficiency which was inherent and that
which arose from some external event (see
paras 54 and 57);
The Golden Fleece (1870) 2 Asp
MLC 431, Dudgeon v Pembroke (1877) 2
App Cas 284, Sassoon v Western Assurance
Co [1912] AC 561, Grant, Smith & Co
v Seattle Construction and Dry Dock Co
[1920] AC 162, Mountain v Whittle (1921) 6
Ll L Rep 378; [1921] AC 615, The Miss Jay
Jay [1987] 1 Lloyds Rep 32, The Cendor
MOPU [2011] 1 Lloyds Rep 560; [2011]
Lloyds Rep IR 302, applied.
(iv) The argument that the ingress was
not a fortuity because the damage to the
fire pump housing and filter lid had already
occurred before the vessel left Klaipeda, so
that the ingress was bound to occur, would
be rejected. The debility cases were cases
where the loss arose from the inherent
weakness of the vessel due to wear and
tear and not from some external fortuitous
event. By contrast, the ingress to the vessels
bowthruster room did not arise from wear and
tear, or any weakness which was inherent,
but from an external fortuitous accident,
namely the crews negligence in relation
to the emergency fire pumping system.
The casualty was proximately caused by a
fortuity (see paras 60, 61 and 62);
Ballantyne v Mackinnon [1896] 2
QB 455, distinguished; Anderson v Morice
(1875) LR 10 CP 58, The Marel [1994] 1
Lloyds Rep 624, referred to.
(4) There was a loss by crew negligence and
there was no want of due diligence by the owners
or managers.

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LLOYDS LAW REPORTS

The DC Merwestone

(a) The principles applicable to the due

diligence proviso were as follows.
(i) A want of due diligence was to be
equated with a lack of reasonable care. The
test was whether the assured was negligent
in the relevant respect. The underwriters
bore the burden of proving the two requisite
elements, namely that the assured was
negligent and that such negligence was
causative of the loss (see para 70);
The Toisa Pisces [2012] 1 Lloyds
Rep 252, applied.
(ii) The want of due diligence proviso
to the Inchmaree clause was confined to
causes of loss and damage which were
proximate causes. The words resulted
from were synonymous with been caused
by. Proximate cause was the theory of
causation applied to insured perils in marine
insurance; it would be surprising if standard
clauses dealing with insured perils were
intended to introduce some other theory of
causation, such as but for causation (see
para 101).
(iii) The provision was not a freestanding exception from cover, but was a
qualification of the cover granted in relation
to the named perils in the Inchmaree clause
(see para 102);
The Diane [1977] 1 Lloyds Rep 61,
referred to.
(b) The crew negligence in failing to drain
down the emergency fire pump and close its
suction valve did not result from the want
of due diligence by the managers in failing
to promulgate appropriate cold weather
procedures. The matter had been brought to
the attention of the crew by email (see paras
85 and 86).
(c) The loss was proximately caused by
the negligence of persons other than the
owners or managers in failing to seal the cable
duct at each end of the duct keel tunnel. The
deficiency in the structure of the vessel as a
result of the errors of those who carried out
the modifications in 2001, which could be
characterised as contractors negligence, fell
within the scope of IAPC clause 1.2. There
was no want of due diligence on the part of the
owners or managers in relation to the defective
cable duct glands. Absent some reason to
make a specific inspection of the cable glands,
the owners could not reasonably have been
expected to discover the deficiencies prior to
the casualty (see paras 90, 93 and 99).
(5) The loss was not caused by the
unseaworthiness of the vessel to which the

[2013]
[QBD (Comm Ct)]

owners were privy within section 39(5) of the

Marine Insurance Act 1906.
(a) For section 39(5) to apply, the assured
had to: (i) know the facts constituting
unseaworthiness; and (ii) realise that those facts
rendered the ship unseaworthy. Knowledge for
the purposes of section 39(5) included blind
eye knowledge (see para 111);
The Eurysthenes [1976] 2 Lloyds Rep
171, The Star Sea [2001] 1 Lloyds Rep 389;
[2001] Lloyds Rep IR 247; [2003] 1 AC 469,
applied.
(b) No one at the managers was aware of
the blockages in the bilge lines (see paras 121
and 131).
(c) The underwriters had failed to discharge
the burden of proving that had the ballast
pump been connected to the bilge system the
rate of ingress would have been controlled and
the casualty averted (see para 135).
(6) The amount of the loss was 3,241,310.60,
including the cost of replacing the vessels main
engine, which was damaged beyond repair, with
a new engine, as opposed to a reconditioned
engine.
(a) Under section 69(1) of the Marine
Insurance Act 1906 the assured was entitled
to the reasonable cost of the repairs, less the
customary deductions, but not exceeding the
sum insured in respect of any one casualty.
Clause 14 of the Institute Time Clauses Hulls
1/10/83, which provided that Claims payable
without deduction new for old, did not mean
that the owners were entitled to the reasonable
cost of replacing the old engine with a new one.
The purpose of the clause was to provide that
there was to be no deduction for betterment if
a repair involved replacing an old part with a
new one. It remained to determine whether it
was reasonable to repair the replacement of the
damaged part by a new part (see para 139).
(b) The cost of installing a new engine
was reasonable. If the owners had chosen to
install a reconditioned engine, they would
have incurred significant extra costs and
encountered practical difficulties (see para
141).
(7) There had been a fraudulent claim.
(a) The applicable principles were as
follows.
(i) An assured who made a fraudulent
claim forfeited any lesser claim which he
could properly have made (see para 145);
Levy v Baillie (1831) 7 Bing 349,
Goulstone v Royal Insurance Co (1858)
1 F & F 276, Britton v Royal Insurance

INSURANCE AND REINSURANCE

[2013]
QBD (Comm Ct)]]

587

The DC Merwestone

Co (1866) 4 F & F 905), Lek v Matthews

(1927) 29 Ll L Rep 141, Orakpo v Barclays
Insurance Services Ltd [1995] LRLR 443,
Galloway v Guardian Royal Exchange
(UK) Ltd [1999] Lloyds Rep IR 209. Direct
Line Insurance v Khan [2002] Lloyds Rep
IR 364, The Aegeon [2002] 2 Lloyds Rep
42; [2002] Lloyds Rep IR 573; [2003] QB
556, AXA General Insurance Ltd v Gottlieb
[2005] Lloyds Rep IR 369, referred to.
(ii) The fraudulent claims rule had been
extended to cases in which the assured had
deployed in support of a wholly valid claim
some fraudulent means or device to advance
his claim (see para 146);
The Aegeon [2002] 2 Lloyds Rep
42; [2002] Lloyds Rep IR 573; [2003] QB
556, considered; The Game Boy [2004] 1
Lloyds Rep 238; [2004] Lloyds Rep IR
867, Stemson v AMP General Insurance
(NZ) Ltd [2006] Lloyds Rep IR 852, Joseph
Fielding Properties (Blackpool) Ltd v Aviva
Insurance Ltd [2011] Lloyds Rep IR 238,
Aviva Insurance Ltd v Brown [2012] Lloyds
Rep IR 211, Fairclough Homes v Summers
[2013] Lloyds Rep IR 159, referred to.
(iii) A fraudulent device was used if the
assured believed that he had suffered the loss
claimed, but sought to improve or embellish
the facts surrounding the claim, by some lie.
A reckless untruth was sufficient to amount
to fraud for the purpose of the fraudulent
claims rule. The court would be astute not
to water down the requirement of fraud into
something akin to negligence, even gross
negligence. The standard of proof was the
balance of probabilities, but the cogency and
strength of the evidence required to prove
fraud was heightened by the seriousness of
the allegation (see paras 150, 151 and 154);
The Aegeon [2002] 2 Lloyds Rep
42; [2002] Lloyds Rep IR 573; [2003] QB
556, applied; Derry v Peek (1889) 14 App
Cas 337, Lek v Matthews (1927) 29 Ll L Rep
141, Bucks Printing Press Ltd v Prudential
Assurance Co (1994) 3 Re LR 219, Re H
(Minors) (Sexual Abuse: Standard of Proof)
[1996] AC 563, referred to.
(iv) The preponderance of authority was
that the fraudulent part of the claim had
to be substantial in the sense of being not
insubstantial or immaterial or de minimis,
but that was not a high threshold (see
para 156);
Goulstone v Royal Insurance
Co (1858) 1 F & F 276, Lek v Matthews
(1927) 29 Ll L Rep 141, Orakpo v Barclays

Insurance Services Ltd [1995] LRLR 443,

Galloway v Guardian Royal Exchange
(UK) Ltd [1999] Lloyds Rep IR 209, Direct
Line Insurance v Khan [2002] Lloyds Rep
IR 364, referred to.
(b) There was no fraud in relation to the
communications of 27 July 2010 and 27
January 2011, in that Mr Kornet believed what
he said was true. However, the letter of 21 April
2010 was a fraudulent device. The letter was
intended by him to promote the claim in the
hope of a prompt settlement, and the purported
factual account about the noon alarm was part
of that promotion. The false statement was
directly related to the claim and intended to
promote the claim. It met the limited objective
element of the test of materiality that, if
believed, it would have tended at that stage to
yield a not insignificant improvement in the
owners prospects of getting the claim paid
(see paras 216, 217, 222 and 223).
Per Popplewell J: the suggested test which
rejected materiality and which would allow an
insurer to deny a claim if the fraudulent means
and devices were directly related and intended
to promote the claim, and would if believed
tend to yield a not insignificant improvement
in the assureds prospects of success, set out a
low and relatively inflexible threshold which
was in a number of respects unsatisfactory.
There was strong attraction in a materiality test
which permitted the court to look at whether it
was just or proportionate to deprive the assured
of his substantive rights, taking account all the
circumstances of the case (see para 171);
Fairclough Homes v Summers [2013]
Lloyds Rep IR 159, considered; dicta in The
Aegeon [2002] 2 Lloyds Rep 42; [2002] Lloyds
Rep IR 573; [2003] QB 556, disapproved;
Stemson v AMP General (NZ) Ltd [2006] Lloyds
Rep IR 852, disapproved.

The following cases were referred to in the

judgment:
Abou-Rahmah v Abacha (CA) [2006] EWCA Civ
1492; [2007] 1 Lloyds Rep 115; [2007] 1 All ER
(Comm) 827;
Agapitos v Agnew (The Aegeon) (CA) [2002]
EWCA Civ 247; [2002] 2 Lloyds Rep 42; [2002]
Lloyds Rep IR 573; [2003] QB 556;
AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti
Palm) (CA) [2006] EWCA Civ 1601; [2007] 1
Lloyds Rep 555;
Anderson v Morice (1875) LR 10 CP 58;
Angus v Clifford (CA) [1891] 2 Ch 449;

588

LLOYDS LAW REPORTS

The DC Merwestone

Aviva Insurance Ltd v Brown [2011] EWHC 362

(QB); [2012] Lloyds Rep IR 211;
AXA General Insurance Ltd v Gottlieb (CA) [2005]
EWCA Civ 112; [2005] Lloyds Rep IR 369;
Ballantyne v Mackinnon (CA) [1896] 2 QB 455;
Barlow Clowes International Ltd v Eurotrust
International Ltd (PC) [2005] UKPC 37; [2006]
1 Lloyds Rep 225; [2006] 1 WLR 1476;
Black King Shipping Corporation v Massie (The
Litsion Pride) [1985] 1 Lloyds Rep 437;
Britton v Royal Insurance Co (1866) 4 F & F 905;
Brownsville Holdings Ltd v Adamjee Insurance Co
Ltd (The Milasan) [2000] 2 Lloyds Rep 458;
Bucks Printing Press Ltd v Prudential Assurance
Co (1994) 3 Re LR 219;
Canada Rice Mills Ltd v Union Marine and General
Insurance Co Ltd (PC) (1940) 67 Ll L Rep 549;
[1941] AC 55;
CCR Fishing Ltd v Tomenson Inc (The La Pointe)
[1991] 1 Lloyds Rep 89;
Compania Maritima San Basilio SA v The Oceanus
Mutual Underwriting Association (Bermuda) Ltd
(The Eurysthenes) (CA) [1976] 2 Lloyds Rep 171;
Davidson v Burnand (1868) LR 4 CP 117;
Derry v Peek (HL) (1889) 14 App Cas 337;
Direct Line Insurance v Khan (CA) [2002] Lloyds
Rep IR 364;
Dudgeon v Pembroke (HL) (1877) 2 App Cas 284;
E D Sassoon & Co v Western Assurance Co (PC)
[1912] AC 561;
Eagle Star Insurance Co Ltd v Games Video Co
(GVC) SA (The Game Boy) [2004] EWHC 15
(Comm); [2004] 1 Lloyds Rep 238; [2004]
Lloyds Rep IR 867;
Fairclough Homes v Summers (SC) [2012] UKSC
26; [2013] Lloyds Rep IR 159; [2012] 1
WLR 2004;
Firma C-Trade SA v Newcastle Protection and
Indemnity Association (The Fanti and The Padre
Island) (HL) [1990] 2 Lloyds Rep 191; [1991]
2 AC 1;
Galloway v Guardian Royal Exchange (UK) Ltd
(CA) [1999] Lloyds Rep IR 209;
George Cohen, Sons & Co v National Benefit
Assurance Co Ltd (1924) 18 Ll L Rep 199
Global Process Systems Inc v Syarikat Takaful
Malaysia Berhad (The Cendor MOPU) (SC)
[2011] UKSC 5; [2011] Lloyds Rep IR 302;
[2011] 1 Lloyds Rep 560;
Global Tankers Inc v Amercoat Europa NV (The
Diane) [1977] 1 Lloyds Rep 61;
Goulstone v Royal Insurance Co (1858) 1 F & F
276;

[2013]
[QBD (Comm Ct)]

Grant, Smith & Co v Seattle Construction and Dry

Dock Co (PC) [1920] AC 162;
H (Minors) (Sexual Abuse: Standard of Proof), Re
(HL) [1996] AC 563;
Hamilton, Fraser & Co v Pandorf & Co (HL)
(1887) 12 App Cas 518;
Hart v Lancashire and Yorkshire Railway Co (1869)
21 LT 261;
Hellenic Dolphin, The [1978] 2 Lloyds Rep 336;
J J Lloyd Instruments Ltd v Northern Star Insurance
Co Ltd (The Miss Jay Jay) [1985] 1 Lloyds Rep
264; (CA) [1987] 1 Lloyds Rep 32;
Joseph Fielding Properties (Blackpool) Ltd v Aviva
Insurance Ltd [2010] EWHC 2192 (QB); [2011]
Lloyds Rep IR 238;
Lamb Head Shipping Co Ltd v Jennings (The Marel)
(CA) [1994] 1 Lloyds Rep 624;
Lek v Matthews (HL) (1927) 29 Ll L Rep 141;
Levy v Baillie (1831) 7 Bing 349;
Manifest Shipping Co Ltd v Uni-Polaris Insurance
Co Ltd (The Star Sea) (HL) [2001] 1 Lloyds
Rep 389; [2001] Lloyds Rep IR 247; [2003] 1
AC 469;
Masood v Zahoor (CA) [2009] EWCA Civ 650;
[2010] 1 WLR 746;
Merchants Trading Co v Universal Marine
Insurance Co (The Golden Fleece) (1870) 2 Asp
MLC 431;
Mountain v Whittle (HL) (1921) 6 Ll L Rep 378;
[1921] AC 615;
Orakpo v Barclays Insurance Services Ltd (CA)
[1995] LRLR 443;
P Samuel & Co Ltd v Dumas (HL) (1924) 18 Ll L
Rep 211; [1924] AC 431;
Sassoon v Western Assurance Co (PC) [1912] AC 561;
Sealion Shipping Ltd v Valiant Insurance Co (The
Toisa Pisces) [2012] EWHC 50 (Comm); [2012]
1 Lloyds Rep 252;
Seashore Marine SA v Phoenix Assurance plc (The
Vergina) (No 2) [2001] 2 Lloyds Rep 698; [2002]
Lloyds Rep IR 51;
Shah v Ul-Haq (CA) [2009] EWCA Civ 542; [2010]
Lloyds Rep IR 84; [2010] 1 WLR 616;
Sharons Bakery (Europe) Ltd v AXA Insurance UK
plc [2011] EWHC 210 (Comm); [2012] Lloyds
Rep IR 164;
Stemson v AMP General Insurance (NZ) Ltd (PC)
[2006] UKPC 30; [2006] Lloyds Rep IR 852;
Stott (Baltic) Steamers Ltd v Martin (The Ussa)
(HL) [1916] AC 304;
Stranna, The (CA) (1938) 60 Ll L Rep 51; [1938]
P 69;
T M Noten BV v Harding (CA) [1990] 2 Lloyds
Rep 283;

INSURANCE AND REINSURANCE

[2013]
QBD (Comm Ct)]]

The DC Merwestone

Thames and Mersey Marine Insurance Co Ltd v

Hamilton, Fraser & Co (The Inchmaree) (HL)
(1887) 12 App Cas 484;
Thomas Wilson, Sons & Co v Owners of the Cargo
per The Xantho (The Xantho) (HL) (1887) 12
App Cas 503;
Twinsectra Ltd v Yardley (HL) [2002] 2 AC 164;
Ventouris v Mountain (The Italia Express) (No 2)
[1992] 2 Lloyds Rep 281;
Wadsworth Lighterage & Coaling Co Ltd v Sea
Insurance Co Ltd (CA) (1929) 34 Ll L Rep 285;
Wayne Tank and Pump Co Ltd v Employers Liability
Assurance Corporation Ltd (CA) [1973] 2
Lloyds Rep 237; [1974] QB 57;
Widlake v BAA Ltd (CA) [2009] EWCA Civ 1256.

Chirag Karia QC and Tom Bird, instructed by

Holman Fenwick Willan LLP, for the claimants;
Nigel Jacobs QC and Ben Gardner, instructed by
Ince & Co for the defendants.
Friday, 14 June 2013

JUDGMENT
Mr Justice POPPLEWELL:
Introduction
1. This is a marine insurance claim for a
partial loss. The claimants (the owners) are the
owners of a gearless general cargo ship named
DC Merwestone (the vessel). The defendants
(the underwriters) are the hull and machinery
underwriters of the vessel under a time policy for
12 months at 1 April 2009. On 28 January 2010
the vessel was off the coast of Poland, shortly
after commencing a laden voyage from Klaipeda,
Lithuania, to Bilbao, Spain, when she suffered an
ingress of water which flooded the engine room,
and incapacitated the vessel. The vessels main
engine was damaged beyond repair. The claim by
the owners under the policy is for the resultant loss
in the sum of 3,241,310.60.
2. The underwriters advance three alternative
defences to the claim. They deny that the loss was
caused by an insured peril. They contend that the
loss was caused by the unseaworthiness of the
vessel to which the assured was privy, with the result
that no liability attaches by virtue of section 39(5)
of the Marine Insurance Act 1906. They contend
that the claim is forfeit because the presentation of
the claim was supported by fraudulent statements.
In addition, they challenge one element of the
quantum of the claim.

589
[POPPLEWELL J

The vessel
3. The vessel is a Dutch-registered gearless
cargo vessel of 2,973 grt, 1,852 nrt and 5,010 dwt.
She was built in 1974. In 2001 major renovation
work was carried out in Romania and then in the
Netherlands (under the supervision of Lloyds
Register and the Dutch Shipping Inspectorate).
A new bow and midship section were attached
to the old aft part of the vessel; the only original
section which remained was aft of the engine room
bulkhead at frame 24. She is 90.74 m long, 15 m in
beam and has one hold divided into three by two
non-watertight (moveable) bulkheads. Outboard of
the cargo hold are five fuel and ballast wing tanks.
There are five port and starboard double-bottom
ballast tanks, which are divided longitudinally by
a duct keel tunnel.
4. The duct keel, which played a critical part
in the casualty, is 62.48 m long, 1.8 m wide and
1.2 m high. It runs most of the length of the vessel,
from the bowthruster room in the foreship to the
engine room at the aft of the vessel. It has what
ought to be watertight bulkhead separation from
the bowthruster room at frame 112 forward, and
from the engine room at frame 24 aft. It runs along
the centre line beneath the hold, separating the five
pairs of port and starboard double-bottom ballast
tanks. Within the duct keel are remotely operated
ballast valves, ballast pipes and electrical cables.
The tunnel can be entered at three points. At the
bowthruster room, which is situated beneath the
chain locker at keel level in the bow, there is access
through a vertical manhole located beneath the floor
plates. The manhole is sealed by a cover which has
screw bolts to maintain the watertight integrity of
the bulkhead. A similar manhole is located at the
aft end of the tunnel beneath the engine room floor
plates. This engine room manhole was rarely used
because of its inaccessibility. There is a further
manhole access in the hold.
5. Once entered, the tunnel can be accessed
along its full length, although it is an uncomfortably
small space: those of a larger build would find it
difficult to enter the tunnel and manoeuvre within
it, and those of a smaller build who could enter it
would have to travel along it by lying on their back
and shifting in that position.
The casualty
6. On 21 January 2010 the vessel arrived at
Klaipeda, Lithuania, to discharge a cargo of soya
meal and thereafter to load a cargo of scrap steel. She
had her usual complement of six crew, comprising
the master (Captain Loosman), a Chief Officer, a
Second Officer, an Engineer, and two ABs. Captain
Loosen was the regular master of the vessel, who
had rejoined her at Rotterdam shortly before the

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LLOYDS LAW REPORTS

The DC Merwestone

commencement of the loaded voyage. The Chief

Officer was 21 and newly promoted. The engineer,
Mr Catolin, held a fourth engineers certificate. He
was, however, very familiar with the vessel, having
served on her continuously from 2006 until the time
of the casualty as the sole engineer, save for periods
on leave.
7. The weather was exceptionally cold and the
hatch covers and gangways were covered in ice.
The outside temperature varied between minus
10C and minus 35C. The crew had to chip ice
off the hatch covers before opening them, and used
the vessels emergency fire pump and lines to blast
the chipped ice away before opening the hatches.
During this operation Captain Loosman slipped
over and broke a number of ribs, as a result of which
he was replaced for the subsequent voyage.
8. The emergency fire pump is housed in the
bowthruster room. When the crew had finished
using the emergency fire pump, they drained the
deck lines, but did not drain the seawater from the
emergency fire pump or close the sea inlet valve to
the pump located in the bowthruster room, as it is
common ground they ought to have done.
9. On 24 January 2010 the vessel commenced
loading her cargo of scrap steel and deballasting
at the same time, having had to take on ballast for
stability reasons when shifting berth prior to loading.
Although the vessel was able to pump out No 3 wing
tanks, she was unable (pneumatically) to open the
valves to No 1 and No 2 wing tanks and No 4 DB
tank. All the valves were located in the duct keel. The
engineer entered the duct keel tunnel via the forward
manhole in the bowthruster compartment to attempt
to release frozen ballast valves. However the valves
to No 1 wing tanks were frozen and he was unable to
open them. He assumed that the same would be true
of the other valves. As a result a quantity of ballast
water remained on board. Upon the engineer leaving
the tunnel, he and/or the Chief Officer replaced the
manhole cover. There is an issue as to whether they
did so properly and effectively.
10. The vessel completed loading her cargo of
a little over 4,000 mt of scrap steel on 27 January
2010. At about 02.30 on 28 January 2010 Captain
Lilipaly boarded the vessel and took over as master
from Captain Loosman, who required medical
assistance and returned home. Captain Lilipaly was
familiar with the vessel having served on her as
master on previous voyages.
11. The vessel left port for Bilbao at about 09.30
the same morning with the assistance of a local tug
which acted as ice-breaker. Captain Lilipaly noticed
that the vessel was trimmed slightly by the head,
which the crew told him was caused by the ballast.
12. At about 20.58 that evening, 28 January
2010, the engineer noticed water rising beneath the

[2013]
[QBD (Comm Ct)]

floor plates in the engine room. There is a dispute

as to whether this was as a result of the engine room
bilge alarm sounding. When the engineer observed
water in the engine room he went to the bridge
where the Chief Officer was handing over the watch
to the master. The master and the engineer went
down to the engine room. They saw water below
the level of the engine room floor plates. It appeared
to be pushing up. At about 21.08 the master ordered
the engineer to start pumping out the engine room
bilges. The master then returned to the bridge and
sent out a distress alert at around 21.38. Meanwhile,
the rest of the crew were mobilised.
13. Despite attempts to empty the engine room
bilges using the vessels two general service pumps,
the water level continued to rise. The crew could not
locate the source of ingress, which they believed to
be in the engine room. An attempt was also made to
use the vessels ballast pump to empty the engine
room bilges by cutting a hole in the ballast suction
line. This improvisation would have been capable
of pumping the floodwater overboard but for a mop
head which was drawn into the suction line so as
to block it.
14. Several vessels responded to the distress call
with rescue operations coordinated by the Maritime
Rescue Coordination Center at Gdynia. Various
vessels offered and provided assistance, including
the supply of portable pumps, but without success.
The master altered course towards the coast of
Poland in case it became necessary to strand the
vessel to prevent her from sinking, and continued
to run the main engine for this purpose until about
02.46 on 29 January 2010 when the main engine
became fully submerged and stopped working. The
engine room was sealed off and the crew retreated to
the bridge, where they spent a cold and fearful night.
15. The tug Agis came alongside at about 10.00
on 29 January 2010 and the vessel was towed to
Gdynia. She was pumped out, and in due course
it was determined that despite the initial common
assumption, there was no leak in way of the engine
room. On 22 February 2010 the vessel was dry
docked at Nauta Shipyards SA in Gydnia. Two days
later the vessel was refloated, and on 26 February
2010 she was towed to the Bredo shipyard in
Bremerhaven for permanent repairs to be carried
out. The vessels main engine was damaged beyond
repair and was replaced by a new engine and
gearbox.
The causes of the casualty
16. The cause and mechanism of ingress of
water into the engine room during the casualty
is not substantially in dispute. When the crew
finished using the emergency fire hose prior to
cargo operations at Klaipeda, seawater remained in

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

the emergency fire pump and in the filter located

at the inlet side of the pump. The water froze and
expanded. The expansion caused a crack in the
casing of the emergency fire pump. It also distorted
the bar restraining the lid on the filter, so that the
lid no longer formed a seal with the filter itself.
After the vessel sailed from Klaipeda on 28 January
2010, the ice in the pump and filter began to melt.
Once the ice melted, seawater leaked and entered
the bowthruster space from the open sea inlet valve
through the crack in the fire pump casing and the
displaced filter cap.
17. The water then entered the duct keel tunnel
through an aperture where the cables ran through the
bulkhead from the bowthruster room into the tunnel.
The aperture, which was referred to in the evidence
as the cable gland, was not packed or sealed and the
cables passed loosely through it. The aperture was
at a level below the floor plates in the bowthruster
room. The water was therefore free to fill the duct
keel tunnel once it had entered the bowthruster room.
18. The owners allege that the manhole cover
had not been properly secured by the crew after the
engineer had entered the tunnel at Klaipeda, and
that this was an additional means of ingress from
the bowthruster room to the duct keel. I find that
there was no lack of sealing of the manhole cover
which played any significant causative part in the
casualty. Although the Dutch Shipping Inspectorate
(DSI) report into the incident said that the
front manhole cover was not properly sealed but
replaced with a few nuts, and that it had not been
effectively sealed, there was no evidence led by
the owners to this effect by any of the crew; on the
contrary, the Chief Officer appears to have qualified
his drafted witness statement in manuscript so as to
reject the suggestion. If there was any deficiency in
the sealing of the manhole cover, its size would not
have been significant in allowing transfer of water
from the bowthruster room to the duct keel tunnel
when compared with the size of the cable gland.
19. At the engine room bulkhead end of the duct
keel tunnel at frame 24, the cables emerged from the
tunnel horizontally through an aperture into a pipe.
This aperture was not sealed at the bulkhead. The
cables emerged into the engine room not horizontally
but vertically as a result of the pipe being L-shaped.
The aperture where the cables emerged vertically
into the engine room was sealed. However the
pipe between the aperture in the bilge keel tunnel
and the aperture in the engine room was not in fact
a continuous watertight pipe but had gaps which did
not create a watertight seal. Accordingly water from
the duct keel tunnel was free to flow into the engine
room through these spaces.
20. In this way entry of water through the
emergency fire pump and filter lid in the bowthruster
room led to the flooding of the engine room. The

591
[POPPLEWELL J

vessels engine room pumps should have been able

to cope with the rate of ingress which led to the loss
and damage in the engine room if operating at their
rated capacity, but they failed to do so for reasons
explored more fully below.
21. The chain of causation was therefore as
follows:
(1) Crew negligence. At the end of the
operation of using the emergency fire pump
system to de-ice the hatches and deck, the crew
did not close the sea suction and drain the pump,
which is what allowed the water to freeze in the
system and the system to remain open to the sea.
This is what they should have done and they were
negligent in failing to do so.
(2) Unseaworthiness. As a result the vessel
lost her watertight integrity in the bowthruster
room because the freezing of the water in the
emergency fire pump system caused the pump
to crack and the filter lid to be displaced; and
because water could enter through both those
physical defects as a result of the open suction
valve. This rendered the vessel unseaworthy. The
bowthruster room was open to the sea, initially
subject to a barrier of ice which would inevitably
melt in the course of the contemplated voyage. In
simple terms there were two holes in a part of the
vessels hull and machinery which separated the
bowthruster room from the sea.
(3) Ingress of seawater into the bowthruster
room, which occurred once the ice started to
melt.
(4) Lack of watertight integrity of the
bulkheads at frames 24 and 112. The unpacked
cable glands at each end of the duct keel tunnel,
and configuration of the pipe at the aft end,
led to the ingress of water into the engine room
through the duct keel.
(5) The defective state of the vessels engine
room pumping system. Irrespective of the issue
whether or not the engine room bilge alarm went
off when it ought to have done, or at all, the crew
became aware of the ingress in the engine room at
a sufficiently early stage for the pumping system
to be deployed. The pumping system should have
been able to cope with the rate of ingress which
led to the loss and damage in the engine room but
it failed to do so.
The issues
22. The policy terms included the Institute Time
Clauses Hulls 1/10/83 (ITC) and the Institute
Additional Perils Clauses (IAPC). Clause 6 of the
ITC provides as follows:
6 PERILS
6.1 This insurance covers loss of or damage to
the subject-matter insured caused by:

592
POPPLEWELL J]

LLOYDS LAW REPORTS

The DC Merwestone

6.1.1 perils of the seas . . .

6.2 This insurance covers loss of or damage to
the subject-matter insured caused by: . . .
6.2.3 negligence of Masters Officers Crew
or Pilots . . .
provided such loss or damage has not resulted
from want of due diligence by the Assured,
Owners or Managers.
23. The IAPC provide:
1. In consideration of an additional premium
this insurance is extended to cover . . .
1.2 loss or damage to the Vessel caused by
any accident or by negligence, incompetence
or error of judgment of any person whatsoever.
2. The cover provided in Clause 1 is . . .
subject to the proviso that the loss or damage has
not resulted from want of due diligence by the
Assured, Owners or Managers . . .
24. The owners case is that a proximate cause
of the loss was the fortuitous ingress of seawater
into the bowthruster room, which is a peril of
the seas covered under ITC clause 6.1.1. In the
alternative, the owners contend that there is cover
under the Inchmaree clauses (ITC clause 6.2.3
and/or IAPC clause 1.2) because: (1) a proximate
cause of the loss was crew negligence in relation
to the emergency fire pump system, which did not
result from want of due diligence by the owners
or managers; and/or (2) a proximate cause of the
loss (other than that in the bowthruster room itself)
was the negligence of contractors in failing to seal
the cable duct at each end of the duct keel tunnel,
which did not result from want of due diligence by
the owners or managers.
25. The underwriters case is that the loss was
not proximately caused by a peril of the sea. The loss
was all proximately caused by the crew negligence
in relation to the emergency fire pump. This does
not fall within the Inchmaree cover because the loss
and damage resulted from want of due diligence by
the owners or managers in:
(1) failing to promulgate appropriate cold
weather procedures; and/or
(2) failing to have a proper and effective
system for the testing and maintenance of the
bilge alarms; and/or
(3) failing to inspect and maintain the forward
and aft bulkheads in the duct keel at frames 112
and 24 respectively; and/or
(4) failing to have a proper and effective
system for the maintenance of the bilge and
ballast pumping system.
26. Arguments (2), (3), and (4) raise issues as
to the true construction of the Inchmaree clauses,
because they seek to apply the want of due
diligence proviso (a) to causes of loss and damage

[2013]
[QBD (Comm Ct)]

which may not be proximate causes and/or (b) to

causes of loss and damage other than the named
peril which constitutes the insured peril upon
which the assured relies as affording cover under
the clause.
27. Alternatively, the underwriters contend that
if the loss was caused by an insured peril, they
have a defence under section 39(5) of the Marine
Insurance Act 1906 because the loss was caused
by the unseaworthiness of the vessel to which the
owners were privy. The relevant unseaworthiness
to which this allegation applies is the deficient
condition of the engine room pumping system.
28. In the further alternative, the underwriters
contend that if the claim were otherwise valid,
the claim is forfeit because the owners employed
fraudulent devices in support of the claim when
presenting it to underwriters in 2010 and 2011.
29. I find it convenient to address the issues in
the following order:
(1) Was there a loss from perils of the seas
(ITC clause 6.1.1)?
(2) Did the crew negligence in failing to
drain down the emergency fire pump and close
its suction valve result from the want of due
diligence by the assured in failing to promulgate
appropriate cold weather procedures (ITC clause
6.2.3 and IAPC clauses 1.2 and 2)?
(3) (a) Was the loss proximately caused by
the negligence of persons other than the owners
or managers in failing to seal the cable glands at
each end of the duct keel tunnel; and (b) if so, did
the deficient state of the bulkheads result from
the want of due diligence by the assured (IAPC
clauses 1.2 and 2)?
(4) How are the Inchmaree clauses to be
construed? In particular does the want of due
diligence proviso apply: (a) to causes of loss and
damage which are not proximate causes; and/
or (b) to causes of loss and damage other than
the named peril which constitutes the insured
peril upon which the assured relies as affording
cover?
(5) Did the loss result from want of due
diligence by the owners or managers in relation
to the bilge alarms?
(6) Was the loss caused by the unseaworthiness
of the vessel to which the owners were privy
(Marine Insurance Act, section 39(5))?
(7) Did the loss result from want of due
diligence by the owners or managers in relation
to the engine room pumping system?
(8) What is the correct quantum of the claim?
(9) Have the owners forfeited the claim
by reason of fraudulent devices employed in
supporting it?

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

Issue 1: was there a loss by perils of the seas?

30. Subject to particular defences, a marine
insurer is liable for any loss proximately caused
by an insured peril, even though the loss would
not have happened but for the misconduct or
negligence of the master or crew (Marine Insurance
Act 1906, sections 55(1) and 55(2)(a)). In general
terms, therefore, whether or not a loss is covered
by a marine policy depends on ascertaining its
proximate cause (Global Process Systems Inc v
Syarikat Takaful Malaysia Berhad (The Cendor
MOPU) [2011] 1 Lloyds Rep 560; [2011] Lloyds
Rep IR 302 at paras 17 to 18). In the Victorian
era, the proximate cause in marine insurance was
readily associated with the last cause in point of
time; but the modern focus is on the real efficient
cause. The proximate cause is that which is
proximate in efficiency, a question which must be
answered applying the common sense of a business
or seafaring man (T M Noten BV v Harding [1990]
2 Lloyds Rep 283, pages 286 and 287; The Cendor
MOPU at paras 19, 29, 49 and 79). A loss may have
more than one proximate cause. If an insured peril
is one of the proximate causes, the insurer is liable
under a marine policy, notwithstanding that there is
another proximate cause which does not constitute
an insured peril, unless that other proximate cause
is specifically excepted (Wayne Tank and Pump Co
Ltd v Employers Liability Assurance Corporation
Ltd [1973] 2 Lloyds Rep 237; [1974] QB 57; J J
Lloyd Instruments Ltd v Northern Star Insurance
Co Ltd (The Miss Jay Jay) [1987] 1 Lloyds Rep
32; The Cendor MOPU at paras 22, 77, 88 and 96).
31. There are two elements to what constitutes
a peril of the seas. First, it must be a peril, that is
to say it must be a fortuity, not something which is
bound to happen: The purpose of the policy is to
secure an indemnity against accidents which may
happen, not against events which must happen,
per Lord Herschell in Thomas Wilson, Sons &
Co v Owners of the Cargo per The Xantho (The
Xantho) (1887) 12 App Cas 503 at page 509. This
is reflected in rule 7 of the Rules for Construction
Schedule to the Marine Insurance Act 1906 which
provides: The term perils of the seas refers only
to fortuitous accidents or casualties of the seas. It
does not include the ordinary actions of the winds
and waves.
32. A fortuity is perhaps most easily defined by
its antithesis. As it was put in the judgment of the
Supreme Court of Canada in CCR Fishing Ltd v
Tomenson Inc (The La Pointe) [1991] 1 Lloyds Rep
89, page 91 col 2: In general the word fortuitous,
as interpreted by the cases, carries the connotation
that the cause of the loss should not have been
intentional or inevitable. It excludes intentional
ingress, as where the ship is scuttled: P Samuel &

593
[POPPLEWELL J

Co Ltd v Dumas (1924) 18 Ll L Rep 211; [1924]

AC 431; and it excludes cases where the casualty
is inevitable, as where there is a rotten hulk or
debilitated vessel: E D Sassoon & Co v Western
Assurance Co [1912] AC 561.
33. I shall have to return to the concepts of
fortuity and debilitated vessels in due course. It is
important to note for present purposes, however, that
the definition in the 1906 Act of perils of the seas as
excluding the ordinary action of wind and waves
is one that draws attention to the question whether
the wind and waves have some extraordinary effect,
rather than whether they were extraordinary in
themselves (The Cendor MOPU at paras 39 and 80;
The Miss Jay Jay, per Mustill J [1985] 1 Lloyds Rep
264 at page 271). Accordingly the passage of water
through a hole in the vessel will be a peril of the
seas if the occasion for the water to enter the vessel
is a fortuitous external accident, notwithstanding
that water would enter the vessel through the hole in
any state of wind, sea or weather: Seashore Marine
SA v Phoenix Assurance plc (The Vergina) (No 2)
[2001] 2 Lloyds Rep 698 at paras 95, 96 and 100.
The fortuity may lie in what causes the hole, or
what causes the seawater to reach or enter the hole,
or a combination of both. If there is such a fortuity,
the entry of the seawater is not the ordinary action
of the wind and waves because the sea has had an
extraordinary effect on the vessel.
34. Secondly, the peril which gives rise to the
marine casualty must be of the seas. It is not
sufficient for this purpose merely that it happens
on board a vessel (Stott (Baltic) Steamers Ltd v
Martin (The Ussa) [1916] AC 304, page 311). If it
might as well have happened on the land as on sea it
would not qualify as a peril of the seas: see Thames
and Mersey Marine Insurance Co Ltd v Hamilton,
Fraser & Co (The Inchmaree) (1887) 12 App Cas
484, from which it is clear that it is not sufficient to
make the peril of the seas merely that it happens
whilst preparing for a voyage, or whilst the vessel is
at sea, or even that it involves seawater. In that case,
Lord Bramwell suggested that perils of the seas
encompassed all perils, losses and misfortunes of
a marine character, or of a character incident to a
ship as such (page 492). Lord Herschell identified
the concept as perils to which a marine adventure is
exclusively subject, or which are special or peculiar
to the marine nature of the adventure (page 498).
Lord McNaghten referred to the concept as confined
to loss ex marinae tempestatis discrimine (page
501) and spoke also of sea damage (page 502).
In The Ussa Lord Atkinson used the expression
damage of a character to which a marine adventure
is subject.
35. The mere fact of ingress of seawater into
a vessel is not itself a peril of the seas: P Samuel
& Co Ltd v Dumas [1924] AC 431, pages 446 and

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455; Wadsworth Lighterage & Coaling Co Ltd v

Sea Insurance Co Ltd (1929) 34 Ll L Rep 285,
page 287. Where, therefore, a loss arises by reason
of ingress of seawater through the vessels hull, the
search for the proximate cause involves an inquiry
into that which occasioned the entry of the seawater.
36. Provided the immediate cause of the ingress
is fortuitous, then prima facie the loss will be by
perils of the sea. This is none the less so if the
cause of the ingress is crew negligence: Davidson
v Burnand (1868) LR 4 CP 117; Hamilton, Fraser
& Co v Pandorf & Co (1887) 12 App Cas 518, page
522; The Stranna [1938] P 69, page 82; Canada
Rice Mills Ltd v Union Marine and General
Insurance Co Ltd (1940) 67 Ll L Rep 549; [1941]
AC 55. In George Cohen, Sons & Co v National
Benefit Assurance Co Ltd (1924) 18 Ll L Rep 199,
Bailhache J was concerned with a policy covering a
U-boat during the period when it was being broken
up. The vessel sank as a result of the negligence of
those carrying out repairs whilst dismantling pipes,
by which they caused a breach of the skin of the
vessel. In holding that the loss was by perils of the
seas, Bailhache J said (at page 202 col 1):
In my view, the unintentional admission of
seawater into a ship, whereby the ship sinks,
is a peril of the sea. There is no warranty in
this policy against negligence; there is no
exception of negligence; and the fact that the
unintentional admission of water into the ship is
due to negligence is, in my opinion, totally and
absolutely immaterial. There is a peril of the sea
whenever a ship is afloat in the sea and water
from the sea is unintentionally admitted into her
which causes a loss, either to the cargo or to the
ship.
The principle may be too widely stated, in that
it excludes only intentional admission of seawater,
and fails to take account of cases of inevitable
admission of seawater due to debility of the vessel.
But the decision and the statement of principle
accurately reflect the law that an ingress of seawater
caused by crew negligence is a fortuitous accident
which normally constitutes a peril of the seas.
37. It is equally so if the prior cause of ingress
of seawater is the unseaworthiness of the vessel,
unless the unseaworthiness is a debility of a kind
which prevents the ingress being fortuitous because
it is inevitable in any sea conditions: The Miss Jay
Jay per Mustill J at pages 271 and 272, and in the
Court of Appeal at pages 37 and 39. As Mustill J
put it at page 271 col 2, in a passage endorsed by
Lord Mance in The Cendor MOPU at para 75:
Nevertheless, it is clearly established
that a chain of causation running (i) initial
unseaworthiness; (ii) adverse weather; (iii) loss
of watertight integrity of the vessel; (iv) damage
to the subject-matter insured is treated as a loss

[2013]
[QBD (Comm Ct)]

by perils of the seas, not by unseaworthiness:

see, for example, Dudgeon v Pembroke (1874) 9
QB 581, per Mr Justice Blackburn at p 595, and
(1877) 2 App Cas 284, per Lord Penzance at
p 296, and Frangos v Sun Insurance Office
(1934) 49 Ll L Rep 354, at p 359.
38. It is therefore no bar to the fortuitous
ingress constituting a peril of the seas that the crew
negligence which has given rise to it renders the
vessel unseaworthy. Such was the case in Davidson
v Burnand, in which the crew at the loading port
were negligent in leaving a cock open in the main
discharge pipe in the engine room prior to loading,
which allowed ingress of water once the loading
of the vessel brought the pipe below the water
level. Indeed many cases in which a vessel suffers
a loss from ingress on the voyage will involve
some defect in the plating or machinery which
arose by negligence of someone but has remained
undetected. The incursion of seawater through
an undetected defect in the ships basic plating is
a classic case of damage by perils of the sea (The
Hellenic Dolphin [1978] 2 Lloyds Rep 336, page
339 col 1 (per Lloyd J)).
39. So Lord Wright, in delivering the advice of
the Privy Council in Canada Rice Mills Lid v Union
Marine and General Insurance Co Ltd [1941] AC
55, summarised the position in the following terms
at pages 67 and 68:
Where there is an accidental incursion of
seawater into a Vessel at a part of the Vessel and
in a manner where seawater is not expected to
enter in the ordinary course of things and there
is consequent damage to the thing insured there
is prima facie a peril of the seas. The accident
may consist of some negligent act, such as
improper opening of a valve, or a hole made in
a pipe by mischance, or it may be that seawater
is admitted by stress of weather or some like
cause bringing the sea over openings ordinarily
not exposed to the sea, or even without stress
of weather, by the Vessel heeling over owing
to some accident or the breaking of hatches
or other coverings. These are merely a few
among many possible instances in which there
may be a fortuitous incursion of seawater. It
is the fortuitous entry of the seawater which
is the peril of the sea in such cases . . . There
are many deck openings in a Vessel through
which seawater is not expected or intended to
enter and, if it enters, only enters by accident
or casualty. The cowl ventilators are such
openings. If they were not closed at the proper
time to prevent seawater coming into the hold,
and seawater does accidentally come in and
do damage, that is just as much an accident
of navigation (even though due to negligence,
which is immaterial in a contract of insurance)

[2013]
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INSURANCE AND REINSURANCE

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as the improper opening of a valve or other sea

connection.
40. Applying these principles to the current case,
the casualty was a loss proximately caused by a peril
of the seas, namely the fortuitous entry of seawater
during the voyage. A proximate cause of the loss
and damage was the ingress of seawater, and the
ingress was fortuitous, having been caused by crew
negligence at the loading port. The case falls within
the examples of perils of the seas given by Lord
Wright in Canada Rice Mills: The accident may
consist of some negligent act, such as improper
opening of a valve, or a hole made in a pipe by
mischance. There was in this case an improper
failure to close a valve, which is no different in kind
from an improper opening of a valve. There were
two holes made by mischance in the pump casing
and filter of a pumping system, which is analogous
to a hole made in a pipe. The cause of the accident
is no different in kind from one in which damage
occurs by water coming in through an opening
which has negligently been left open such as a cowl
ventilator (Canada Rice Mills) or porthole (The
Stranna, page 75; Hamilton, Fraser & Co v Pandorf
& Co, page 525), or a failure properly to make the
hatch covers watertight on completion of loading.
41. Mr Jacobs QCs argument on behalf of the
underwriters that the loss was not proximately
caused by perils of the sea has four strands. First it is
said that the proximate cause of this loss was not the
ingress of seawater but the antecedent negligence of
the crew, which rendered the vessel unseaworthy.
42. I can not accept this argument. Where there
is a fortuitous ingress of seawater, it is often the
ingress itself, rather than that which renders it
fortuitous, which is to be regarded as the proximate
cause of the loss, or at least a proximate cause of the
loss. As Lord Wright said in Canada Rice Mills in
the passage quoted above: It is the fortuitous entry
of the seawater which is the peril of the sea in such
cases . . . This is well illustrated by the decision
of the House of Lords in Hamilton, Fraser & Co v
Pandorf & Co. In that case the casualty was caused
by ingress of seawater due to rats on board a vessel
gnawing through a lead pipe. The issue was whether
the loss came within a charterparty exception which
excluded liability for loss caused by dangers and
accidents of the seas. The House of Lords treated
the question as the same as that which would arise
under a time policy insuring losses by perils of
the seas. It held that the gnawing of the pipe by
vermin was not itself an accident of the seas (see
for example Lord Bramwell at page 527, and Lord
Herschell at page 529). Nevertheless the loss was
caused by accidents of the seas: the proximate cause
of the loss was the fortuitous entry of seawater. The
remoter cause of that fortuitous entry, namely the
gnawing of the pipe, did not impact on whether the

595
[POPPLEWELL J

loss was by an accident of the seas. Lord Watson

said at page 525:
If the respondents were preferring a claim
under a contract of marine insurance, expressed
in ordinary terms, I should be clearly of opinion
that they were entitled to recover, on the ground
that their loss was occasioned by peril of the
sea within the meaning of the contract. When a
cargo of rice is directly injured by . . . crew of
the vessel, the sea has no share in producing the
damage, which in that case, is wholly due to a
risk not peculiar to the sea, but incidental to the
keeping of that class of goods, whether on shore
or onboard of a voyaging ship. But in the case
where . . . one of the crew leaves a port-hole
open, through which the sea enters and injures
the cargo, the sea is the immediate cause of the
mischief, and it would afford no answer to the
claim of the insured to say that, . . . had careful
hands been employed, the sea would not have
been admitted and there would have been no
consequent damage.
43. This is the effect of the decisions in
Davidson v Burnand, and in George Cohen, Sons
& Co v National Benefit Assurance Co Ltd, in
which the ingress was the result of crew negligence
which was not itself an insured peril. So too in The
Vergina (No 2), the sequence of causation was: (i)
negligence of the crew in leaving open a scupper
valve; (ii) listing of the vessel as a result of crew
negligence in ballasting; (iii) entry of seawater
through the open scupper valve. Aikens J held that
the loss would have been proximately caused by the
ingress of seawater as a peril of the seas (see paras
100 and 107(3)).
44. This conclusion follows not from some
immutable principle of law, but simply by
application of the legal test of proximate cause to
the facts of each case. In such cases a business or
seafaring man would normally regard the fortuitous
entry of seawater as being a real efficient cause of
the loss. It is the action of the sea on the vessels
hull and machinery which is an effective cause of
the loss, irrespective of that which rendered such
ingress fortuitous. That is so in the present case.
45. The second strand to the underwriters
argument is that the crew negligence which caused
the ingress was not a peril of the seas, being
one which could as easily have happened on land.
This is to introduce an irrelevant consideration. It
is not necessary to establish that the fortuity which
gives rise to the ingress of seawater is itself of the
seas, or indeed an insured peril in itself. The peril
is not the fortuity which gives rise to the ingress,
it is the fortuitous ingress itself. Accordingly the
fortuity which gives rise to the ingress need not
independently be of the seas. The causative
fortuity and the ingress of seawater are both part

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of the accident or casualty and must be looked at

together. It is the accident or casualty, embracing
both these elements, which is required to be of
the seas. A fortuitous cause of ingress, which
is not of the seas in itself, which might as well
have happened on land as at sea, but which causes
a breach of the watertight integrity of the hull,
allowing ingress of seawater, can nevertheless give
rise to a loss caused by perils of the seas.
46. Again this is well illustrated by Hamilton,
Fraser & Co v Pandorf & Co, in which the ingress
of seawater was the result of the gnawing of the pipe
by vermin, which was not itself a peril of the seas
(or other excepted peril under the charterparty).
The ingress of seawater was nevertheless held to
be dangers and accidents of the seas, which was
equated with perils of the seas.
47. This principle was articulated by
McLachlin J in giving the judgment of the Supreme
Court of Canada in The La Pointe at page 91 when
considering an argument that the corrosion of cap
screws, which together with a failure to close a
valve had allowed ingress of water into the engine
room of a vessel, was not a peril of the sea.
She said:
In the case at bar the loss resulted from the
sinking of the ship due the ingress of sea-water.
This loss would not have occurred on land. The
requirement that the accident be of the sea is
therefore met. The respondents argue that the
cause of the loss was the corrosion and that
this could have occurred anywhere, including
on land. But the test is not whether the defect
which started the causal chain which led to the
loss is one that could occur exclusively at sea, but
rather whether the accident itself in this case
the sinking of the ship is one which could only
occur at sea. Many sinkings result from causes
which could occur on land . . .
48. Mr Jacobs QC relied on a passage in
Colinvauxs Law of Insurance, 9th Edition, 1st Supp
(2012) at para 24-132F, which on one reading might
be taken as suggesting that the view that the ingress
of water need only be caused by a fortuitous peril,
rather than a fortuitous sea peril, has been robustly
rejected in England. The cases cited in support
generally go no further than confirming that a mere
ingress of seawater is not of itself a peril of the sea
and that it must be fortuitous. The only English
case cited in the text upon which Mr Jacobs QC
relied was the decision of Aikens J in Brownsville
Holdings Ltd v Adamjee Insurance Co Ltd (The
Milasan) [2000] 2 Lloyds Rep 458. In that case
the claim failed because the ingress of seawater into
the yacht in calm water and during good weather
was held to be the result of the deliberate scuttling
of the vessel. The assured claimed that the loss was
proximately caused by the accidental incursion

[2013]
[QBD (Comm Ct)]

of seawater into the engine room, and thence into

the aft accommodation. By the end of the hearing,
the assured advanced no positive case as to why
water entered the engine room other than a general
allegation that it was due to a fortuity (see para 5)
and focused its case on the passage of water from
there into the aft accommodation as the proximate
cause of the loss. At para 15 Aikens J rejected the
assureds contention that the policy was akin to an
all risks policy which relieved the assured of the
need to identify which particular peril operated to
cause the loss. At para 16 he said:
This conclusion creates an immediate
difficulty for the claimants, because they have
not pleaded any specific facts that they say
were both the reason for the initial incursion
of water into the engineroom and which would
also amount to one of the insured perils, as
they acknowledged in par 1 of their closing
submissions. They are therefore forced to resort
to two arguments. The first is that the vessel
was seaworthy at the time of her loss and the
incursion of seawater into the engine room is
unexplained, so therefore there is a rebuttable
presumption that the cause of the incursion of
seawater is perils of the sea. This argument
necessarily presumes that the initial incursion
was the proximate cause of the loss. The second
argument (and I think their principal one) takes
the opposite line. It is that the initial incursion
of seawater into the engine room was not the
proximate cause of the loss of the vessel; the
proximate cause was the incursion of the water
into the aft accommodation and the cause of that
is both pleaded and, they say, proved.
49. Aikens J was there saying that if the
proximate cause of the loss were the incursion into
the engine room, the owners could not establish
that that was a peril of the seas merely by asserting
that it was fortuitous without pleading and proving
specific facts which would make such an incursion
fortuitous, and therefore an insured peril, namely
perils of the seas. He was not saying that if the
owners had established particular facts which
rendered the ingress a fortuity, they would have had
to have shown the fortuity itself to have been an
insured peril. That was not a live issue before him.
He was merely explaining how it had come about
that if the ingress into the engine room were the
sole proximate cause of the loss, since the owners
did not attempt to explain the cause of the ingress
into the engine room by any particular theory, they
could only establish their claim of loss proximately
caused by an insured peril by reliance on the
principle that there is a rebuttable presumption of
a loss by perils of the sea where a seaworthy ship
is lost in unexplained circumstances (Anderson v
Morice (1875) LR 10 CP 58; Lamb Head Shipping

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

Co Ltd v Jennings (The Marel) [1994] 1 Lloyds

Rep 624 at page 629 col 2).
50. In the casualty with which I am concerned,
the fortuitous ingress of seawater was a relevant
proximate cause of the loss and there can be little
doubt that that was an accident which was peculiar
to the maritime nature of the adventure. Whether
the crew negligence which started the chain of
causation was of the seas is not a relevant inquiry.
51. If I were wrong in this conclusion, and the
crew negligence would need to qualify as of the
seas, I would hold that it has that character.
The crew were carrying out a peculiarly maritime
operation in using the emergency fire hose system
to de-ice the hatches and deck in preparation for
cargo operations. The procedure which ought
to have been followed, namely draining the
emergency fire pump system, and closing the sea
suction valve, was part and parcel of the wider
operation of using the fire hose system for cargo
operations. The crews negligence in these respects
was a peculiarly maritime failing which could not
have occurred on land.
52. The underwriters contend that a failure to
drain a pump and piping system to avoid freezing
damage might as easily happen on land as at sea, for
example in the water pipes of a domestic dwelling.
But the equipment in question, connected to the sea
by a sea suction valve, is a peculiarly maritime piece
of equipment which has no relevant comparator on
land. Moreover, although the causative negligence
included a failure to drain a system of water in
circumstances where it might freeze, resulting in
fracture or bursting, the negligence was not confined
to that failure. A critical element was the negligence
in leaving open the sea valve. Had it been closed,
the only damage would have been to the fire pump
casing and the strainer lid. The quantity of water
ingress would have been confined to that in the
system, which would have been minimal. The
negligence in leaving open the sea valve was a
failing or accident which is properly described as
exclusively or peculiarly maritime in character. It
could not have happened on land.
53. This case differs materially from The
Inchmaree which involved a donkey engine of a
kind which might as easily be used on land as in a
vessel, and which was being used in the same way
as would have occurred on land. In The Inchmaree,
all activity and damage was internal to the vessel
itself, so that the theatre within which the accident
was played out could realistically be compared
with a theatre on land. No such comparison can be
made in this case; here there was a breach in the
watertight integrity of the hull as a result of the open
sea valve and damage to the pump and filter. The
negligence was in operating a system which is of a
peculiarly maritime nature.

597
[POPPLEWELL J

54. The third strand of Mr Jacobs QCs argument

was that it is always open to an underwriter under
a time policy to show that the loss and damage
was caused by an uninsured peril, in this case
unseaworthiness at the commencement of the
voyage. In my view this argument falls into two
errors. It treats unseaworthiness as the proximate
cause of the loss in all cases in which it leads to
ingress; yet in such cases it is often the fortuitous
ingress which is the relevant peril, as I find it to
be in this case. As Mustill J said in the Miss Jay
Jay at page 271 col 2, in the passage quoted above,
it is clearly established that a chain of causation
running (i) initial unseaworthiness; (ii) adverse
weather; (iii) loss of watertight integrity of the
vessel; (iv) damage to the subject-matter insured
is treated as a loss by perils of the seas, not by
unseaworthiness. The Court of Appeal in that case
([1987] 1 Lloyds Rep 32, pages 37 and 41) upheld
the finding that the ingress was a proximate cause,
whilst recognising that in that case unseaworthiness
was also a proximate cause and admitting of the
possibility that in some cases unseaworthiness
might be the sole proximate cause. It has long been
established that a vessels unfitness to encounter
foreseeable weather conditions does not prevent
the loss being regarded as one by perils of the seas
and will not normally do so: Dudgeon v Pembroke
(1877) 2 App Cas 284, pages 295 and 296; Mountain
v Whittle [1921] AC 615; and The Cendor MOPU at
paras 67, 68, 72 and 77.
55. The second error is to treat ingress caused
by unseaworthiness as uninsured under a time
policy. This is to ignore the fundamental distinction
between a voyage and a time policy so far as
concerns the fitness of the vessel (The Cendor
MOPU at para 40). As Mustill J put it in The Miss
Jay Jay at page 270 col 2:
Under a voyage policy, the assured warrants
that the vessel will be seaworthy at the
commencement of the voyage. If the warranty
is broken, any claim in respect of a casualty
occurring during the voyage will inevitably fail,
without the need for any complex analysis of the
nature of a peril of the seas, or of the doctrine
of causation. Under a time policy, by contrast,
there is no such warranty, either at the inception
of the risk or on sailing. It has been established
for more than 100 years that unseaworthiness
defeats a claim under a time policy only if the
assured knew of it at the time when he sent the
vessel to sea: Fawcus v Sarsfield (1856) 6 E & B
192; Thompson v Hopper (1858) E B & E 1038;
section 39(5) Marine Insurance Act 1906.
56. Some, but not all, kinds of unseaworthiness
are capable of defeating a time policy. These are
where there is a debility or inherent weakness in the
vessel which has come about without any external

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fortuity. In those cases, of which the rotting wooden

hulk in Sassoon v Western Assurance is the classic
example, there is no peril of the seas because the loss
is dissociated from the action of wind and water; the
casualty is simply the result of wear and tear. See
also Grant, Smith & Co v Seattle Construction and
Dry Dock Co [1920] AC 162 per Lord Buckmaster
at pages 171 and 172.
57. I detect two themes in the authorities which
distinguish debility, which defeats a claim under
a time policy, from other unseaworthiness, which
does not. The first is that debility is to be associated
with normal wear and tear, whether caused by the
sea or otherwise. The second is that debility is to
be associated with cases where there has been no
more than the ordinary action of wind and waves,
as contrasted with some external fortuitous event
which has allowed entry of seawater. Thus debility
is sometimes paraphrased as inherent weakness,
the distinction being between a deficiency which is
inherent and that which arises from some external
event: see Merchants Trading Co v Universal
Marine Insurance Co (The Golden Fleece), (1870)
2 Asp MLC 431, page 432; The Cendor MOPU at
paras 39, 80 and 81. The case law is summarised
and explained by Mustill J in The Miss Jay Jay at
page 272 col 1:
Third, as to debility. Where a ship sinks
through its own inherent weakness, there is
no loss recoverable under the ordinary form
of policy. It is not enough for this purpose that
the vessel is unseaworthy. The loss must be
disassociated from any peril of wind or water,
even if these form the immediate context of the
loss, and constitute the immediate agency (for
example, the percolation of water through an
existing flaw in the hull) by which the loss takes
place. As Lord Buckmaster said in Grant, Smith
v Seattle Construction, sup, the policy is not a
guarantee that a ship will float. See also Fawcus
v Sarsfield, (1856) 6 E & B 192, in relation to
the first loss; Merchants Trading Co v Universal
Marine Insurance Co (1870) 2 Asp MLC 431,
the direction of Mr Justice Lush approved
by the Court of Common Pleas; Ballantyne v
MacKinnon [1896] 2 QB 455; Sassoon v Western
Assurance Co [1912] AC 561.
Finally, as to the requirement that a loss by
perils of the seas shall be fortuitous. There
may be philosophical problems here, possibly
compounded by the placing of more weight than
it was intended to bear on the apophthegm of
Lord Herschell in Wilson, Sons & Co v Owners
of Cargo per the Xantho ((1887) 12 App Cas
503 at p 509) that:
. . . the purpose of the policy is to secure
an indemnity against accidents which may
happen, not against events which must happen.

[2013]
[QBD (Comm Ct)]

There can be few losses of which it can be

said that they must happen, in the sense that
this accident is bound to happen in this way at
this time. Indeed, in some of the leading cases
it could hardly have been predicted that the loss
was bound to happen at all, whilst the policy
was on risk. It is, however, unnecessary to enter
into this problem. When the vessel succumbs
to debility, the claim fails, not because the loss
is quite unattended by fortuity, but because it
cannot be ascribed to the fortuitous action of the
wind and waves. A decrepit ship might sink in
perfect weather tomorrow, or it might not sink for
six months. To this extent a loss tomorrow is not
inevitable. But if the ship does sink, there is no
external fortuitous event which brings it about. In
respect of such losses, the ordinary marine policy
does not provide a remedy.
58. Mr Jacobs QC relied on a passage in the
speech of Viscount Finlay in Samuel v Dumas
[1924] AC 431 at page 455:
The view that the proximate cause of the loss
when the Vessel has been scuttled is the inrush of
the sea water, and that this is a peril of the sea,
is inconsistent with the well-established rule that
it is always open to the underwriter on a time
policy to show that the loss arose not from perils
of the seas but from the unseaworthy condition in
which the Vessel sailed: see Arnould on Marine
Insurance, 799. When the Vessel is unseaworthy
and the water consequently gets into the Vessel
and sinks her, it would never be said that the
loss was due to the perils of the sea. It is true
that the Vessel sank in consequence of the inrush
of water, but this inrush was due simply to the
unseaworthiness. The unseaworthiness was the
proximate cause of the loss. Exactly the same
reasoning applies to the case of scuttling; the
hole is there made in order to let in the water.
The water comes in and the Vessel sinks. The
proximate cause of the loss is the scuttling, as in
the other case the unseaworthiness. The entrance
of the water cannot be divorced from the act
which occasioned it.
59. I read the reference to the well-established
rule that it is always open to the underwriter
on a time policy to show that the loss arose not
from perils of the seas but from the unseaworthy
condition in which the Vessel sailed as referring
only to unseaworthiness in the sense of a debility
in the vessel. The passage to that effect in the
then current edition of Arnould (10th Edition)
supports the proposition by a footnote reference
to the debility cases identified in the passage from
Mustill Js judgment in The Miss Jay Jay which I
have quoted above. Samuel v Dumas was a case of
intentional ingress of seawater, and Viscount Finlay
was drawing an analogy with an inevitable ingress of

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

seawater as a result of debilitative unseaworthiness.

In each case there is no entry of seawater attended
by some external fortuitous cause, so that the ingress
cannot be a peril of the seas as the proximate cause
of the loss. Lord Sumner was using the expression
unseaworthiness in the same sense when he said at
page 468:
. . . So it is in cases on time policies, where
the loss is directly caused by unseaworthiness,
for then it is plain that the loss was a certainty,
whatever the state of the weather or the sea,
and, as has been often said, perils of the sea
refer to things that may happen, not to things
which must happen in the ordinary course of
navigation . . .
60. The fourth strand to Mr Jacobs QCs argument
is that the ingress was not a fortuity because the
damage to the fire pump housing and filter lid had
already occurred before the vessel left Klaipeda; the
ingress was therefore bound to occur once the ice
melted, which was inevitable, and the ingress was
bound to occur during the voyage even in the most
benign conditions. At the time of commencement
of the voyage the ingress of water was an inevitable
certainty. He argues that the so-called debility
cases are not confined to vessels which have been
rendered generally disabled but apply in principle
to inevitable loss and damage caused by particular
pre-sailing unseaworthiness.
61. Attractively though this point was put, I
cannot accept it. I have already explained that the
debility cases are cases where the loss arises from
the inherent weakness of the vessel due to wear
and tear. They are cases where the defect in the
vessels hull does not arise from some external
fortuitous event. By contrast, the ingress to the
vessels bowthruster room did not arise from wear
and tear, or any weakness which was inherent, but
from an external fortuitous accident, namely the
crews negligence in relation to the emergency fire
pumping system. It is a false analogy, therefore,
to treat the lack of watertightness of the vessel at
Klaipeda after the crew negligence as a particular
instance of the kind of debilitative unseaworthiness
which renders a casualty other than fortuitous.
62. It is true that there came a point of time at
which the future ingress became a certainty, namely
once water had frozen and damaged the fire pump
housing and filter cap. But that does not prevent
the casualty having been proximately caused by a
fortuity. It is clear from the authorities that there
may be a loss by perils of the seas under a time
policy notwithstanding that the crew negligence
which has given rise to the entry of seawater has
rendered the vessel unseaworthy at some moment
prior to the ingress, and that the entry of seawater
thereafter is inevitable. That was the case at the
loading port in Davidson v Burnand. That would be

599
[POPPLEWELL J

the case in the examples given in The Stranna and

Canada Rice Mills of an open cowl or porthole. As
a matter of principle I see no reason why it should
matter that the relevant moment occurred before
the vessel left Klaipeda. This is a time policy not
a voyage policy, and the point of time at which the
ingress of water became a certainty was after the
commencement of the period of cover. In general,
the point of time by reference to which any peril
under a policy of insurance must be uncertain is the
commencement of the policy: an insurer insures
risks which may happen during the policy period,
not risks which must happen during that period.
63. There is, in my judgment, no logical reason
for focusing on the commencement of the voyage
in this context. Indeed there may be difficulties in
identifying what is meant by the commencement
of the voyage. Mr Jacobs QC asserted that what it
meant in this case was on sailing from Klaipeda.
But the policy responds to losses by perils of
the sea in port: if the weather had warmed up in
Klaipeda and the ingress of water occurred there,
that would surely have been an ingress constituting
a peril of the seas, as much as the loss in Davidson v
Burnand. A time policy provides continuous cover
on and between voyages, and indeed when the
vessel might not be said to be on a voyage at all,
such as when undergoing repairs or maintenance.
If, contrary to my view, it were necessary to seek to
identify the moment of commencement of a voyage,
which would have to be a concept which included
periods in port, why should not the voyage in this
case be regarded as commencing at least as early
as when preparations for cargo operations were
being made? One could multiply examples which
would lead to surprising distinctions if there were
a critical moment of commencement of the voyage
in time policies.
64. In this context, Mr Jacobs QC placed
particular reliance on Ballantyne v Mackinnon
[1896] 2 QB 455. In that case the vessel was insured
under a time policy against perils of the seas. The
crew failed to load sufficient coal for a voyage from
Hamburg to Sunderland. As a result, the vessel
ran out of coal before it reached Sunderland. She
was proceeding under reduced steam and sail, and
was not in any danger, but she sought a tow into
Sunderland and claimed the cost as salvage under the
hull insurance. The action was tried by Lord Russell
of Killowen CJ, who found for the underwriters.
The claim failed before him, and in the Court of the
Appeal, on the simple ground that the ship had not
faced any peril of the seas. She suffered no casualty
or danger and could have continued her voyage
into Sunderland under sail without any danger.
The passage relied on by Mr Jacobs QC is in the
judgment of A L Smith LJ giving the judgment of
the Court of Appeal at page 461:

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. . . the loss sustained was not occasioned by

a peril of the sea, for in our judgment the loss
complained of arose solely by reason of the
inherent vice of the subject-matter insured: we
mean the insufficiency of coal with which the
ship started upon her voyage, the consequence of
which was that what in fact did happen must have
happened, namely that the ship ran short of coal,
no sea peril bringing this about in any shape or
way, or placing the ship in a position of danger
thereby.
A L Smith LJ was not, however, referring to a loss
or casualty which was bound to happen as a result
of the condition of the vessel at the commencement
of the voyage. He was merely referring to the fact
that running out of coal was a certainty and was not
itself a peril of the seas, nor did it occasion a peril
of the seas. The decision of the Lord Chief Justice,
upheld on appeal, was simply that there had been
no sea peril which had afflicted the vessel; there
was no weather or sea which endangered her, there
was no accident or casualty, and no incursion of
water into the ship; she could have completed the
voyage under sail with no reasonable apprehension
of danger (see page 460).
65. In support of this argument Mr Jacobs QC
referred to passages in Arnoulds Law of Marine
Insurance (18th Edition) at paras 22-31 and 23-16;
in Marine Insurance: Law and Practice at para
14.24; and in The Vergina at para 100. But none
of these was addressing the point currently under
consideration. He relied also on the passage in
the speech of Viscount Finlay in Samuel v Dumas
at page 455: it is always open to the underwriter
on a time policy to show that the loss arose not
from perils of the seas but from the unseaworthy
condition in which the vessel sailed (Mr Jacobs
QCs emphasis). But that was a reference to cases
of debility, properly so called. In those cases, the
time when the vessel sets out from port on the
voyage during which the casualty occurs is an
obvious and appropriate point of time at which to
consider the condition of the vessel for the purposes
of determining whether the casualty is due to her
inherent weakness or an external fortuitous event.
In Samuel v Dumas no issue arose as to whether the
moment of the sailing of the vessel was the relevant
point of time as to when fortuity arose in cases where
there was an external fortuitous cause, nor whether
it would have been sufficient if the occurrence was
a fortuity by reference to an earlier point of time.
66. Mr Jacobs QC also relied on the rebuttable
presumption that a vessel is lost by perils of the
seas if the owners can show that she commenced
the voyage in a seaworthy condition and the loss
is unexplained. This principle, going back to
Anderson v Morice was recently expressed in these
terms by Dillon LJ in The Marel at page 629 col 2:

[2013]
[QBD (Comm Ct)]

If it is known that a ship was seaworthy when

she set out, and she has never been seen since and
nothing has been heard of her crew, then on the
balance of probabilities she must have sunk and,
on the balance of probabilities, the sinking must
have been due to perils of the sea because she
was seaworthy when she set out.
But if it was not shown that the ship was
seaworthy when she left on her last voyage,
the presumption does not apply since it cannot
be held on the balance of probabilities that her
presumed sinking was due to perils of the sea
rather than to her unseaworthy condition.
67. This principle merely takes the time of
sailing as the presumed last moment at which the
condition of the vessel is ascertainable as a matter
of evidence. But if information were available as
to her condition at some subsequent intermediate
point on the voyage which bore on whether she
was seaworthy at the time of her unexplained
disappearance later in the course of the same
voyage, that intermediate time would be the
relevant moment by reference to which to address
the issue of seaworthiness for the purposes of the
rebuttable presumption. The reference to the time
of sailing is no more than an evidential reference,
not one addressed to the moment at which fortuity
falls to be judged.
68. I am concerned with a casualty in which the
chain of causation was: (i) an external fortuitous
event (crew negligence); (ii) unseaworthiness (but
not debility); (iii) the effect of the sea on the vessel
(which was not the ordinary action of wind and
waves: the wind and waves were not extraordinary
but their action on the vessel was); (iv) ingress of
seawater; (v) damage to the subject matter insured.
The casualty was a fortuity because the crew
negligence was fortuitous. The fortuitous ingress
of seawater was a peril of the seas, which was a
proximate cause of the loss and damage.
69. For these reasons I conclude that the loss
was caused by perils of the seas. This conclusion
renders issues 2 to 6 immaterial; but I will address
them in turn in case I be wrong in my conclusions
on issue 1.
Issue 2: did the crew negligence in failing to
drain down the emergency fire pump and close its
suction valve result from the want of due diligence
by the assured in failing to promulgate appropriate
cold weather procedures?
70. In the proviso to the Inchmaree clauses, a
want of due diligence is to be equated with a lack of
reasonable care. The test is whether the assured was
negligent in the relevant respect. The underwriters
bear the burden of proving the two requisite
elements, namely that the assured was negligent

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

and that such negligence was causative of the loss:

see Sealion Shipping Ltd v Valiant Insurance Co
(The Toisa Pisces) [2012] 1 Lloyds Rep 252.
Management
71. The owners bought the vessel in late 2006,
since when she has been managed by Rederij
Chr Kornet & Zonen BV (K&Z), a Dutch
family business which has a 25 per cent beneficial
ownership in the vessel, with offices in Werkendam,
Holland. At the time of the casualty the vessel was
one of eight vessels managed by K&Z, operating in
the northern European coastal trade. Four of them
were newbuildings delivered in 2008 and 2009. The
vessels were typically manned by five or six crew
members. They were in and out of port frequently
and the workload for the crew was high. Although
some maintenance was carried out by the crew, a
good deal of the work of inspection and maintenance
was carried out by subcontractors. This was
particularly true on the engineering side because
there was typically only one engineer on board. Most
maintenance on the main engines, and all electrical
work, was undertaken by outside contractors.
72. The four directors of K&Z at the time were
three brothers, Chris Kornet, Gertjan Kornet and
Dolf Kornet, together with their brother in law,
Kees Parel.
73. Chris Kornet, now aged 48, was the general
manager of the company from 2005 or 2006 and the
director responsible for administration and finance.
He had worked for the company for over 25 years,
for 14 of which he had sailed as a master, before
coming ashore in 2001. When he first came ashore
he acted as a superintendent, visiting the ships
about once every three months, until he became
general manager.
74. Gertjan Kornet was the director responsible
for the technical department. He was aged 29
at the date of the casualty. He holds a masters
certificate and sailed as captain from July 2003
until January 2007, when he came ashore to act as a
superintendent. He was one of two superintendents,
each of whom was responsible for half of the fleet
vessels. His responsibilities included reviewing the
monthly reports and paperwork from the vessels, and
visiting the ships when convenient, depending on
their trading pattern. His preference was to visit the
vessels whenever they came to a German or Dutch
port, which typically occurred once every month or
six weeks. He had last inspected the vessel on 12
January 2010, about a fortnight before the casualty.
75. Dolf Kornet was the director responsible for
crewing.
76. Kees Parel was the director responsible for
dealing with safety management issues. He was 41
at the time of the casualty and had served as a master

601
[POPPLEWELL J

for a total of 11 years, all on K&Z vessels. He came

ashore in 2006 to take over responsibility for safety
management. He was responsible for writing the
safety management system and procedures in force
at the time of the casualty. He visited the fleet about
three or four times a year to look at their safety
management systems and conducted an annual audit
resulting in a written report. DC Merwestone was
one of the vessels on which he had served, being
its first captain when bought by the new owners in
late 2006.
77. It was common ground in this case that the
relevant persons whose conduct and knowledge
was to be treated as that of the assured, owners or
managers included each of Chris Kornet, Gertjan
Kornet and Kees Parel.
Cold weather procedures and checklists
78. There is no applicable Classification Society
or statutory provision which contains a requirement
for an owner to have cold weather procedures.
Draining the system and closing the sea valve
in freezing conditions is a matter of basic good
seamanship which the engineer and senior deck
officers would be expected to know and understand.
The engineers evidence to the Dutch Shipping
Inspectorate was that he normally closed the valves
but that at Klaipeda he forgot to do so. By contrast,
in his interview with the underwriters solicitor
he said that the emergency fire pump suction was
always left open. This too was the evidence of
Captain Lilipaly at the trial.
79. At the time of the incident, the 2002 edition
of the International Management Code for the Safe
Operation of Ships and for Pollution Prevention
(the ISM Code) applied to the vessel. The ISM
Code required the managers to develop, implement
and maintain a Safety Management System
(SMS). There is no fixed format for an SMS and
it is normal for systems created and implemented
by owners or managers to be noticeably different
from each other. K&Z had a formally documented
SMS which was applicable to their fleet and to the
vessel. Its content and implementation were audited
by Bureau Veritas. Bureau Veritas had reviewed and
approved the SMS and had carried out a detailed
ISM audit on 27 February 2009. Bureau Veritas
had issued the vessel with a Safety Management
Certificate valid until 2 April 2012 and the managers
with an ISM Document of Compliance valid until
4 December 2010.
80. Although the SMS itself contained no cold
weather procedure document, on 19 December
2009, a little over a month before the casualty,
Kees Parel sent an email to the vessel and all
other vessels in the fleet with an instruction in the
following terms:

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Please make sure that all waterlines are

drained and do not contain any water. Also make
sure that temperature in the bow thruster room is
kept above zero degrees Celsius. This in order to
prevent frozen lines.
81. Underwriters contend that this was
insufficient and that it was negligent for the SMS
not to contain both: (1) instructions concerning
cold weather procedures; and (2) a checklist
to be completed whenever cold weather was
encountered, so as to encourage compliance with
such procedures.
82. The experts had different experiences
and different views on this subject. The owners
expert, Mr Duncan, testified that draining pipes and
pumps was a matter of common sense and good
seamanship, and that his experience was that some
safety management systems have cold weather
procedures but others do not. The underwriters
expert, Mr McFarlane, testified that to the best of
his recollection the safety management systems
which he had seen in recent years for ships trading
in Northern European areas had all had cold weather
procedures, and that an SMS should include such
a procedure. He expressed surprise at the absence
of any requirement by Bureau Veritas that there
be cold weather procedures in the SMS for these
owners. When confronted with the fact that Bureau
Veritas had approved the SMS without any cold
weather procedures despite knowing where the
vessel traded, Mr McFarlane accepted that two
reasonable minds can differ about this.
83. The DSI report into the incident found at
para 6.1.1 that . . . Usually when sailing in freezing
conditions procedures or checklists are used to
prevent damage by freezing, and included within
its recommendations to the managers of the vessel
that they include the draining of pumps and pipes in
freezing conditions in their working procedures. But
the DSI did not recommend that any requirement of
this kind be imposed by the Dutch Flag state, and
none has been. Its observation that such procedures
were usual was not expressed to be a criticism of
the owners.
84. Following the publication of the DSI
report, the managers implemented the DSIs
recommendations by issuing a circular containing
a new cold weather procedure and attaching two
new checklists. The underwriters contend that this
was an acknowledgment by the owners that such
procedures and checklists should have been in
their SMS prior to the casualty. It was not; it was
simply a response to the DSI recommendation.
I would associate myself with the sentiments of
Lord Bramwell in Hart v Lancashire and Yorkshire
Railway Co (1869) 21 LT 261, page 263 that . . .
people do not furnish evidence against themselves

[2013]
[QBD (Comm Ct)]

simply by adopting a new plan in order to prevent the

recurrence of an accident. I think that a proposition
to the contrary would be barbarous. It would be . . .
to hold that, because the world gets wiser as it gets
older, therefore it was foolish before.
85. In those circumstances I am unable to
conclude that the managers were negligent in failing
to have any formal cold weather procedures in their
SMS. Whilst best practice might have involved some
instruction or reminder to the crew to drain lines
to avoid freezing in cold weather, the underwriters
have not established that such instructions were the
universal practice amongst competent owners and
managers. I attach particular significance to the fact
that they were not required by Bureau Veritas, who
were in effect vetting the sufficiency of the SMS of
these managers. Kees Parel could reasonably have
expected Bureau Veritas to tell him if BV considered
that the SMS was deficient in not containing a cold
weather procedure. Moreover the managers could
reasonably have assumed that their crew knew
about this basic aspect of good seamanship: their
vessels had been trading to Northern European
ports in winter for years and must have encountered
freezing conditions not infrequently; but there had
not apparently been any previous incident of a
similar kind (I reject the underwriters suggestion,
denied by owners, that it can be inferred from
a single photograph of another fire pump that a
similar incident had occurred before).
86. In any event, I would hold that the sending
of the 19 December email was sufficient to bring
the matter to the attention of the crew on the vessel.
The content of the cold weather instructions which
the underwriters allege should have been included
in the SMS was not substantially different (so far as
relevant to this incident) from the wording of the 19
December email (although it was common ground
that on this vessel, heating the bowthruster room to
prevent freezing was not commercially practicable
so that such reference was inapplicable to this
particular vessel). Mr McFarlane accepted that if
there were a suitable instruction in place, it would
not be necessary to have a checklist in place as well.
The question therefore becomes simply whether it
was negligent to give the instruction by email rather
than by way of a formal procedure within the SMS.
Email was a common form of communication with
vessels in this fleet in relation to operational matters,
and there is no reason to think that the crew were
less likely to take account of a short and specific
email than of a lengthier protocol which was one
of a large number of procedures in the formal SMS
documentation. Indeed the reverse may well be true.
87. For these reasons I find that there was no
want of due diligence on the part of the owners or
managers in relation to cold weather procedures
or checklists. Accordingly, subject to issue 4,

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

the owners have established that the loss was

proximately caused by crew negligence which was
an insured peril under ITC clause 6.2.3 and IAPC
clause 1.2.
Issue 3(a): was the loss proximately caused by the
negligence of persons other than the owners or
managers in failing to seal the cable duct at each
end of the duct keel tunnel?
88. In my judgment, the answer to this question
is yes, in relation to the damage other than that in
the bowthruster room itself. The starting point is
that the deficient state of the bulkheads at frames 24
and 112 was a proximate cause of the catastrophic
damage in the engine room and the debilitating
casualty. A business or seafaring man would say
that the ingress into bowthruster room, and the
negligence which caused it, was not the only
efficient cause of the casualty. A relatively slow leak
into what should be a watertight compartment in the
bow would not be expected to cause catastrophic
engine room damage. The lack of watertight
integrity between the bowthruster space and the
engine room was a real and efficient cause of the
casualty, of equal efficiency with the fortuitous
ingress into the bowthruster room. Without it, there
would have been no damage to the main engine and
no debilitating casualty.
89. It follows that if the deficient state of the
bulkheads came about as a result of someones
negligence, that negligence is itself a proximate
cause of the casualty. If one asks how it came about
that the cables were not surrounded by sealant
packing in the glands, as it was common ground
they should have been, the answer must be either
that those responsible for the modification in
2001 failed to install such packing, or that it was
subsequently removed. The underwriters contend
that the owners cannot prove that there was
negligence of any person other than the owners or
managers because they cannot identify when and
by whom the cable glands were not sealed. But the
underwriters advanced no coherent case that sealing
had been removed at any stage by the current
owners or managers. There was no suggestion
advanced as to when or why they might have done
so. The underwriters disavowed any suggestion
that it might have washed away in the casualty or
been displaced by some other accidental cause.
The experts agreed that there was no evidence in
the photographs taken after the casualty that any
packing had been removed. I find that the most
likely explanation is that it was never installed at
the time of the modifications. It is true that the
watertight integrity of the bulkheads should have
been checked by Class at survey at the conclusion
of the works in 2001 and at Special Survey in
2006; and that according to the Special Survey

603
[POPPLEWELL J

Report dated 22 April 2006, the duct keel had

been examined to the satisfaction of the attending
Lloyds Register surveyor. I would readily accept,
however, that such surveys failed to detect the lack
of packing in the cable glands at each end. The
experts agreed that it was not possible to see that
the cable duct at either end was unsealed unless that
was being specifically looked for.
90. This was a deficiency in the structure of
the vessel as a result of the errors of those who
carried out the modifications in 2001, which can be
characterised as contractors negligence. It therefore
falls within the scope of IAPC clause 1.2 unless it
can be said that the exercise of due diligence by the
owners or managers thereafter ought to have led to
its discovery prior to the casualty.
Issue 3(b): did the deficient state of the bulkheads
at the time of the casualty result from want of due
diligence by the assured?
91. The cable duct between the bowthruster
compartment and the duct keel tunnel at frame
112 was hidden beneath the floor plates, and was
in a location that could only be seen if the floor
plates were removed, and the head of the surveyor
was brought down level with the penetration. The
surveyor would then have had to direct a torch
through the opening to see if the opening was sealed
further back inside the duct. The lack of packing in
the forward bulkhead at frame 112 would not have
been obvious looking from the bowthruster room
itself or from within the tunnel.
92. At the aft end, the cable gland was sealed
where it emerged into the engine room and it would
have been a reasonable assumption of any surveyor
that the L pipe was continuous, such that there
would have been watertight integrity, whether or
not sealed also at frame 24 itself. The gaps in the L
pipe in the unsealed cable duct between the tunnel
and the engine room were in a location under the
floor plating of the engine room which was very
difficult to access and would not have been seen
during normal operations or surveys. The gaps
were only discovered after the incident by cutting
away the floor plates. The experts agreed that it
was not possible to see whether the cable glands
were unsealed at either end unless that was being
specifically looked for; and that during a typical
superintendent inspection one would not expect a
close and thorough examination of the watertight
bulkheads and their penetrations: in passing
through the space, a superintendent would merely
assess, so far as practically possible, the overall
condition of all readily accessible bulkheads from
above the floor plates; he would not be expected to
request tank entry or to enter the duct keel to inspect
bulkheads from the other side.

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93. Accordingly, absent some reason to make a

specific inspection of the cable glands, the owners
could not reasonably have been expected to discover
the deficiencies prior to the casualty.
94. The underwriters contend that there were
two previous incidents which cast doubt on the
integrity of the bulkheads and which should have
led to the owners inspecting them with sufficient
intensity to discover the deficiencies. In July 2007
45 m3 of oily water was found in the duct keel and
engine room bilges whilst the vessel was in dry
dock at the Bolnes shipyard. This was recorded in
Gertjan Kornets contemporaneous report in the
following terms (in translation): Removed about
45 cbm contaminated oil/water from the shaft alley
(last of Koopmans tricks) and the bilge (BV item).
Shaft alley does not have a leak from fore and
aft bilge. It is not clear how much of this 45 m3
was in the duct keel and how much in the engine
room bilges. Captain Lilipalys evidence was that
he had discovered the oily water in the duct keel
by entering through the manhole in the hold.
The reference to Koopmans tricks in Gertjan
Kornets report was explained by him as follows.
Koopman was the previous owner of the vessel and
there was a dispute on the Friday before handover
about oily water in the engine room bilges which
the buyers wanted removed. At handover on the
Monday, it was no longer in the engine room bilges,
and it was assumed that Koopman had removed
it from the vessel. When oily water was found in
the duct keel some eight months later at dry dock,
Gertjan Kornets conclusion was that Koopman had
not removed it prior to handover of the vessel but
simply pumped it into the duct keel.
95. The underwriters suggested that it would
have been negligent to treat this as a credible
explanation because the crew would have sounded
the duct keel in the meantime on at least a few
occasions if not daily or weekly, and the presence of
such oily water would not have remained undetected
in the eight months or so since the purchase. But as
Gertjan Kornet explained, he did not know whether
or how often the void spaces had been sounded,
and there does not appear to have been a regular
practice of sounding the duct keel tunnel. In any
event, without knowing the quantity of such oily
water found in July 2007 in the duct keel itself, it is
impossible to tell whether the sounding would have
given a reading which caused any concern, given
that the quantity would have been distributed over
the length of the tunnel subject to the vessels trim.
96. I am not persuaded that he was incorrect in
the conclusion which he reached as to the source
of the water in the duct keel, still less that he was
negligent in reaching that conclusion. There is
no reason to think that the oily water got in from
the bowthruster room, there being no evidence

[2013]
[QBD (Comm Ct)]

suggesting sufficient water there to have that

consequence; and the obvious source for such oily
water was the engine room bilges, rather than the
bowthruster room, because it would be unlikely
(although not impossible) for the bowthruster
room to contain water which was mixed with oil.
The water cannot realistically have got in from the
engine room through the deficiency in the L pipe
because that would have required water in the engine
room bilges to a very high level, just under the floor
plates, which would not have gone unnoticed and
which would have triggered the bilge alarm. If there
were some other breach in the watertight integrity
of the bulkhead at frame 24, such as in the manhole
cover, the problem would have recurred, whereas
there is no suggestion that it did (prior to 2009 when
a leaking manhole cover was discovered). On the
evidence before me Gertjan Kornets conclusion
that it was Koopmans tricks seems the most
likely explanation.
97. The underwriters expert Mr Tanner accepted
that if Gertjan Kornet were convinced that the water
had been put in there on purpose by Koopman, he
would not have been acting imprudently in failing to
carry out any further investigation. I find that there
was no negligence in failing to carry out the sort of
comprehensive inspection of the bulkheads which
might have revealed the cable gland deficiencies.
Moreover had Gertjan Kornet carried out any
further inspection, he could not reasonably have
been expected to discover the cable gland defects.
It would have been reasonable to confine any such
inspection to the engine room end of the duct
keel, and he would have been reasonably entitled
to assume that the cable duct was sealed, given:
(a) the presence of the obvious sealing where the
cables emerged from the L pipe in the engine room;
(b) the reasonable assumption that the L pipe was
continuous; and (c) the extreme improbability of
the cable duct being the source of ingress from the
engine room because of its height above the shell
plating. The deficiencies in the L pipe were only
discovered after the casualty by cutting away floor
plates in the engine room, which it would not have
been reasonable to expect as part of an investigation
into the presence of some oily water at Bolnes.
98. More oily water was discovered in the duct
keel in October 2009. The oil record book records
200 kg of slops removed from the engine room
bilges and duct keel and a further 10.93 m3 of liquid
removed from the duct keel whilst the vessel was
at the Hardinxveld shipyard. This was washwater
as a result of cleaning, including steam cleaning in
the duct keel, but it suggested that some water had
got from the engine room into the duct keel through
the bulkhead. Gertjan Kornets evidence, which I
accept, was that the aft manhole was hose tested,
found to be leaking, and resealed by replacement

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

of the gasket. He did not check for any other source

of leakage. The underwriters suggested that he was
negligent in failing to check for any other source
of the leak, but this suggestion was convincingly
rejected by the owners expert Mr Barker, and was
not really supported by their own expert, Mr Tanner.
It was reasonable to treat the defective manhole
cover gasket as the obvious source of the leak and to
look no further. There was no negligence in failing
to carry out the sort of comprehensive inspection of
the bulkheads which might have revealed the cable
gland deficiencies.
99. For these reasons I find that there was no
want of due diligence on the part of the owners
or managers in relation to the defective cable duct
glands. Accordingly, subject to issue 4, the owners
have established that the loss (other than that in
the bowthruster room) was proximately caused by
contractors negligence, which was an insured peril
under IAPC clause 1.2.
Issue 4: how are the Inchmaree clauses to be
construed? In particular does the want of due
diligence proviso apply: (a) to causes of loss and
damage which are not proximate causes; and/or
(b) to causes of loss and damage other than the
named peril which constitutes the insured peril
upon which the assured relies?
100. ITC clause 6.2 is significantly different
from IAPC clauses 1.2 and 3. ITC clause 6.2 is
concerned with a number of specifically identified
perils: crew negligence, barratry, bursting of
boilers, accidents in cargo or bunkering operations
etc; whereas IAPC clause 1.2 is wider, including
cover simply for any accident, as well as for the
negligence, incompetence or error of judgment of
any person whatsoever. However the parties did not
address the construction question on the footing
that there was a material difference between the
clauses, and I will assume that the proviso falls to
be construed in the same way in both. I was not
referred to any authority which might assist on the
question of construction.
101. I have little hesitation in concluding that the
proviso is confined to causes of loss and damage
which are proximate causes. The words resulted
from are synonymous with been caused by,
and the latter expression was used interchangeably
with the former in the underwriters submissions.
Proximate cause is the theory of causation applied
to insured perils in marine insurance; it would be
surprising if standard clauses dealing with insured
perils were intended to introduce some other theory
of causation, such as but for causation.
102. I also conclude that the proviso does not
apply to proximate causes other than the named
peril which the assured establishes as providing

605
[POPPLEWELL J

cover under the clause. ITC clause 6.2 is concerned

with a number of separate specified perils and the
proviso must be construed in that context. It is a
qualification of the cover granted in relation to the
named perils. The clause provides extended cover
over and above that which would exist for the
other insured perils identified in ITC clause 6.1.
The proviso in ITC clause 6.2 is, therefore, most
naturally read as confined to want of due diligence
in relation to the specific insured perils with which
the clause is concerned. If it is confined to those
perils, it is most naturally to be read as confined to
the particular peril upon which the assured relies as
affording cover, in this case crew negligence. The
effect of the underwriters argument is to treat the
proviso as if, in the context of the clause, it were
a freestanding exception of cover wherever loss or
damage is caused by want of due diligence on the
part of the assured, owners or managers. Clear words
would be needed to achieve that result because
it is a basic principle of the law of insurance
that negligence by the assured which causes a
loss insured under the policy is no defence to the
insurer in the absence of some special provision to
the contrary: per Kerr J in Global Tankers Inc v
Amercoat Europa NV (The Diane) [1977] 1 Lloyds
Rep 61, page 66 col 1. The proviso is not expressed
as a general exception from cover; on the contrary,
it is expressed as a qualification to the cover for the
specified insured perils.
103. The underwriters contend that their
construction is supported by the proviso being
expressed to apply to loss and damage, as opposed
to the enumerated causes of the loss or damage.
They contend that the words used in the proviso do
not refer back to the acts or occurrences enumerated
in clauses 6.2.1 to 6.2.5 but to the loss and damage
caused by such acts or occurrences. In my view this
is to mistake the operative antecedent expression
to which such refers. The words such loss and
damage mean not simply the loss and damage for
which the claim is made, but refer back to the whole
expression loss of or damage to the subject-matter
insured caused by [the enumerated perils].
104. The underwriters construction would have
surprising consequences. Where the two proximate
causes were a clause 6.2 peril and an unrelated
cause resulting from want of due diligence by the
assured, owners or managers, the proviso would
exclude cover. But the same would not apply if a
proximate cause were a clause 6.1 peril. The proviso
would not have any application if, for example, one
of the proximate causes were perils of the seas,
as the underwriters accept. This has no logical
or commercial justification, and is not supported
by the historical development of the clauses: see
Arnoulds Law of Marine Insurance (18th Edition)
at paras 23-04 and 23-05.

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Issue 5: did the loss result from want of due

diligence by the owners or managers in relation
to the bilge alarms?
105. On my previous findings this issue does
not arise because: (1) there is cover under ITC
clause 6.1 for a loss by perils of the seas; and (2)
there is cover for crew negligence and contractors
negligence under the Inchmaree clauses, to which
these questions are irrelevant. I state my findings
briefly in case I am wrong in both conclusions.
106. There was a forward bilge alarm which
was situated at the aft end of the bowthruster space
beside the manhole cover into the duct keel. It is
now common ground that it did not go off prior to
the casualty. The alarm float was of a type used to
stop and start submersible pumps. Following the
casualty it was tested and found to be working by
the DSI. This would have been by a bucket test
which tested the buoyancy of the float and the
effectiveness of the activation mechanism; but since
the vessel was without power, and had suffered the
flooding in the engine room, it would not have been
possible to test whether the electrical connections
were in order and so whether it would have sounded
the alarm in the engine room. The evidence of the
engineer to Mr Billowes, the Admiralty Manager
in the firm of Ince & Co LLP instructed by the
underwriters, when interviewed shortly after the
casualty, was that he tested the bilge alarms every
two weeks, with the last test having been carried
out in the second week of January, when the alarms
were found to be working. Although he was not
called as a witness, there is no substantial ground for
doubting this evidence. The alarms were inspected
and tested by Class every year and passed each
year. The most likely explanation for the forward
bilge alarm failing to sound prior to the casualty is
that it was working, but that the float was situated
too high by comparison with the open cable gland.
The forward bilge alarm appears to have had an
activation level between 77 and 84 cm above the
floor plating which was about the same height as
the top of the cable gland. Accordingly the water
could have flowed into the duct keel tunnel without
reaching a sufficient height in the bowthruster room
to activate the alarm.
107. The failure of the forward bilge alarm
to sound does not assist the underwriters for two
reasons. First it was not a proximate cause of the loss.
But for the deficiency in the watertight bulkhead,
the alarm would have sounded; it was the open
cable gland, however, not the absence of a forward
bilge alarm, which was the real and efficient cause
of the water being allowed to continue its ingress
and reach the engine room via the duct keel tunnel.
Secondly, there was no want of due diligence on the
part of the owners in relation to the alarm. It was
common ground between the experts that SOLAS

[2013]
[QBD (Comm Ct)]

does not provide for any minimum height for the

bilge alarm in the bowthruster space. Had there been
a watertight bulkhead, as the owners and crew were
entitled to expect, there would have been nothing
dangerous or untoward about the amount of water
which would have to be in the bowthruster room
before the alarm was triggered. The experts agreed
that a superintendent would not be expected to
measure or check the heights of the alarms or their
type. No adverse comment had been made about the
height of the alarm by any of the Class surveyors
who had carried out inspections since 2001. In these
circumstances the underwriters expert, Mr Tanner,
agreed that owners were not negligent in relation to
the height of the alarm. The underwriters case on
want of due diligence was focused on an allegation
that there were inadequate systems to ensure that
the bilge alarms were working. In relation to the
forward bilge alarm, this allegation falls away with
my finding that it was working.
108. As for the bilge alarm in the engine room,
it is not necessary to rehearse the evidence touching
on the dispute as to whether it sounded, including
detailed calculations and submissions on rates of
ingress, and engine room heights and volumes. It
too was tested by the DSI shortly after the casualty
and found to be working. My conclusion on the
evidence is that it did sound shortly before 21.00,
although the condition of the float may have meant
that the water was above the level of the alarm, 95
mm above the bottom shell plating, before the float
achieved sufficient buoyancy to activate the alarm.
But even if I had concluded that it had not been
working, such conclusion would not have assisted
the underwriters because again its failure to sound
would not have been a proximate cause of the loss.
The highest the underwriters were able to put their
case was that had it sounded, it would have alerted
the crew to the presence of water in the engine room
at a stage a little earlier than when the engineer
observed the water shortly before 21.00. But the
underwriters were unable to contend that in those
circumstances the crew would have been in a better
position to deal with the ingress or would have
acted differently. As it is, the allegation that there
was a want of due diligence in relation to testing
that alarms were working also falls away with my
finding that the alarm went off.
Issue 6: section 39(5) Was the loss caused by the
unseaworthiness of the vessel to which the owners
were privy?
109. I have not overlooked the underwriters
allegation that the owners want of due diligence
in relation to the engine room pumping system
engages the proviso to the Inchmaree clauses,
although on my previous findings this issue does
not arise. It is convenient to address it as issue 7

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

after first addressing the underwriters defence

under section 39(5), which is also concerned with
the engine room pumping system and alleges privity
against the owners.
The law
110. Section 39(5) of the Marine Insurance Act
1906 provides that where, with the privity of the
assured, the ship is sent to sea in an unseaworthy
state, the insurer is not liable for any loss attributable
to unseaworthiness. The privity of the assured
means with the assureds personal knowledge
and consent. The assured must: (i) know the facts
constituting unseaworthiness; and (ii) realise that
those facts render the ship unseaworthy. Knowledge
for the purposes of section 39(5) includes blind
eye knowledge, consisting of a suspicion that
the vessel might be unseaworthy combined with
a conscious decision not to inquire for fear of
confirming that suspicion. See Manifest Shipping
Co Ltd v Uni-Polaris Insurance Co Ltd (The Star
Sea) [2001] 1 Lloyds Rep 389; [2001] Lloyds Rep
IR 247; [2003] 1 AC 469 at paras 3, 23 to 26, and
113 to 116; Compania Maritima San Basilio SA
v The Oceanus Mutual Underwriting Association
(Bermuda) Ltd (The Eurysthenes) [1976] 2 Lloyds
Rep 171, at pages 179, 184 and 188.
111. It is common ground that the state of mind
of each of Chris Kornet, Gertjan Kornet and Kees
Parel is to be treated as the knowledge of the owners
for these purposes.
The pumps and piping system
112. There were three relevant pumps available
in the engine room to deal with the ingress, namely
a port and starboard general service pump (GS
pumps) and a ballast pump. There was also a main
engine seawater cooling pump which was capable
of being used as an emergency bilge pump through
its own emergency bilge suction, but throughout
the casualty this was being used to service the main
engine, and no criticism was made of the crews
failure to use it to deal with the ingress.
113. The GS pumps were electrically driven and
each had a rating of 74 m3 per hour against a head
of 20 m. They were generally used to pump ballast,
pressurise the fire main and deck wash system
and to drive the eductor, rather than to pump the
bilges, but they could be used to pump the bilges
in an emergency through two suctions, one in the
forward part of the engine room and one in the aft.
When doing so, the starboard GS pump, drawing
through the starboard manifold, would normally be
connected to the aft bilge suction, and the port GS
pump, connected through the port manifold, would
draw through the forward bilge suction. This was
the arrangement used by the crew on the night in

607
[POPPLEWELL J

question. The piping system also allowed for each

GS pump to be connected by crossover lines to
draw on the other bilge suction. On the night the
crew did not attempt to use the crossover to use the
port GS pump to draw on the aft bilge suction or
vice versa.
114. The ballast pump was hydraulically driven
and so could work when submerged under water. Its
power pack was located in the generator room one
deck above the engine room floor plating. It had a
rating of either 250 or 300 m3 per hour (the evidence
was unclear as to which). The piping system allowed
it to be connected to the bilge piping so as to draw
on either of the bilge suctions. When so connected
it would have a smaller capacity by reason of the
narrower diameter of the bilge piping. The experts
agreed that its capacity would be reduced by about
50 per cent.
115. There was agreement between the experts
that the rate of ingress through the crack in the
emergency fire pump would have been about 6 m3
per hour and that from the strainer lid between about
44 m3 and 61 m3 per hour. It is readily apparent that
the pumping system in the engine room should have
been able to cope with an ingress of no more than
67 m3 per hour.
116. On the night in question the crew sought
to deal with the ingress by using the port and
starboard GS pumps connected to the fore and aft
suctions respectively. When these did not appear
to be coping with the ingress, an attempt was
made to use a submersible pump, but this was
unsuccessful. The crew did not attempt to swap the
connection between the GS pumps and the suctions
using the crossover line, and it was not ultimately
suggested by underwriters that they should have
done so, or that it would have assisted. Blockages
in the crossover lines are therefore only relevant as
background to the issues surrounding the use of the
ballast pump.
117. The crew did not attempt to use the ballast
pump to connect with the bilge suctions. Instead it
was decided to cut a hole in a line on the suction
side of the pump so as to allow the pump to draw
water directly through the hole rather than from the
bilge suctions. This decision was taken following
discussions on the telephone between the master
and the Kornet brothers and Mr Parel, who were on
a management team building session at a training
establishment in Bosch en Duin when first alerted
to the casualty by the master.
118. The DSI report recorded that the pumps had
later been inspected by the shipyard and found to be
in good working order. As to the lines, valves and
suctions it found:
(1) There were blockages in the bilge
crossover lines:

608
POPPLEWELL J]

LLOYDS LAW REPORTS

The DC Merwestone

(a) The connection between the starboard

suction manifold of the starboard GS pump
and the main bilge system was completely
blocked; a photograph of the cross section of
the piping illustrated the finding. There was an
issue as to whether this meant it was totally
blocked along its whole length or simply that
there was a total blockage at some part of it.
I find that the latter is more likely: where the
report refers to a blockage along the length
of a pipe it says so, as it did for the partial
blockage in (b) below; and it would not have
been possible to examine the extent of the
full blockage without taking numerous cross
sections of the piping.
(b) There was a partial blockage along the
entire length of the crossover pipe between the
port and starboard main bilge systems.
(2) The mesh filters in the baskets at the fore
and aft bilge suctions restricted flow for two
reasons. First, they were clogged with dirt and
paint flakes, which was explicable as normal
debris from the vessel which accumulated in the
filters as a result of pumping during the casualty.
The engineers evidence in his statement was
that he had recently cleaned the filters, although
it appears from the DSI report that his evidence
to the Inspectorate was that he had not opened
the filters during his term. On either view, it
was underwriters case that the filters were clean
before the casualty. Secondly, these mesh filters
were not positioned vertically away from the
suction aperture of the bilge pipe, but were curved
so as to line the basket and lie directly against
the aperture. This arrangement restricted the flow
of water through them to that which could pass
through the area equivalent to the diameter of
the pipe rather than the full area of the mesh. It
is not clear when such filters were installed; the
underwriters did not contend that the owners or
managers were at fault in this respect.
(3) The main bilge valve on the port side
suction manifold of the port GS pump had too
long a spindle. The result was that when fully
opened the valve restricted the capacity of the
passage through it by 69 per cent. It was not
suggested that the owners were at fault in relation
to this defect or that they should have been aware
of it.
(4) A mop head was found to have become
jammed in the hole cut in the ballast suction line.
The crew were unaware of this on the night in
question.
119. The result of these conditions was as
follows:
(1) The starboard GS pump was only partially
effective in drawing through the aft bilge suction

[2013]
[QBD (Comm Ct)]

to which it was connected because of the filter

arrangement and filter blockage in the aft suction.
(2) The port GS pump was only partially
effective in drawing through the forward bilge
suction to which it was connected because of: (a)
the 69 per cent reduction in capacity caused by the
overlong spindle; and (b) the filter arrangement
and filter blockage in the forward suction.
(3) Had the crew sought to use either GS
pump on the other bilge suction, they would have
been unable to do so because of blockages in the
pipes. They did not, however, seek to do so, and
no criticism is made of their failure to do so.
(4) Both GS pumps were electrically driven
and incapable of operating under water. They
were located a little above the engine room floor
plates. Accordingly when the water reached that
level, they were incapable of operating.
(5) The ballast pump was capable of being
connected to the bilge suctions and the blockages
in the crossover lines would not have prevented it
from drawing on the bilge suctions, had the crew
chosen to do so, although the partial blockage
in the crossover line would have restricted flow
from the forward bilge suction. The underwriters
suggested that the total blockage would have
prevented any suction from the aft bilge suction,
but I reject that submission. It rested upon two
false assumptions, one being that the blockage
extended along the full length of the pipe and the
other being that that blockage intersected with,
and blocked, the line between the ballast pump
and the ballast suction valve at the starboard
manifold.
120. By the conclusion of the hearing the
underwriters case was simplified as amounting to
the following. The total and partial blockages in
the bilge lines rendered the vessel unseaworthy;
Gertjan Kornet was aware of the blockages and that
they rendered the vessel unseaworthy; that was why
he requested the ballast line to be cut rather than
connecting the ballast pump to the bilge system;
had the ballast pump been connected to the bilge
system it would have controlled the ingress and the
vessel would not have suffered any loss and damage
above the level of the floor plates.
121. I reject that case for three reasons. First,
so far as the managers were concerned, and in
particular Gertjan Kornet, the reason for cutting the
ballast line was nothing to do with the bilge piping,
but was to create a new source of suction against
the background that the GS pumps working at full
capacity through the existing suctions were not
coping with an unknown rate of ingress. Secondly, I
am not persuaded that the managers were aware of
any blockage in the bilge piping system. Thirdly, I
am not persuaded that if the ballast pump had been

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

applied to the bilge system the additional capacity

through the obstructed suctions would have coped
with the ingress.
The decision to cut the ballast line
122. A considerable amount of time was
spent with the witnesses in examining who first
suggested cutting the ballast line and whether
the managers instructed the master to do so. To
a large extent it was directed to an aspect of the
fraudulent device issue which was not pleaded
and was ultimately not pursued by underwriters.
It is impossible to tell whether the idea was first
mooted by the master or by the managers in the
course of the conversation. Whoever first raised it,
I regard it as probable that the master would have
sought the assurance of the managers that such a
step could be taken because it was unusual. He
would have sought authority from the managers.
On the other hand the evidence from the managers
side that the master was the man on the spot who
had to assess what was happening and make the
ultimate decision as to what to do was persuasive.
I find that the master was authorised to cut the
ballast pipe, but not instructed to do so; he retained
the responsibility for the ultimate decision in the
fast moving circumstances he was facing.
123. Gertjan Kornet explained in his crossexamination the thinking behind a decision to cut
the ballast line, rather than connect the ballast
pump to the bilge system. He said that they were
faced with a situation in which the two service
pumps were working fully through the bilge
suctions, but were unable to cope with the ingress.
The water was assumed to be coming in through
the engine room and the source of the ingress had
not been identified. They did not know the rate of
ingress but it appeared to be substantial. An urgent
decision needed to be made to try to deal with this
unknown rate of ingress against that background.
The full capacity on the existing suctions was not
coping with the ingress, so what seemed to be
needed was another source of suction rather than
any additional pumping capacity applied to the
existing suctions.
124. I found this explanation coherent and
convincing. It accords with the inherent probabilities
and I accept it. The cutting of the ballast line does
not give rise to the inference that the owners knew
of blockages in the piping system. The reasons for
cutting the line were unconnected with the piping:
they were to create a new point of suction.
Managers alleged knowledge of blockages
125. The engine room pumps had not previously
been used for pumping water from the engine room
bilges. The engine room bilges were routinely

609
[POPPLEWELL J

emptied using a vacuum pumping truck to pump out

the bilges and carry away the oily water. The vessel
would have been in breach of the International
Convention for the Prevention of Pollution from
Ships (MARPOL) had the engine room pumps
been used in this manner, except in an emergency.
Accordingly there was no reason for the managers
to have discovered any problem in the bilge pipes
from any such operation.
126. The underwriters relied upon two aspects
of the evidence to support their case on knowledge.
Each concerned the vessels use of the pumps to
discharge ballast from the holds. The first is a repair
list from 15 December 2007 which records the
following exchange:
Crew: There are still problems with pumping
water out in the hold. We are not able or hardly
able to pump water out of the hold in the aft of
the ship. This is life-threatening and remains so.
Managers: UNDERSTAND. IF THERE IS
TIME THEN WE WILL TRY TO REPAIR THIS.
BUT IT REMAINED THE CASE IN BOLNES
THAT IT IS EXTREMELY DIFFICULT TO
DO THIS AND WAS AGREED TO DO THIS
TEMPORARILY WITH THE SUBMERSIBLE
PUMP.
Crew: At the last inspection from nnpc [the
P&I Club] it was assumed by the inspector that
this was working. He had tested this, we had
had a problem. The bilge pumping gear fore was
rectified with the emergency fire pump. This
works properly, but aft . . .???? When pumping
out with a small pump, it is accompanied by
a shot of oil. So all valves need to be tackled
thoroughly.
Managers: WE LOOKED AT THIS IN
BOLNES AND AGREED THAT THE LADS
WOULD DO THIS ON BOARD DURING THE
JOURNEY.
Crew: An injector has been brought on board,
but has never been fitted, due to lack of time and
lack of fitters in Bolnes.
Managers: IT WAS AGREED IN BOLNES
TO TEMPORARILY POSTPONE THIS.
Crew: This point remains a hot item !!!!!!!
Portside sump sometimes work, but starboard
side bilge sump does not work !!!
Managers: GET HENK TO HAVE A LOOK
AT THIS HERE.
127. The underwriters suggested that the
reference to the P&I Club surveyors inspection
should be read as meaning [If] He had tested this,
we [would have] had a problem. This is not borne
out by the surveyors report of his inspection carried
out three days earlier on 12 December 2007. The
surveyors report recorded:
Hold bilge pump system

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The DC Merwestone

Tested while washing the hold and found to

be in good working condition. The floors of the
sumps were contaminated with old cargo/rust.
128. This suggests that the problem was not
with the pipes, but with obstruction to the suctions
in the sump. Gertjan Kornet testified that he could
not remember precisely when those problems were
rectified, but he knew that the whole bilge system
was working in 2010. This is confirmed by the fact
that on 24 April 2009 the engineer was overhauling
valves for the hold suctions, as is evidenced by a log
entry. This suggests that the hold bilge system was
working in 2009, as it would have made no sense
for the engineer to replace the valves if he believed
that the bilge pipes were blocked so as to prevent
the hold bilges being pumped.
129. The second aspect relied on by the
underwriters was the regular use of submersible
pumps in the hold to pump out hold washings.
Gertjan Kornet explained why there was nothing
suspicious about the use of a submersible pump.
The vessel regularly carried cargoes of stone. When
the holds were washed down, the hold bilges would
fill with gravelly water which the crew did not want
to clog up the bilge system. To avoid blockages
and damage, the crew used the submersible pump
instead. I accept that explanation. It was the one
given by the Chief Officer and engineer to a P&I
surveyor on 14 January 2010 and recorded in the
surveyors report. Mr Barkers opinion was that it
was not particularly unorthodox or unusual when
discharging cargoes such as stone or cement, which
owners would be extremely keen to keep out of
their bilge system. During an inspection which took
place since the casualty, Mr Tanner observed that
a submersible pump was still being used, and he
accepted that the bilge pipes were unlikely to have
remained blocked since the casualty because Class
would have ensured that they were checked and
renewed as necessary.
130. There was some unclear evidence from
the master which I do not think greatly assists on
this issue. The notes taken by Mr Billowes of his
interviews following the casualty included the
following being attributed to the master: We also
have a portable pump capacity about 50 metres
cubed per hour. Electric. Armoured tube for suction
was in hold. We use it if bilge is blocked. When
the master was cross-examined about this note, he
confirmed that it was his recollection that if the
bilge was blocked then the portable pump would be
used, but he rejected the suggestion that it was used
because the starboard GS pump was unable to pump
the holds because of blocked lines, and he said that
he did not have any knowledge of a blockage on
this vessel. His command of English was less than
perfect, and I would not treat him as accepting any
more than that pumps on the vessels on which he

[2013]
[QBD (Comm Ct)]

served would be used if bilges were blocked and

that was what he understood to be their general
purpose. I do not regard his evidence as suggesting
that a portable pump was used on DC Merwestone
because he knew the bilges were blocked on that
vessel, and he denied any such knowledge.
131. I find that no one at the managers, including
Gertjan Kornet, was aware of the blockages in the
bilge lines.
Causation: additional capacity sufficient if applied
through the suctions?
132. The underwriters case on causation was
advanced by the following steps: (i) the maximum
rate of ingress into the engine room was 67 m3 per
hour; (ii) the amount not being coped with by the
GS pumps was a maximum of about 32 m3 per hour;
(iii) the additional capacity of the ballast pump
would have enabled at least an additional 32 m3 per
hour to be drawn through the bilge suctions despite
the arrangement and clogging of the filters. Step (i)
was common ground between the experts, but steps
(ii) and (iii) were not, and bear closer examination.
133. The figure of 32 m3 in step (ii) is derived
by taking the level of water visible in a photograph
taken at 22.25 as indicating a level of 2.3 m above
the shell plating. By taking the height which the
water had reached when the GS pumps were started
85 minutes earlier, at about 21.00, a calculation is
made of the increase in volume over that period,
which will indicate the rate of net increase which is
not being pumped out by the GS pumps. Assuming
the level at 21.00 to be the level of the bilge alarm,
95 cm above the shell plating, the net increase in 85
minutes would be about 44 to 48 m3, equivalent to
an hourly rate of net ingress of the order of 32 m3.
At a maximum rate of gross ingress into the vessel
of 67 m3 (step (i)), this would mean the GS pumps
were coping with 35 m3 per hour, leaving the ballast
pump to have had to cope with 32 m3 per hour. If the
level of the water at 21.00 was above the bilge alarm
level, the amounts being coped with by the GS
pumps would be greater, and the required additional
capacity of the ballast pump lower. At 1.5 m the net
rate of ingress would be 20 m3 per hour, and at 1.8
m it would be 12 m3 per hour. The calculation of
volumes from heights was not agreed, nor can one
be sure from the conflicting evidence from the crew
what the levels were at 21.00. Nevertheless I am
satisfied that the level was not lower than 95 cm at
21.00 and probably a little higher. I therefore accept
that underwriters have established step (ii): the net
rate of ingress with which the ballast pump would
have had to cope was no more than about 32 m3 per
hour, although not likely to have been substantially
less.
134. Step (iii) relies upon an answer given in
re examination by Mr Tanner on the assumption

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

that the required additional capacity achievable

by the ballast pump when connected to the bilge
system was 32 m3. It was not however supported
by any calculation or reasoning. It is wholly
dependent on the extent of clogging of the filters,
which Mr Tanner took to be about one-third, on
the basis of counting up the total number of holes
in the mesh which appeared to be clogged from
the photos of the filter meshes taken after the
casualty. This unscientific method was rejected
by Mr Barker as a reliable method of estimation,
to my mind convincingly. The holes which would
have mattered were those adjacent to the aperture
in the suction pipe, but the location of the aperture
is not apparent from the photos. Moreover the
debris seen in those photos at the bottom of the
basket would have been likely to have been drawn
against the mesh filter under suction and so have
impeded flow to a greater extent than that caused
by the blockage evident in the photos. The extent
of the blockage during the casualty is simply a
matter of speculation. If the gross rate of ingress
was 50 m3 per hour and the net ingress 32 m3, the
GS pumps were only coping with 18 m3 per hour,
despite a rated capacity of almost 97 m3 per hour
(taking account of the 69 per cent reduction in the
port GS pump caused by the overlong spindle).
The filters would be reducing the rated capacity to
an efficiency of less than 20 per cent; if the rated
capacity of the ballast pump operating through
the bilge lines was 125 m3 (or even 150 m3), it
could not have coped with 32 m3 per hour if the
filters were reducing its efficiency to less than 20
per cent. Continued pumping by the ballast pump
would have tended to increase the amount of debris
in the filters. On the evidence it remains a matter
of speculation whether the ballast pump attached
to the bilge system would have coped with the
ingress given the arrangement and state of the
suction filters.
135. Accordingly I do not consider there is
any reliable basis in the evidence for reaching
the conclusions for which underwriters contend
in step (iii). Underwriters have therefore failed to
discharge the burden of proving that had the ballast
pump been connected to the bilge system the rate of
ingress would have been controlled and the casualty
averted.
Issue 7: did the loss result from want of due
diligence by the owners or managers in relation to
the engine room pumping system?
136. I return to the question whether there was a
want of due diligence on the part of the owners in
relation to the bilge line blockages for the purposes
of the proviso to the Inchmaree clauses. This issue
does not arise on my previous findings because:
(1) there is cover under ITC clause 6.1 for a loss

611
[POPPLEWELL J

by perils of the seas; (2) there is cover for crew

negligence and contractors negligence under the
Inchmaree clauses, to which these questions are
irrelevant; and (3) the blockages were not causative
of loss, still less a proximate cause. It is sufficient
therefore simply to state my conclusion that had it
been relevant, I would not have found any want of
due diligence on the part of the owners or managers
in this respect.
Issue 8: quantum
137. The owners claim is in the total sum
of 3,241,310.60, being: (i) 3,257,650 for the
Particular Average due to it; and (ii) 8,660.60 in
respect of its General Average contribution, both
figures approved by the independent Average
Adjuster in his adjustment, less the policy deductible
of 25,000. The only difference between the parties
is whether it was reasonable to replace the vessels
main engine, which was damaged beyond repair,
with a new engine, as opposed to a reconditioned
engine.
138. Section 69 of the Marine Insurance Act
1906 provides in relevant part as follows:
Where a ship is damaged, but is not totally
lost, the measure of indemnity, subject to any
express provision in the policy, is as follows:
(1) Where the ship has been repaired, the
assured is entitled to the reasonable cost of the
repairs, less the customary deductions, but not
exceeding the sum insured in respect of any
one casualty . . .
139. Clause 14 of the Institute Time Clauses
Hulls 1/10/83 further provided: Claims payable
without deduction new for old. The owners
argued that this meant that the insured is entitled
to the reasonable cost of replacing the old engine
with a new one, and that the deduction for which
underwriters contend is contrary to the express
terms of the policy, since it would amount to a newfor-old deduction. That is not the purpose of the
clause. It provides that there shall be no deduction
for betterment if a repair involves replacing an old
part with a new one. But the measure of indemnity
dictates an inquiry into whether the cost of repairs is
reasonable, and there remains the question whether
it was reasonable to repair the vessel by replacement
of the damaged part by a new part as opposed to a
second-hand part.
140. The quantification of the difference in cost
between the reconditioned and the new engine was
estimated by Mr Tanner at 540,000. A spreadsheet
prepared on behalf of underwriters using figures
from the draft adjustment (which contemplated a
reconditioned engine) and final adjustment (which
provides for the new one) gives a difference of
565,686.63.

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The DC Merwestone

141. I find that the cost of installing a new engine

was reasonable. If the owners had chosen to install
a reconditioned engine, they would have incurred
significant extra costs and encountered practical
difficulties. In this regard, it was the uncontradicted
evidence of Chris Kornet that:
(1) Steps had been taken to reduce the output
of the original engine from 1,324 kW to 749 kW
so as to allow the vessel to sail with a Periodically
Unattended Machinery Space (UMS Notation)
in accordance with the DSI minimum safe
manning requirements.
(2) The DSI and Bureau Veritas told the
owners that it would be impossible to implement
a reconditioned engine of the same type in 2010
and to obtain a UMS Notation, due to a change
in the regulations applicable to the vessel. In
particular, the vessel would only have been able
to retain its UMS Notation if the alarms on the
reconditioned engine and gearbox had been
modified. This would not have been possible
because the manufacturer of the gearbox and
thrust bearings was no longer in business.
(3) Had the owners installed a reconditioned
engine, it would therefore have been necessary to
sail with a chief engineer, a second engineer and
probably a third engineer or an oiler. A reconditioned engine would not have amounted to a
like-for-like replacement, because it would have
exposed the owners to additional labour expenses
of about 82,000 per year, a figure which the
underwriters did not challenge. By contrast, the
new engine allowed the vessel to retain its UMS
Notation and allowed the owners to trade the vessel in the same way and with the same manning
as before the casualty.
(4) As the independent Average Adjuster,
ACG Schoutens, state:
A second hand engine of the same type
was available, however, it was not permitted
to reduce the output anymore to 750 HP to
allow the vessel to trade with an unmanned
engine room . . . Consequently this secondhand engine was no reasonable option for the
Assured. The Assured opted for a new main
engine so that they could continue to trade
with an unmanned engine room. This seems
to be a reasonable decision that, given the
circumstances, would have been taken by any
prudent uninsured Shipowner too.
142. The underwriters argued that this
justification was not in the owners mind when they
chose a new engine, and the evidence supports their
position. But this is irrelevant. Whether the cost of
repairs is reasonable is an objective test and the cost
of an objectively reasonable repair is recoverable
whatever the motives of the assured in taking that
course.

[2013]
[QBD (Comm Ct)]

143. Accordingly the owners have a valid claim

for 3,241,310.60 under the policy unless it is
forfeit by their having employed a fraudulent device
in pursuit of the claim.
Issue 9: have the owners forfeited the claim
by reason of fraudulent devices employed in
supporting it?
144. The underwriters case is that Chris Kornet
deliberately or recklessly gave a false narrative
of the casualty in: (1) a letter to the underwriters
solicitors, Ince & Co, dated 21 April 2010; and
(2) a letter to the first defendant (Gerling) as
lead underwriter dated 27 July 2010; and (3) a
preliminary report of TMC dated 27 January 2011
sent to the underwriters. The main thrust of the
allegation is that he falsely claimed that the bilge
alarm had gone off at about noon on 28 January
2010; that the alarm had been ignored because it
was attributed to the rolling of the vessel in heavy
weather; and that he had been told both these things
by the master or crew. It is alleged that he did this
because he had been advised of the Inchmaree
proviso, and understood a need to distance the
owners themselves from any fault in relation to
the casualty, and was therefore keen to explain the
quantity of water reaching the engine room by a
narrative which involved the bilge alarms working
but being ignored by the crew. A further allegation
of falsehood in the 21 April 2010 letter, relating to
who had suggested or instructed the cutting of the
ballast pipe, was advanced at the hearing, but had
not been pleaded; in the face of objection during
final speeches, Mr Jacobs QC made clear that he did
not pursue it as a separate fraudulent device under
this head, but only as relevant to Chris Kornets
credibility.
The law
145. There is a long line of authority which
stands for a rule of law, applicable even when there
is no express clause in the policy, to the effect
that an insured who has made a fraudulent claim
forfeits any lesser claim which he could properly
have made. It originates from the early 19th century
(see Levy v Baillie (1831) 7 Bing 349, Goulstone v
Royal Insurance Co (1858) 1 F & F 276 and Britton
v Royal Insurance Co (1866) 4 F & F 905), and has
been confirmed and applied at appellate level up to
the present day: see Lek v Matthews (1927) 29 Ll
L Rep 141; Orakpo v Barclays Insurance Services
Ltd [1995] LRLR 443; Galloway v Guardian Royal
Exchange (UK) Ltd [1999] Lloyds Rep IR 209;
The Star Sea; Direct Line Insurance v Khan [2002]
Lloyds Rep IR 364; Agapitos v Agnew (The Aegeon)
[2002] 2 Lloyds Rep 42; [2002] Lloyds Rep IR
573; [2003] QB 556; AXA General Insurance Ltd v
Gottlieb [2005] Lloyds Rep IR 369.

[2013]
QBD (Comm Ct)]]

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The DC Merwestone

146. More recently the fraudulent claims rule

has been extended by the decision of the Court of
Appeal in The Aegeon to cases in which the assured
has deployed in support of a wholly valid claim
some fraudulent means or device to advance the
claim. Strictly speaking this aspect of the decision
in The Aegeon was obiter, because it was held that
the rule, whether or not extended, could not apply
after the commencement of litigation in the light of
the House of Lords decision in The Star Sea. Whilst
there is room for argument whether such extension
is justified (see for example Lord Hobhouses
observations in The Star Sea at para 71 on the
controversial decision of Hirst J in Black King
Shipping Corporation v Massie (The Litsion Pride)
[1985] 1 Lloyds Rep 437), the question was fully
considered in the judgment of Mance LJ in The
Aegeon at paras 19 to 46, in a judgment concurred in
by Brooke LJ and Park J. Mance LJs judgment was
described by Park J as a comprehensive and scholarly
exposition, with which I would respectfully agree.
The extension has been recognised by the Supreme
Court in Fairclough Homes v Summers [2013]
Lloyds Rep IR 159; [2012] 1 WLR 2004 at para 29
and applied by the Privy Council in Stemson v AMP
General Insurance (NZ) Ltd [2006] Lloyds Rep IR
852, and recognised or applied in a number of first
instance decisions, including Eagle Star Insurance
Co Ltd v Games Video Co (GVC) SA (The Game
Boy) [2004] 1 Lloyds Rep 238; [2004] Lloyds Rep
IR 867, Joseph Fielding Properties (Blackpool) Ltd
v Aviva Insurance Ltd [2011] Lloyds Rep IR 238,
and Aviva Insurance Ltd v Brown [2012] Lloyds
Rep IR 211. In those circumstances it would not be
right for a judge of first instance to decline to apply
the extension, however much he might regret that
the submissions of counsel for the insurers in The
Aegeon prevailed. Mr Karia QC reserved his right to
challenge the extension in a higher court.
147. The juridical basis for the rule has caused
some difficulty. Its origin was linked to the
continuing duty of good faith in insurance contracts,
for which the remedy provided by section 17 of the
Marine Insurance Act 1906 is avoidance of the
policy; and the rule was thought to exist under, or
by analogy with, section 17. It has also been treated
as deriving from an implied term of the contract
(see Orakpo), a view rejected by the House of Lords
in The Star Sea (see per Lord Hobhouse at para 62).
Recent authority, in which Lord Mance has played a
leading role, favours an analysis which treats it as a
sui generis principle of the common law resulting in
the forfeiture of the claim to which the fraud relates:
see The Aegeon at para 45(g) and AXA v Gottlieb at
paras 18 to 20, 22, 31 and 32.
148. The justification for the rule and its
extension, as articulated by Lord Hobhouse in
The Star Sea at para 62, is that: The fraudulent

613
[POPPLEWELL J

insured must not be allowed to think: if the fraud

is successful, then I will gain; if it is unsuccessful,
I will lose nothing. It reflects a policy of the law
to discourage the making of fraudulent claims: The
Aegeon at para 14 per Mance LJ and Galloway v
Guardian Royal Exchange per Lord Woolf MR
at page 213 and Millet LJ at page 214. In AXA
General Insurance v Gottlieb Mance LJ described
it at para 31 as deliberately designed to operate in a
draconian and deterrent fashion and said: . . . the
policy of the rule is to discourage any feeling that
the genuine part of a claim can be regarded as safe
and that any fraud will lead at best to an unjustified
bonus and at worst, in probability, to no more than
a refusal to pay a sum which was never insured in
the first place.
149. Two aspects of the rule and its extension
merit closer examination in the present case. The
first is as to the state of mind which is sufficient to
make the claim or device fraudulent. The second
is what may be termed materiality, that is to say the
relationship which the fraudulent means or device
must bear to the valid claim.
State of mind
150. In The Aegeon Mance LJ said at para 30
that: A fraudulent device is used if the insured
believes that he has suffered the loss claimed, but
seeks to improve or embellish the facts surrounding
the claim, by some lie. He did not expand upon the
concept of fraud in this context.
151. The state of mind necessary to establish
fraud for the purposes of the tort of deceit is to be
found in the well-known passage in the speech of
Lord Herschell in Derry v Peek (1889) 14 App Cas
337 at page 374:
I think the authorities establish the following
propositions: First, in order to sustain an action of
deceit, there must be proof of fraud, and nothing
short of that will suffice. Secondly, fraud is proved
when it is shewn that a false representation has
been made (1) knowingly, or (2) without belief in
its truth, or (3) recklessly, careless whether it be
true or false. Although I have treated the second
and third as distinct cases, I think the third is but
an instance of the second, for one who makes a
statement under such circumstances can have no
real belief in the truth of what he states. To prevent
a false statement being fraudulent, there must,
I think, always be an honest belief in its truth.
And this probably covers the whole ground, for
one who knowingly alleges that which is false,
has obviously no such honest belief. Thirdly, if
fraud be proved, the motive of the person guilty
of it is immaterial. It matters not that there was no
intention to cheat or injure the person to whom
the statement was made.

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152. That a reckless untruth, of the kind

described in Lord Herschells third category, is
sufficient to amount to fraud for the purpose of the
fraudulent claims rule, is apparent from the speech
of Lord Sumner in Lek v Matthews at page 145 and
the decision of Saville J in Bucks Printing Press Ltd
v Prudential Assurance Co (1994) 3 Re LR 219.
153. Mr Karia QC argued that it is also
necessary for the insurer to prove dishonesty, and
in particular: (1) that the assured was dishonest by
the ordinary standards of reasonable and honest
people; and (2) that the assured himself realised
that by those standards his conduct was dishonest.
This submission was taken from a submission made
in Aviva v Brown which Eder J recorded at para 67
as having been accepted on behalf of the insurer.
This combined test originates in the speeches of
Lord Hutton and Lord Hoffmann in Twinsectra Ltd
v Yardley [2002] 2 AC 164, where it was formulated
in the context of constructive trusts imposed for
dishonest assistance in a breach of trust. The test
of dishonesty in that context was reconsidered and
explained by the Privy Council in Barlow Clowes
International Ltd v Eurotrust International Ltd
[2006] 1 Lloyds Rep 225; [2006] 1 WLR 1476 in
terms which represent English law (Abou-Rahmah
v Abacha [2007] 1 Lloyds Rep 115; [2007] 1 All
ER (Comm) 827, at paras 66 to 70). The subjective
element requires the assister to know facts which
make his conduct, objectively viewed, dishonest,
but there is no subjective element of conscious
dishonesty; the test for dishonesty does not
require that the assister considers that he is acting
dishonestly.
154. In these circumstances, where the
fraudulent device consists of a representation, there
is little room for any distinction between the test of
fraud provided for in Derry v Peek and the test of
dishonesty which applies to dishonest assistance in
a breach of trust. If any of the three limbs of the
Derry v Peek test are fulfilled, the statement will
have been made without an honest belief in its
truth. That is what would be regarded as dishonest
for the objective limb of the test in Barlow Clowes,
irrespective of whether the representor consciously
believes himself to be acting dishonestly. In this
context in effect, recklessness is a species of
dishonest knowledge, for in both cases there is an
absence of belief in truth: per Rix LJ in AIC Ltd
v ITS Testing Services (UK) Ltd (The Kriti Palm)
[2007] 1 Lloyds Rep 555 at para 257. Where, as in
this case, the fraudulent device alleged is a statement,
the appropriate test for fraud is that set out in Derry
v Peek. In particular conscious dishonesty is not a
separate element of the test, any more than it is for
dishonest assistance constructive trust liability.
155. This is not to diminish the burden which
lies upon insurers in seeking to establish fraud. The

[2013]
[QBD (Comm Ct)]

standard of proof is the balance of probabilities, but

the cogency and strength of the evidence required to
prove fraud is heightened by the seriousness of the
allegation: Re H (Minors) (Sexual Abuse: Standard
of Proof) [1996] AC 563, page 586. The court will
be astute not to water down the requirement of
fraud into something akin to negligence, even gross
negligence. When considering whether there has
been recklessness as to the truth of a statement, not
caring whether it be true or false, not caring does
not mean not taking care; it means indifference to
the truth, the moral obloquy of which consists in
a wilful disregard of the importance of truth: see
per Bowen LJ in Angus v Clifford [1891] 2 Ch 449,
page 471.
Materiality
156. In the cases concerned with the fraudulent
claims rule itself, the preponderance of authority
is that the fraudulent part of the claim must be
substantial in the sense of being not insubstantial
or immaterial or de minimis: Goulstone (wilfully
false in any substantial respect per Pollock CB
at page 279); Lek v Matthews (anything not so
unsubstantial as to make the maxim de minimis
applicable per Lord Sumner at page 145 col 2);
Orakpo (fraudulent to a substantial extent per
Sir Roger Parker at page 452 col 1); Galloway (not
immaterial, substantial per Lord Woolf MR at
pages 213 col 2 and 214 col 1).
157. This is not a high threshold. In Galloway a
householder made a claim on his contents policy for
loss arising out of a burglary. In addition to a valid
contents claim for 16,133.94 the assured presented
a fraudulent claim of 2,000 for a computer,
supported by a bogus invoice in respect of its
purchase. This was sufficiently material to vitiate
the valid claim. Millett LJ, with whom Mummery
LJ agreed, expressed the view that assuming,
without deciding, that the rule was limited to claims
which were substantially fraudulent or fraudulent
to a substantial degree, that was a question to be
addressed by reference only to the fraudulent
element, not by reference to the proportion which
the fraudulent element bore to the valid element of
the claim. A fraudulent claim for 2,000, viewed in
isolation, was sufficiently serious to be stigmatised
as a breach of good faith so as to engage the rule.
In Direct Line Insurance v Khan [2002] Lloyds
Rep IR 364, a husband and wife brought a claim
for property and contents damage following a
fire to their home which was properly quantified
at 61,342, and a fraudulent claim for rental of
alternative accommodation for 8,257. The court
accepted a concession that the rental claim was
sufficiently substantial to taint the whole claim
and make it irrecoverable (see Arden LJ at para 12).
If the approach of Millett LJ in Galloway be right,

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

a fraudulent element of 2,000 (and quite possibly

considerably less) is sufficiently substantial to
vitiate a marine insurance claim of 3 million or
more.
158. In the context of the extension of the rule to
fraudulent devices, Mance LJ conducted an analysis
in The Aegeon which emphasised the potential need
to draw a distinction between a test of materiality,
which would apply to a breach of the duty of good
faith under section 17 of the Marine Insurance Act
1906, and the test applicable to fraudulent claims
or devices. His analysis deserves extensive citation:
31. The authorities also indicate that there
are differences between, on the one hand, a
fraudulent claim to recover a non-existent or
exaggerated loss and, on the other, a breach of
the duty of good faith under s 17. Mr Justice Rix
said in Royal Boskalis, at p 599, that:
upon my understanding of the nature of a
fraudulent claim, there is no additional test of
materiality or, to put the same point perhaps in
another way, the test of materiality is built into
the concept of a fraudulent claim . . .
32. This observation merits some further
examination. I start by noting an aspect of this
Courts decision in Galloway [[1999] Lloyds
Rep IR 209]. The claim there made, following
a burglary, for some 18,143, consisted in the
main of genuine loss, but as to 2,000 involved
the alleged loss of a non-existent computer. The
Court agreed with the Judge that the whole claim
was forfeit. Lord Woolf MR [at p 213], explained
references in Orakpo [[1995] LRLR 443] to
the need for substantial fraud as intended
to exclude fraud which could be regarded as
immaterial (or, in Viscount Sumners words
in Lek v Mathews, so unsubstantial as to [be]
de minimis). In this context the right approach
was to look at the size of the non-existent loss
alone and not to draw some comparison between
it and the size of the genuine claim. Lord Justice
Millett [[1999] Lloyds Rep IR 209, page 215]
suggested that the right approach was to consider
whether the making of the claim was sufficiently
serious to justify stigmatising it as a breach of
[the insureds] duty of good faith so as to avoid
the policy. This assumes that the remedy of
avoidance is available in this context. Whether
it is available was not in issue in either Orakpo
or Galloway (as Lord Hobhouse observed in The
Star Sea [[2003] 1 AC 469, page 501, para 67]),
and is a matter which, I suggest, merits further
examination before the common law commits
itself.
33. Secondly, in relation to Rix Js observation
in Royal Boskalis [[1997] LRLR 523] to the
extent that loss claimed is non-existent, the
claim will fail anyway and the fraud is clearly

615
[POPPLEWELL J

material in so far as it amounted to an attempt

to recover for non-existent loss. But the real bite
of the fraudulent claim rule is to forfeit even
the genuine part of any claim; and the fraud by
definition is not material in any ordinary sense
to the genuine part. Thus, it is sufficient for the
rule to apply that the fraud occurs in making a
claim and relates to a part of the claim which,
when viewed discretely, is not itself immaterial
or unsubstantial.
...
36. What relationship need there then be
between any fraud and the claim if the fraudulent
claim rule is to apply? And need the fraud have
any effect on insurers conduct? Speaking here
of a claim for a loss known to be non-existent
or exaggerated, the answers seem clear. Nothing
further is necessary. The application of the rule
flows from the fact that a fraudulent claim of
this nature has been made. Whether insurers are
misled or not is in this context beside the point.
The principle only arises for consideration where
they have not been misled into paying or settling
the claim, and its application could not sensibly
depend upon proof that they were temporarily
misled. The only further requirement is that
the part of the claim which is non-existent or
exaggerated should not itself be immaterial or
unsubstantial: see paras 32-33 above. . . .
37. What is the position where there is use
of a fraudulent device designed to promote a
claim? I would see no reason for requiring proof
of actual inducement here, any more than there
is in the context of a fraudulent claim for nonexistent or exaggerated loss. As to any further
requirement of materiality, if one were to
adopt in this context the test identified in Royal
Boskalis and The Mercandian Continent [[2001]
2 Lloyds Rep 563], then, as I have said, the
effect is, in most cases, tantamount to saying that
the use of a fraudulent device carries no sanction.
It is irrelevant (unless it succeeds, which only
the insured will then know). On the basis (which
the cases show and I would endorse) that the
policy behind the fraudulent claim rule remains
as powerful today as ever, there is, in my view,
force in Mr Popplewells submission that it either
applies, or should be matched by an equivalent
rule, in the case of use of a fraudulent device to
promote a claim even though at the end of a trial
it may be shown that the claim was all along in
all other respects valid. The fraud must of course
be directly related to and intended to promote
the claim (unlike the deceit in The Mercandian
Continent). Whenever that is so, the usual reason
for the use of a fraudulent device will have been
concern by the insured about prospects of success
and a desire to improve them by presenting the

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claim on a false factual basis. If one does use in

this context the language of materiality, what is
material at the claims stage depends on the facts
then known and the strengths and weaknesses
of the case as they may then appear. It seems
irrelevant to measure materiality against what
may be known at some future date, after a trial.
The object of a lie is to deceive. The deceit
may never be discovered. The case may then be
fought on a false premise, or the lie may lead to
a favourable settlement before trial. Does the fact
that the lie happens to be detected or unravelled
before a settlement or during a trial make it
immaterial at the time when it was told? In my
opinion, not. Materiality should take into account
the different appreciation of the prospects, which
a lie is usually intended to induce on insurers
side, and the different understanding of the facts
which it is intended to induce on the part of a
judge at trial.
38. The view could, in this situation, be taken
that, where fraudulent devices or means have
been used to promote a claim, that by itself is
sufficient to justify the application of the sanction
of forfeiture. The insureds own perception of the
value of the lie would suffice. Probably, however,
some limited objective element is also required.
The requirement, where a claim includes a nonexistent or exaggerated element of loss, that that
element must be not immaterial, unsubstantial
or insignificant in itself offers a parallel. In the
context of use of a fraudulent device or means,
one can contemplate the possibility of an
obviously irrelevant lie one which, whatever
the insured may have thought, could not sensibly
have had any significant impact on any insurer or
judge. Tentatively, I would suggest that the courts
should only apply the fraudulent claim rule to the
use of fraudulent devices or means which would,
if believed, have tended, objectively but prior
to any final determination at trial of the parties
rights, to yield a not insignificant improvement
in the insureds prospects whether they be
prospects of obtaining a settlement, or a better
settlement, or of winning at trial. Courts are
used enough to considering prospects, eg when
assessing damages for failure by a solicitor to
issue a claim form within a limitation period.
...
45. What then is the appropriate approach for
the law to adopt in relation to the use of a fraudulent
device to promote a claim, which may (or may
not) prove at trial to be otherwise good, but in
relation to which the insured feels it expedient to
tell lies to improve his prospects of a settlement
or at trial? The common law rule relating to cases
of no or exaggerated loss arises from a perception
of appropriate policy and jurisprudence on the

[2013]
[QBD (Comm Ct)]

part of our 19th century predecessors, which time

has done nothing to alter. The proper approach to
the use of fraudulent devices or means is much
freer from authority. It is, as a result, our duty
to form our own perception of the proper ambit
or any extension of the common law rule. In the
present imperfect state of the law, fettered as it
is by s 17, my tentative view of an acceptable
solution would be:
(a) To recognise that the fraudulent
claim rule applies as much to the fraudulent
maintenance of an initially honest claim as to a
claim which the insured knows from the outset
to be exaggerated.
(b) To treat the use of a fraudulent device as
a sub-species of making a fraudulent claim
at least as regards forfeiture of the claim itself
in relation to which the fraudulent device or
means is used. (The fraudulent claim rule
may have a prospective aspect in respect
of future, and perhaps current, claims, but
it is unnecessary to consider that aspect or
its application to cases of use of fraudulent
devices.)
(c) To treat as relevant for this purpose any
lie, directly related to the claim to which the
fraudulent device relates, which is intended to
improve the insureds prospects of obtaining
a settlement or winning the case, and which
would, if believed, tend, objectively, prior to
any final determination at trial of the parties
rights, to yield a not insignificant improvement
in the insureds prospects whether they be
prospects of obtaining a settlement, or a better
settlement, or of winning at trial.
(d) To treat the common law rules
governing the making of a fraudulent claim
(including the use of fraudulent device) as
falling outside the scope of s 17 (as advocated,
though more generally, by Howard N Bennett
in the article to which I have already referred).
On this basis no question of avoidance ab
initio would arise.
159. The test tentatively proposed, therefore,
is that fraudulent means or devices are sufficient to
vitiate a valid claim if:
(1) they are directly related to the claim and
intended to promote the claim; and
(2) the fraudulent means or devices would, if
believed, tend, objectively and prior to any final
determination at trial of the parties rights, to yield
a not insignificant improvement in the insureds
prospects, whether they be prospects of obtaining
a settlement, or a better settlement, or of winning
at trial. In this context not insignificant has the
same connotation as not insubstantial, not
immaterial, not de minimis, which is the

[2013]
QBD (Comm Ct)]]

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The DC Merwestone

test for the fraudulent claims rule, of which the

rule as to fraudulent means and devices is to be
treated as a subspecies.
160. The logic and juridical pedigree of such an
analysis is, with the very greatest respect, powerful.
It was adopted and applied by the Privy Council
in Stemson v AMP; by Blair J in Sharons Bakery
(Europe) Ltd v AXA Insurance UK plc [2012]
Lloyds Rep IR 164 (who as a result of a concession
treated the test under a clause applying to claims in
any respect fraudulent as replicating the common
law); and by Eder J in Aviva v Brown. Nevertheless
the low and relatively inflexible threshold which
this test of materiality imposes is one which I find
in a number of respects unsatisfactory.
161. The policy considerations which apply to
fraudulent claims take on a very different aspect in
the context of fraudulent means or devices which
are deployed to support a wholly valid claim. The
policy of the rule as applied to fraudulent claims is
to deter an assured from seeking to recover more
than his entitlement without risk of penalty; this is
explicit in the rationale given by Lord Hobhouse in
The Star Sea at para 62 and Mance LJ at para 31
of AXA v Gottlieb. In the context of the extension
of the rule to fraudulent means or devices deployed
in support of a valid claim, the assured is seeking
to recover no more than his entitlement, albeit
employing underhand means in doing so. It is
true that he is still seeking to gain to some extent
by his fraud: he intends to persuade the insurer to
pay his valid claim more promptly than the insurer
otherwise might and without recourse to litigation,
or to make a more generous offer of settlement
than otherwise might be forthcoming. But he is
not seeking to gain any more than that which the
court has subsequently been able to determine is his
contractual entitlement.
162. A different justification for the fraudulent
claims principle which has been suggested is that
it lies in the asymmetry of information which
also underpins the duty of disclosure at the time
of making the contract of insurance. This is the
explanation for the rule in the majority judgments
of Hoffmann LJ and Sir Roger Parker in Orakpo at
pages 450 and 452: a duty of good faith arises at the
time of making a contract of insurance because the
material facts are peculiarly within the knowledge
of the assured; the same is generally true in relation
to the casualty, and the continued existence of the
duty of good faith at the time the claim is presented
and pursued is justified by this imbalance; insurers
have to be able to trust the assured to put forward
a claim in good faith. But this asymmetry of
information at the claims stage is a commonplace
of many civil claims. Outside the insurance
context, the quantification of a claimants damages
will often depend upon facts and circumstances

617
[POPPLEWELL J

which are peculiarly within the knowledge of the

claimant. I find this rationale for the rule, with
respect, insufficient to explain its peculiar and
exclusive application to insurance claims. It is not
the justification which has been adopted in the
subsequent authorities, including in particular The
Star Sea, The Aegeon and AXA v Gottlieb.
163. The assureds contractual entitlement is an
entitlement to be indemnified, that is to say to be
held harmless against the suffering of the loss in
the first place: see Firma C-Trade SA v Newcastle
Protection and Indemnity Association (The Fanti
and The Padre Island) [1991] 2 AC 1, page 35). Nonpayment by the insurer, even during a reasonable
period for investigation, is a breach of the insurers
obligation to indemnify. His failure to pay may well
cause the assured to suffer consequential loss; but
the assured cannot recover for losses caused by the
insurers wrongful refusal to pay a valid claim: see
Ventouris v Mountain (The Italia Express) (No 2)
[1992] 2 Lloyds Rep 281. In this respect the law
disadvantages the assured, and is widely regarded
as unfair and in need of reform. In seeking prompt
payment of a valid claim, an assured is not only
seeking that to which he is entitled, but may often
be seeking to avert consequential losses which are
being caused by the insurers wrongful refusal to
pay the claim. In the marine insurance context these
may be very substantial. The irrecoverability of
losses caused by the insurers failure to pay a valid
claim bears on the current problem in two ways.
First, the degree of culpability which attaches to
an assured who uses a fraudulent device to seek
prompt payment of a valid claim, in order to avert
further irrecoverable losses which are being caused
by non-payment, may lie at the lower end of the
scale, especially when set in the context of the fact
that the non-payment of the claim is a failure by the
insurer to do that which is the very essence of the
contract of indemnity, namely to hold the assured
harmless from the consequences of the casualty.
This will especially be so if the insurers conduct
is unreasonable. Secondly, if the fraudulent devices
rule deprives the assured of his claim, it leaves him to
bear losses comprising not only the amount insured,
but also losses suffered by reason of non-payment
of his valid claim, which may potentially be very
substantial. These may be very harsh consequences
to visit upon an assured whose culpability is at the
lower end of the scale.
164. All fraud rightly attracts condemnation. In
the Law Commissions recent second consultation
paper on Insurance Contract Law: Post Contract
Duties and other issues, it is recorded at paras
6.1 and 6.6 that fraudulent insurance claims are a
serious and expensive problem. The Association of
British Insurers (ABI) reported that in 2010 insurers
uncovered 133,000 fraudulent claims; and that the

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The DC Merwestone

value of these claims totalled 919 million or 5 per

cent of the value of all claims made on its members
that year. According to an ABI news release dated
28 July 2011, insurance fraud is said to cost the UK
economy 2 billion every year. If these figures are
accurate, they fully justify the widespread judicial
comments that insurance fraud is prevalent and a
scourge. But it may be appropriate to sound a note
of caution. I would venture to doubt whether a
significant element of the problem reflected in these
figures is represented by wholly valid claims which
are supported by a fraudulent device.
165. Whilst any fraud is to be condemned as
reprehensible and is to be discouraged, the degree of
culpability and the force of the condemnation must
take their colour from the differing circumstances of
each case. Not all fraud attracts the the same moral
obloquy, as is recognised in the sentencing practice
applied to criminal offences involving dishonesty
and fraud. The assured who burns down his house
for the insurance proceeds, or makes a claim for a
fictitious loss attracts greater condemnation than
the householder who includes, within a property
and contents claim of 500,000, a claim for 2,000
for a computer he has genuinely lost, but believing
that the insurers will not pay without some proof
of purchase, supports it by presenting an invoice
which is for a similar computer which has not been
lost, in circumstances where he knows it is not the
right invoice but cant be bothered to search for the
right one. Those cases where fraud is employed
by an assured in pursuit of a wholly genuine and
valid claim may come towards the lower end of the
scale of culpability. The conduct of the insurer in
declining the claim may be unreasonable. Insurers
may be seen by assureds, whether legitimately
or not, as messing them about in delaying or
declining the payment of a valid claim. In the
marine context, assureds often pay large premiums,
and the insurance is taken out with the purpose, and
legitimate expectation, that the cover will enable
them to cope with the serious financial impact of
a casualty: delay in payment of a claim can cause
real financial hardship. That was the position of the
owners in this case and Chris Kornets frustration
at the continuing and serious adverse consequences
for the owners resulting from the underwriters
delay in accepting the claim, however reasonable
the underwriters conduct, is an understandable
human reaction.
166. As formulated in The Aegeon, the
materiality test is not concerned with the protection
of the particular insurer who is the victim of the
fraudulent device. There is no requirement that
the insurer should have been deceived by the lie,
or that the lie should have played any part in his
consideration of whether or when to pay the claim.
It is the assureds attempt to deceive which is

[2013]
[QBD (Comm Ct)]

sufficient to attract the penalty of forfeiture of the

valid claim. Moreover the logic of the test is that the
attempt to deceive, once committed, is irremediable.
A correction or retraction would be ineffective. The
assured who in a fit of exasperation tells a lie but,
having calmed down, corrects it the following day,
would still forfeit his claim: see Stemson at para 34.
167. The test is therefore capable of operating
to visit disproportionately harsh and unjust
consequences upon an assured in favour of an
undeserving insurer.
168. Such potential consequences fall to be
judged against the background of two anomalous
aspects of the fraudulent devices rule. The first
is that the rule of law under consideration is one
imposed upon the parties as an incident of their
contract notwithstanding that the parties have not
agreed it. Many non-marine policies contain a
term which provides for forfeiture of the claim in
the event of fraudulent claims or means: see for
example the clause in Sharons Bakery at para 75.
Insurers are free to include such a term in their
policies if the assured will agree to it. In the absence
of such a clause, the parties have not agreed that
any fraudulent device will forfeit a valid claim,
either expressly or by a process of implication or
interpretation of their agreement. The fraudulent
claims rule appears to have had its origin in clauses
inserted in fire policies until the law took a turn
in the early 19th century of treating such clauses
as no more than a reflection of the position at
law. Whether that was a wrong turn is not now
open to debate, for the fraudulent claims rule is
established at the highest level. But the scope of
the fraudulent devices rule is less well established,
and the question under consideration is as to the
consequences which the law should visit on parties
to a contract who could have provided that a valid
claim should be forfeited if tainted by a fraudulent
device used in support of it, but have chosen not to
do so. That would suggest that the approach should
be to interfere with the parties bargain no further
than the policy of the law strictly requires.
169. The second anomalous aspect of the rule
is that whilst any fraud is reprehensible and is to
be discouraged, it is not normally the function
of the civil law to provide such deterrence. The
fraudulent claims rule in insurance is a form of
penal non-damages which, so far as I am aware,
has no parallel elsewhere in the common law. Yet
deliberate exaggeration of claims, for example in
the context of personal injuries, occurs regularly
and does not attract the sanction of loss of that part
of the claim which is valid: see for example the
observations of Lord Clarke in Fairclough Homes
v Summers at para 32, of Park J in The Aegeon at
para 58, and of Smith LJ in Shah v Ul-Haq [2010]
Lloyds Rep IR 84; [2010] 1 WLR 616; at para 17.

[2013]
QBD (Comm Ct)]]

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The DC Merwestone

Fraudulent claiming is not a problem peculiar to

claims by assureds under contracts of insurance.
HHJ Hawkesworth QC (quoted in Shah v Ul-Haq
at para 13) has said the following in relation to road
traffic accidents, where the claim is in tort and does
not arise under a contract of insurance, and the
defendant is, nominally at least, not an insurer:
Unhappily such fraudulent claims are now
legion. They occupy the court time of District
Judges and Circuit Judges in West Yorkshire
literally week in and week out. My own judicial
experience reflects, I have no doubt, that of many
of my brethren throughout the country. Just
about every variant of a fraudulent claim comes
before the court, including deliberately staged
collisions, damage caused to vehicles which have
never been in collision at all, claims deriving from
the most trivial touching of vehicles, and claims
in which a driver will assert that his car was
carrying other members of his family including
his children, when in fact none were present but
all of whom have reported to a hospital or their
General Practitioner that they have been injured,
and who are then able to produce an apparently
independent experts report confirming the fact
of such injury. The cost to the insurance industry
and to other honest policy holders must be very
substantial. In addition, and of more relevance to
these proceedings, the cost in court time in trying
such cases is very high, with the added knock-on
effect of casting suspicion onto many genuine
claims so that claimants are put to proof of their
legitimate and genuine claims for compensation
when in other circumstances they might not have
been called upon to do so.
170. These are all examples of fraudulent claims
which are in whole or in part invalid, rather than valid
claims supported by a fraudulent device. Yet the
common law makes no provision for the forfeiture
of the valid element of such claims outside the
insurance context, let alone those which are wholly
valid. If the anomalous rule is to be extended to
fraudulent devices used in support of valid claims,
it is to my mind important that it should not itself
be allowed to be used as an instrument of injustice.
171. As a result of all these considerations,
I would be strongly attracted to a materiality test
which permitted the court to look at whether it
was just and proportionate to deprive the assured
of his substantive rights, taking into account all the
circumstances of the case. The blunt instrument
of a relatively inflexible test of materiality,
reminiscent of the old latin tag fraus omnia
corrumpit, must surely be capable of yielding to
a more proportionate response, which can meet the
varying circumstances of each case. Such a flexible
approach has been introduced in Australian law
in section 56 of the Insurance Contracts Act 1984

619
[POPPLEWELL J

(which however does not apply to marine insurance)

which allows a court, in relation to claims which are
partly false and fraudulent, to order payment of an
amount which it thinks just and convenient where
forfeiture of the part of the claim which is valid
would be harsh and unfair.
172. Support for such an approach can be found
in the decision of the Supreme Court in Fairclough
Homes v Summers. In that case the claimant suffered
an accident at work and sued his employers. The
claim was defended by the employers liability
insurers who were the real party at interest. The
claimant obtained judgment on liability with
damages to be assessed. For the purposes of the
quantum hearing the claimant signed a witness
statement describing the debilitating effect of his
injuries and the extent to which they had rendered
him unable to work. His initial schedule of loss
claimed over 800,000. The employers liability
insurers discovered by means of covert surveillance
that this was fraudulent and involved a gross
exaggeration of his injuries, and sought to strike out
the claim as an abuse of process. The trial judge
held that the exaggeration of the injuries, and the
consequent claims for loss advanced in successive
schedules of loss, were dishonest and that he had
deliberately lied as to his ability to work. The judge
assessed the value of the valid claim at 88,716.76.
He declined to strike out that claim, on the grounds
that he was bound by the decisions of the Court
of Appeal in Shah v Ul-Haq and Widlake v BAA
Ltd [2009] EWCA Civ 1256 which decided that
there was no power to do so. The Supreme Court
overruled those decisions and held that there was
power to strike out claims as an abuse where they
were fraudulent in any respect, but declined to do
so in respect of Mr Summers claim. There was no
appeal against the amount which the trial judge had
assessed as being the extent of his valid claim.
173. Lord Clarke, giving the judgment of the
court, recorded at para 24 that it was accepted on
behalf of the claimant that in making the false
statements of truth and in presenting a dishonest
case as to the effect of his injuries and on quantum,
the claimant was guilty of a serious abuse of
process. At para 33 he stated:
We have reached the conclusion that,
notwithstanding the decision and clear reasoning
of the Court of Appeal in Ul-Haq, the court does
have jurisdiction to strike out a statement of case
under CPR 4.3(2) for abuse of process even after
the trial of an action in circumstances where the
court has been able to make a proper assessment
of both liability and quantum. However we
further conclude, for many of the reasons given
by the Court of Appeal, that, as a matter of
principle, it should only do so in very exceptional
circumstances.

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174. Having repeated at para 36 that the court

would only strike out a claim as an abuse at the
end of a trial in very exceptional circumstances,
Lord Clarke went on at paras 43 and 44 to approve
para 72 of the judgment of the Court of Appeal
in Masood v Zahoor [2010] 1 WLR 746, to the
effect that it would only do so where the abusive
conduct was such that the claimant had forfeited
his right to have his claim determined, which
would be a very rare case. At paras 46 to 49 he
referred to a claimants rights under article 6 of the
European Convention on Human Rights requiring
the court to examine the circumstances of the
case scrupulously in order to ensure that to strike
out the claim would be a proportionate means of
achieving the aim of controlling the process of
the court and deciding cases justly. At para 49
he said:
The draconian step of striking a claim out
is always a last resort, a fortiori where to do so
would deprive the claimant of a substantive right
to which the court has held he was entitled after
a fair trial. It is very difficult indeed to think of
circumstances in which such a conclusion would
be proportionate. Such circumstances might,
however, include a case where there had been
a massive attempt to deceive the court but the
award of damages would be very small.
175. At para 61 he concluded that:
The test in every case must be what is just and
proportionate. It seems to us that it will only be in
the very exceptional case that it will be just and
proportionate for the court to strike out an action
after a trial.
176. I find this decision instructive in the context
of fraudulent means or devices deployed by an
assured prior to the commencement of litigation.
The fraudulent claims rule itself, and its extension
to fraudulent devices, is restricted to the period
prior to the commencement of litigation (see
Fairclough Homes v Summers at para 29, The Star
Sea at para 77 and The Aegeon at paras 47 to 53).
But the policy of deterrence of fraud, which is said
to underpin the rule, is not diminished at the point
of time when the assured brings the claim before the
court. On the contrary, one might have thought that
the policy of deterrence was at its strongest after
the commencement of litigation, when such fraud
amounts not only to an attempt to deceive insurers
but additionally to an attempt to manipulate the
courts process. If in the latter context an assured
is not to be deprived of his substantive rights save
in the very rare and exceptional circumstances
where that is a just and proportionate sanction
for his fraudulent conduct, it is difficult to see a
justification for applying a lower threshold to the
same conduct in presenting his claim prior to the
commencement of litigation.

[2013]
[QBD (Comm Ct)]

177. In these circumstances, and with the very

greatest diffidence and respect, I would hesitate to
follow the tentative proposals suggested by Mance
LJ in The Aegeon. My own view would be that if the
law is to extend the draconian effect of an anomalous
rule, applicable only to insurance claims, and then
only prior to the commencement of litigation, to
striking down wholly valid claims, the policy of the
law should be to require at least a sufficiently close
connection between the fraudulent device and the
valid claim to make it just and proportionate that
the valid claim should be forfeit. The law does not
provide in this context that the end always justifies
the means; but nor should it say that any dishonest
means which are more than de minimis should
deprive a litigant of his just ends. What will be just and
proportionate will depend upon the circumstances of
each case, which may vary considerably.
178. Can such a conclusion be reconciled with
the decision of the Privy Council in Stemson v AMP
General? I do not believe that it can. In that case an
assured brought a claim for property damage arising
from his house burning down. It was common
ground that the fire was arson and the main issue
was whether the assured was party to the arson.
The trial judge held that he was, and the decision
was upheld by the Court of Appeal of New Zealand
and the Privy Council. The trial judge held that the
claim also failed on the additional ground that it was
supported by a fraudulent device. The assured had
made a dishonest statement to the insurers claims
investigator that he had not previously attempted to
sell the property or even considered putting it on
the market. The trial judge found that he had been
to see a real estate agent and asked him to put the
property on the market, in a serious attempt to sell
the property, shortly before the fire. He described
this as a knowingly false statement of very distinct
significance in the context of the investigation into
this fire, and held that this provided a separate
ground entitling the insurer to avoid liability under
the policy quite independently of the arson.
179. Lord Mance, giving the judgment which
represented the unanimous opinion of the Board on
this point, upheld this ground. He recorded at para
35 that counsel for the assured did not challenge
any of the statements of principle which, as Mance
LJ, he had set out in The Aegeon and concluded at
para 36:
On that basis, the Board has no hesitation in
upholding the judges conclusion that, quite apart
from any question of arson, the respondent was
entitled to reject the appellants insurance claim
(as it did) on the ground that the appellant had
sought to promote it in May 1992 by lying to
the respondent about the position, and his state
of mind, regarding any attempt to sell the house
prior to the fire. The materiality of such matters

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

to the respondents investigation and evaluation

of this insurance claim is not challenged and is,
as the judge indicated, obvious.
180. In that case the assureds claim was wholly
fraudulent, so that the Board was not considering
the point in the context of a valid claim.
Nevertheless the unspoken assumption underlying
the conclusion that it was an additional ground
for declining the claim is that it would have been
sufficient to defeat the claim if the householder had
been the innocent victim of a malicious arsonist.
In treating the test as one of the materiality to the
insurers investigation and evaluation of the claim,
the Board were applying the test proposed by
Mance LJ in The Aegeon.
181. Decisions of the Privy Council are not
binding on me, but they command the very greatest
respect. The decision in Stemson was reached
without any argument on this point, but was reached
unanimously and without hesitation. The reasoning
of Mance LJ in The Aegeon, whilst strictly speaking
obiter and so not binding on me, was a full and
considered analysis after argument on the point,
and was agreed with by the full court. By contrast,
I have not had full argument on the point. In those
circumstances I shall apply the test of materiality
proposed by Mance LJ in Agapitos v Agnew and
ignore my own tentative inclination to apply a test
of what is just and proportionate.
Investigation of the casualty and presentation
of the claim
182. On 29 January 2010 Gertjan Kornet
attended the vessel at Gdynia in the immediate
aftermath of the casualty, as did Han Gravendeel of
Doldrums, the surveyors appointed on behalf of the
underwriters. On 30 January 2010 the crew signed
a joint declaration pursuant to a request from
Gertjan Kornet that they talk together and prepare
a joint statement. The declaration dealt only with
the narrative of the casualty, and started its account
of events with the bilge alarm being heard by the
engineer at 20.58.
183. Water was pumped from the vessel between
30 January and 2 February, and diving inspections
took place on 30 and 31 January. Arrangements
were made to discharge the cargo, which was
completed on 20 February, and the vessel moved
to dry dock between 22 and 24 February, where
surveys and inspections were undertaken by Gertjan
Kornet and Mr Gravendeel amongst others. On
26 February the vessel left Gdynia under tow for
Bremerhaven, where she arrived on 4 March for
permanent repairs.
184. On 24 February Gertjan Kornet prepared
a report headed (in translation) EXPLANATION
OF THE CAUSE OF THE LEAKAGE DC

621
[POPPLEWELL J

MERWESTONE which was emailed to Chris

Kornet and to Carins, the owners Dutch broker.
The report concluded that the initial suspicion
that the stern screw was the source of ingress
was misplaced; and that the sealing and pressure
testing of compartments through which the leak
might have come pointed to the bowthruster
room as the source; but that the question which
everyone was wondering was whether that could
have caused the engine room to fill so quickly. It
was in this context that Gertjan Kornet recorded
his discussions with the crew, which referred to the
bilge alarm going off at 21.15 but did not address
whether an alarm had gone off earlier in the day.
The report was based on what were described as
some fairly critical questions asked of the crew
who remained on board, which included the master
and engineer.
185. The claim was presented to Gerling
through Carins, the producing broker, and Jardine
Lloyd Thompson (JLT), the placing broker. At
the request of Gerling, and with the cooperation
of the owners, arrangements were made for the
underwriters Admiralty Manager, Mr Billowes of
Ince & Co, to attend the vessel and to interview
the crew. He attended the vessel on 2 April 2010
and interviewed the masters (Captain Loosman and
Captain Lilipaly), the Chief Officer and the Second
Officer in Holland on 1, 6 and 7 April 2010, and
the engineer in Manila on 12 and 13 April 2010.
Gertjan Kornet and Kees Parel appear to have sat
in on at least part of the interviews at Werkendam,
but the owners did not have a representative present
throughout and were not provided with notes or
statements of the evidence taken.
186. On 16 April 2010 Mr Billowes sent an email
to Werner Schurink at Carins asking him to ask the
owners to provide 36 categories of documents and
in addition Owners explanation for the cause
of the ingress, the spread of the ingress into the
engine room and the reason the ingress could not be
controlled by the ships pumps. It was forwarded
by Mr Schurink to Chris and Gertjan Kornet, Ton
Schootens the adjuster, and Han Gravendeel of
Doldrums, the underwriters surveyor, with the
suggestion that they all work on it full steam
ahead.
187. The response came in a letter dated 21
April 2010 signed by Chris Kornet which was
forwarded to Mr Billowes by Carins on 23 April
2010. It included the following passages:
After further internal investigation due to
the problems onboard DC Merwestone we will
inform you as follows.
Facts
Floating visual by crew 28 January 2010
around 21.00 hrs.

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The DC Merwestone

Bilge alarm from bow thrusters and engine

room have the same alarm point so nobody can
see exact which area gives alarm.
First alarm was going off around noontime due
to rolling vessel (weather SSE 7) vessel rolling.
No investigation in bow thruster room.
When bilge alarm activate during rolling
nobody has controlled this due the rolling.
...
Due to the weather circumstances the first bilge
alarm has go gone of off [sic] in the morning. If
there was leakage or due to rolling we are not
sure.
...
Conclusion
1. starting time of leakages is around 13.00
hrs on 28 of January.
188. On 1 June 2010 the two case handlers at
Ince & Co sent an email to Mr Schurink stating
that they had reviewed the documentation and
information provided by owners, including the
letter dated 21 April. Ince & Co sought clarification
in the form of questions on 13 topics. Question 2
was as follows:
(2)(a) What evidence do Owners rely on
that the bilge alarm operated around noon on 28
January?
(b) Who heard it and when?
(c) Who acknowledged it?
(d) Who took the decision not to investigate
it?
189. The response came in a letter to Gerling
signed by Chris Kornet dated 27 July 2010 giving
the following answers:
2(a) Owners were told by the vessels captain
that the bilge alarm operated around noon on 28
January.
2(b) Owners believe it was the watchkeeper/
Master on the bridge and the Engineer in the
engine room. They thought the alarm was
routine. For further information, Owners suggest
Underwriters refer to their own interview notes.
2(c) Owners do not know. They suggest that
Underwriters refer to their own interview notes.
2(d) Owners assume it was the Master. It
was in any event not possible to go forward.
Temperatures were minus 10 to minus 20, and
the vessel was shipping heavy seas and water
over the fore deck. Furthermore, Underwriters
have interviewed the crew members.
190. The report of Mr Barker of TMC dated
27 January was forwarded through the broking
channel to JLT on 22 February 2011. At para 3.3
it included the following as part of the narrative of
the casualty:

[2013]
[QBD (Comm Ct)]

Whilst at sea, in SSEly Beaufort force 7

winds, at about noon on 28th January the bilge
alarm sounded. There is a bilge alarm fitted in
the Bow Thruster Room and the Engine Room
however the alarm is connected to a single
buzzer/warning light in the Engine Room and
on the Bridge. If the alarm sounds it is necessary
to verify the bilge levels by visual inspection.
The vessel was rolling, and due to the adverse
weather (which would have been just aft of the
port beam), the alarm was accepted without
anyone going forward to inspect the Bow
Thruster Compartment. The crews experience
was that the alarm is sometimes triggered when
the vessel was rolling and they were not unduly
concerned. The bilge warning light would have
remained on.
191. It will be recalled that by the time of the
trial the owners no longer contended that an alarm
had gone off before 20.58 on the 28 January 2010.
Preparation of the 21 April and 27 July letters and
TMC report
192. As indicated above, Chris Kornet received
by email from Carins, on the evening of Friday 16
April 2010, Ince & Cos request for the owners
explanation for the cause of the ingress, the spread
of the ingress into the engine room and the reason
the ingress could not be controlled by the ships
pumps. On the morning of Tuesday 20 April at
10.53, he sent his draft response to Mr Schurink,
which contained the relevant passages about the
noon alarm in materially identical form to those in
the letter as sent on 23 April.
193. Chris Kornets evidence in crossexamination was that before preparing that draft,
he spoke to the master on the telephone for five to
10 minutes, on 20 April, and that the master told
him during that conversation that the alarm had
gone off at around noon, although not that it had
been ignored as attributable to the vessel rolling.
The watchkeeping arrangements on the vessel
were for watches from 01.00/13.00 to 05.00/17.00,
05.00/17.00 to 09.00/21.00, 09.00/21.00 to
13.00/01.00. The master took the 09.00 to 13.00
watch and so would have been on watch at around
noon. Chris Kornet accepted in his evidence that
the explanation for not investigating the alarm
was speculation; it was based on the masters
confirmation that there had been an alarm and
what he, Chris Kornet, thought the most likely
explanation based on his own understanding of the
conditions. His understanding that the weather at
noon on 28 January 2010 was SSE 7, as recorded
in the 21 April 2010 letter, originated in the deck
log, which records that as the wind speed and
direction on that day, together with rough sea and

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

moderate swell. That entry is for a 08.00 to 12.00

watch. For a 12.00 to 16.00 watch the relevant
entry is wind N 3, sea slight, swell low. Chris
Kornet was cross-examined on the basis that the
log showed that the weather at noon was slight seas
and a low swell, but that is not the obvious reading
of the log. The log was on a pre printed form
which assumed normal watch changeover times of
12.00/00.00, 16.00/04.00 and 20.00/08.00, whereas
on the vessel the watches changed at 01.00/13.00,
05.00/17.00 and 09.00/21.00. Although one might
expect the wind and sea state recorded to pertain
to the beginning of the watch, the entries record
the vessels position at the end, rather than the
beginning, of the watch, so that the 08.00 to 12.00
entry has the GPS position at noon. The 08.00 to
12.00 entry records the pilot coming on board at
Klaipeda at 08.00, casting off lines at 09.50, and the
pilot disembarking at 10.50, from which it would
have appeared that at the beginning of the watch the
vessel was still in Klaipeda and not subject to rough
seas and a moderate swell which were recorded
against that watch. Even if that is not the correct
reading of the log, judging from the photocopies in
the bundles, which do not have the entries on the
same page as the time to which they relate, it would
be an easy mistake to make to treat that as the noon
weather and sea state. I accept that when preparing
his responses, Chris Kornet believed the weather
at noon to have been SSE 7 with rough sea and
moderate swell as a result of his reading of the deck
log entry, whether that was a correct reading or a
misreading, or a misremembering of the document.
194. Chris Kornets draft was promptly passed
on by Mr Schurink to Mr Gravendeel with a request
to consider whether the theory of ingress was
plausible from a technical aspect. Mr Gravendeel
responded later that day with a calculation that
the cable duct openings were equivalent to a 6 in
diameter pipe, and other points not here relevant,
which were passed to Chris Kornet for preparation
of his final draft. On 21 April Mr Gravendeel said
that he would take a critical look at one or two things
when he was on board the vessel the following day
at Bremerhaven in relation to the filter lid; he did
so and reverted on 23 April. There was no input or
change to the passages dealing with a noon alarm
prior to it being sent, save for an apparent intention
to correct go of to gone off which suffered a
word processing mishap of addition rather than
substitution. The 21 April letter, as sent on 23 April,
was drafted by Chris Kornet on his own, not in
conjunction with his brother Gertjan. The question
about the filter lid was dealt with separately in a
letter dated 23 April.
195. When the 1 June email was received by
Mr Schurink, it was promptly forwarded to Chris
Kornet and Gertjan Kornet the same day, with Mr

623
[POPPLEWELL J

Schurinks comment that he could only see one

really annoying question, namely 10A. That was
a question asking who at K&Z had authorised the
cutting of the ballast line.
196. Gertjan Kornet prepared a response for
internal consideration the same day which answered
questions 2(a) to (d) compendiously as follows:
No crew member report this. But according
the last ism report it was working so theoretical
it have to be working. Also at that time. We
have to be aware the report which was send by
owners was a report about the situation which
most probably happened, not the one who
happens. Looking to the weather forecast and
wind direction the vessel was rolling at that time,
so from experience we have the idea what has
happened. No crew member has report this.
197. This response was forwarded to Chris
Kornet that afternoon. Chris Kornets reaction was
Questions, but when is my question going to be
answered meaning when were the underwriters
going to make a decision on payment of the claim.
He did not at that stage, or indeed at any subsequent
stage, take up with Gertjan Kornet the latters
assertion that no crew member had reported a noon
alarm. He provided his own additional comments
to Mr Schurink on 2 June without addressing
question 2.
198. At 12.48 on 2 June Mr Schurink
coordinated the answers into a single document and
sent it to Chris and Gertjan Kornet emphasising that
it was a very important document and that you as
shipowners have to back it completely. It answered
question 2 as follows:
2a. According to the last ISM report it was
working properly
2b. no crew member reported this to us
2c. nobody
2d. we cannot say if this decision was made at
all as no comment was made on this alarm.
199. This draft was also forwarded to Mr
Gravendeel for his advice from a technical aspect,
which resulted in a slight change to the answer to
question 6. When Mr Schurink forwarded a revised
version to both Chris and Gertjan Kornet on 3 June
he left the answers to questions 2(b)(c) and (d)
blank. His covering message recorded that Chris
Kornet was going to give him the correct answers
and commented after all on 21/4 we wrote alarm
was sounded at noon. This drew attention to the
difficulty in reconciling what had been drafted as
a result of Gertjans Kornets response with what
Chris Kornet had said in the 21 April letter.
200. Chris Kornets response was to draft a form
of wording which he sent by email to the master
at 15.15 on the same day, 3 June, in the following

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The DC Merwestone

terms (correcting some of the typographical errors

and linguistic and syntactical infelicities in the
original):
In the morning a bilge alarm went off do you
know roughly at what time and what did you do
and why? If I say the following can you go along
with it think about what you stated earlier. [This
part was in Dutch, the remainder was in English.]
Please be aware the report we sent was based
on brief information from various persons. Based
on the information we sent the message as what
could happen based on this info.
When vessel starts rolling after leaving
Klaipeda we had bilge alarm. This is a combined
alarm between bow thruster room and engine
room. We check the engine room but this looks
in normal condition. Due to the rolling we take it
as a fact bilge alarm was from bow thruster room
and activated due to rolling.
Alarm sound is on the bridge and in the engine
room so watch keeping person should have heard
this.
Acknowledgement has to be done in the
engineroom.
We can not give a clear answer on the last
questions. It should be motorman or officer of
watch.
201. In his second witness statement which he
verified in evidence, Chris Kornet said that he had
convinced himself at around this time that there had
been an alarm earlier in the day, and he had spoken
to the master on several occasions to say that
he could not understand how there could not have
been an alarm; and that eventually the master said
something like I guess there must have been an
earlier alarm. Chris Kornets statement said I took
that to mean that he himself had heard the alarm.
202. The passage in the email asking the master
to think about what you stated earlier is not a
clear pointer to Chris Kornet already having had a
conversation with the master on this topic by that
time: it might be an exhortation to ensure that what
the master confirmed was consistent with what
he had said when interviewed by Mr Billowes of
Ince & Co. It does not suggest that in any earlier
conversation the master had confirmed a noon
alarm: it asserts a morning alarm and asks the
master what time it went off.
203. A little under four hours later, on the
evening of 3 June, Chris Kornet sent an email to
Carins saying that he had checked the information
set out with the master, and setting out answers in
materially identical terms to the text of what had
been sent to the master earlier in the afternoon to
see if he could go along with it. Chris Kornets
evidence was that he spoke to the master in the
interim and the master confirmed he was happy with

[2013]
[QBD (Comm Ct)]

the wording, although that was reconstruction rather

than recollection because he freely accepted that he
could no longer recall the specific conversation.
204. In the masters evidence to me, the master
accepted that the alarm had not gone off in the
morning; he also appeared to accept in crossexamination that he had never had a recollection at
any stage that it had. However I formed the impression
that he did not really understand the difference
between these two concepts. He was asked whether
he had told Chris Kornet that it might have happened
but that he had no recollection, to which he replied
Yes, something along those lines. He rejected the
suggestion that Chris Kornet was very insistent on
this account of events. The inherent probabilities are
that Chris Kornet did have a further communication
with the master following the form of wording sent to
him for approval; there would have been little point
in sending it to him unless a response was insisted
upon. Chris Kornet had copied in Mr Schurink with
his email to the master before he had a response and
said we will confirm. I conclude that there was
such a conversation in which the master confirmed
that he would support the account set out in Chris
Kornets email. My assessment of what is most
likely to have happened is that in this conversation
Chris Kornet made clear to the master his view that
the alarm must have gone off around noon, and that
the latter ultimately conceded that there must have
been such an alarm, which Chris Kornet took to be
confirmation from the master that he must have heard
it because it was during his watch. The master gave
Chris Kornet confirmation that he would support the
account sent to him in Chris Kornets email, which
included the explanation for ignoring the alarm as
attributable to the vessel rolling.
205. On 7 June Mr Schurink adapted the answers
he had been sent into a further draft and sent it back
to Gertjan and Chris Kornet with the following
rubric:
The further edited version. Read your
corrected item two (a/b/c/d) very carefully
again! If I see things from the point of view of
the insurers, I would still have a question about
why the bow thruster room was not checked?
Possible reply could be weather on board too bad
and therefore dangerous?????
206. In fact the account which Chris Kornet
had sent to Mr Schurink confirming what he had
checked with the master did include a reference to
the strong wind and temperatures of minus 20, but
Mr Schurink had not included it in his redraft. Chris
Kornet replied a week later on 14 June:
We as owners have asked the crew why they
have not checked the bow thrusters.
Answer weather was very bad se 7/8 see log
book. Vessel was rolling water covers deck and

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

hatches tempeture -20 degrees, so it was not safe

for crew to go outside.
207. There is no suggestion that there was any
new enquiry of the crew which prompted this
response. Chris Kornets response was then added
to the current draft as part of answer 2(d).
208. There is no documentation in the brokers
file or from the owners which reveals substantial
discussion about the terms of the answers over the
following six weeks. When the final version was
signed by Chris Kornet on 27 July 2010 and sent
to the underwriters, the answers to question 2 had
changed to the form I have set out above. These
included
(1) confirmation that the master had said that
he had heard the noon alarm;
(2) confirmation that the owners believed that
it had been heard also by the engineer;
(3) confirmation that it had not been
investigated because they thought it was routine;
and
(4) reference to the notes of interviews taken
by Ince & Co on behalf of the underwriters:
this latter reference suggests that Chris Kornet
believed that his account would be at least
consistent with, if not corroborated by, what the
crew had previously said during those interviews.
209. It is not clear what source of information
was used by Mr Barker in compiling the TMC
report of 27 January 2011, and the question was
not explored at the hearing. The account set out
in the report identified, as is usual, the factual
basis on which he was expressing his conclusions.
In this context it treated as fact the sounding of
the noon alarm, and gave the rolling of the vessel
as the reason for the crews failure to investigate
it. Chris Kornet could not remember whether the
report had been sent to him, but accepted it was
possible. In my view it is likely. By sending the
report in support of the claim, the owners were
putting those matters forward as their explanation
of what had happened on 28 January 2010, and
I infer that Chris Kornet was aware that that was
taking place.
Chris Kornets state of mind
210. There are two relevant features which form
important context. The first is that as a result of legal
advice from Carins, Chris Kornet believed, when
preparing his responses in the 21 April and 27 July
letters, and sending the TMC report, that it would
assist the claim if he minimised any opportunity
for attributing fault to the owners, rather than the
crew, in relation to the cause of the casualty. That is
apparent from the following:
(1) In an email of 26 March 2010, sent in
the context of the forthcoming interviews of the

625
[POPPLEWELL J

crew by the underwriters solicitors, Mr Schurink

advised Chris and Gertjan Kornet as follows:
This email is strictly confidential, please
do not forward.
. . . Important; nobody can say the insured
is to blame (in the sense of the shipowner,
lets say Werkendam). That would unleash a
discussion about the final sentence in 6.2.5 of
the policy conditions, namely;
Provided such loss or damage has not
resulted from want of due diligence by the
Assured, Owners or Managers.
On the other hand, it will probably not come
to that; after all, weve got nothing to hide.
However, the men (crew) must not screw
things up at the expense of the office. Admit
mistakes. Everybody makes mistakes once in
a while, especially if there is a bit of panic,
and errors by the crew (crews negligence) is
covered.
Chris Kornet accepted in evidence that
he regarded this as legal advice, and that he
understood that it was to the effect that the
owners and their office should be distanced from
the casualty.
(2) The advice was reinforced by a further
email from Carins on 16 April in the context of
the request in Ince & Cos email for an account of
the cause of ingress:
We have let the list settle. I assume we
can answer everything. We have to be careful
with the first two questions. On the one hand,
we have to give an adequate, satisfactory
answer, on the other hand, the owner does not
have to be aware of (important) defects . . .
(3) In similar vein was an email of 21 April
from Mr Schurink to Chris Kornet, in which the
broker addressed the other question asked by Ince
& Co in their email of 16 April, which requested
an explanation of the fire pump filter cover being
found to be loose. Mr Schurink emphasised that
it didnt matter what the answer was (so long as
it was the truth) if it was a mistake by someone
other than the owners.
(4) On 24 May 2010 Mr Whaley of JLT
summarised his assessment of the legal position
in an email which was forwarded to Chris Kornet
in the following terms:
Further to our exchange of emails over the
weekend, I have reviewed the Doldrums report
once again and based on their conclusions the
cause of loss is Frost dmg due to the extreme
weather conditions experienced in Northern
Europe in Jan 2010, exacerbated by the actions of
the crew once the Ingress of water commenced.
We have the benefit of the Additional Perils cls,
which basically provides all risks cover with

626
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The DC Merwestone

specific exclusions. Unless Gerling/Ince can

demonstrate that Owners did not act with due
diligence and knowingly allowed the vessel to
put to sea in an unseaworthy condition or the
damage is due to wear and tear, then there is
a claim under the policy, lack of due diligence
is a very difficult defence to run under English
law, unless of course the vessel was in breach
of Class/ISM etc.
(5) In the light of these exchanges Chris
Kornet would have understood why Mr Schurink
described Ince & Cos question 10A, asking who
at K&Z had authorised cutting the ballast line
as annoying; it was because it focused on the
involvement of the owners.
(6) On 7 June 2010 the owners instructed
solicitors, Holman Fenwick Willan LLP. It is to
be inferred that they gave advice in relation to the
policy terms.
211. The second element of context is that Chris
Kornet became increasingly frustrated that the
underwriters were not paying the claim. By the time
the 21 April letter was finalised and sent on 23 April,
the yard at Bremerhaven had indicated that they
would not release the vessel without some payment,
or security, for the substantial cost of repairs. Chris
Kornet was anxious for a swift decision from the
underwriters to make a payment on account of
the claim, to enable the vessel to be released. As the
months passed and the brokers pressed for a decision,
those on the owners side became increasingly
convinced that the delay was not promising and that
the underwriters would require further information.
In the week following receipt of Ince & Cos 1
June questions, Chris Kornets frustration with the
underwriters failure to pay the claim had become
more pronounced. The vessel was still in the yard,
and the owners needed the insurance proceeds to
provide a bank guarantee for 1.2 million which the
yard was demanding for release of the vessel. In his
evidence Chris Kornet repeatedly emphasised that
his main preoccupation in the week he received the
1 June questions was to get the vessel released from
the yard. He wanted to be paid by the insurers, not to
have to answer further questions. His frustration was
palpable in his evidence, and was exemplified in an
answer he gave in cross-examination, without any
intended humour or irony, that he regretted that on
his computer there was only one button which was
not there, and that was the button F*** off I want the
money. At the end of that week at the beginning of
June he managed to secure more favourable terms
on which the yard would release the vessel, but
his formulation of the answers to question 2 took
place in that week against the background of his
frustration with the underwriters.
212. I cannot accept Chris Kornets evidence
that he spoke to the master on 20 April before

[2013]
[QBD (Comm Ct)]

preparing his letter dated 21 April, or that he was

told by the master then that the alarm had gone
off at around noon. There is no reference to this
conversation in his second witness statement, which
was provided pursuant to an order to respond to
the allegation of fraudulent presentation of the
claim in the underwriters re-amended defence,
and was expressly relied upon in support of the
owners pleaded case. The contents of this witness
statement were confirmed in his evidence in chief.
The statement deals in detail with the circumstances
leading to his letter dated 21 April without any
reference to any conversation with the master on
20 April. It refers instead to conversations with
the master in June, which is consistent with and
corroborated by the documents identified above. If
there had been a conversation on 20 April it is most
improbable that he would not have told his brother
Gertjan, who could not then have drafted the initial
response in the terms he did on 1 June saying that no
one had reported a noon alarm; and he would have
been bound to have corrected what would have been
an important and obvious mistake by Gertjan Kornet,
when he received that draft; whereas he made no
adverse comment on it in his responses on 1 and 2
June, and went back to the master on 3 June with
an account which needed the masters confirmation.
Chris Kornets evidence of a 20 April conversation
came unheralded for the first time in crossexamination and after the master had been crossexamined and released, so that he could not be asked
about it. But the masters evidence casts some further
doubt on it. The master was on holiday in Indonesia
for four weeks after his interview with Mr Billowes
on 6 April, and when on holiday was not in contact
with his office or at best hardly ever. Moreover if
the master had stated on 20 April that there had been
an alarm at noon, it is improbable that there would
not have been a discussion about whether it was
investigated and to what it was attributed, yet Chris
Kornet says he was told nothing on this occasion by
the master about the crews reaction to the alarm.
213. In these circumstances my assessment of
Chris Kornets state of mind at each stage is as
follows.
214. When he prepared the 21 April letter,
his principal focus was on addressing a source
and rate of ingress which was realistic. In doing
so he reached a conclusion that the water in the
bowthruster room was probably sufficient to trigger
the alarm at around noon. He was conscious that that
required an explanation as to whether the alarm had
gone off at around noon, and if so why it had not
been investigated. He also believed that it would not
assist owners case if the alarm had failed to trigger,
because it would point to the defective condition of
the vessel rather than crew negligence, and that an
explanation that the alarm had gone off, and been

[2013]
QBD (Comm Ct)]]

INSURANCE AND REINSURANCE

The DC Merwestone

ignored, would be preferable to one which involved

the alarm not sounding. He had had no evidence from
the crew that an alarm had gone off around noon,
or been ignored, or as to what the reason was for
ignoring it. He genuinely believed that if the alarm
had gone off, it would probably have been ignored
as a result of the weather conditions he believed
the vessel was encountering; ignoring alarms being
triggered by rolling, with little water present, was
from his experience a plausible explanation for
ignoring the alarms. As he accepted in evidence, this
was an explanation he himself hit upon as a matter of
speculation, rather than based on anything the crew
had told him. His account was given to fit his theory
of ingress without making any attempt to check
whether it was supported by anything the crew had
said about the alarm going off. He suspected that his
account might not be supported by the crew, because
he knew that Gertjan Kornet had asked critical
questions of the crew in preparing his report, and
he had not been told by his brother or anyone else
that any of the crew had heard an alarm earlier in
the day. He genuinely believed that his account
of the noon alarm and the crew ignoring it was a
realistic explanation of events, but he was reckless
whether it was supported by the crews recollection
because he did not want the absence of confirmation
from the crew to get in the way of an explanation
which involved no fault on the part of the owners or
managers. He was indifferent to whether the master
or any other crew member had previously said that
the alarm had gone off.
215. Mr Karia QC submitted that a finding
of fraud was inconsistent with the explanations
being copied to Mr Gravendeel, the underwriters
surveyor. But the latters involvement was expressed
to be one of considering whether the explanation
for the ingress was plausible from a technical
point of view. He would not be expected to check
or consider the owners account of what the crew
said about a noon alarm. His involvement gives no
reason to doubt that Chris Kornets state of mind
was as I have found.
216. When he put forward the answers in the
27 July letter, Chris Kornets state of mind was
as follows. When the specific questions were
posed in para 2 of Ince & Cos email of 1 June, he
recognised that the account he had given had not
been based on evidence from the crew but that the
21 April letter had given the impression that it had.
He was therefore anxious to answer the question by
suggesting that it was supported by what had been
said by a member of the crew, so as not to appear to
have said anything misleading in the letter. To this
end he asked the master whether he could live with
an account which involved the master having heard
the alarm at noon, and the crew having ignored
it as attributable to the rolling of the vessel. He

627
[POPPLEWELL J

received confirmation from the master that he could

support that account of events. He took this to be
confirmation by the master that he had heard a noon
alarm. Accordingly his confirmation that the master
had said that he had heard the noon alarm was true;
and he honestly believed that it had been heard also
by the Engineer and that it had not been investigated
because they thought it was routine. Although he
did not check the latter aspect with the engineer or
the crew, he was not reckless as to its truth: it had
been confirmed by the masters confirmation that
he could support the account set out in the email
Chris Kornet sent to him. Chris Kornet believed the
answers given in the 27 July letter to be true, and
that his answers would be at least consistent with, if
not corroborated by, what the crew had previously
said during Mr Billowes interviews.
217. For similar reasons the account given in
the TMC report was believed by Chris Kornet to
be true.
218. In these circumstances the underwriters
fraudulent device defence only falls to be considered
by reference to the 21 April letter.
219. I should record that I derived no assistance
from the considerable debate about the passages in the
21 April letter, and subsequent documents, dealing
with the decision to cut the ballast line, whether it
was the owners or the crew who first suggested it,
and whether the owners authorised or instructed it.
The nuances deployed in interpreting the language
used by the owners in the letter, and in evidence,
were more sophisticated than the circumstances
warranted. English was not the first language of
Chris or Gertjan Kornet. I acquit the owners of any
dishonesty or intention to mislead in those passages.
Was the 21 April letter a fraudulent device?
220. The letter addressed in some detail Chris
Kornets theory as to the source and volume of
water ingress at various stages, concluding that
the source of ingress was a combination of the
emergency fire pump and possibly ingress of ballast
water. In many respects it was self-evidently his
theory as to the course and cause of the casualty,
rather than recitation of underlying evidence or
raw data. The cross-examination proceeded on the
footing that there was a clear dichotomy between a
theory as to what might have happened on the one
hand, and a factual account of what had happened
on the other. But in my judgment no such clear
distinction can be drawn. It is a common experience
of marine casualties that what happened is a matter
of contention and debate based on numerous
indicia, of which human recollection is only a
part, to be considered together with scientific and
engineering expertise and the inherent probabilities
informed by maritime experience. The indicia are

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POPPLEWELL J]

LLOYDS LAW REPORTS

The DC Merwestone

often not all of a piece. There is no clear boundary

between fact and theory.
221. On the other hand the relevant passage in the
letter came under the heading Facts, and was said
to be after further internal investigation, which in
relation to whether an alarm went off, and if so why
it was ignored, would reasonably have been taken
to include inquiries of the crew. Read as a whole,
the letter contained an assertion that one or more
members of the crew had claimed to have heard
the alarm going off at about noon and had given an
explanation that the alarm had not been investigated
because [it was] attributed to the rolling of the vessel.
Making all due allowance for the fact that English
is not Chris Kornets first language, in which he is
proficient but not completely fluent, this must have
been the impression the letter was intended to give.
I have little doubt that this was how he intended and
understood it. That was why when subsequently
faced with Ince & Cos question 2, and recognising
that the 21 April letter was not consistent with the
answers his brother had drafted, he approached the
master for confirmation of the account; and that is
why in his evidence to me he felt the need to invent
a conversation with the master on 20 April. In this
respect the letter was false and misleading. In this
respect Chris Kornet had no grounds to believe it was
true, and was reckless whether or not it was true. It
was an untruth told recklessly in support of the claim.
222. Mr Karia QC submitted that the letter of
21 April was not written with a view to improving
the owners prospects of settlement, but merely
reflected Chris Kornets attempt to explain the rate
of water ingress. That does not adequately reflect
the circumstances in which it was written. Ince &
Co were investigating the casualty on behalf of
underwriters and asked for the information in their
email of 16 April in order to complete our report
to underwriters. Prior to receipt of the email, the
owners had been pressing Gerling through the
broking chain for payment of the claim. In an email
of 23 April Mr Schurink confirmed to Chris Kornet
that the letter was to go to Ince & Co so that they
could complete their report to underwriters. It was
clear from the questions asked by Ince & Co in their
email of 16 April that the underwriters had concerns
as to the underlying condition of the vessel, the
assureds knowledge as to the underlying condition,
and why the ingress of an apparently small
quantity of water could have given rise to such a
major casualty. Chris Kornet was keen to secure a
payment on account of the claim, at least, in order to
ensure the release of the vessel from the yard after
the repairs which were shortly to be completed.
I have no doubt that the letter was intended by

[2013]
[QBD (Comm Ct)]

him to promote the claim in the hope of a prompt

settlement, and that the purported factual account
about the noon alarm was part of that promotion.
223. The false statement was directly related
to the claim and intended to promote the claim.
Does it meet the limited objective element of
the test of materiality that, if believed, it would
have tended at that stage to yield a not insignificant
improvement in the owners prospects of getting
the claim paid, bearing in mind that in this context
not insignificant has the same connotation as not
insubstantial, not immaterial, not de minimis?
The answer must be yes. Insurers investigating a
casualty of this nature would understandably be
sceptical of how debilitative flooding of the engine
room could have resulted from a relatively small leak
in the bowthruster room, and an explanation for the
failure of the vessels alarms to prevent such a result
would be a not insignificant factor in an insurers
assessment of the validity of the claim, including
in particular consideration of the application of the
Inchmaree proviso. Mr Karia QC did not advance
any argument to the contrary on behalf of the owners.
224. It follows that the underwriters defence of
fraudulent device succeeds, and that the owners
claim, which is otherwise valid, is for that reason
forfeit.
225. I have reached this conclusion with regret.
In a scale of culpability which may attach to
fraudulent conduct relating to the making of claims,
this was at the low end. It was a reckless untruth,
not a carefully planned deceit. It was told on one
occasion, not persisted in at the trial. It was told in
support of a theory about the events surrounding the
casualty which Chris Kornet genuinely believed to
be a plausible explanation. The reckless untruth was
put forward against the background of having made
the crew available for interview by the underwriters
solicitor, who had had the opportunity to make
his own inquiries of the crew on the topic. To be
deprived of a valid claim of some 3.2 million as
a result of such reckless untruth is, in my view, a
disproportionately harsh sanction.
Amendment application
226. At the conclusion of the hearing the
underwriters applied to amend their defence.
I refused the application and indicated that I
would give my reasons for doing so together with
my judgment. I have set them out in a separate
judgment.
Conclusion
227. The owners claim fails.