Royal Boskalis Westminster NV v Mountain

A claim under a marine policy’s sue and labour clause must indemnify a real loss. Where the alleged expense is a waiver of contractual claims, its value depends on the practical effect of the waiver, including whether it would have defeated those claims in the agreed arbitration.

A waiver may in principle be a recoverable charge. Reasonable measures to safeguard insured property are not confined to services assessable on a quantum meruit basis, and may involve money or money’s worth. But an assured suffers no recoverable loss if the waiver would have been ineffective.

On the extreme facts, an agreement procured by threats to retain personnel as human shields would not be given effect under English public policy. In the absence of contrary evidence, the Paris arbitral tribunal was presumed to apply the same relevant principles.

Dutch dredging companies insured their fleet against war risks. Following Iraq’s invasion of Kuwait, an Iraqi state body would release the fleet and personnel only if the joint venture entered into a Finalisation Agreement. The agreement waived contractual claims and arranged payment of part of a letter-of-credit security to Iraqi interests.

Rix J held that the value of the waived claims was recoverable under the policy’s sue and labour clause, subject to a 50 per cent apportionment for the concurrent purpose of securing the personnel’s release. The underwriters appealed. They contended that the waiver caused no effective loss because it would not have been enforceable in the contemplated Paris arbitration, principally because it had been procured by duress. The joint venture cross-appealed against the apportionment.

1. Appeal allowed; cross-appeal dismissed. The court unanimously held that the joint venture had not established a recoverable sue and labour loss based on the waiver of its contractual claims.

2. The court held that a waiver of valuable claims could, in principle, constitute a charge or expense under the sue and labour clause and section 78 of the Marine Insurance Act 1906. The clause was not confined to expenditure for work measurable on a quantum meruit basis. A reasonable ransom payment, including one made in money’s worth, could therefore fall within it, subject to legality and the other requirements of the clause.

3. However, the indemnity was for actual, not notional, loss. The value of the waiver required a realistic comparison between the joint venture’s position before and after the Finalisation Agreement. The court had to decide whether the waiver would have barred the underlying claims in the Paris arbitration. This was not a case in which a loss was established but another remedy merely remained available for insurers to pursue by subrogation.

4. The waiver would have been ineffective. The threats to retain personnel as human shields were an exceptionally unconscionable form of duress. Applying English public-policy principles, which were presumed also to represent the relevant French law absent evidence to the contrary, the arbitral tribunal would not have allowed GEIP to rely on the agreement to defeat the underlying claims. The joint venture was therefore in no worse position in respect of the pleaded claim.

5. Stuart-Smith LJ and Pill LJ also considered, as an alternative basis, that GEIP could not rely on the waiver because its performance was bound up with evasion of sanctions. Phillips LJ reached the same result on duress but considered that ordinary rules preventing enforcement of an illegal foreign contract did not necessarily prevent recognition of an executed agreement’s effect.

6. Per Phillips LJ, with whom the other members of the court agreed on the direct defences, section 41 of the Marine Insurance Act 1906 was not engaged because the payment arrangements were outside the insured marine adventure. The illegality arguments under section 78 and ex turpi causa also failed. Phillips LJ further considered that, had loss been proved, no reduction would have been justified merely because the measures also protected human life.

• Court of Appeal: Allowed the underwriters’ appeal and dismissed the joint venture’s cross-appeal.
• High Court, Queen’s Bench Division, Commercial Court: Rix J held that the waiver of claims was recoverable under the sue and labour clause, and apportioned the claimed expense equally between protection of the fleet and of personnel.