PROMET ENGINEERING (SINGAPORE) PTE. LTD. v. STURGE AND OTHERS (THE “NUKILA”)

Under an Inchmaree clause, an assured must establish actual physical damage to the insured vessel during the policy period, caused by a latent defect in its hull or machinery. The mere discovery or manifestation of a pre-existing defect is insufficient.

The distinction between the defect and resulting damage is one of fact and degree. Resulting damage need not affect a physically separable or functionally distinct part. Extensive fractures caused by defective welds and incipient fatigue cracks therefore constituted insured damage, even though they occurred within the same integrated structure.

A mobile offshore platform developed extensive fractures in its legs, spudcans and internal structures during the period covered by hull and machinery policies. The fractures resulted from improperly profiled circumferential welds and incipient fatigue cracks which were latent when the policies attached.

The owners claimed the repair costs under the Inchmaree clause and the Institute Additional Perils Clauses. Tuckey J dismissed the claim in the Commercial Court. He held that the latent defects had merely become patent and had caused no consequential damage to a separate part of the vessel.

The owners appealed. The central issues were whether the fractures constituted damage distinct from the latent defects and whether insured damage had to occur in a physically separable or functionally distinct part.

1. Appeal allowed unanimously. Hobhouse LJ delivered the leading judgment. Ward LJ gave concurring reasons, and the President agreed with both judgments. The order of Tuckey J was set aside and judgment was entered for the owners.

2. The questions under the Inchmaree clause were whether there was damage to the insured subject matter, whether it occurred during the policy period, and whether it was caused by a latent defect in the vessel's machinery or hull. Each question was answered affirmatively.

3. A policy does not indemnify the assured merely because a pre-existing latent defect is discovered during the period of cover. The assured must prove a physical change in the vessel's condition during that period. The distinction between the latent defect itself and damage caused by it is a question of fact and degree.

4. The defects at attachment were the improperly profiled welds and minute fatigue cracks. During the policy period they caused extensive full-thickness fractures in the legs, top plating and bulkheads. Those fractures materially weakened the structure and, in the ordinary use of language, constituted physical damage. They went well beyond the manifestation of an existing defect.

5. The clause did not require damage to a physically separable or functionally distinct part. Neither its language nor the authorities supported such a requirement. The proposed test produced arbitrary results and supplied no criterion for distinguishing a defect from damage. A weld could in any event be described as a part, just as a bracket, bulkhead or plate could.

6. The earlier authorities were consistent with the distinction between a defect and resulting damage. They concerned vessels whose condition had not materially changed during the relevant policy period, or components which already required replacement. They did not prevent recovery for extensive new fractures caused by latent defects.

7. Imminence of loss was not itself damage. The alternative claim under the sue and labour clause had also been correctly rejected. Judgment was entered for the owners for the stated Singapore-dollar and United States-dollar sums, with interest and costs, and the interest issue was remitted to a Commercial Judge.

1. Court of Appeal (Civil Division): Allowed the owners' appeal unanimously, set aside Tuckey J's order and entered judgment for the owners.
2. High Court, Commercial Court: Tuckey J dismissed the insurance claim. He held that the latent defects had merely become patent and had caused no recoverable consequential damage to the vessel.