HANDELSBANKEN NORWEGIAN BRANCH OF SVENSKA HANDELSBANKEN AB (PUBL) v. DANDRIDGE AND OTHERS (THE “ALIZA GLACIAL”) [2002] EWCA Civ 577

Standard marine insurance clauses must receive a businesslike construction within the policy as a whole. A regulation is a “trading regulation” only where its own nature and purpose concern trade. It does not acquire that character merely because it regulates an activity conducted commercially.

Where insured and excluded causes compete, the effective or dominant cause governs. An exclusion prevails where the causes are equal or nearly equal in efficiency. A failure to provide security may become a concurrent cause of a constructive total loss based on continuous detention. The exclusion remains inoperative where providing the security would be unreasonable because the amount and circumstances would themselves justify treating the vessel as a total loss.

A mortgagee bank claimed under mortgagees’ interest insurance after an Australian authority seized and detained a fishing vessel for alleged illegal fishing. The owners’ war-risks underwriters had rejected their constructive-total-loss claim for breach of a “no illegal fishing” warranty.

Toulson J held that the loss was excluded because the vessel had been detained for infringement of “trading regulations” under clause 4.1.5 of the Institute War Clauses. He nevertheless decided that clause 4.1.6, concerning ordinary judicial process, failure to provide security and financial causes, did not exclude the loss. He dismissed the action but granted permission to appeal.

The bank appealed on clause 4.1.5. The underwriters cross-appealed on clause 4.1.6. The central questions were whether Australian fisheries legislation constituted “trading regulations” and whether judicial arrest or the owners’ failure to provide security caused the twelve-month detention relied upon as a constructive total loss.

1. Appeal allowed and cross-appeal dismissed. The loss was prima facie covered by the owners’ policy and was not prima facie excluded by clauses 4.1.5 or 4.1.6. Potter LJ delivered the judgment of the court.

2. The phrase “trading regulations” in a standard package of marine insurance clauses had to retain a consistent, businesslike meaning. Its application depended on the nature and purpose of the regulation, not on the insured vessel’s function or the fact that the regulated activity formed part of its owner’s trade. The Australian fisheries legislation pursued ecological conservation and fisheries management. It did not regulate the subsequent sale, supply or trading of fish. Treating every law restricting a shipowner’s commercial activities as a trading regulation would give clause 4.1.5 an unreasonably wide scope and substantially deprive the seizure cover in clause 1.2 of effect.

3. “Ordinary judicial process” was confined to civil proceedings enforcing private rights. It did not extend to proceedings enforcing public or criminal law. The mortgagee’s later arrest of the vessel in foreclosure proceedings added a further restraint, but did not significantly cause or prolong the owners’ loss of use. The fisheries authority’s seizure and continuing assertion of statutory detention rights remained the effective and dominant cause.

4. Where rival insured and excluded causes operate, the court must first identify the cause proximate in efficiency. An insured peril prevails if it is the effective or dominant cause. An exclusion prevails where an insured peril and an excluded cause are equal or nearly equal in bringing about the loss.

5. A failure to provide security under clause 4.1.6 was not confined to a failure which initiated the original seizure. For a constructive total loss based on twelve months’ continuous detention, causation had to be assessed throughout that period. The owners’ failure to provide the requested security became an effective concurrent cause from January 1998.

6. However, the security exclusion was inoperative where the amount and circumstances of the demand would otherwise permit the vessel to be treated as a total loss. The relevant inquiry concerned the vessel’s actual value, the amount demanded, prospects of negotiating a reduction and the likelihood of losing the security. The insured value was not conclusive because the claim arose under the detention deeming provision, rather than from recovery or repair costs. On the assumed facts, demanding about A$10 million for a vessel valued at approximately US$6 million made provision of the security unreasonable.

• Court of Appeal (Civil Division): Allowed the claimant bank’s appeal, dismissed the defendants’ cross-appeal and held that the loss was prima facie covered by the owners’ policy.
• High Court, Queen’s Bench Division: Toulson J decided clause 4.1.5 in favour of the underwriters and dismissed the action. He decided the clause 4.1.6 issue in favour of the claimant and granted permission to appeal. No citation for that judgment is stated.