Sunport Shipping Ltd. & Ors v Tryg-Baltica International (UK) Ltd. & Ors

Standard-form marine insurance clauses intended for international use must receive a businesslike and contextual construction. Their meaning is not confined by a technical definition drawn from one domestic or regional legal system.

In a war-risk exclusion for detainment by reason of infringement of customs regulations, customs regulations include laws that absolutely prohibit imports, including controlled drugs, as well as laws imposing import duties or licensing requirements. The classification depends on the character of the regulation, not on the authority that enforces it. Where unlawful importation caused seizure and continuing detention while an investigation proceeded, it remained the proximate cause of the resulting constructive total loss despite the crew’s eventual acquittal.

The appellants insured the vessel Kleovoulos of Rhodes under a war-risk policy incorporating the Institute War and Strikes Clauses, Hulls—Time of 1.10.83. Cocaine was discovered in a sea chest when the vessel arrived in Greece. The vessel was detained under the Greek Narcotics Act no 1729 of 1987 while criminal proceedings against the master and crew continued.

After six months’ loss of use, the vessel was deemed a constructive total loss. The underwriters relied on clause 4.1.5, which excludes loss arising from detainment by reason of infringement of customs or trading regulations. Cresswell J dismissed the claim: [2002] EWHC 235 (Comm); [2002] 2 Lloyd’s Rep 277. The appeal concerned the meaning of “customs regulations” and whether the prohibited importation remained the effective cause of the six-month detention.

Decision

1. The Court of Appeal unanimously dismissed the appeal. Clarke LJ gave the reasons, with which Scott Baker LJ and Peter Gibson LJ agreed.

2. Clause 4.1.5 had to be construed as part of an internationally used, standard-form commercial insurance contract. A court should decide the particular construction issue arising between the parties and should not seek an abstract definition before doing so. Commercial context and business common sense were decisive aids. Neither the English or European technical meaning of customs law, nor the administrative role of a national customs service, could conclusively define the contractual expression.

3. In that context, “customs regulations” included laws prohibiting the importation of controlled drugs. It would make no commercial sense for the clause to exclude a loss caused by breach of a regulation prohibiting import unless duty was paid, while covering a loss caused by breach of a regulation prohibiting the same import absolutely. Whether a regulation is a customs regulation depends on its character and purpose, rather than on which authority enforces it.

4. The Court followed the settled construction of the equivalent wording in Panamanian Oriental Steamship Corporation v Wright (The Anita), [1971] 1 Lloyd’s Rep 487. That decision established, as part of its ratio, that the expression extended to laws dealing with smuggling and prohibited imports. Retention of materially unchanged wording in the 1983 Institute Clauses supported the same construction.

5. The unlawful importation of cocaine was the proximate and operative cause of both the initial seizure and the continued detainment during the investigation. The later acquittal of the crew did not break that causal chain. The six-month detention therefore arose from detainment by reason of infringement of customs regulations, and the constructive-total-loss claim fell within clause 4.1.5.

• Court of Appeal (Civil Division): Appeal dismissed. Clarke LJ’s reasons were agreed by Scott Baker LJ and Peter Gibson LJ: [2003] EWCA Civ 12.
• Queen’s Bench Division (Commercial Court): Cresswell J dismissed the insureds’ claim, holding that clause 4.1.5 excluded the constructive-total-loss claim: [2002] EWHC 235 (Comm); [2002] 2 Lloyd’s Rep 277.