Liberty Insurance PTE Ltd & Anor v Argo Systems FZE

In marine insurance, breach of an express warranty automatically discharges the insurer from liability arising after the breach under Marine Insurance Act 1906, section 33(3), unless the breach is waived. Waiver under section 34(3) operates through estoppel and requires an unequivocal representation by words or conduct that the insurer will not enforce its right, together with reliance making it inequitable to resile.

Absent special circumstances, silence and inaction are equivocal. A general reservation of policy terms and further defences, followed by generic pleadings and delayed reliance, did not amount to an unequivocal representation.

Argo’s floating casino was lost during a voyage under tow. The vessel was insured by Liberty under a voyage policy containing a warranty that no release, waiver or hold-harmless provision had been given to the tug or towers.

On preliminary issues, HHJ Mackie QC found that Argo had breached the warranty but that Liberty had waived reliance on the breach. Liberty appealed. The appeal concerned whether Liberty’s denial letter, its conduct in related United States proceedings and its subsequent silence amounted to an unequivocal representation, and whether Argo had relied on it. The damages issue under Misrepresentation Act 1967, section 2(1), was not argued.

Appeal allowed. The Court of Appeal, in the judgment of Aikens LJ agreed by Tomlinson LJ and Laws LJ, held that Liberty was not estopped from relying on Argo’s breach of the Hold Harmless Warranty.

1. Under section 33(3) of the Marine Insurance Act 1906, breach of a warranty automatically discharged Liberty from liability under the policy from the date of breach. No election, avoidance or other positive act was required. The court followed Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) [1992] 1 AC 233.
2. Because the discharge operated automatically, waiver under section 34(3) meant waiver by estoppel. Waiver by election and waiver by estoppel both require an unequivocal representation by words or conduct that a contractual right will not be enforced. Estoppel additionally requires reliance making it inequitable for the representor to resile. The court applied the principles discussed in Motor Oil Hellas (Corinth) Refineries SA v Shpping Corporation of India (The Katchenjunga) [1990] 1 Lloyd’s Rep 391.
3. Whether an unequivocal representation was made is assessed objectively against the legal concept of unequivocality. The representee’s subjective belief is irrelevant, although an appellate court should be slow to interfere with a first-instance assessment of evidence. The court applied Laker Vent Engineering Co Ltd v Templeton Insurance Ltd [2009] EWCA Civ 62.
4. Liberty’s letter expressly reserved all remaining policy terms and conditions and other defences. Its general answer and interrogatory response in the United States proceedings added nothing. Its later silence and inaction were equivocal, and there were no special circumstances capable of converting them into an unequivocal representation. The court followed Allied Marine Transport Ltd v Vale Do Rio Doce Navigado SA (The Leonidas D) [1985] 1 WLR 925. Vitol SA v Esso Australia Ltd (The Wise) [1989] 2 Lloyd’s Rep 451 was distinguishable on its facts and context.
5. Since no unequivocal representation had been made, the question of reliance did not arise. The answer to the second preliminary issue was therefore “No”. Liberty could plead and rely on the warranty breach. The court made no decision on damages for misrepresentation under section 2(1) of the Misrepresentation Act 1967.

• Court of Appeal (Civil Division): Liberty’s appeal was allowed on the waiver and estoppel issue. The court answered “No” to whether Liberty was estopped from relying on the breach of the Hold Harmless Warranty: [2011] EWCA Civ 1572.
• Queen’s Bench Division, London Mercantile Court: HHJ Mackie QC found that Argo had breached the warranty but that Liberty had waived reliance on the breach. The order was dated 21 February 2011.