Masefield AG v Amlin Corporate Member Ltd & Anor

Capture or seizure does not automatically constitute an actual total loss under the Marine Insurance Act 1906. The question is whether the insured has been irretrievably deprived of the subject matter, which is ultimately a question of fact. Where recovery remains possible, the circumstances and prospects of recovery must be assessed. A ransom situation ordinarily requires a wait-and-see approach. The fact that an insured may have no duty to pay a ransom does not convert a potential loss into an actual total loss. Lawful ransom payments may be recoverable as sue and labour expenditure, and no sufficiently clear public policy prohibited their recognition in this context.

The appellant’s biodiesel cargo was captured with the vessel Bunga Melati Dua by Somali pirates. The vessel owner negotiated with the pirates and paid a ransom, resulting in release of the vessel, crew and cargo eleven days after notice of abandonment. The appellant claimed for an actual total loss under an all risks marine policy, relying on piracy as an insured peril. It argued that capture created an immediate actual total loss, or that the law could not take account of ransom payment as a means of recovery. It abandoned its constructive total loss claim on appeal.

David Steel J dismissed the claim in the Commercial Court. The appeal concerned whether the cargo was irretrievably lost when proceedings were deemed to have commenced, and whether public policy or the insured’s duty to avert or minimise loss under section 78(4) altered that assessment.

1. Appeal dismissed. The cargo was not the subject of an actual total loss when proceedings were deemed to have commenced. The evidence showed a strong likelihood that the vessel, crew and cargo would be released after negotiation and payment of a comparatively small ransom. The subsequent recovery confirmed the factual assessment, although the question was determined by the position at the relevant date.
2. Under section 57(1) of the Marine Insurance Act 1906, actual total loss requires destruction, damage causing the subject matter to cease to be a thing of the kind insured, or irretrievable deprivation. Irretrievable deprivation requires physical or legal impossibility of recovery. Disproportionate effort or expense does not by itself establish an actual total loss. Considerations of reasonableness are relevant to constructive total loss, not to the incidence of actual total loss.
3. There is no rule that capture or seizure is necessarily an actual total loss. The issue is fact-sensitive. A typical capture by a warship, subject to condemnation as prize, is not immediately an actual total loss, although it may mature into one. Piratical seizure may amount to an actual total loss where the pirates intend to retain the property for their own use and there is no prospect of recovery. A ransom situation is instead a typical wait-and-see case. Dean v Hornby was best explained as concerning constructive total loss, and the court’s earlier broad suggestion in Kuwait Airways Corporation v Kuwait Insurance Co SAK that an intention to exercise dominion constituted actual total loss was too broad.
4. The payment of ransom was neither illegal nor contrary to any sufficiently clear public policy. The majority reasoning in Royal Boskalis Westminster NV v Mountain recognised that, where lawful, ransom expenditure may fall within sue and labour expenses. Section 78(4) did not assist the appellant: absence of a duty to pay ransom did not mean that recovery had no realistic prospect, nor did payment create an actual total loss. The appeal was dismissed in agreement with Steel J’s decision.

• Court of Appeal (Civil Division): Appeal from the Commercial Court judgment of David Steel J in 2009 Folio 260. The appeal was dismissed.