Melinda Holdings SA v Hellenic Mutual War Risks Association (Bermuda) Ltd

An insurer relying on a policy exclusion bears the legal burden of bringing the loss within it, although the evidential burden may shift. An exclusion for ordinary judicial process does not protect conduct where a state uses its courts for its own financial purposes and the process is not bona fide or independent. A sue and labour clause is breached only where the insured or its responsible agents failed to take steps which an ordinarily competent person would have taken in all the circumstances, and the failure caused the loss or had the relevant contractual consequence. Reasonable steps need not be taken where they had no realistic prospect of changing the outcome.

Melinda Holdings claimed under war risks insurance for the constructive total loss of the vessel SILVA, arrested and detained in Egypt in connection with court dues owed by parties connected with another vessel. The policy provided cover for arrest and detention but contained exclusions for ordinary judicial process, enforcement of claims and financial causes, together with a sue and labour obligation.

The issues were whether the Egyptian arrest fell within the exclusions and whether Melinda or its Egyptian lawyers had failed to take reasonable steps to avert or minimise the loss.

1. Exclusions. Hellenic bore the legal onus of establishing the exclusions, although the evidential burden could shift once ordinary judicial process appeared on the face of the case. The court assessed the facts by reference to inherent probabilities and comity, but found the evidence compelling.
2. The arrest was not ordinary judicial process. There was no arguable evidential link between the detained vessel and the judgment debtors. The court and its Claims Department used an intermediary with a history of forgery, relied on documents known to be unreliable or forged, persisted after the absence of any case had become clear, and sought payment or security for the court’s own financial purposes. The process was therefore an exercise of extortion under a veneer of court process, rather than bona fide action by an independent judicial body.
3. Rule 3.6.3 was confined to lawful and reasonable enforcement or security for a genuine or bona fide claim. Rule 3.6.4 had to be read in context and, so far as necessary, ejusdem generis and contra proferentem. A financial cause had to affect the ship and involve a reasonable and legitimate claim against it. Neither exclusion applied.
4. Sue and labour. There was no breach of Rule 3.15. Applying the approach in The Talisman, the question was whether an ordinarily competent Egyptian lawyer would have acted differently in all the circumstances, including whether the proposed step had any realistic prospect of producing a different result and why it had not been taken. The decisions not to provide security, issue additional proceedings, bring a separate forgery claim, add further appeal grounds, seek recusal or emphasise limitation were reasonable. In any event, none would have made a difference.
5. The court did not need to decide whether breach required proximate causation, whether lawyers were agents for this purpose, or the precise effect of the directors’ discretion in Rule 3.15, because no breach was established.
6. Melinda was entitled to recover the agreed sum of US$19,200,000.