Global Process Systems Inc and another v Syarikat Takaful Malaysia Berhad

Under an all-risks marine cargo policy, inherent vice means deterioration resulting from the subject matter’s natural behaviour in the ordinary course of the contemplated voyage, without an intervening fortuitous external accident or casualty. Cargo does not suffer loss from inherent vice merely because it cannot withstand foreseeable sea conditions.

A peril of the seas may arise although the weather was foreseeable and within the range reasonably anticipated. The required fortuity lies in the accident or casualty produced by the conditions, rather than necessarily in the weather itself. The proximate cause is identified by the common sense of a business or seafaring person.

An oil rig was carried on a barge from Texas to Malaysia under an all-risks marine cargo policy. Its three legs developed fatigue cracks and subsequently fractured and fell into the sea after wave-induced stresses caught the first weakened leg at a critical moment.

Blair J held that the proximate cause was inherent vice because the legs could not withstand the normal incidents of the voyage. The Court of Appeal allowed the assured’s appeal, holding that a fortuitous leg-breaking wave was the proximate cause: [2009] EWCA Civ 1398.

The insurer appealed. The central issue was whether the loss was proximately caused by inherent vice or by an insured peril of the seas.

1. The appeal was dismissed unanimously. The loss of the three legs was proximately caused by a fortuitous accident or casualty of the seas and was covered by the all-risks policy. It was not caused by inherent vice within clause 4.4 of the Institute Cargo Clauses (A) or section 55(2)(c) of the Marine Insurance Act 1906.

2. Lord Saville held that proximate cause is the cause proximate in efficiency. It is a question of fact determined by common sense. Inherent vice concerns deterioration through the subject matter’s natural behaviour in the ordinary course of the contemplated voyage, without an intervening fortuitous external accident or casualty. The expression does not encompass every inability of cargo to withstand foreseeable or unexceptional sea conditions.

3. Lords Mance, Collins and Clarke agreed that foreseeability of the weather did not deprive the casualty of its fortuitous character. A peril of the seas requires a fortuitous accident or casualty caused by sea conditions. The sea conditions themselves need not be exceptional, unforeseen or unforeseeable. The relevant fortuity was the wave-induced stress catching the weakened first leg at the critical moment, followed by the increased stresses and loss of the remaining legs.

4. The gradual development of fatigue cracks under the ordinary action of wind and waves was comparable to wear and tear and was not itself an insured casualty. The sudden fracture and loss of the legs belonged to a different category. Although highly probable, it was not inevitable.

5. The court rejected the proposition in Mayban General Insurance Bhd v Alstom Power Plants Ltd [2004] 2 Lloyd’s Rep 609 that cargo’s inability to withstand conditions no more severe than could reasonably be expected necessarily makes inherent vice the real cause. That approach would improperly confine cargo insurance to exceptional or unforeseeable perils and would sit uneasily with sections 39 and 40 of the Marine Insurance Act 1906.

6. Lord Mance left open the effect of an express inherent-vice exclusion where inherent vice and an insured peril are concurrent proximate causes. The point did not arise because the casualty was properly classified as a peril of the seas rather than as a concurrent case.

1. United Kingdom Supreme Court: Dismissed the insurer’s appeal unanimously and affirmed the Court of Appeal’s conclusion that the loss was caused by an insured peril of the seas: [2011] UKSC 5 .
2. Court of Appeal: Allowed the assured’s appeal and held that the proximate cause was the fortuitous occurrence of a leg-breaking wave: [2009] EWCA Civ 1398 ; [2010] 1 Lloyd’s Rep 243.
3. Commercial Court: Blair J held that the proximate cause was inherent vice because the legs could not withstand the normal incidents of the contemplated voyage: [2009] 2 All ER (Comm) 795.