Atlasnavios -Navegacao, LDA v Navigators Insurance Company Ltd & Ors

Under a war risks policy, an exclusion for loss arising from infringement of customs regulations does not apply where the infringement is merely the manifestation of malicious acts by third parties using the vessel for their own purposes. The exclusion is subject to that implied limitation when read with cover for malicious acts.

A foreign court’s detention order will break causation only where it is perverse or plainly unjustified, in the sense that no reasonable court could have reached it, or where detention results from unconnected political interference. Mere legal error, arguable error, or legitimate pressure to enforce anti-drug laws is insufficient.

Reasonable efforts to provide security do not engage the exclusion for failure to provide security. Sue and labour expenses may remain recoverable after a writ agreement where proceedings have not yet been issued.

The claimant owner sought an indemnity from war risks insurers for the constructive total loss of the vessel B Atlantic. Cocaine had been strapped to the hull in Venezuela, where the vessel was detained, the crew prosecuted, and the vessel ultimately confiscated.

The insurers accepted constructive total loss subject to exclusions for detention by reason of infringement of customs regulations and failure to provide security. The owner also claimed sue and labour expenses, including legal costs, running costs and sums spent pursuing the vessel’s release.

The central issues were whether the malicious acts cover prevailed over the customs-regulations exclusion, whether Venezuelan judicial decisions or political interference broke the chain of causation, whether security had reasonably been required, and which expenses were recoverable.

1. Constructive total loss. The owner’s claim succeeded. The malicious acts of the unknown drug smugglers were an insured peril. The customs-regulations exclusion was construed as subject to an implied limitation: it did not apply where the supposed infringement was no more than the manifestation of malicious third-party conduct. This was analogous to the insurers’ concession concerning a deliberate governmental “put-up job”.
2. Alternative causation issue. If the exclusion had applied, the Venezuelan detention orders would nevertheless have remained effective causes. Under The Anita [1971] 1 WLR 882, a break in causation required a perverse decision, meaning one no reasonable court could have reached, or unconnected political interference. The Venezuelan courts’ decisions were reasonably arguable and consistent with Venezuelan law. The evidence showed a policy of enforcing anti-drug legislation strictly, not improper instructions to confiscate the vessel.
3. Failure to provide security. The exclusion did not apply. The owners took reasonable steps towards security. The proposals failed through circumstances outside their control, and security for the vessel’s full value in United States dollars, with uncertain calling provisions, would not necessarily have been reasonable.
4. Sue and labour. The right and duty to sue and labour continued after the insurers agreed to treat the first notice of abandonment as if proceedings had been issued. It would have ended on actual issue of proceedings, but not merely on the writ agreement. Legal expenses incurred in securing the vessel’s release and defending the crew were recoverable where they served the common purpose of releasing the vessel. Running costs were recoverable to the extent they exceeded the agreed cost of a skeleton crew and were incurred to keep the vessel ready to sail. The payment of US$70,000 to Nowake was also recoverable.

First-instance decision. The judgment records earlier preliminary-issue proceedings before Hamblen J, reported at [2012] EWHC 802 (Comm) , but this was a separate merits judgment in the same litigation.