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Claim No: CFI 098/2021

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

IN THE COURT OF FIRST INSTANCE
BEFORE JUSTICE ROBERT FRENCH

BETWEEN

AL BUHAIRA NATIONAL INSURANCE COMPANY

Claimant

and

(1) HORIZON ENERGY LLC
(2) AL BUHAIRA INTERNATIONAL SHIPPING INC

Defendants

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JUDGMENT OF JUSTICE ROBERT FRENCH

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UPON hearing counsel for the Appellant on 16 September 2024

AND UPON reading the submissions and evidence filed and recorded on the Court file

IT IS HEREBY DECLARED THAT:

1. The Claimant can avoid the Hull Policy and has no liability for any claim under it.

2. The Claimant can avoid the War Policy and has no liability for any claim under it.

3. The Defendants are to pay the Claimant’s costs of the proceedings to be assessed by the Registrar if not able to be agreed.

Issued by:
Hayley Norton
Assistant Registrar
Date of Issue: 26 September 2024
At: 1pm

Introduction

1. The Claimant, an insurance company, seeks, as its primary relief, a declaration that it can avoid a Hull Policy and a War Policy in respect of a vessel the “BETA” (the “Vessel”). The policies were dated 28 June 2018. They covered the period 10 June 2018 to 9 June 2019. Both Defendants were named as insured parties. The Second Defendant was the owner. It is a subsidiary of the First Defendant. The Claimant seeks to avoid the policies on the basis that the Defendants failed to discharge the duty of fair presentation under Part 2 of the Insurance Act 2015 (the “2015 Act”). Other declarations based on breach of warranty by the Defendants and their failure to give timely notice are sought in the alternative. A case that the claimed perils did not fall within the coverage given by the policies is also raised.

Amended Particulars of Claim

2. At the hearing an application, notice of which had been given to the Defendants, was made to amend the Particulars of Claim and to adduce an Expert Report from Mr Peter Townsend. Notice of the Application was given by email on 9 September 2024. The email attached a copy of the Application to Amend, the proposed Amended Particulars of Claim, a witness statement in support by the Claimant’s solicitor, Mr Leonard Soudagar and a copy of the Expert Report of Mr Townsend. A sealed copy of the Application was sent later the same day. The DIFC Court Registry was copied into the emails. The Application to Amend and to adduce Mr Townsend’s Report was granted.

3. The Defendants, as appears below, had indicated in May 2023 that they would not participate in the proceedings — a position apparently based on their jurisdictional objection. That objection was dismissed in the Court of First Instance (“CFI”)¹ and an appeal dismissed by the Court of Appeal in an earlier judgment.² Having been given notice of the amendment to the Particulars of Claim and Mr Townsend’s Expert Report, and having made no objection, the Defendants cannot claim to be unfairly prejudiced by the grant of the Claimant’s application.

Amended Particulars of Claim — the policies

4. By its Amended Particulars, the Claimant alleges, and I find, that pursuant to two insurance policies, it insured the Vessel for a period from 10 June 2018 to 9 June 2019 against identified risks. The two policies were designated respectively:

The governing law of each was English law.³

5. I also find that, as alleged, the First Defendant was named as the Insured under each policy which extended to subsidiaries, affiliated companies or other interests as might be named. The Second Defendant, a subsidiary of the First, was identified in a schedule to the policy, as the owner of the Vessel which was stated to be classed with Bureau Veritas (“BV”).⁴

6. The Claimant asserted that in advance of its acceptance of the risk and its issue of the Hull Policy the Defendants told the Claimant by an email dated 5 June 2018 from Emilda Rammah, an officer of one or other of the Defendants, to Mr Shalab of the Claimant that the Vessel was in class and that they were in the process of renewing the class of the Vessel. The Claimant said that this was relied upon by it in accepting the risk.⁵

Amended Particulars of Claim — the terms of the Hull Policy

7. Provisions of the Hull Policy were set out in paragraph 7 of the Amended Particulars of Claim and I find by reference to the Policy which was in evidence, that those provisions were correctly set out. They were as follows:

8. By the Hull Classification Clauses JH 131, the Defendants warranted that the Vessel was classed and that the existing class was maintained.⁷

9. The Hull Policy, under the heading ‘Class’ in an attached schedule, used the term ‘BV’ in relation to the Vessel. This was a reference to Bureau Veritas, a well-known international Classification Society. As appears from the above, the policy also identified the Trading Area of the Vessel as worldwide excluding Iran and Qatar waters, the USA and Canada subject to Institute Company Trading Warranties CI.26 of 1/7/76.

10. The following clauses of the Institute Time Clauses (the “ITC”) were also pleaded and I find that they were incorporated in the Hull Policy.

11. By clauses 4, 5 and 6 of the ITC it was provided, inter alia, that:

12. Clause 13 of the ITC set out the requirements for notice of a claim:

Clause 24 provided:

13. By Institute Hull Classification Clauses JH 131 the Defendants warranted that the Vessel was classed and that the existing class was maintained.

14. The Claimant then asserted that as a matter of English law under section 10(2) of the 2015 Act and/or section 33 of the 1906 Act and/or the common law, an insurer has no liability under a contract of insurance in respect of any loss occurring or attributable to something happening after a breach of warranty (express or implied) in the contract.¹³

Amended Particulars of Claim — the terms of the War Policy

15. The preceding particulars related to the Hull Policy. There were similar pleadings, which I find made out, in relation to the contents of the War Policy. It covered a somewhat different range of perils in clause 1:

16. Clause 4 set out the notice requirement in the same terms as the notice requirement under the Hull Policy.¹⁵

Amended Particulars of Claim — notification of the claim by the Defendants

17. The Claimant alleges, and I find, that on 18 November 2020, the Defendants notified the Claimant of a claim under the two policies saying that the Vessel had “disappeared” during the insurance cover period. By a letter dated 25 October 2021 they gave formal notice of a claim in respect of the alleged loss of the Vessel.¹⁶

18. In the letter of claim, which was in evidence, they stated that:

Amended Particulars of Claim — alleged untrue representations and non-disclosure

19. The Claimant alleged in the Amended Particulars of Claim that statements made on behalf of the Defendants prior to the inception of the Hull Policy were untrue. The Vessel was in fact not classed with BV (or at all) and neither of the Defendants had taken any steps to renew its class with BV. They therefore failed to give a fair presentation of risk to the Claimant. This was said to have been either deliberate or reckless in that either of the Defendants knew or should have known that no such steps had been taken. Accordingly, it was said the Claimant was entitled to avoid the Hull Policy.¹⁸

20. The Claimant further alleged that the Defendants had failed to disclose prior to the inception of the policy, that the Vessel had been in lay-up in international waters in close proximity to Iran and at a location not approved by class (as the Vessel was not, as a matter of fact, classed) and that had been the case since at least February 2017. This was said to be a material circumstance which ought to have been disclosed to the Claimant prior to inception. The failure to do so was allegedly either deliberate or reckless in that the First and/or Second Defendants must have known that the fact of the Vessel being laid up in international waters without class approval was a matter of which the Claimant would want to be informed. On that basis it was said the Claimant was entitled to avoid the Hull Policy. ¹⁹

21. In relation to the avoidance of the War Policy, the Claimant repeated the allegation supporting its avoidance of the Hull Policy in relation to classification and undisclosed lay-up.²⁰

22. The Claimant further and alternatively asserted that it was discharged from any liability under the Hull Policy pursuant to clause 4.2 of the ITC from inception because the Vessel was not classed with BV at the inception of (or at any time during the period of) the Hull Policy.

Amended Particulars of Claim — breach of warranty — Hull Policy

23. In any event, the Claimant alleged that, to the extent that it is not entitled to avoid the Hull Policy, it is not liable to indemnify the First or Second Defendant against the alleged loss of the Vessel because:

Amended Particulars of Claim — Notice of Hull Policy and War Policy Claims out of time

24. The Claimant also asserted that it had no liability under the Hull Policy or the War Policy for the following reasons:

25. The Claimant alleged that the First and/or Second Defendants and/or the Managers of the Vessel should have become aware of the alleged loss of the Vessel whenever it occurred during the Policy Period.²⁴

26. The First and/or Second Defendants and/or the Managers of the Vessel should have become aware of the alleged loss of the Vessel (if it occurred during the Policy Period).²⁵

Amended Particulars of Claim — automatic termination of Hull Policy

27. Then it was said that the Hull Policy terminated automatically:

Amended Particulars of Claim — lack of coverage of loss

28. The Claimant then went on to assert that, to the extent that it was not entitled to avoid the War Policy, it was not liable to indemnify the Defendants against the alleged loss of the Vessel because the loss was not caused by a peril insured under the War Policy.²⁷

Amended Particulars of Claim — the Relief Claimed

29. The relief claimed was by way of declarations that:

30. The Claimant also sought declarations that it could avoid the War Policy and had no liability for any claim under that Policy. Alternatively, it sought declarations that it had no liability under the War Policy and/or had been discharged from any liability under that Policy. ²⁸

31. A number of documents were exhibited to the Particulars of Claim.

32. No Particulars of Defence have been filed.

Procedural History

33. This case has a long and somewhat complex procedural history. The present proceedings were commenced in the CFI on 11 November 2021 by the Claimant. The First Defendant applied to the CFI to have the claim form and its service set aside on jurisdictional grounds and in the alternative, to have the claim struck out as an abuse of process.

34. On 27 April 2022, Justice Giles found that the CFI had jurisdiction over the claim under Article (5)(A)(2) of the Judicial Authority Law on the basis that the DIFC Courts are Courts of the United Arab Emirates within the meaning of the jurisdiction cause in the policies.²⁹

35. On 5 August 2022, Chief Justice Azmi refused the Appellant’s Application for Permission to Appeal against the decision of Justice Giles.³⁰

36. On 25 August 2022, a second Application for Permission to Appeal against the Judgment of Justice Giles on a jurisdictional question was made to the Court of Appeal under RDC 44.29. This application was granted, the Appeal was heard and dismissed on 19 April 2023.³¹

37. As appears from paragraph 5(g) of the Seventh Witness Statement of Leonard Omeed Soudagar, a partner in the law firm acting for the Claimant, on 3 May 2023 the First Defendant:

38. The First Defendant made an application to the Court of Appeal asking that it refer the proceedings to the Union Supreme Court. That application was dismissed by the Court of Appeal and need not be set out in detail here. It is sufficient to note that it was dismissed by the Court of Appeal on 12 October 2023 by an Order issued on 12 October 2023.³²

39. On 13 February 2024, the Claimant sought directions that the claim be dealt with by way of the standard Rules of the DIFC Courts under the Part 7 claims procedure.

40. Orders were made setting out a timetable for the production of documents by both parties, witness statements and expert reports. The Defendants did not engage with the Court processes. As noted earlier, an amendment to the Particulars was granted at the commencement of the hearing and the Claimant was permitted to adduce an Expert Report from Mr Townsend. It is now necessary to review the evidence relied upon by the Claimant.

Request for Production of Documents

41. The Claimant made a request for production of various documents by the Defendants. These included:

Documents were also requested recording communications concerning the lay-up arrangements for the Vessel in the period 1 January 2018 to 18 November 2020. No response was made to that request. The Claimant contended that adverse inferences could be drawn from the failure to produce documents pursuant to its request.

42. The Defendants did not respond to the request to produce. The Claimant sought the benefit of RDC 28.61 which provides:

43. This Court has been found by the Court of Appeal to have jurisdiction to hear and determine the Claimant’s claim. The Defendants, at their own risk, have decided not to participate in the proceedings. That, no doubt, is the reason that they have not responded to the request for production of documents.

44. It is however the case that production of a certificate of classification covering the period commencing from the inception of the policies would have put an end to the Claimant’s case as far as it relied upon breach of the duty of fair presentation as to classification. Such a certificate could have been produced at any stage of the proceedings. It was not, and the inference is clear that the requested classification did not exist.

Witness Statement — Mahmoud Hasan Shalab

45. The Claimant, for its factual case, relied upon a witness statement of Mahmoud Hasan Shalab dated 6 June 2024. Mr Shalab was sworn in and testified to the correctness of his statement.

46. Mr Shalab is the Head of Marine and Aviation Underwriting and Claims at the Claimant. His statement set out his professional background and role at the Claimant.

47. Mr Shalab said that the Claimant started insuring the Defendants against Hull and War risks for specifically identified vessels in June 2013. It insured the vessel ‘BETA’ annually against such risks from that time. He was the underwriter responsible for the renewal of the policies which were written together as a package and were subjected to the same underwriting exercise and assessment.

48. He gave an account of events leading to the issue of the policies as follows:

49. Mr Shalab said that his understanding, based on the email exchange with Ms Rammah and Noble Insurance Brokers and the various versions of the Declaration, was that the Vessel was classed with BV at the relevant time and that the process of renewing class for the Vessel had been initiated by the Insureds. It was not the Claimant’s practice to verify independently the class status of the vessel for which coverage is sought. Mr Shalab said he relied entirely on Ms Rammah’s statements or those provided on behalf of the Defendants, including the statements contained in the various versions of the Declaration and the Final Declaration when making the decision to underwrite the policies.

50. Policies were issued to the Defendants in hard copy on 9 July 2018.

51. The covered vessels were set out in a Schedule to the Hull Policy. It listed a number of characteristics. The entry was “Class: AS PER SCHEDULE ATTACHED”. The entry for the vessel ‘BETA’ showed the letters ‘BV’ under the column headed ‘CLASS’.

52. The War Policy contained a like Schedule entry for the Vessel.

53. Mr Shalab then referred to matters which he said had not been disclosed to the Claimant at the relevant time and the extent to which, had they been disclosed, the disclosures would have affected the Claimant’s decision — ultimately his decision as the officer responsible for making the final recommendation to the General Manager to underwrite the policies. The matters were that:

54. Mr Shalab said that had he been aware of the true position with respect to class, he would not have agreed to extend cover to the Vessel at all under either of the policies. It was not the Claimant’s practice to extend cover to vessels not classed. Classification with a recognised classification society ensures that a vessel meets specific safety and operational standards. It also indicates that it is properly maintained, which directly impacts its seaworthiness and thus the level of risk associated with the insurance. Had it been disclosed that the Vessel was not in class, then he would have regarded it as an unacceptable risk and not extended cover. He added that classification is a standard measure of a vessel’s condition crucial for underwriting decisions.³⁵

55. Secondly, Mr Shalab said he would have regarded the Vessel being in lay-up as a material fact that ought to have been disclosed at the time of renewal of the policies. Had he known that the Vessel was in long term lay-up off the coast of Khor Fakkan, UAE, he would have requested further information, including:

56. The email exchanges between Mr Shalab and Ms Rammah in June 2018 were attached to his statement. In addition the Claimant relied, in its Opening Submissions upon email advices with respect to the Vessel to Mr Shalab from Mr Tansel Culcul, Marine Operations Manager at BV Marine and Offshore. The advice appeared in the Case Bundle. It covered the period from 10 June 2016 to 9 June 2019. The advice was:

57. This documentation was not verified in evidence by its author from BV. It was, however, relied upon by the Claimant in its Opening Submissions at paragraph 20 — which were of course available to the Defendants. That said, it is sufficient for present purposes that the failure of the Defendants to produce, upon request, evidence of classification by BV suffices to support the conclusion that no such classification existed.

58. The Case Bundle also included a letter from the solicitors for the Claimant to the First Defendant asserting the want of classification and rescinding the policies with effect from the inception and returning all premiums collected. By a further letter the Claimant’s solicitors formally notified the First Defendant of the Claimant’s decision to avoid the Hull and War Policies.

59. Mr Shalab asserted that, having regard to his reliance on the statements and information provided by the First Defendant, he was induced, by reason of the First Defendant’s nondisclosures, into making the recommendation that cover be extended to the Vessel.

60. I accept Mr Shalab’s evidence on the facts of the communications leading up to the issue of the policies. He was not cross-examined so his evidence was not tested. However, it was inherently plausible and supported by the documentary trail. I also accept his evidence as to the significance of the class issue from his perspective and of the fact, unknown to him, of the lay-up of the Vessel. I accept also that he would not have recommended issue of the policies had he been aware of the fact that the Vessel was not in class under BV. Nor would he have recommended issue without further information about the lay-up of the Vessel had the fact of the lay-up been disclosed to him.

Expert Report of Richard Malone — 9 August 2024

61. The Claimant relied upon an expert report by Richard Malone, a Maritime and Geopolitical Risk Consultant with six years’ experience. Before that he had spent ten years in the British Army specialising in intelligence and information warfare.

62. In the Executive Summary of his detailed opinion, he stated:

63. The documents upon which Mr Malone relied in forming his opinion were set out in Annexure A to his Report. The Annexure set out the results of his investigation into the movement of the Vessel by reference to an analysis of radar and satellite imagery between 1 January 2017 and 29 November 2020. He said he had also been provided with, and had the benefit of, reading documents listed in Appendix 3. That included the Hull and War Policies, Institute War and Strikes Clauses Hull Time and Institute Time Clauses Hulls of 1/11/1995, Clauses 281 and 280 respectively.

64. Mr Malone’s report was based in part upon records of “AIS signals” from the Vessel. ‘AIS’ stands for Automatic Identification System. A transponder on a vessel transmits a signal generally every two minutes, although sometimes not so frequently. Signals transmitted are received by a base station which may be operated by a coast guard or by other ships in the vicinity or by satellite.

65. The information on AIS signals for the Vessel, relied upon by Mr Malone, was provided by an intermediary known as Marine Traffic. It is a service provider which resells information for all vessels however received. Mr Malone had also checked with other providers. The AIS signal contains information from which the vessel transmitting and its location can be identified.

66. In the substantive part of his Opinion, Mr Malone said that the Vessel was a Liberian flagged product tanker, owned by the Second Defendant and managed by Venous Ships Mgmt & Ops LLC, Fujairah.

67. As appeared from a map attached to Mr Malone’s statement, the Vessel arrived in an area known as ‘Area 1’, located in international waters on 1 February 2017. It transmitted AIS signals until 20 September 2018. Thereafter its movements were tracked through satellite imagery. The Vessel visited six different anchor locations all situated within a relatively small area of roughly 4 x 4 kilometres. It moved on to what was called ‘Area 2’ between 27 February to 5 March 2019. A copy of the map relating to Area 1 and the position of the Vessel between February 2017 and September 2018 is attached to these Reasons as Appendix 1.

68. The Vessel was anchored at location 25.38.5 N 44.4 E, in international waters off Khor Fakkan (in Sharjah, UAE) immediately before 13 May 2019 when her last AIS signal was received. She appeared to have been ‘cold-stacked’, that is anchored with machinery switched off, hatches battened down and crew removed. In a footnote he observed that the most likely reason why the Vessel was not broadcasting AIS was because its auxiliary generators were turned off and the electrical power supply had shut down to a cold state. IMO Resolution A.1106 (29) states that “AIS should always be in operation when ships are underway or at anchor”, therefore the BETA should have transmitted AIS were minimal power available to the shipboard electronics.”³⁸

69. The owners had become aware in mid-November 2019 that the marine services company supposedly securing and supporting the Vessel — Al-Noor Al-Satee, or ANAS could not find the Vessel in its appointed anchorage.

70. Mr Malone then referred to a pre-claim advice given by the First Defendant to the Claimant on 18 November 2020 stating that the Vessel had disappeared from Khor Fakkan Port “within the insurance cover period” (i.e. 10 June 2018 to 9 June 2019). Formal notification of the claim followed on 25 October 2021. The substance of the notification of the claim is set out in the Claimant’s Amended Particulars of Claim summarised earlier.

71. Mr Malone stated that evidence which he had collected since June 2024 and set out in the Annexure, had finally provided a definitive answer to the two questions, when and how the Vessel disappeared from anchorage in international waters.³⁹

72. The records which he consulted showed that the Vessel was transmitting AIS signals until 20 September 2018, after which it “went entirely dark” until 12 May 2019. During that time its movements could only be tracked through satellite imagery. It was at two locations in an anchorage in international waters, identified in Annexure A to his Report as Area 1 between 25 November 2018 and 5 March 2019, after which the Vessel moved to an anchorage also in international waters identified as Area 2.⁴⁰

73. The Vessel remained in Area 2 with at least six minor changes to position until May 2019. On 11 May 2019, two smaller vessels were revealed by satellite imagery to have been operating close to the Vessel although neither appeared on AIS. On 12 May 2019, the Vessel transmitted her first AIS signal since 20 September 2018 and ten further transmissions from the same anchorage followed. The final AIS transmission was on 13 May 2019.

74. Satellite images taken on 13 May 2019 showed four smaller vessels, again not appearing on AIS, operating close to the Vessel. The satellite images also showed the AOS PROVIDER, an offshore tug and supply vessel towing an unknown vessel through Area 2 and changing course. A satellite image taken about 24 hours later, on 14 May 2019 showed the Vessel heading in an eastward direction and being towed by the HEDAYAT KESHTI 1, an Iranian-flagged tug, with a supporting vessel steaming on the Vessel’s port aft quarter. The tug’s AIS transmissions showed that she and the Vessel arrived in Bandar-e-Jask anchorage in Iran at around 2300 UTC on 14 May 2019.⁴¹

75. Subsequent satellite imagery showed the Vessel at anchor there until 27 May and then being towed north-west along the Iranian coast. Satellite imagery showed the Vessel at an anchorage near Bandar Abbas, also in Iran, on 29 May 2019 where it remained at anchor until 28 July 2019. A later image showed the Vessel leaving the anchorage under its own propulsion to moor alongside a pier at Shahid Bahonar Port, headquarters for both the Iranian Navy and the Islamic Revolutionary Guard Corps Navy.⁴²

76. The Vessel remained at the Port for over a year until between 16 and 19 August 2020 when it returned to the Bandar Abbas anchorage. About two weeks later, on 31 August 2020, the Vessel moved to Azim Gostaresh Hormoz Shipyard, 37 km west of Bandar Abbas and went into dry dock for conversion. It re-emerged for sea trials as the IRINS MAKRAN, an Iranian Navy fleet auxiliary oiler, between 9 and 14 December 2020.⁴³

77. In relation to the ‘how’ and ‘when’ of the disappearance of the Vessel, Mr Malone said that on the morning of 11 May 2019 it had been at anchor in Area 2 in approximately the same position, in the same state, (i.e. cold-stacked) that had applied since 5 March 2019. It was almost certainly unmanned. The two ANAS security personnel supposed to be manning the Vessel were not on board. ANAS had never visited the Vessel, let alone placed personnel on board, as its contract with the Insureds had specified.

78. Mr Malone referred in a footnote to a report of a court-appointed expert in a case brought by the Defendants against ANAS in the Sharjah Federal Court of First Instance. In that report in a paragraph quoted in the Judgment, the expert said that ANAS “did not appoint any sailors on any of the three ships, the subject matter of the Case, and did not render any services to it, in violation of the text of the agreement”.⁴⁴

79. The Vessel was boarded at some point on 11 or 12 May 2019 and its AIS activated as part of the preparations to get underway. Mr Malone suggested that it was probable that the Vessel was boarded from one or more of the smaller vessels operating nearby because of their clear linkage to her disappearance.

80. That inference arose from the actions of the AOS PROVIDER on the morning of 13 May when the Vessel’s AIS had been reactivated. AOS PROVIDER’s 20º turn to port brought her closer to the Vessel than her original course would have done. It took her further away from the two stationary smaller vessels close to the Vessel. It was unnecessary and perhaps even dangerous. It would certainly have placed considerable strain upon the tow.

81. Mr Malone concluded that the AOS PROVIDER changed course because of the presence of the smaller vessels, either as a result of a threat or instruction from them or because the crew perceived the need to keep well clear of whatever activity those vessels were engaged in. The only vessels of the size of the smaller vessels which would not appear on AIS would be warships which are not required to use the system, or commercial vessels masking their activities. AOS PROVIDER, engaged in a cumbersome tow with limited ability to change course, would not have made such a substantial course change unless its crew felt compelled to do so.⁴⁵

82. The Vessel was then shown being towed in an eastward direction on the morning of 14 May by an Iranian-flagged tug HEDAYAT KESHTI with another smaller vessel in support. The Iranian-flagged tug works almost exclusively around Bandar Abbas.

83. Mr Malone attached importance to the apparent masking of the Iranian tug’s approach to Area 2. Instead of taking a direct route to the Vessel from Bandar Abbas it had remained within Iranian territorial waters until a point at which it turned off its AIS and headed towards the Vessel. This strongly suggested that the tug was instructed to mask her journey prior to taking the Vessel under tow.⁴⁶

84. Mr Malone was satisfied that the Vessel was removed from her anchorage on 14 May 2019 where she had been left unmanned as a result of an organised operation involving multiple vessels, using surreptitious means. There was no evidence of any force being used.⁴⁷

85. The Annexure attached to his Report plotted a course of the Vessel from Area 1 through Area 2 and six other designated areas numbered 3 to 8. Area 8 was the dry dock at AGH dry docks at Bandar Abbas Shipyard.

86. I accept the inference proffered by Mr Malone. His evidence shows that the Vessel was effectively laid-up — not trading — from 1 February 2017 to the inception of the policies. What happened to the Vessel thereafter is related to the coverage issue which, in the event, it is not necessary for me to determine. That said, I accept Mr Malone’s factual inferences on the material which he consulted.

Expert Report of Peter Townsend, 9 September 2022

87. Mr Townsend was asked to provide his opinion as to the materiality of certain matters that the Claimant alleges were known to the Defendants but were not disclosed to the Claimant. The non-disclosures on which he was asked to provide his opinion were that:

88. Mr Townsend was asked what a “reasonably prudent” underwriter would have done if made aware of the non-disclosures.

89. Mr Townsend has a BA (Hons) degree in Economics from the University of Warwick and over 40 years of insurance underwriting and broking experience, with a particular focus on marine risks, including hull, cargo, energy and liability business. He has held various elected positions during his career, including with the Joint Hull Committee, the Technical Marine Committee of the International Underwriting Association of London, the Ocean Hull Committee of the International Union of Marine Insurers and the Lloyds Salvage Group.

90. He did not give any opinion as to the truth of the allegation of non-disclosures.

91. Mr Townsend commenced his Report with general comments relating to the assessment of risk as paramount to the underwriter’s decision. It is not necessary to set those comments out in any detail here, they were pitched at a high level of generality. He did state that an insurer would want to know about any non-compliance with mandatory requirements or international standards that could affect the risk. That comfort was said to be provided by the Classification Society. Deliberate non-disclosure or misrepresentation of the classification (or lack of) was said to be a fundamental breach of the duty of fair representation as compliance with the Classification Society’s requirements could be the difference between the vessel being deemed to have breached the implied warranty of seaworthiness or not.

92. It is perhaps necessary to interpolate that this part of the Report should be taken as reflective of an experienced underwriter’s approach, rather than a statement of principles of fair dealing which anyone could enunciate about almost any contract.

93. Putting to one side the general statements which might be seen as conflating propositions of law and underwriter practice, Mr Townsend turned to the questions which he had been asked to consider.

94. Mr Townsend explained the function of classification societies. Their primary function, he said, is to ensure the seaworthiness of a vessel and its structural integrity — to provide comfort to all parties that the vessel is fit for purpose. Classification surveys are normally carried out when a vessel is first launched and an interim survey every two and a half years.

95. He observed that for a vessel such as the BETA, with a value of USD 70 million, a prudent underwriter would expect it to be International Association of Classification Society (“IACS”) classed. If the vessel had been presented to underwriters as being unclassed there was a very strong chance that it would have fallen outside the risk appetite of the underwriter even if not outside of the underwriter’s authority. A prudent underwriter would have asked very probing questions as to why the vessel was unclassed and would have wanted to know what remedial action was planned to ensure that it was going to be IACS classed. It was highly exceptional for a vessel such as the BETA to be unclassed.

96. If the vessel had been presented as unclassed, a prudent underwriter may have required a survey to be undertaken and may have required that the vessel be classed with an approved IACS class and that the class should be maintained.

97. While the question of class might be seen as of greater importance to the Hull Policy rather than the War Policy, it was still of importance in the war line of business. He gave an example of why this would be so. If a vessel navigating coastal waters had a machinery breakdown resulting in its inability to navigate, the coastal authorities of the relevant State might entertain or even confiscate the vessel as a result of it being unclassed and possibly unseaworthy. The class requirement for war was said to be a corollary to the requirement under the Hull Policy.⁴⁹

98. Should the vessel have been represented as being in class with it transpiring later that it was in fact unclassed, a prudent underwriter would have voided the cover ab initio as the risk would have been materially worse than that which underwriters would reasonably expect it to be.⁵⁰ He also referred to Institute Classification Clause JH 131 and the explicit warranty that “… all vessels IACS classes and existing class maintained throughout the period.”⁵¹

99. On the question of the undisclosed lay-up of the vessel, he observed that typically the value of a vessel is a function of its freight earning capacity. When intentionally laid up, the freight earning capacity is zero. It would therefore be reasonable to expect that the vessel’s value would be amended to reflect that lack of capacity. This would not be the case if the vessel was between charters.

100. A vessel insured on ITC would be priced, unless otherwise agreed on the assumption that the vessel would be operating or navigating for the full 12 months. In the event that it were laid up, (as agreed with underwriters prior to such lay-up) for an extended period, the owners could apply for a return of premium. This is known as Full Returns.

101. If an owner expected a vessel to be operating for the entire period of the insurance, the owner might opt for the basis of a premium known as ‘Cancelling Returns Only’ (“CRO”). Because the owner in such a case is foregoing the option of lay-up or suspension returns, the owner would enjoy a small discount in the priced terms, equating to around 5% of the annual premium.⁵²

102. The Vessel insurance was placed on the basis of CRO.

103. If it were an assured’s intention to have the vessel on long term lay-up the prudent underwriter’s question would be whether the vessel would be in ‘warm’ or ‘cold’ lay-up. The former entails the vessel being fully crewed, the engines regularly turned over and routinely maintained as if the vessel were operational so that the vessel would be able to trade promptly as and when a charter arose. ‘Cold’ lay-up was likely to require only a skeleton crew and the machinery would be mothballed.⁵³

104. To return to full operational condition after a cold lay-up would require the vessel to have her required complement of crew, with underwriters requiring a recommissioning survey to be undertaken and all recommendations complied with to ensure that machinery that had been sitting idle for a prolonged period was still fit for operation.⁵⁴

105. Had the vessel attached on a laid up basis, underwriters would have required the laid up details and to approve them. This would routinely be performed by the Classification Society, but with advice to the underwriters and their ultimate agreement. The return to navigation from cold lay-up would also have required a recommissioning warranty. An example of a recommissioning warranty was quoted:

106. Mr Townsend described the ‘warm’ or ‘cold’ lay-up condition and the period of lay-up as a matter of fact in each individual circumstance. He took from Mr Malone’s report that the vessel was “cold stacked” and almost certainly unmanned. He said that had they been advised that the vessel was indeed in cold lay-up the underwriters would have required a skeleton crew to have been aboard at all times. He also noted from Mr Malone’s report that two ANAS security personnel supposed to be manning the vessel were not on board and that ANAS never visited the vessel. Underwriters would undoubtedly have considered this an unacceptable material change to the risk presented to them.

107. Mr Townsend then observed that while the war risk and hull property damage risk placements were separate, the underwriting factors remained common for both. If the underwriter had declined the hull placement it would also have declined the war placement for the same unacceptable moral risk.

108. On the basis that the allegations of non-disclosure were true, it was Mr Townsend’s opinion that any “prudent underwriter” would have regarded them as material and that had such an underwriter been made aware of those matters before the inception of the policy, the underwriter would not have entertained the risk on any basis.⁵⁶

109. He regarded the non-disclosures as material facts that ought to have been disclosed to the Claimant prior to the inception of the policy. Had he been underwriting the policies and been made aware of the matters non-disclosed prior to inception, he would not have been prepared to offer cover on any basis.⁵⁷

110. I accept Mr Townsend’s evidence so far as it relates to classification societies, lay-up and underwriting practice. As to lay-up, it is important to note that this case is concerned with the position of the Vessel prior to inception of the insurance which was June 2018. Evidence of later cold lay-up is not relevant to the duty of fair presentation prior to inception of the insurance.

111. As already observed, events post-dating the inception of the insurance, specifically the seizure of the Vessel, may be relevant to whether its loss flowed from an insured peril.

The issues for determination

112. The Claimant identified the following issues for determination in the case:

The statutory framework

113. Until August 2016 when the 2015 Act was given royal assent, the relevant law was to be found in the 1906 Act and the common law. As appears from the Explanatory Note to the 2015 Act, that Act gives effect to recommendations of a Joint Report, published in 2014, of the Law Commission and the Scottish Law Commission.⁵⁸ The Act is described in the Explanatory Notes as updating and replacing the existing duty on non-consumer policy holders to disclose risk information to insurers before entering into an insurance contract. The boundaries of that duty are defined under the heading ‘Duty of Fair Presentation’ in Part 2 of the 2015 Act.

114. The Act is described as introducing a new system of proportionate remedies when the duty has been breached. They replaced the previous single remedy of avoidance of the policy, where the policy holder had breached the duty deliberately or recklessly.

115. Section 17 of the 1906 Act has been amended by the 2015 Act and the Consumer Insurance (Disclosure and Representations) Act so that it now reads:

116. Sections 14(1) and (2) of the 2015 Act provide:

117. Sections 18, 19 and 20 of the 1906 Act, appearing under the heading ‘Disclosure and Representations’ have in effect been repealed by the 2015 Act and replaced by the provisions of Part 2 of that Act which is titled ‘The Duty of Fair Presentation’. The relevant provisions of Part 2 are:

118. Section 4 relevantly makes the following provisions

119. Section 6 provides:

120. Section 7 of the 2015 Act headed ‘Supplementary’ provides:

121. Section 8 refers to remedies for breach relevantly as follows:

122. The remedies are set out in Schedule 1, which contains the following paragraphs:

123. The provisions of the 1906 Act relating to warranties, sections 33, 34 and 35 were amended by the 2015 Act. Section 34 was omitted. Sections 33 and 35 now read:

These should be read with section 10 of the 2015 Act which relevantly provides:

The Claimant’s submissions on non-disclosure

124. The Claimant contends that the duty of disclosure under the 1906 Act, as developed in case law, is, in broad terms, reflected by sections 3(4)(a) and (b) of the 2015 Act.

125. The Claimant submitted that as was the case previously an insurer has a remedy against an insured for breach of the duty if the insurer can show that it would not have entered into the contract at all or would have done so on different terms. Insurers are entitled to avoid a contract of insurance where either:

126. For the purposes of establishing a right to avoid by reason of non-disclosure by an insured, or failure to make to the insurer “a fair presentation of the risk” it was submitted that evidence is normally required of:

127. It was submitted that in an obvious case the Court can be satisfied as to materiality even in the absence of expert evidence as to the latter — citing AC Ward & Son Ltd v Caitlin (Five) Limited (No 2) [2010] Lloyds IR 695 at [218] (Flaux J) quoting Strutton LJ in Glicksman v Lancashire and General Assurance [1925] 2 KB 593 at 609. It was further submitted that a court is entitled to assume that the practice of an insurer is the practice of prudent underwriters generally unless it is shown otherwise — citing Lindsay J in Mundi v Lincoln Assurance Limited [2006] Lloyds Rep IR 353 at [62].

128. Against that background the Claimant then made submissions relating to the failure by the Defendants to disclose the fact that the Vessel was not in class.

129. The Claimant referred to the email communication from the First Defendant to Mr Shalab on 4 June 2018, and the statement that the Vessel was classed with BV. The Claimant referred to Mr Shalab’s response to the email and the reply email of 5 June 2018 that the First Defendant was in the process of renewing the class. The updated list of vessels for the renewal provided by the Defendants on 10 June 2018 and a further list the next day by Noble Insurance Broker Co LLC on behalf of the Defendants, included the Vessel along with the statement that it was classed with “BV”.

130. The Claimant then referred to its endeavour to obtain a copy of the BV classification certificate, the failure to provide such a document and the inference that the Vessel was never in class. The Claimant referred to the email exchange with BV in 2021 as to the classification status of the Vessel at the inception of the policies. As already noted, the documents relied upon were emails from BV advising the absence of classification. It is questionable whether those documents were hearsay evidence within the meaning of the Court Rules. In any event, the want of classification is inferred from the failure of the Defendants to produce documentary evidence of classification in response to the request for production of documents.

131. The Claimant referred to its attempts to obtain information directly from BV as to the classification status of the Vessel and the reply that the Vessel was never classed by that Society.

132. The Claimant invited the Court to infer that when the First Defendant was asked by Mr Shalab to provide information about the status of the Vessel’s class, it knew that the Vessel was not classed by BV or any other classification society, and knew that no steps were being taken to ‘renew’ class. On that basis the Claimant submitted that the First Defendant deliberately misrepresented the position or, at the very least, was reckless in response to the question asked about class.

133. The Claimant also relied upon Mr Shalab’s evidence that he would not have agreed to extend insurance to the Vessel under either the Hull Policy or the War Policy if he had known that the Vessel was not classed.

134. Reference was then made to the expert evidence of Mr Townsend.

Findings of fact on class issue

135. I find as a fact that at the time the Hull and War Policies were entered into the Vessel was not in class with BV or anyone else. I also find that the First Defendant represented, by a responsible officer, to the Claimant that the Vessel was in class, a representation reflected in the Schedule to each policy. The question whether or not the Vessel was in class was material both subjectively and objectively. I accept Mr Shalab’s evidence that had he known that the Vessel was not in class, he would not have recommended that the Policies issue. I accept that was the position of a prudent underwriter. I find that the Claimant would not have issued the relevant Policies.

136. I find also that Ms Rammah was an individual responsible for the Defendants’ insurances and that she represented that the Vessel was in class and that the class was about to be renewed. I find that the fact that the Vessel was not in class nor about to be renewed, must have been known to her. In the event, the representations as to class were either deliberate misstatements or reflected a reckless failure to verify their truth, perhaps in a belief that the classification issue would be resolved at some time in the future. Absent evidence from the Defendants that is speculative.

Conclusion on remedy

137. I am satisfied that the Claimant has made out its entitlement to avoid both the Hull Policy and the War Policy for a deliberate or reckless breach by the Defendants of their duty of fair presentation. There will be declarations accordingly.

Finding on lay-up

138. Mr Malone’s report analysed the Vessel’s movements from January 2017 to December 2020. As appears from the report, between 1 February 2017 and 5 March 2019, it was at anchor in international waters and around the area depicted as Area 1.

139. The failure to disclose that the Vessel was effectively in lay-up from February 2017 was a failure to declare a fact that was a material circumstance. It was a fact which, in the language of section 7(3) of the 2015 Act could influence the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms. It was, as appears from the evidence of Mr Townsend, something which those concerned with the class of insurance and field of activity in question would generally understand as something that should be dealt with in a fair presentation of risks of the type in question.

140. It may be added that it follows from the evidence that the combination of the lack of classification with a protracted period at anchor would have enhanced the risk.

141. There is therefore in respect of both Policies, a breach of the duty of fair representation in relation to lay-up.

142. The evidence, however, does not allow me to conclude that the non-disclosure was deliberate or reckless. The onus of showing that rests with the insurer and the evidence simply does not take the non-disclosure to that level. The non-production of documents relevant to that question does not allow me to draw an adverse inference which would enable the insurer to discharge the onus.

143. It is somewhat artificial to consider the lay-up non-disclosure in isolation from the classification misrepresentation. The latter would reinforce the concern of the insurer about the former. In the event, however, that the classification misrepresentation had not been found to be deliberate or reckless, the combination of that and the lay-up non-disclosure would have supported the grant of a remedy under paragraph 4 of the Schedule, i.e. avoidance of the contract, refund, refusal of all claims and return of premiums paid.

Warranties

144. The Hull Policy contained implied warranties under IHCC J 131 and ITC Hulls. By JH 131, the Defendants warranted that the Vessel was classed at its existing class. As to JH 131, there was, from the inception of the Hull Policy, a breach of the warranty as to classification. By ITC clause 4, it was the duty of the insured to ensure that at the inception of the insurance, the Vessel was classed with a classification society agreed by the underwriters and that her class within that society was maintained. In the event of a breach of that duty, the insurer would be discharged from liability as from the date of the breach.

145. It suffices to say that having regard to the findings as to classification, the Defendants breached their duty in ITC clause 4, thus discharging the Claimant from liability under the

146. The Claimant would appear, by virtue of section 10(2) of the 2015 Act did not have any liability under the Hull Policy from the time of its inception.

Limitation

147. As appears from the evidence as to the date of the Notice of Claim and the events upon which it relied, the Notice of Claim was not given within time.

General Conclusion

148. It is not necessary to consider further the Claimant’s case as to non-coverage of the claimed perils. It follows from the preceding findings, that the Claimant was entitled to avoid both policies for reckless or deliberate breach of the duty of fair representation in relation to the classification of the Vessel. A declaration to that effect will be made. The Defendants will be ordered to pay the Claimant’s costs of the action.