Delos Shipholding SA, the owner of bulk carrier Win Win, on 25 March 2024 secured a constructive total loss (CTL) win under a War Risks Policy against its group of insurers at the English Commercial Court.

The shipowner was entitled to recover the USD 37.5 million agreed value of the vessel, and further claims estimated at USD 235,900 in respect of sue and labour expenses.

The Indonesia “illegal parking” case started in February 2019 when the Master of Win Win was ordered by Owners to anchor outside East of Singapore Port Limits (EOPL) to await orders after receiving bunker fuel at the republic, informed Andrew Bicknell, Partner, Clyde & Co (Singapore).

Bicknell was presenting his findings ‘When illegal parking causes a Constructive Total Loss’ to delegates at Clyde & Co’s Asia Pacific Conference 2024 on Wednesday (29 May).

The following details were extracted from his presentation.

Factual background

The Singapore EOPL anchorage, partly in international waters and partly in Indonesian territorial limits, had been used by hundreds if not thousands of vessels for many years without issue.

Because it was a customary anchorage, neither Master nor Owners considered territorial limits though the vessel was anchored within the Indonesian 12 nautical mile (NM) limit. A sudden change of approach by Indonesian authorities, however, resulted in 20 vessels including the Win Win being detained in EOPL.

The Owners, their club and local club correspondents became involved in discussions with Indonesian authorities to see whether a payment would be made to the authorities in order to release the vessel.

Negotiations ended in April 2019 when it became clear beyond all doubt that any payment would be in the nature of a corrupt payment.

From August 2019 onwards the Owners of Win Win claimed a CTL under their War Risks Policy; War Risks insurers reject Notices of Abandonment.

Vessel was released after nearly 12 months, and the Master was given a seven-month suspension sentence and a USD 7,000 fine.

Owner’s claim under the policy

Under the policy written on American Institute War Clauses, a CTL could arise after six months of vessel detainment.

Following failure of negotiations with Indonesian authorities, a Notice of Abandonment was given by Owners to the insurers in August 2019 and a further notice was served to include the mortgagee bank which was the loss payee under the policy.

All notices to insurers were rejected, and Owners brought proceedings in Commercial Court in London.

Insurers’ defences under the policy

• Fortuity
  • Insurers accepted that (subject to other Defences) if a fortuitous event had occurred the policy criteria for a CTL had been met. However, insurers argued that because the Master and Owners had voluntarily chosen an anchorage within Indonesian territorial waters without permission, there was no fortuity when the Indonesian authorities decided to detain the vessel.
• Exclusion (e)
  • The Policy excluded claims resulting from or incurred as a consequence of:
    “Arrest, restraint or detainment under customs or quarantine regulations and similar arrest, restraints or detainments not arising from actual or impending hostilities.”
  • Insurers argued this exclusion applied to the actions of the Indonesian / Navy in enforcing Indonesian sovereignty.
• Sue and Labour
  • Insurers alleged that Owner’s discussions with Indonesian authorities amounted to a failure to sue and labour.
  • Insurers alleged Owners knew they were getting into a discussion with the Navy for corrupt payments and all they achieved when they withdrew was to alienate the Indonesians.
• Non-disclosure
  • Insurers allege that Owners’ failure to disclose that the sole nominee shareholder of the owning company (Vangelis Bairactaris – a Piraeus shipping lawyer) had been charged in connection with unrelated alleged drug smuggling activities of well known Greek shipowner Evangelos Marinakis, amounted to material non-disclosure.

The judgement

Finding that the Owner’s claim for a CTL succeeded, the Judge ruled as follows:

• Fortuity
  • There was no wilful misconduct in anchoring where the Vessel did and there was no active choice by Master / Owner to anchor inside territorial waters and the arrest and subsequent detention of the Vessel was not in the ordinary consequence of that conduct or from the ordinary incidents of trading. Accordingly, the loss was fortuitous.
• Exclusion (e)
  • The Judge said the test was to ask whether the object and purpose of the arrest was similar to the object and purpose of an arrest under either customs or quarantine regulations. The Judge found there was no such similarity. Rather the arrest of Win Win and the other vessels was prompted by a change of policy on the part of the Indonesian government to assert sovereignty. Accordingly, exclusion (e) did not apply.
• Sue and Labour
  • The Judge emphasised the challenging and possibly dangerous situation faced by the vessel and the difficult choices faced by the Owners.
  • The Judge considered it quite proper for the Owners to rely heavily on the advice of their P&I Club and to appoint Indonesian lawyers.
  • The sort of informal discussions that then took place were permissible and common practice. The only possible way to secure early release would have been through a discretionary route.
  • When it became “pellucidly clear” that the proposed payment would not be possibly be legitimate, Owners called an immediate halt to this activity:

“Accordingly, I find the Claimants were not in breach of their duty to sue and labour as alleged. Other prudent uninsured might have pulled the plug on discussions sooner, many others I suspect would not.”

• Non-disclosure

The Judge was not at all sympathetic to this argument; and

• Accepted the evidence of Mr. Bairactaris that he was solely involved to facilitate the signing of transactional documents quickly when required. He was discharging an administrative function.
• Bairactaris was not involved in the vessel’s insurance.
• Found that insurers failed to prove that any of the Claimants either knew or ought to have known about the criminal charges and therefore there was no breach of fair presentation.
• This disposed of the Defence of non-disclosure but for those interested, the Judge went on to consider issues of inducement as an academic exercise.

Note: A link to the full 111-page judgement can be found here: https://caselaw.nationalarchives.gov.uk/ewhc/comm/2024/719

Related: IFC shipping advisory: Illegal anchoring by merchant ships in east of Tanjung Berakit, Indonesia
Related: Indonesia: Naval officers allegedly asked for USD 375,000 to release oil tanker “Nord Joy”

Photo credit: Clyde & Co
Published: 5 June 2024