The International Labour Conference (ILC) at its 103rd session approved the first group of amendments to the Maritime Labour Convention (MLC), 2006. The amendments were agreed by the Special Tripartite Committee at its first meeting at the International Labour Organisation (ILO) in Geneva in April 2014 and entered into force in January 2017. The amendments concerned Regulations 2.5 and 4.2 which deal with the right to repatriation and the shipowners’ liability for sickness, injury or death of seafarers occurring in connection with their employment. In brief, the amendments inter alia set out requirements for shipowners to provide financial security to provide support for abandoned seafarers and to assure compensation in the event of death or long-term disability of seafarers due to occupational injury, illness or hazard. While an exhaustive overview of such amendments is beyond the scope of this blogpost, this blogpost aims to shed light into the operation of Standard A 2.5.2. of the MLC, 2006, as amended, paragraph 9 of which stipulates that the coverage provided by the financial security system when seafarers are abandoned by shipowners shall be limited to four months outstanding wages and four months of outstanding entitlements.
Let’s take a hypothetical case of seafarers being abandoned for 10 months. Seafarers contact the P&I Club for assistance, providing all the necessary documentation to substantiate their claim. The P&I Club’s claims handlers acknowledge receipt of the claim, check the validity of the financial security system, and investigate whether the shipowners have in fact failed to pay wages to seafarers. If the P&I is satisfied that the financial security system is valid and that the seafarers’ wages are outstanding, the P&I Club will pay four months of outstanding wages and take immediate action to repatriate the affected seafarers. Now, assuming that all the outstanding wages are of the same rate, no further questions arise. But what if the outstanding wages are not all of the same rate? If, for example, after the first four months, there has been a pay rise under the seafarers’ employment agreement.
In such cases, a further question can potentially arise as to how the limit of four months outstanding wages will be calculated. Should it be calculated based on the first four outstanding wages? Or is there a right to pick and choose which of such outstanding wages to form the basis for the calculation of such limit? If the latter is true, seafarers will be keen on calculating such limit based on the higher rate of such outstanding wages. On the other hand, the P&I Club will attempt to calculate such limit based on the lower rate of such outstanding wages. In the next section, this blogpost will explain what the relevant provisions of the MLC, 2006, as amended, provide.
The relevant provision is Standard A 2.5.2 of the MLC, 2006, as amended. Paragraph 9 of this Standard states that:
‘Having regard to Regulations 2.2 and 2.5, assistance provided by the financial security system shall be sufficient to cover the following: (a) outstanding wages and other entitlements due from the shipowner to the seafarer under their employment agreement, the relevant collective bargaining agreement or the national law of the flag State, limited to four months of any such outstanding wages and four months of any such outstanding entitlements; […].’
If one looks at the wording of this provision, it can easily be ascertained that the actual text of the Convention does not give an answer to this question. Certainly, the use of the words ‘limited to four months of any such outstanding wages and four months of any such outstanding entitlements’ gives ample of space for arguments suggesting that the four months limit can be calculated by reference to any such outstanding wages, and not necessarily the first four outstanding wages.
However, it is not clear whether the specific wording was used with such flexibility in mind. The draft text of the amendments of Standard A 2.5.2. of the MLC, 2006, was based on the principles agreed at the Ninth Session (2-6 May 2009) of the Joint IMO/ILO Working Group on Liability and Compensation regarding Claims for Death, Personal Injury and Abandonment of Seafarers. During the negotiations, it was considered whether links should be drawn between paragraphs 2 and 9 of this Standard. Although this discussion took place in respect of the duration of the limitation period (it may be worth noting here that, initially, a limit of three months wages was suggested), it can still be instructive. In this respect, it was explained that the purpose of paragraph 2 is to identify when abandonment takes place, whereas paragraph 9 defines the scope of financial security to be provided in case of abandonment. Thus, it was concluded, it is necessary to allow for a time lapse between the recognition of the abandonment situation and the limitation of financial security.
Against this backdrop, it can be argued that the purpose of the said limit is to ensure that seafarers’ wages are fully paid up for the first four months since their abandonment. Bearing in mind that it is the seafarers who have to initiate the process with the P&I Clubs, it may also be worth noting here that such interpretation can assist with avoiding cases, although rare, where seafarers intentionally allow wages to continue to accrue.
In practice, it is highly unlikely that seafarers are owed only four months’ wages when they are abandoned by their shipowners. Thus, the possibility of different rates for wages or other entitlements cannot be precluded. Given the uncertainty of the wording of Standard A 2.5.2. paragraph 9 (a) of the MLC, 2006, amended, any conflicting arguments can easily be avoided if the purpose of this provision is clarified in future amendments.
Quadra Commodities SA v. XL Insurance and others  EWHC 431 (Comm)
The assured was a commodities trader who entered into various contracts with Agroinvest Group for the purchase of grain. On receipt of warehouse receipts confirming that the relevant quantities of grain were held in common bulk in stipulated warehouses or “Elevators”, the assured paid for the grain. However, it later transpired that Agrionvest Group and the warehouses were involved in a fraudulent scheme whereby the same parcel of grain or seeds may have been pledged and/or sold many times over to different traders. The fraud unravelled when buyers sought to execute physical deliveries against the warehouse receipts and it became clear that there was not enough grain to go around.
The assured sought to recover its losses under a marine cargo policy claiming that the insured goods were lost either because they had been misappropriated or because there was a loss by reason of the assured’s acceptance of fraudulent warehouse receipts. The relevant clauses in the policy stipulated as follows:
Misappropriation This insurance contract covers all physical damage and/or losses, directly caused to the insured goods by misappropriation.
This policy covers physical loss of or damage to goods and/or merchandise insured hereunder through the acceptance by the Assured and/or their Agents and/or Shippers of fraudulent shipping documents, including but not limited to Bill(s) of Lading and/or Shipping Receipts and/or Messenger Receipt(s) and/or Warehouse Receipts and/or other shipping document(s).
Insurable Interest Issue
The insurers denied cover on the basis that the assured did not have insurable interest in any of the goods which were lost and/or there was no physical loss of the property, only pure financial loss, which was not insured. The basis of the insurers’ case on insurable interest was that this was not an insurance on property but instead an insurance of an adventure, including the success of storage operations. The judge (Butcher, J) was quick to dismiss this submission by referring to various terms in the contract pointing strongly to the direction that this was indeed an insurance on the property (grain) which the assured was purchasing from the buyers. The alternative argument of the insurers was interesting and raised issues whether the assured had insurable interest in the goods. It was essentially argued that even if the insurance was on the cargo purchased, the assured had no insurable interest in the present case as the cargo in question never existed. With this argument the insurers were primarily encouraging the court to adopt a strict approach to insurable interest following the spirit of the reasoning of Lord Eldon in Lucena v. Craufurd (1806) 2 & P.N.R. 269 which suggested that only those who stand in a “legal and equitable relationship to the property” have insurable interest in the context of property insurance. The judge was able to dismiss insurers’ argument by holding that the assured was successful, on a balance of probabilities, in showing that goods corresponding in quantity and description to the cargoes were physically present at the time the Warehouse Receipts were issued. This meant that this was not an insurance policy on goods that never existed and accordingly the assured had insurable interest on the grounds that:
• The assured had made payment for goods under purchase contracts, and such payment for unascertained goods of the relevant description was valid ground for establishing an insurable interest irrespective of whether there were competing interests in the grain. The assured, therefore, stood in a “legal or equitable relation” to the property by virtue of the payment.
• The assured was able to show on the balance of probabilities that it had an immediate right to possession of the grain and this coupled with its economic interest in the grain can give rise to an insurable interest.
This outcome in the case is in line with authorities on the subject and is not too controversial. However, the curious point is whether the court would have reached the same conclusion on insurable interest, had it decided that on balance of probability the assured failed to show that goods corresponding in quantity and description to the cargoes were physically present. There is authority to the effect that an assured has no insurable interest in insuring property that it does not own although it might have a factual expectation of loss related to that property (Macaura v. Northern Assurance Co Ltd  AC 619). However, a different stance has taken on the matter in other common law jurisdictions (in particular by the Supreme Court of Canada in Constitution Insurance Company of Canada v Ksmopoulos  1 SCR 2). Also, there is a marked shift in attitude of English courts towards a more flexible approach to insurable interest (especially in cases like National Oilwell Ltd v Davy Offshore (UI) Ltd  2 Lloyd’s Rep 582 and The Moonacre  2 Lloyd’s Rep 501). It should be at least arguable that a person who is led to believe by a fraudster to purchase goods (that never existed) and paid for them under a sale contract, should have an insurable interest if s/he enters into a contract of insurance to protect his/her interest against the risk of not getting what s/he paid for.
Late Payment Issue
The Insurance Act (IA) 2015 implies a term into insurance contracts to the effect that the insurer must pay any sums due in respect of a claim within a “reasonable time” (s. 13A of the IA 2015). However, by virtue of s. 13A(4) the insurer is not in breach of this implied term if it shows that there were reasonable grounds for disputing the claim merely by failing to pay while the dispute is continuing. The assured in the present case contended that the insurers’ conduct of the claim was “wholly unreasonable, and its investigations either unnecessary or unreasonably slow” and resulted the assured suffering losses by reference to the return on shareholders’ equity. Conversely, the insurers argued that a reasonable time was “a considerable time” and extended beyond the time by which proceedings were commenced. In any event, the insurers argued that by virtue of s. 13A(4) there was no breach of this implied term as they had reasonable grounds to dispute the claim.
Given that this was the first case on the matter, in considering whether there was any breach of the implied term, the judge apart from the guidance provided by s. 13A(2) of the Insurance Act, also turned to the Law Commissions’ Report and the Explanatory Notes to the legislation before ultimately deciding that there was no breach of the implied term. In reaching this conclusion, the judge made reference to a number of factors:
i) That although the case was relating to a dispute that arose in relation to a property insurance cover (which according to the Explanatory Notes such claims usually take less time to value than, for example, business interruption claims), the cover in question applied to transport and storage operations of different types and involving or potentially involving many different countries and locations, and claims under such a cover, could involve very various factual patterns and differing difficulties of investigation); ii) The size of the claim was substantial; iii) The fraud, uncertainty as to what happened, the destruction of documents, existence of legal proceedings in Ukraine and the fact that the assured elected to swap from French law to English law during the investigation were all significant complicating factors; and iv) Relevant factors outside insurers’ control, included the destruction and unavailability of evidence and the legal proceedings in Ukraine.
On the point raised by the insurer, s. 13A(4) of the IA 2015, it was held that the insurer bears the burden of proof but here they had reasonable grounds for disputing the claim stressing that although the grounds for rejecting the claim were wrong, this did not mean that they were unreasonable. Although the judge considered elements of the insurers’ investigations were delayed, the investigations occurred in what was considered to be a reasonable time and they were part of the reasonable grounds for disputing the claim that existed throughout.
This is the first judgment on s. 13A of the IA 2015. When first introduced, there was some concern especially among insurers that this section might fuel US type of bad-faith litigation against insures. However, the parameters for such a claim are well-defined in s. 13(A) and guidance is provided to courts as to how they should judge whether a claim is paid/assessed within a reasonable time. The manner in which the trial judge made use of such guidance in this case is a clear indication that late payment claims will not go down the path that has been taken by some US courts and in England & Wales an assertion of late payment of an insurance claim will only be successful in some extreme cases. There is no doubt that insurers will take some comfort from the judgment given that it is clear now that an insurer’s decision to refuse payment for a claim will not automatically amount to breach of this implied term even if it is found that the grounds for disputing the claim are wrong.
Following the Lloyds Performance Management Supplemental Requirements & Guidance, published July 2020, all insurance and reinsurance policies written at Lloyd’s must exclude all losses caused by war and nuclear, chemical, biological or radioactive risks (NCBR), except in limited circumstances. This reinforces the exclusion of war and NCBR in hull and cargo and most cyber policies. Both cyber security data and privacy breach (CY) and cyber security property damage (CZ) polices are among the exempted class of business which would be allowed to write war risks. However, when writing these cyber policies, the terms and scope of the cover must be unambiguously stated. If there is an extension of the policy to include war, that extension must not override any NCBR exclusions contained within the cyber policy. It is customary to follow local law or regulation on how coverage should be provided for in policy documentation and for the exempted classes of business, it is recommended to follow local market practice. In light of these guidelines several war exclusions in varying degree of liability were developed to be endorsed on or attached to commercial cyber policies. It is not yet clear if the same clauses are or will become applicable to non cyber policies but the discussion is relevant considering current geopolitical conflicts and imminent threats to businesses and states.
The exclusions (LMA5564, LMA5565, LMA5566, LMA5567) are very similar in terms of the language used and excludes loss of any kind directly or indirectly occasioned by, happening through or in consequence of war or a cyber operation. The burden is on the insurer to prove that the exclusion applies. An obvious difference is the causal language used in each clause. ‘Happening through’ is not language commonly used in the marine sector, as such its meaning and what needs to be established to fulfil this causal effect requires clarification. Clauses 3-5 of each exclusion refer to the attribution of a cyber operation to a state and the definition of war and cyber operation are both related to the acts of a state against another state. War is defined as the ‘use of physical force by a state against another state’ thus excluding cyber incidents / attacks which may have the same effect but without physical use of force and not by a state against another state. Cyber operations means ‘the use of computer system by or on behalf of a state to disrupt, deny, degrade, manipulate or destroy information in a computer systems of another state’. The emphasis on ‘states’ means that the exclusion would not be applicable to private acts of civilians who are not acting on behalf of their government or another state. Furthermore it is doubtful whether cyber operation would extend to the damage loss of cargo, vessel or financial losses since the subject of a cyber operation is the ‘information in a computer system’.
In attributing cyber operation to a state, the primary but not exclusive determinant is whether the government of the state in which the computer system affected is physically located has attributed the cyber operations to another state or those acting on its behalf. Pending a decision, the insurer may rely on an inference which is objectively reasonable as to attribution of the cyber operation but no loss shall be paid during this time. If the government of the state in which the affected computer system is located takes too long to decide, or is unable to declare or does not determine attribution, the responsibility shifts to the insurer to determine attribution by using other evidence available to it. There are several problems with the terms of LMA5564, there is no explanation of the type and source of information the insurers should rely on to develop an inference and what will qualify as objectively reasonable and importantly who will sit as ‘objective person’. Furthermore, the reference to the insurer using ‘such other evidence as is available’ suggest that the insurer is permitted to rely on any source, type / quality of evidence available that will support his position that the exclusion does apply. In other words, the acceptable standard of evidence to support the insurer’s ‘inference’ and to discharge his burden that the exclusion does apply is low and therefore prejudicial to the assured.
The second war, cyber war and cyber operation exclusion (LMA5565) differs from LMA5564 in that LMA5565 clause 1.1 to 1.3 list the conditions under which war and cyber operations are excluded. These are war or cyber operation carried out in the course of war and or retaliatory cyber operations between any specified state (China, France, Germany, Japan, UK or USA) and or a cyber operation that has a detrimental impact on the functioning of the state due to the direct or indirect effect of the cyber operation on the availability, integrity or delivery of an essential service in that state and or the security or defence of a state. Clause 3 introduces the agreed limits recoverable in relation to loss arising out of one cyber operation and a second limit for the aggregate for the period of insurance. If the limits are not specified, there will be no coverage for any loss arising from a cyber operation. Noteworthy is the fact that similar limits have not been introduced for loss arising from a war or cyber war, so the limit would be based on the insured value of the subject matter insured. The definition of essential service creates uncertainty because what is categorised as ‘essential for the maintenance of vital functions of a state’ may vary across states. While examples are provided which includes financial, health or utility services, unless the parties stipulate and restrict this category to only the services named in the policy, there is potential contention between the parties over what will qualify as an essential service and what is a vital function to a state. It is expected that the marine sector will be among the list of essential services, however it is unlikely that an attack on a commercial private vessel or onshore facilities would qualify as harm to an essential service, vital for function of the state.
A third form of the war, cyber war and cyber operations exclusion LMA5566 is identical to LMA5565 except that there is no equivalent to the clause on limits of liability for each cyber operation or aggregate loss in LMA5566. The fourth form of exclusion LMA5567 expounds on the conditions mentioned in LMA5565 and LMA55666, particularly the exclusion or loss from retaliatory cyber operations between any of the specified states leading to two or more of those states becoming impacted states. The exclusion of cyber operation that has a major impact an essential service or the security of defence of a state shall not apply to the direct or indirect effect of a cyber operation on a bystanding cyber asset. LMA5567 introduces the concepts of impacted states and bystanding asset, thus expanding the effect of the exclusion clause. Impacted states means any state where the cyber operation has had a detrimental impact on the functioning of that state due to its effect on essential services and or the security or defence of that state. The bystanding cyber assets are computer systems used by the insured or its third party provider that is not located in the impacted state but is affected by the cyber operation. As an exemption to the exclusion, the consequence is that the insurer will be exposed to liability for loss to assets that are not owned by the insured or its third party providers. The only requirement being that these bystanding cyber assets / computer systems are used by the insured or its third party providers which could be an extensive list of unidentified assets and liabilities. Another problem with the definition of bystanding cyber asset is it does not declare for what purpose the said asset should be used by the insured or by the third party provider. The presumption is the use should be related to the subject matter / business of the insured but without clarification, there are doubts about the scope and limits of the term. Interestingly and of concern is the use of the words ‘cyber war’ in the title of each exclusion but is not repeated in any of the four clauses nor is there a description of the meaning of a cyber war and how it differs from a cyber operation and war as defined in the clauses.
A guidance on the correct interpretation of the exclusion clauses was not published and given their deficiencies, the effectiveness of each exclusion clause is reduced. In terms of their application to marine activities, the insurer will find that he is liable to indemnify the assured for his loss from cyber-attack unless there is evidence to attribute the cyber act to a state. The exclusions will be more effective in scenarios where terrorist or political groups are involved. War is limited to acts between states and significant emphasis is placed on damage to essential services of a state. Despite the deficiencies discussed above, the importance and take up of any variation of the exclusion clause will increase as the political security of nation states and businesses continue to be of concern to insurers. The constant threats and warning in the news of cyber-attacks being used as weapons of war will affect market response and which will sometimes be reflected in strictness of language / variations of the war exclusions used in insurance policies. Other stakeholders must be proactive and ensure that they have adequate insurance protection against cyber war risks and war risks generally and mitigate their risks of loss by implementing and maintaining good cyber hygiene based on industry specific best practices.
 Michael N Schmitt, ‘The Use of Force’ in Tallin Manual 2.0 on the International Law Applicable to Cyber Operations ( 2nd edition Cambridge University Press 2017)The Tallin Manual is nonbinding legal source which explains how international law applies to cyber operations. It is in the process of a five (5) year review for the launch of Tallinn Manual 3.0.
Cyber criminals have been exploiting the ‘privacy’ features of crypto-assets to target businesses and individual accounts to steal and unlawfully demand the transfer of crypto-currencies through ransomware attacks. In addition to the distinctive features of cryptocurrencies which gives cyber criminals a false sense of anonymity, the rapid rise in cryptocurrency fraud and ransomwares are also the product of very lax or non-existent international regulation. In 2020, 57.9% of the organizations in the UK and 78.5% in the USA were affected by a ransomware. The targets of major ransomware attacks in 2021 included Colonial Pipeline and JBS meat processing in the US, Health Services Executive in Ireland and Hackney Borough Council in England. The business types targeted is an indication of the threat to critical national infrastructure. Some ransom demands are made in fiat currency while others are in cryptocurrencies. The average ransom paid by medium sized organizations was US$170,404 and the average costs to rectify and respond to a ransomware was US$1.85 million.
International and Government Response
Prior to the creation of the Ransomware Task Force in December 2020, there was no coordinated effort among states and the private and public sector to tackle the serious and growing threat from ransomware attacks.
Equally problematic is the lack of clarity on the legality of paying ransom / ransomware demands.
England and Wales
The payment of a ransom is not illegal in England and Wales provided they are not paid to or have any association with terrorist groups (s. 15 (3) Terrorism Act 2000), persons subject to economic sanctions or used to finance a criminal act and there is nothing illegal about the contracts between the parties. The National Cyber Security Centre in their guidance on mitigating malware and ransomware attacks emphasised that law enforcement does not encourage, endorse or condone the payment of ransom demands.
United States of America
The US has not outlawed the payment of ransoms but have issued an advisory on potential sanctions risks for facilitating ransomware payments. The advisory warned that companies including insurance firms, financial institutions and those specialising in digital forensics and incident response that facilitates the payment of ransom may risk breaching OFAC Regulations. These companies are encouraged to contact the relevant government agencies if they reasonably believe that the person making the ransom demand may be sanctioned or in connection with sanctioned individual or entity.
France has unofficially declared their refusal to pay ransomware demands. Consequently, AXA insurers in France announced they would temporarily halt writing cyber insurance with a clause to indemnify customers for ransom paid.
Efforts to recover cryptocurrency?
Seizure / Recovery of cryptocurrency
Bitfinex: The authorities in the US have been able to successfully trace and recover crypto-assets stolen or paid for ransom. The most recent is US$5bn worth of stolen bitcoin seized by the US Department of Justice reported on Tuesday (08/02/2022). The bitcoin was stolen in 2016 after hackers breached the Bitfinex cryptocurrency exchange. The money was then transferred to digital wallets said to be operated by a couple in New York. At the time, the bitcoin valued about US$71 million but its current value is upwards US$5 billion. Various methods were employed by the couple to launder about US$25, 000 of the bitcoins. The couple will be charged for federal crimes of conspiracy to defraud the US and conspiracy to commit money laundering.
The length of the probe (5yrs) and the coordinated efforts of investigators from across the U.S and Germany highlights the resources governments and private investigators are willing to invest to ensure cyber criminals are not allowed to steal and launder cryptocurrencies gained unlawfully.
Colonial Pipeline: The authorities were also able to recover some of the cryptocurrencies paid as ransom by Colonial Pipeline Company following a ransomware attack in 2021. Colonial paid the cyber-criminals US$4.4 million in cryptocurrency to release the system, which they made a claim to recover from their cyber insurers. The U.S authorities recover US$2.3 million of the ransom.
AA v Unknown and others :The claimants were UK insurers whose customer, a Canadian insurance company computer system was hacked and encrypted. A ransom demands of US$950,000 in bitcoins to a specific address was made by the hackers. The Claimants agreed to pay the ransom. Some of the money was transferred into fiat currency while 96 bitcoin was sent to an address linked to an exchange operated by the 3rd and 4th defendants. The first Defendant was the persons unknown who made the demand. The second Defendant was the owner / controller of the 96 Bitcoins. The insurers retained the services of an incident response company that specialises in the negotiation of crypto currency ransom payments to negotiate with the hackers to regain access to the customer’s data and systems. The ransom was paid but further investigations were carried out by the insurers with the assistance of Chainalysis Inc, a blockchain investigations company who also provides software to track the payment of cryptocurrency. The investigations successfully revealed the location of the Bitcoins, 96 of which was found at an address operated by the 3rd and 4th Defendants while some was transferred to a fiat currency account. The insurers successfully made an application to the High Court for a proprietary injunction over the cryptocurrency. It was held by the court that cryptocurrencies are ‘property’ and could be the subject of a proprietary injunction as they met the four criteria of property; ‘being definable, being identifiable by third parties, capable in their nature of assumption by third parties and having some degree of permanence’. The decision was an adoption of points presented in the Legal statement on cryptoassets and smart contracts by the UK Jurisdiction Taskforce.
ION Science Ltd v Persons Unknown and others: The case concerned the fraudulent inducement of the claimants to make an investment equivalent to 64.35 bitcoin and pay for commission to receive profits from the said investment. The company referred by the Respondent was operating without Swiss authorisation. The bitcoins were transferred to two cryptocurrency exchanges each located in the US and Cayman Islands. The court granted orders against the first Respondent (Persons Unknown) in the form of a proprietary injunction, a worldwide freezing order and an ancillary disclosure against persons unknown. There was also a Bankers Trust order which could be served on two cryptocurrency exchanges outside of the Jurisdiction.
Remarks: These cases are examples of the instances where cyber-criminal are held responsible for the theft of or laundering of cryptocurrencies. Cyber criminals are subject to the application of money laundering and Terrorism. Crypto-assets illegally acquired can be the subject of an injunction, a worldwide freezing order and seized even if the investigation takes years to complete. Cyber insurance and incident response companies do have an obligation to ensure they are not facilitating the payment of ransoms to terrorists, sanctioned person or governments and their affiliates. The abovementioned orders are methods victims of a cryptocurrency fraud or ransomware attack can use in their effort to recover their crypto-assets. However while these methods have been successful for traceable currencies (Bitcoins and Ethereum), the same may not be very effective to recover non-traceable cryptocurrencies (Monero).
It is common for underwriters to utilise automated computer underwriting systems through which applications for insurance are evaluated and processed without the need for individual underwriter involvement. Reliance on such emerging technologies inevitable brings attention to the questions posed to potential assureds in the proposal forms used by such systems. Any ambiguity in the wording of questions put forward to the assureds is likely to have an adverse impact on the insurer’s ability to claim non-disclosure or misrepresentation. This was the central issue in Ristorante Ltd T/A Bar Massimo v. Zurich Insurance Plc  EWHC 2538 (Ch).
The facts can be briefly summarised as follows: The assured obtained an insurance policy that provided cover for inter alia business interruption, money, employer’s liability and legal expenses. The insured property was damaged by fire in 2018 and when the assured sought to claim under the policy, the underwriters rejected the claim and purported to avoid it for misrepresentation and non-disclosure of a material risk. At inception and each renewal the assured was asked to answer the following question as part of procuring insurance through the insurer’s electronic automated underwriting system:
“No owner, director, business partner or family member involved with the business … has ever been the subject of a winding-up order or company/individual voluntary arrangement with creditors, or been placed into administration, administrative receivership or liquidation”.
On each occasion, the assured selected “Agreed” in response to the question. At claims stage, when it transpired that three of the directors of the assured had been directors of other companies that had entered voluntary liquidation, and had subsequently been dissolved, insurers argued that there had been a material misrepresentation by the assured in responding to the question above and/or non-disclosure of material facts and sought to avoid the policy.
The assured disputed that insurers were entitled to avoid the policy and started this litigation requesting the court to order the insurers to indemnify the assure with respect to the loss.
Two issues required legal analysis in this case:
Was there any misrepresentation on the part of the assured by responding wrongly to the question? and
Was there a non-disclosure as the assured failed to disclose insolvency of other persons or companies?
On (i) the assured submitted that the “Insolvency Question” was clear and unambiguous in that it simply asked about insolvency events relating to individuals (i.e. any owner, director, business partner or family member involved with the insured business) and did not ask about insolvency events of any other person or company with which any of them have been connected or involved in some way. The judge agreed with the assured noting especially in the question lack of express reference to any corporate body with which any of the persons expressly identified has been or is involved or connected with in some way.
The insurer’s attempt to rely on the Court of Appeal’s reasoning in Doheny v. New India Assurance Co  EWCA 1705 was not successful given that the question put to the assured in that case was fundamentally different:
“No director/partner in the business, or any Company in which any director/partner have had an interest has been declared bankrupt, been the subject of bankruptcy proceedings or made any arrangement with creditors.”
The Court of Appeal in that case held that this question required disclosure of insolvency events in relation to other companies of which the policyholder’s director had previously served as a director. However, that question in the proposal form was worded rather differently than the present “Insolvency Question”, because it clearly referred to “any Company in which any director/partner have had an interest”. Conversely, the wording of the present “Insolvency Question” is different and on literal construction more restricted. The insurer’s attempt to draw support from another judgment (R & R Developments v. Axa Insurance UK plc  EWHC 2429 (Ch)) that deliberated a differently worded “Insolvency” question was also not successful.
On (ii) the court held that the insurer by asking a well-defined question essentially waived its right to information on the same matters outside the question asked. Several legal authorities pre-dating the Insurance Act 2015, which still represent the legal position on this matter, dictate that the test here is an objective one and requires the judge to question whether a reasonable person reading the relevant question would be justified in thinking that the insurer had restricted its right to receive all material information, and had consented to the omission of specific information (here the other matters relating to insolvency). In holding that this was the case in the present case, Snowden, J, said at [91-92]:
Given the increased use of electronic platforms for provision of information to insurers at pre-contractual stage, the case is another timely reminder to insurers that they need to check the wording of questions they rely on in proposal forms which appear as part of such platforms. In commercial setting we often advocate the use of clear wording but when it comes to legal matters concerning fair presentation of the risk, a very well-defined and clear question might serve the purpose of limiting the scope of disclosure for the assured- as was the case here (careful readers would remember that a similar point was raised by the assured (unsuccessfully) in Young v. Royal and Sun plc  CSIH 25 (discussed again on this blog)). Also, it is worth keeping in mind that drawing support from previous authorities especially when construing such questions might often be problematic as wordings of questions in proposal forms deliberated in those judgments will inevitably differ- a matter that the insurer found out to its detriment in this case!
The Norwegian Mibau group undertook an operation for Costain, involving the transport and deposit of vast amounts of rock in the sea under Shakespeare Cliff near Folkestone. Getting the rock to the correct place involved towing a loaded dumb barge from Norway and anchoring it where the rock was to be placed. The barge was owned by one Mibau company, Splitt; for internal accounting reasons it was chartered to another such company, Stema AS, which also owned the rock. On arrival the barge was anchored, with a crew put on board employed by a third Mibau company, Stema UK. That crew took orders from, and acted on the instructions of, Stema AS.
Despite ominous weather forecasts, Stema UK’s crew assumed the barge could be safely left unmanned at anchor. They were seriously wrong. She dragged her anchor in a storm and sliced an underwater cable which proved costly to repair. The question arose whether, in a suit by the cable owners, Stema UK could limit its liability. Although clearly not an owner or charterer of the barge under Art.1(2) of the LLMC 1976, it argued that because of its de facto control at the relevant time it had been either a manager or an operator. The cable owners argued that it was neither.
Teare J held Stema UK entitled to limit. (See  EWHC 1294 (Admty), noted in this blog here.) True, because it had lacked executive authority, being under the orders of Stema AS, it could not have been a manager. But it, or rather its employees, had undoubtedly been in physical control of, and had operated the machinery aboard, the vessel; and this meant that it counted as her operator within Art.1(2).
This was a commercially sensible result. It meant that the ability to limit stood to be fairly generously granted to any entity in physical control of a vessel; it also had the extra advantage that corporate groups would not be unduly prejudiced merely because for organisational reasons they chose to parcel out the functions of ownership and physical manipulation to different group entities.
Unfortunately it did not find favour with the Court of Appeal. Phillips LJ, giving the only judgment, took the view that just as an employee would not be an operator in his own right since he acted only on someone else’s orders, an entity physically operating a vessel as the catspaw of another entity was in the same position. It followed that because of its lack of authority to act on its own initiative without contacting Stema AS, Stema UK was liable in full since it was outside the charmed circle of those entitled to limit.
For what it is worth, with the greatest of respect this blog is inclined to prefer the reasoning in the judgment below. We see it as not only commercially rational but also more certain, in that making the status of operator dependent on an estimation of the amount of discretion allowed to an entity seems to encourage some hair-splitting arguments.
But no matter. As Phillips LJ pointed out, the effect of the Court of Appeal’s decision can easily be avoided by making sure that the people physically in charge of a vessel are seconded to, or otherwise technically employed by, the company with the serious decision-making power. No doubt, indeed, as this is being written P&I club lawyers will be sharpening their pencils with a view to drafting the necessary advice to members, and possibly even changes to the rules so as to back up that advice. As ever, a little discreet bureaucratic tinkering can pay big dividends.
The new proportionate approach to remedies for breach of “the duty of fair presentation” introduced by the Insurance Act (IA) 2015 has recently been to put test in Berkshire Assets (West London) Ltd v. AXA Insurance UK Plc  EWHC 2789 (Comm).
The facts are relatively straightforward. The assured, a joint venture vehicle used to purchase and develop an existing office block into residential apartments, bought from the insurer a Construction All Risks and Business Interruption Policy. On 1 January 2020, the insured development suffered damage as a result of flooding and the assured sought to claim for the property damage under the policy. During the investigation stage of the claim it transpired that when the policy was procured in November 2019, the assured failed to disclose the fact that criminal charges were filed against one of its directors in Malaysia in August 2019 by the Malaysian public prosecutor in relation to an alleged scheme to defraud the Malaysian government and other purchasers of bonds. The insurer avoided the policy on the premise that the relevant non-disclosure was material and if it had been adequately disclosed, the insurer would not have agreed to insure the assured at all. The judgment was given in favour of the insurer on both grounds.
The finding on materiality is not surprising at all. The IA 2015, introduces no change in the materiality test, which originates from s. 18(2) of the Marine Insurance Act (MIA) 1906 and, accordingly, stipulates that a circumstance’s materiality will need to be judged with reference to the influence it would have on “the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms.” The fact that the test remains unaltered means that the case law as it stood prior to the introduction of the IA 2015 is still relevant. And on numerous occasions, the courts repeatedly acknowledged that the charge of a criminal offence would often constitute a material circumstance (see, for example, March Cabaret Club v. London Assurance  1 Lloyd’s Rep 169). And it did not matter that the Malaysian criminal charges had been subsequently dismissed. There is authority indicating that materiality must be judged at the date of placement and not with the benefit of hindsight. This was put very cogently by Phillips J (as he then was) in The Dora  1 Lloyd’s Rep 69, at 93: “when accepting a risk underwriters were properly influenced not merely by the facts which, with hindsight, can be shown to have actually affected the risk but with the facts that raised doubts about the risk.” (a point endorsed by Mance, LJ (as he then was) in Brotherton & Ors v. Aseguradora Colseguros (No 2)  EWCA Civ 705). Further, Colman, J, held (which was approved by the Court of Appeal) in North Star Shipping Ltd v. Sphere Drake Insurance Plc  EWHC 665;  2 Lloyd’s Rep 76 that a failure to disclose pending criminal charges were material facts, even though the assured was acquitted and the charges set aside.
Proving materiality and inducement would have been adequate to avoid the policy under the old regime but the changes introduced by the IA 2015 on the remedies available now requires the insurer to prove either that the assured acted fraudulently or recklessly in failing to present the risk fairly or the insurer would not have taken the risk at all had (s)he been aware of the criminal charges brought against one of its directors in Malaysia (s. 8 of the IA 2015). In this case, the insurer was able to prove the latter by relying on an internal practice note on “disclosure of previous insurance, financial or criminal matters” which provided that if an assured client disclosed maters that fell within a particular “negative criteria”, the risk was not acceptable to the insurer and should be declined. The Court was satisfied that the insurer had no authority to write the risk under the practice note and if the criminal charges had been appropriately disclosed the insurer would have declined the risk.
The case is a timely reminder that failing to disclose criminal charges or convictions could trigger moral hazard concerns in relation to the assured and in most instances would be held to be material even if they are not directly related to the assured’s involvement with the insured property. But more significantly, one should not disregard the role the insurer’s internal practice note played in achieving the desired result from the insurer’s perspective. Given that under the IA 2015, it is vital for the insurer to demonstrate what s(he) would have done had the risk been fairly presented to him/her, one perhaps would expect insurance companies to produce more detailed internal underwriting guidance going forward ready to be deployed in litigation.
The changes introduced by the IA 2015 have been systematically analysed in a book edited by Professors Clarke and Soyer, The Insurance Act 2015: A New Regime for Commercial and Marine Insurance Law, published by Informa Law in 2016.
Issue: Whether tenants of commercial premises remain responsible to pay their rents despite the enforced closure or inability to trade from their premises because of COVID-19 and COVID-19 Regulations?
The Claimant (Landlord) requested a summary judgment (CPR 14.2) to be made against the Defendants (tenants) for the rent of three (3) commercial premises that became due during the COVID-19 pandemic. The tenants are Cine-UK Limited (Cine-UK), Mecca Bingo Ltd and Sports Direct.com Retail Ltd. The landlords are Bank of New York Mellon (BNY / Superior landlords) and AEW respectively. The annual rent to be paid in advance by quarterly instalments on the usual days. The tenants claimed that the COVID-19 Regulations meant that public access was restricted to their business premises which eventually led to their closure for substantial periods. As a result, the tenants claim that they did not have to pay all or parts of the rent. The tenants believe they have a real prospect of defending the Claims based on the following reasons: the rent cesser clauses should be construed or be implied so that at least whilst the businesses are closed because of COVID -19 and COVID-19 Regulations and on the assumption that the landlords have insurance, they do not need to pay rent. Alternatively, the landlord is to recover the rent by their insurance. Even if the rent cesser clause did not have such effect by construction or implication, a similar effect could be achieved from suspensory frustration or an application of principles of supervening event in terms of illegality and or the doctrine of temporary failure of consideration. Finally, such effect could be achieved by an application of Government guidance requiring negotiations and ameliorative measures between landlords and tenants as it relates to the payment of rent during the pandemic.
The landlords’ position is this is a matter of allocation of risk in relation to events that were foreseeable and for which the tenants should have negotiated a cesser clause. They argue that the insurance may cover some liabilities to the landlord but does not extend to covering loss or rent where there are no relevant rent cessation provisions in the leases and the relevant tenants can pay. Therefore, the rent including the value added tax (VAT) and interest continue to fall due despite the COVID-19 Regulations and its effects.
Mecca Bingo and Sports Direct had additional claims concerning mistaken payments and miscalculations which they are seeking to recover, however the details of such claims will not be addressed herein.
The leases are written in a standard commercial form, for a defined number of years and after 18 months of closure, the Cine -UK lease would have 12.5 years to run or 2.5 years if the break clause were to be exercised, The Mecca and Sports Direct leases would have another 11 years to run. There were provisions made in each lease for the insurance of specific events including against property loss or damage by insured risks. Equally relevant is the presence of a rent cesser clause in each lease where the property has been destroyed or damaged or access to it denied or the property is unfit for occupation and provided the insurance is not vitiated or payment of insurance monies is not refused as a result of the act or default of the tenant. There is also an extension of cover clause for ‘Murder Suicide or Disease’ where insurers agree to indemnify the insured for loss of rent resulting from interruption of the business during the indemnity period following any human infectious or contagious disease manifested by any person whilst in the premises or within a 25 mile radius of it.
Issues: Construction of Rent Cesser Clauses
The landlords submit that the rent cesser clause would operate to only suspend rent where the insured risks have caused physical damage or destruction which prevents the premises from being fit for occupation or use. Conversely, the tenants maintain that the word “physical” was not used, thus they propose that what has happened is damage or destruction even though not of a physical nature. Even if destruction must be physical, damage which is used as an alternative to destruction, need not be.
Master Dagnall held that the usual meaning of the word damage relates to a physical state. The tenants referred to Halbury’s Lawdefinition of “damage” which had a wider meaning representing ‘any disadvantage suffered by a person as a result of the act or default of another…’, however “damage” as used in that context was based on the law of “damages” and not the lease of a property. Additionally, ‘damage or damaged’ was used as an alternative to destruction thus there must be a link to a physical item. Whereas the words ‘damage or damaged’ could apply to nonphysical events, it is imperative that the context in which the words are used is analysed. Throughout the agreement, ‘damage or damaged’ is used with or surrounded by words which connote a physical state for example ‘reinstatement work or physical remediation.’. In any event, ‘it will be a stretch of the definition of the words “damage or damaged” if it should include nonphysical disadvantage as suggested by the tenants.’ Master Dagnall reasoned this would ‘introduce a modern colloquial meaning into standard form documents’.
The rent cesser clause is subject to the requirement that the inability to use the premises must be caused by physical damage or destruction and not a mere inability to use the premises without more. The real subject of the insurance is the property of the landlord, that is the ‘brick and mortar’, in other words the physical property rather than the ‘effects on the trade’. Accordingly, the rent cesser clause will operate where the closure to the insured property is due to physical damage or destruction, it is not sufficient for it to be in consequence of closure without physical damage or destruction. In concluding on this issue, the court agreed with the landlords’ that the rent cesser clause is only triggered by physical damage or destruction to the insured premises. This is also the natural meaning of the words ‘damage or damaged’ used on their own or in the context of the agreement. Furthermore, this interpretation is consistent with a possible commercial purpose and in line with the ‘brick and mortar’ aspects of the provisions.
Implication of the Rent Cesser Clauses
Master Dagnall acknowledged that it would be fair and reasonable to imply the rent cesser clause as proposed by the tenants. Yet, it might be prejudicial to the insurers who may not have contemplated this liability when they agreed the premium even though it is their responsibility to consider both the expressed and implied terms of the relevant lease.
There is no warranty in the leases that the premises can always be utilised for its permitted use but the obligation to pay the rent remains unless the parties agree otherwise. Moreover, if the parties intended for the rent cesser clause to operate where there is nonphysical damage, the parties should have expressly provided for this in the agreement. As such, the court agreed with the landlords’ that the lease sets out all the circumstances under which the rent cesser clause would apply including where an insured peril has occurred. Even though COVID-19 and COVID-19 Regulations may be unprecedented, in respect of SARS and the consequent fears, it is not convincing that COVID-19 and COVID-19 Regulations were unforeseeable. The case is not fit for an ‘Aberdeeen implication’, because it is not clear what both parties would have intended if they were notified of the potential of and had considered COVID-19 and COVID-19 Regulations. Based on the foregoing, Master Dagnell concluded that the tests for implication of the rent cesser clause proposed by the tenants was not met, therefore they do not have any real prospect of success for summary judgement on this issue.
Tenants’ reliance on the Insurance
Master Dagnall agreed with the landlords that the insurance policies do not compel the insurers to pay the landlords the outstanding rent where the rent cesser clause does not operate. The court’s decision is influenced by the following points:
Without the operation of the rent cesser clause (no physical damage), the landlords who are the insured have not suffered any loss of rent.
The landlords’ construction was in accordance with policy wording, particularly ‘the Murder, Suicide or Disease extension’. The policy provides that the insurer will indemnify for the loss of rent, which has not occurred. The loss to the landlords must have been due to the interruption of the landlords’ businesses which in the circumstances have also not occurred. If the premises were vacant and could not be leased due to COVID-19, that could have been reasoned differently but those were not the facts before the court.
Even if damage could be extended to nonphysical loss, the other requirement mentioned in i. and ii. above must be satisfied.
The commercial purpose of the insurance taken out by the landlords is to insure against the operation of the rent cesser clause which would have been a loss to them. If the tenants wanted to be protected in these circumstances, they would need to negotiate a wider rent cesser clause or alternatively purchase a separate business interruption insurance policy.
The Mark Rowlands v Bermiand Frasca-Judd v Golovina. line of authority relied on by the tenants was not accepted as directly on point. They are not concerned about what is covered by the insurance but with whether the insurance as it exists can be extended to protect the interests and loss of the tenants. Rather than being concerned about the liability for rent, it is concerned about the liability for remediation costs.
Any suggestion that a clause be implied into the insurance policy that rent would be covered in the absence of a rent cesser clause cannot be accepted as either obvious or necessary for business efficacy. The insurance policy is well drafted and contains clauses specifically detailing the allocation of risks. Furthermore, the insurance is chiefly to protect the landlords against loss and to imply such a clause would be in contract with rules of implication.
Interpretation of the Insurance Provisions
Another point raised by the tenants is the breach of the insurance contract by the landlords who sought insurance coverage against COVID-19 and COVID-19 Regulations but not the sums equivalent to rent that would be loss from the closure or inability to use their premises. Additionally, the tenants insist that since they pay the premium for the insurance, they have the right to benefit from the insurance through cover for the rent. The leases define COVID-19 and other diseases and Basic Rent as an ‘Insured Risk’ as such the tenants reasoned that since they pay for the insurance, it makes sense that when there are resultant closures, the insurer will pay for the rent or its equivalent. The landlords disagreed. They are of the view that this issue is governed by the rent cesser clause which describes when rent is payable following an insured risks which will eventually determine when the insurance covers the rent.
Master Dagnall agreed with the Landlords ‘that the inclusion of something as an insured risk does not mean the landlord must include a clause in the insurance for the insurer to pay three (3) years of rent if the insured risk occurs and cause the closure of or prevented the permitted use of the premises.’ The fact that the tenants indirectly pay for the insurance does not mean the insurance must be tailored to benefit the tenants as suggested by implying such a term. The court also dismissed the notion that the implied term was required to give the lease business efficacy. The lease works well without the implied term. It provides for insurance against rent where a rent cesser clause applies in some instances and not in others. The tenants could have insured themselves against this risk by purchasing a separate and more appropriate insurance policy.
Some of the tenants (Sports Direct, Mecca and Cine – UK) argued that there was a temporary frustration of their lease during the periods of lockdown hence rent not being payable during those periods. The landlords countered by stating there has been no frustration since ‘temporary frustration’ does not exist in law. Master Dagnall considered and applied National Carriers v Panalpinaand The Sea Angeland held that the principle of frustration does apply to leases. Closure of the premises due to events outside the control of the parties is a supervening event, thus being capable of causing frustration of the lease but only on rare occasions. The relevant question is whether ‘the situation has become so radically different that the present situation is outside what was the reasonable contemplation of the parties so as it to render it unjust for the contract to continue?’
COVID-19 and COVID-19 Regulations could qualify as a supervening event but in light of SARS, they were foreseeable but unprecedented. While it was not reasonably expected by commercial people that the lockdowns would last for more than eighteen (18) months, there was significant amount of time remaining in each lease (Cine -UK another 12.5 years to run or 2.5 years if the break clause were to be exercised and Mecca Bingo and Sports Direct another 11 years each) in relation to the period of closure due to COVID-19 and COVID-19 Regulations. For this reason, there was no ‘radical difference’ nor was it unjust for the leases to continue bearing in mind their terms and the allocation of risks. There was no frustration of the leases. As for the tenant’s contention that the Sports Direct lease was temporarily frustrated, Master Dagnall rejected the tenant’s claims and agreed with the landlords that there is no such doctrine as temporary frustration in law. Frustration by definition and effect means the discharging and ending of the contract without the possibility to revive it hence it cannot be suspended.
The tenants claim as well that they are relieved from their obligations to pay rent under the lease as its performance has become impossible based on its illegality. The landlords responded by agreeing that this is possible, however of no benefit to the tenants since it is not illegal for them to pay rent. It was held that the suspension of an obligation that is illegal does not excuse another obligation which is not interdependent or conditional upon the former. A suspension of the rent will only be allowed if a rent cesser clause can be invoked, however the tenants have failed to do so. Illegality of an obligation would not excuse the tenants from their obligation to pay rent.
Failure of Consideration
The final point raised by the tenants is that they are relieved from their obligation to pay rent due to partial failure of consideration arising from their inability to operate from and use the premises as permitted. Master Dagnall accepted that the tenants may successfully establish that they cannot trade from the premises as permitted by their lease however he refused to accept that would relieve the tenants of their obligation to pay rent. Moreover, ‘partial failure of consideration’ is not a separate principle; It is related to or dependent on a relevant principle of contract law, which the tenants have failed to establish. The inability of the tenants to use the premises as permitted is not necessarily a ‘partial failure of consideration, instead it is an unexpected occurrence which means the leases are not as beneficial to the tenants as initially expected. The landlords did not breach the contract and there was no provision for the rent to be suspended except for the limited circumstances provided for the application of the rent cesser clause. Based on the foregoing, the tenants were unable to rely on to COVID-19 or COVID-19 Regulations to counter claims against them for rent incurred during the period of interruption. The tenants must continue to pay the rent even for the period in which they could not use the premises as permitted because of COVID-19 and COVID-19 Regulations.
Bank of New York Mellon (International) Ltd v Cine-UK and other cases is among the recently decided cases addressing business interruption claims arising from COVID-19 and COVID-19 Regulations. It reveals to contractual parties, businesses, and insurers that an interruption to businesses caused or arising from COVID-19 and COVID-19 Regulations on its own may not be sufficient to successfully claim for business interruption and to compel the insurers to indemnify an assured for their loss. As demonstrated in this case, the legal obligations between a tenant and landlord will not change because of interruption to the business caused by COVID-19 and COVID-19 Regulations as this is not the fault of either party. It is important for tenants and landlords to recognise that the terms of the lease and insurance policies will determine the allocation of risks and that rent will only be suspended in accordance these terms and the scope of a rent cesser clause where expressly provided. The same is true for the interpretation of insurance clauses. Though an insurance policy may contain a business interruption clause or extension clause on ‘diseases’ that is wide enough to include COVID-19, the scope of its application will be limited based on the surrounding words of the clause. Therefore, if as in this case, the business interruption clause requires there to be ‘damage or destruction’ and there is no physical damage to property at the insured premises, the assured will not recover for loss merely because COVID-19 disrupted their business and caused financial or other nonphysical loss.
The context and surrounding words within which the clauses are written are very important to aid with their construction and it should not be assumed that ‘damage’ will take a wider meaning to cover nonphysical loss simply because COVID-19 is widespread and has affected many businesses. The identical concerns apply to the treatment of an extension clause on ‘diseases’ which for example covers COVID-19, its application to a scenario will depend on the other words or requirements of the clause and what makes commercial sense. COVID-19 Regulations have also not prohibited landlords from requesting the rents from tenants who can afford to pay, in fact the parties are encouraged to arrive at ameliorative settlements and where possible continue to meet their obligations under the lease. It will be difficult for a court to allow a rent cesser clause to implied into a lease written on a standard form if the test of obviousness and necessity are not satisfied. It is also difficult because standard clauses are usually well drafted, without errors, and deemed to have considered all possible circumstance.
A successful claim for frustration of a lease due to COVID-19 and COVID-19 Regulation is possible. However, what is of value is comparing the period of interruption with the outstanding period of the lease and then determine whether there has been such radical difference in the subject of the agreement that it would be unfair to continue the lease. Merely relying on the occurrence of COVID-19 and the length and extent of the lockdown are not adequate to satisfy this claim. Interestedly, Master Dagnall analysis throughout the judgment in relation to the issues raised were resolved by applying settled principles of law, thus we must be reminded that COVID-19 has not changed the fundamental principles of contractual interpretation, the law of frustration, law of implication and the obligations under a lease agreement. Nonetheless, the specific words of a clause, contract or insurance policy and their interpretation will be the key towards the success or failure of a claim involving COVID-19. More importantly, tenants and other business owners must ensure their business interruption policies and rent cesser clauses are drafted to make provision for loss due to nonphysical damage and loss of turnover.
 Essentially, the principle is that in a contractual relationship of landlord and tenant, where a landlord is indemnified by an insurer, the landlord cannot seek to also recover from the tenant in either contract or tort, otherwise that would effectively be double indemnity. The insurance taken out is to benefit both the tenant and the landlords.
Nearly twenty years after the VLCC Prestigebroke up and sank off the Galician coast, spreading filth far and wide, Spain and France remain locked in battle with the vessel’s P&I club Steamship Mutual. Put briefly, they want to make Steamship pay out gazillions on the basis of judgments they have obtained locally on the basis of insurance direct action statutes. Steamship, by contrast, refers to the Prestige’s P&I entry, and says that both states are bound by “pay to be paid” clauses and in any case have to arbitrate their claims in London rather than suing in their own courts.
The background to the latest round, The Prestige (Nos 3 and 4)  EWCA Civ 1589, is that Steamship, having got a declaratory arbitration award in its favour substantiating the duty to arbitrate, which it has transmuted into a judgment under s.66 of the Arbitration Act 1996, now wants to take the battle to the enemy. It wants (a) to commence another arbitration claiming damages for breach of the original arbitration agreement, reckoned by the damages and costs represented by the court proceedings in France and Spain; (b) damages for those states’ failure to abide by the declaratory award; and (c) damages for failure to abide by the s.66 judgment. Spain and France resist service out on the basis that they are entitled to state immunity, and that the claims based on the award and the judgment must in any case fail.
The High Court held, in two different proceedings (see here and here), that sovereign immunity did not apply; that claims (a) and (b) succeeded; and that claim (c) failed because of the effect of the insurance provisions in what is now Articles 10-16 of Brussels I Recast (this being, of course, a pre-Brexit affair). Both sides appealed, and the appeals were consolidated.
On sovereign immunity the Court of Appeal have now sustained the judgment of non-applicability and as a result allowed claim (a) to go ahead. They have equally upheld the first instance judgment against Steamship on claim (c): although in name a claim under a judgment this is, it says, still in substance a claim by an insurer against its insured which, under what is now Art.14 of Brussels I Recast, can only be brought in the domicile of the latter. On claim (b), however, it has held (contrary to an earlier suggestion in this blog – nostra culpa, we can’t be right every time) that while the jurisdiction rules of the Brussels regime do not stand in the way, the claim is bound to fail. The award being merely declaratory, there can be no duty to perform it because there is nothing to perform, and hence no liability for disregarding it.
The arbitration will now therefore go ahead. Assuming it leads to an award in Steamship’s favour, Steamship will then no doubt seek New York Convention enforcement and/or get a s.66 judgment which they will oppose to any attempt by France and Spain to get judgment here, and doubtless also try to weaponise in order to get their Spanish and French costs back. (Meanwhile they may rather regret not having asked in the original arbitration proceedings for a positive order not to sue in France or Spain, rather than a mere declaration: but that’s another story.)
There’s little to add at this stage. But there is one useful further confirmation: s.9 of the State Immunity Act, removing state immunity in the case of a written agreement to arbitrate, applies not only to a direct contractual obligation to arbitrate, but also to an indirect duty to do so Yusuf-Cepnioglu-style. Useful to know.
Will France and Spain now come quietly, thus putting an end to this saga (which has already appeared in this blog here, here, here, here and here)? It’s possible, but We’re not betting. We have a sneaking suspicion that the events of November 2002 may well continue to help lawyers pay their children’s school fees for some little time yet.
In July last year we noted the holding of Teare J that Holyhead Marina came within the dock-owner’s right to limit liability under s.191 of the Merchant Shipping Act 1995. The issue arose because the Marina faced multiple claims from yacht owners following devastation wrought by Storm Emma in 2018.
We approved then, and are happy to say that the Court of Appeal does now. Today in Holyhead Marina v Farrer  EWCA Civ 1585 it confirmed Teare J’s conclusion that while not a dock, the Marina was a landing place, jetty or stage (which are included in the definition of places entitled to limit), and that there was no reason whatever to limit the entitlement to purely commercial port facilities. ‘Nuff said. Marina owners can breathe a sigh of relief, while hull insurers no doubt will mull putting up rates yet again on yachts to mark the loss of another source of subrogation rights.