UK High Court Considers Vessel Detention for “Illegal Parking” and Implications on Insurance Claims

Introduction

The detention of a vessel by local authorities can arise from various causes and is a fairly common occurrence in maritime law. Depending on the nature and duration of the detention, this may result in serious commercial consequences in terms of delay and may in certain cases even constitute constructive total loss (“CTL“). While such losses may be covered by insurance, the scope of insurance coverage and the applicability of exclusions in this context are important topics that have not seen extensive discussion by the courts.

These key questions were considered by the King’s Bench Division (Commercial Court) (“Court“) in Delos Shipholding S.A. and other companies v Allianz Global Corporate and Specialty Se and other companies [2024] EWHC 719 (Comm) (“Delos Shipholding“). The case involved – in the words of the Judge – the “illegal parking” of a vessel that had intended to drop anchor off Singapore but had mistakenly encroached into Indonesian territorial waters. Despite the minor nature of the breach, the vessel was detained by Indonesian authorities for nearly a year.

The claimant shipowner sought to claim under its policy with the defendant insurer for CTL. However, the defendant rejected the claim for various reasons. One of its main arguments was that the loss was not covered under the policy as the detainment resulted from the voluntary conduct of the assured. The defendant also argued that the detainment fell within an exclusion clause, and that the claimant was in breach of its duty to sue and labour.

In a judgment spanning 111 pages, the Court held in favour of the claimant. In reaching its decision, the Court set out the applicable principles in determining when a loss is fortuitous and thus subject to insurance coverage, particularly in the context of vessel detainment. The Court also provided insight on whether engaging in “commercial settlement” discussions with the relevant authority may be considered a breach of an assured’s duty to sue and labour.

This Update provides a summary of the decision and the key holdings of the Court. We also look at the applicability of the decision in the context of Singapore law, and whether Singapore courts may reach a different decision in the light of the relevant legal framework.

Brief Facts

The first claimant was the owner of the bulk carrier “WIN WIN” (the “Vessel“). The second claimant (“NGM“) and the third claimant were the commercial and technical managers of the Vessel, while the fourth claimant was the Vessel’s mortgagee.

The Vessel had been ordered to Singapore to take on bunkers. The Master of the Vessel sought a safe anchorage to wait for further instructions, but eventually (and unwittingly) dropped anchor at a location just inside Indonesian territorial waters (“Waiting Location“). It was accepted by the Court that the Waiting Location was within an area which was generally understood to be Eastern OPL Singapore, and which had been used as an anchorage by numerous vessels without problem.

However, during this time (February 2019), the Indonesian Navy arrested a large number of ships for anchoring in territorial waters without permission, including the Vessel. Attempts were made to engage in discussions with the Indonesian Navy and the Indonesian authorities to explore getting the Vessel without full-blown proceedings, but these attempts came to naught. The Vessel eventually remained under detainment by the Indonesian authorities for nearly a year, while the Master was convicted under the Indonesian Shipping Law.

The claimants sought to claim for CTL under their insurance policy with the defendant insurer, which covered, among others, the CTL of the Vessel. Notably, the policy also included the following provisions:

1. Exclusion (e): The policy excluded losses arising from “Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments”.

2. Sue and labour: The policy required the assured to “sue, labor and travel for, in and about the defense, safeguard and recovery of the Vessel”.

The defendant resisted the claim on, among others, the following grounds:

1. Insured peril: The detainment lacked the necessary quality of fortuity because it resulted from the voluntary conduct of the assured.

2. Exclusion: The detainment fell within exclusion (e).

3. Sue and labour: The claimants were in breach of their duty to sue and labour by unreasonably and improperly instigating and/or engaging in “commercial settlement” discussions with the Indonesian Navy.

Holding of the Court

The Court held in favour of the claimants, finding that their claim under the policy succeeded.

Insured peril

A loss must be fortuitous in order to be covered, in the sense that a policy does not protect against losses which are certain to result or are deliberately caused by the assured. For losses caused by the conduct of the assured, the Court highlighted the following principles:

1. There must be some choice by the assured; and
2. The consequences must be such as to flow in the ordinary course of events.

Applying the above, the Court found that the CTL caused by the detention of the Vessel was fortuitous and covered by the policy. There was no “choice” by the Master or the claimants to anchor inside Indonesian territorial waters rather than outside:

1. The Master and NGM were not subjectively aware that they had anchored in Indonesian territorial waters.

2. The Master should have reviewed the passage plan with the territorial waters in mind, and NGM should have known that the actual Waiting Location of the Vessel was in Indonesian territorial waters. However, such mere negligence would not constitute a ground to deny recovery on grounds of fortuity. 

Further, the arrest and subsequent detention of the Vessel was not the ordinary consequence of that conduct. The Master had no reason to suppose that the Vessel would be detained as a result of anchoring in territorial waters without permission. Notably, many other vessels were anchored in Indonesian territorial waters at the time and had done so previously, whereas very few continued to do so after the February 2019 detentions. The Court observed that the position might have been different if there had been even a few arrests for illegal anchoring in previous years, although it would then be necessary to determine what frequency of arrests elevated detention to an “ordinary consequence”.

Exclusion (e)

The defendant also argued that the losses fell within exclusion (e). Although it was not an arrest, restraint or detainment under customs or quarantine regulations, the defendant argued that it was nonetheless a “similar arrest, restraint or detainment not arising from actual or impending hostilities” (underlined emphasis added).

The Court rejected this submission, finding that exclusion (e) did not apply. On the proper construction of exclusion (e), the Court was of the view that an arrest, restraint or detainment would be “similar” only if the underlying purpose and objective of the arrest was materially the same as the underlying purpose and objective of an arrest under customs or quarantine regulations.

Here, the Vessel was arrested pursuant to the Indonesian Shipping Law, and not the Indonesian Customs Law or the Indonesian Quarantine Law. The Court found that there was no sufficient similarity between the Vessel’s arrest and an arrest under the Indonesian Customs Law or the Indonesian Quarantine Law to attract the operation of exclusion (e). 

Duty to sue and labour

Under the duty to sue and labour, an assured must take such measures as may be reasonable for the purpose of averting or minimising a loss. It is a defence to a claim under a policy where the breach of the duty to sue and labour has the effect of breaking the chain of causation between the operation of the insured peril and the loss.

Here, the defendant alleged that the claimants were in breach of their duty to sue and labour by unreasonably and improperly instigating and/or engaging in “commercial settlement” discussions with the Indonesian Navy regarding the release of the Vessel. In particular, the defendant alleged that the claimants had become side-tracked into discussions with the Indonesian Navy which involved considerations of a bribe.

However, the Court found that there was no such breach:

1. In the unprecedented circumstances of the vessel detentions, it was reasonable for the claimants to make certain that they had explored every avenue for getting the Vessel released.

2. It was reasonable to think that an essentially minor traffic infringement would incur a mild reprimand and a fine which could be paid without the need to go to court.

3. The discussions came to an end after the claimants eventually knew that the only way of securing the early release of the Vessel was the payment of a bribe. It was reasonable to continue discussions until the claimants were sure of such position.

Applicability to Singapore Law

While our courts have considered the key element of “fortuity” on a few occasions (e.g. in Kin Yuen Co Pte Ltd v Lombard Insurance Co Ltd and others [1994] 1 SLR(R) 964 and Marina Offshore Pte Ltd v China Insurance Co (Singapore) Pte Ltd and another [2006] 4 SLR(R) 689 (“Marina Offshore“)), there has not been an opportunity to consider the meaning of “fortuity” in the context of a detainment, especially involving an allegation that the detainment arose from the voluntary conduct of the assured as in this case.

The reasoning of the Court in Delos Shipholding, that mere negligence in failing to consider international boundaries in a passage plan would not deprive the claim of the element of fortuity, is consistent with local case law. As was recognised by the Singapore Court of Appeal in Marina Offshore, the incursion of seawater, even if due to negligence, would not defeat the assured’s claim.

Given the dearth of local case law with in-depth discussion on the issues raised in Delos Shipholding, this decision is to be welcomed as persuasive authority in Singapore.

Key Takeaways

For shipowners, this decision highlights a potential gap in the preparation of passage plans. While the passage plan is (rightly) concerned primarily with physical and navigational safety, the legality of the passage plan must not be overlooked. Otherwise, the vessel runs the risk of unwittingly straying into territorial waters, as in this case.

The shipowner was perhaps unfortunate in this case because although its initial planned anchoring location happened to be in international waters, its planned “parking spot” was occupied. Consequently, the vessel had to anchor at another location which, unfortunately for the shipowner, happened to be in Indonesian territorial waters, resulting in the detention. With the implementation of the “Just-in-Time Planning and Coordination Platform” by the Maritime and Port Authority of Singapore (MPA), it is hoped that congestion and waiting time at anchorages would be reduced, and thereby that the need for vessels to anchor in potentially problematic areas such as the Eastern OPL Singapore would also be reduced.