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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Handelsbanken v Dandridge & Ors [2002] EWCA Civ 577 (30th April, 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/577.html Cite as: [2002] 2 All ER (Comm) 39, [2002] 2 Lloyd's Rep 421, [2002] EWCA Civ 577, [2002] 2 LLR 421

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Handelsbanken v Dandridge & Ors [2002] EWCA Civ 577 (30th April, 2002)

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION (Mr Justice Toulson)

		Royal Courts of Justice Strand, London, WC2A 2LL
		30th April 2002

Lord Justice Potter:

This is the Judgment of the Court

1. This appeal is concerned with the construction of two standard clauses in the Institute War and Strikes Clauses Hulls-Time, 1983 edition (“the Institute War Clauses”).
2. The claimants/appellants are a Norwegian Bank who claim as mortgagees of the mv “The Aliza Glacial” (“the vessel”) under a Mortgagees’ Interest Insurance (“MII”) Marine Policy Number 1328/1996, dated 18 December 1996 and amended on 6 December 1997. The first to eleventh defendants are sued as underwriters of that policy. They aver, and for the purposes of the preliminary issues under appeal it is argued, that the cover granted was in accordance with the terms of slip policy reference MD966752/PJM and incorporated the Institute Mortgagees Interest Clauses Hulls edition 30.5.86. The twelfth and thirteenth defendants are the brokers who were involved in the placement of the cover. The claimants claim from the underwriters the sum of NOK 20,996,489.00 which they contend is due under the MII policy following the seizure and detention of the vessel by the Australian Navy and the threatened forfeiture of the vessel, her equipment and the fish on board pursuant to the Fisheries Management Act 1991 of Australia (“the FMA”) on grounds of illegal fishing. In order to avoid the forfeiture of the vessel and thereby to minimise their loss, the claimants themselves commenced foreclosure proceedings in Australia, obtaining summary judgment in their favour for the sums due and owing from the owners to the claimants with a direction that the vessel be valued and sold. The claimants thereafter purchased the vessel for US$ 4,500,000 from the Australian Admiralty Marshal by a judicial sale in December 1998 so as to extinguish the rights of detention and forfeiture under the FMA.
3. The owners had insured the vessel under a War Risks Policy incorporating the Institute War Clauses, with Clause 4.1.4 and 4.1.7 deleted. However, the policy contained an express term ‘Warranted no illegal fishing ...’. The owners having tendered notice of abandonment and a claim for constructive total loss to the underwriters of the War Risks Policy prior to the sale of the vessel to the claimants in Australia, that claim was rejected by the leading underwriter for breach of the ‘no illegal fishing’ warranty and the claimants therefore claimed indemnity under the MII policy in respect of the outstanding indebtedness of the owners under their loan agreement and the costs incurred by the claimants in connection with the sale of the vessel and otherwise in Australia. The amount claimed is some £1.6 million plus interest.
4. On 23 June 2000, preliminary issues were ordered to be tried inter alia relating to the meaning and effect of exclusions 4.1.5 (Issue 1) and 4.1.6 (Issue 2) contained in the War Risks Policy (see further at paragraph 11 below). Having decided Issue 1 in favour of the underwriters, Toulson J dismissed the action against all defendants, at the same time granting the claimants permission to appeal. In the light of his decision it was strictly unnecessary for him to consider Issue 2. However, he did so, indicating that, upon that issue, he found in favour of the claimants’ argument. There is a cross-appeal by the underwriters in respect of that finding, should this court hold that the judge was wrong in respect of Issue 1.

THE RELEVANT POLICY TERMS

The MMI Policy

5. The Institute Mortgagees’ Interest Clauses (Hulls), 1986 edition (the “IMI” Clauses) included the following:

“4. WARRANTIES

It is warranted in respect of each vessel that-

4.1 ... War Risks Policies equivalent to Institute War and Strikes Clauses (Hulls–Time) and full Protection and Indemnity Risks (hereafter referred to as ‘the Owners’ Policies and Club Entries) have been taken out and shall be maintained throughout the currency of this contract ...

6. INDEMNITY

6.1 This contract is to indemnify the assured for loss resulting from: loss of or damage to or liability of each vessel which is prima facie covered by owners’ policies or club entries, but in respect of which there is subsequent non-payment .... :

6.1.1 by reason of any act or omission of any one or more of the Owners, Operators, Charterers or Managers of the vessel, or their servants or agents, including breach or alleged breach of warranty ...”

6. The issues before the judge were directed to the question whether the loss for which the claimants sought indemnity was prima facie covered by the owners’ policies, subject to the breach of warranty (‘no illegal fishing’) as a result of which there was non-payment by the underwriters of the owners’ policy.

The Owners’ War Risks Policy

7. As already indicated the War Risks Policy contained a term:

“Warranted, no illegal fishing ...”

8. The Institute War Clauses which, subject to deletions, were incorporated into the owners’ policy provided inter alia:

“1. Perils. Subject always to the exclusions hereinafter referred to, this insurance covers loss of or damage to the vessel caused by:

1.1. war, civil war, revolution, rebellion, insurrection or civil strife arising therefrom, or any hostile act by or against a belligerent power

1.2 capture, seizure, arrest, restraint or detainment and the consequences thereof or attempt thereat

1.3 derelict mines, torpedoes, bombs or other derelict weapons of war

1.4 strikers, locked out work men or persons taking part in labour disturbances, riots or civil commotions

1.5 any terrorist or any person acting maliciously, or from a political motive

1.6 Confiscation or expropriation ......

3. Detainment. In the event that the Vessel shall have been the subject of capture seizure arrest restraint detainment confiscation or expropriation and the Assured shall thereby have lost the free use and disposal of the Vessel for a continuous period of twelve months then for the purpose of ascertaining whether the vessel is a constructive total loss the Assured shall be deemed to have been deprived of the possession of the Vessel without any likelihood of recovery.

4. Exclusions. This insurance excludes:

4.1 loss, damage, liability or expense arising from ....

4.1.5 arrest restraint detainment confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations;

4.1.6 the operation of ordinary judicial process failure to provide security or to pay any fine or penalty or any financial cause.”

9. Clause 2 of the Institute War Clauses had the effect of importing into the owners’ policy various of the Institute Time Clauses Hulls including the sue and labour provision:

“13.1 In case of any loss or misfortune it is the duty of the Assured and their servants or agents to take such measures as may be reasonable for the purpose of averting or minimising a loss which would be recoverable under this Insurance.”

THE PRELIMINARY ISSUES

10. The preliminary issues ordered to be tried were as follows:

(1) Have the Claimants suffered a loss or damage which is “prima facie covered by the Owners’ Policies or Club Entries” within the meaning of Clause 6 of the Institute Mortgagees’ Interests Clauses Hulls 30.5.86

(a) Did a failure of the assured under the War Risks Cover comply with the warranty alternatively condition: “Warranted no illegal fishing” prevent prima facie coverage thereunder?

(b) Alternatively, on a true construction of the War Risks Policy, was the warranty not a relevant peril and had no relevance to the scope of the coverage thereunder?

(c) Was the loss or damage prima facie excluded by exclusions 4.1.5 and 4.1.6 of the War Risks Cover?

Was the vessel detained under the Fisheries Management Act?

Was the seizure and detention of the Australian Authorities by reason of infringement of trading regulations?

Was the seizure and detention by the Australian Authorities by operation of ordinary judicial process or failure to provide security?

11. Before Toulson J, the only live issues arose under (c). It was not in dispute that the vessel was detained under the FMA. However, there was an issue under Clause 4.1.5 as to whether the arrest and detention was for infringement of trading regulations as properly construed for the purposes of the policy (Issue 1). The issue under Clause 4.1.6 was whether the arrest and detention of the vessel arose from the operation of ordinary judicial process, or failure to provide security, or failure to pay a fine or penalty, or any financial cause (Issue 2).

THE RELEVANT FACTS

12. A list of assumed facts was agreed for the purposes of the Issues which can be summarised as follows.
13. On 17 October 1997, during the currency of both policies, the vessel was boarded in the Australian Fishing Zone by naval personnel of the Western Australian Fisheries Management Department pursuant to powers granted by s.84(1)(a) of the FMA. The vessel was boarded and seized and ordered to sail to Freemantle pursuant to powers under s.84(1)(a) and (k) of the FMA, arriving there on 28 October. The vessel was detained on grounds of illegal fishing pursuant to s.84(1)(g) and/or s.84(1)(k) and/or s.88(1)(m). On 19 November 1997 the Master and Fishing Master of the vessel were personally charged, (i) with using a foreign fishing boat for commercial fishing without a foreign fishing licence, contrary to s.101 of the FMA and (ii) with having in their charge a foreign fishing boat, equipped with equipment for fishing contrary to s.100(1) of the FMA. Each charge provided that, upon conviction, an application would be made for forfeiture of the vessel, her equipment and fish on board, pursuant to s.106 of the FMA.
14. On 24 November 1997, the Master and Fishing Master were permitted to leave the vessel (being later permitted to leave Australia having been granted bail without conditions). On the same date, the Australian Fisheries Management Authority (“AFMA”) confirmed the original seizure of the vessel, its equipment bait and catch and thereafter detained the vessel pursuant to s.84(1)(g) of the FMA. From its arrival in Freemantle until 14 January 1998 the vessel was berthed and under the control of AFMA. On that date AFMA entered into an agreement with a third party to underwrite the maintenance and security of the vessel on behalf of the AFMA. By 15 January 1998 the Australian Government solicitor had provided owners’ solicitors with draft bond documentation; however no bond was put up by owners. In order to protect their position, the claimants then demanded immediate repayment of their loan and commenced foreclosure proceedings on 20 February 1998, the vessel being arrested by the Admiralty Marshal the same day. On 20 March 1998, the claimants obtained summary judgment against the owners, and the court (Ryan J) directed that the vessel should be appraised and sold. However, AFMA was not prepared to release the vessel pursuant to s.88(1) of the FMA and asserted that it remained in their possession and control. Ryan J subsequently ordered the hearing of an issue as to whether the AFMA’s statutory rights constituted a defect of title to the ship if and when later sold to a purchaser pursuant to the court’s order.
15. The Master and Fishing Master failed to appear on the date set for their trial in July 1998. Since any application for forfeiture of the vessel depended on their return to Australia for their trial, which prospect appeared remote, the court subsequently permitted sale of the vessel in the claimant’s enforcement proceedings, which sale occurred on 21 December 1998, some fourteen months after the original seizure and detention of the vessel. A substantial part of the claimants’ loan was thereby repaid. Meanwhile, the owners having tendered notice of abandonment and having had their claim rejected by the War Risks underwriters on the grounds that the vessel had been seized for illegal fishing in breach of the ‘no illegal fishing’ warranty, the claimants claimed under Clause 6 of the MII policy.

THE HEARING BELOW

16. Before Toulson J, for the purposes of Issue 1, it was not in issue that if the vessel was detained for an infringement of ‘trading regulations’, then any claim under the War Risks Policy would be excluded and thus there would be no prima facie coverage in relation to the seizure of the vessel by AFMA. However, it was denied by the claimants that there was any infringement of ‘trading regulations’, on the grounds that the provisions of the FMA were not trading regulations in the sense contemplated by the policy. Put shortly, the claimants’ case was that an examination of the objectives of the FMA and its individual provisions demonstrated that it was a measure concerned with conservation and management of fishery resources of the Australian fishing zone in a manner which ensured ecologically sustainable development and maximised economic efficiency in the exploitation of those resources; it was not a measure concerned with the regulation of trade or trading in the usual sense of the process of buying and selling, import and export, or carriage of goods for that purpose. The FMA did not regulate the purchase and sale of fish or their importation into Australia but dealt with broad concerns of environmental protection and economic management. The claimants accepted that in ordinary usage the word ‘trade’ can be used to refer to activities wider than simply purchase and sale i.e. as a synonym for carrying on a commercial activity. However, it was submitted that it should not be so construed in this instance (a) because in a commercial context the word ‘trade’ is usually used in its transitive sense rather than its intransitive sense of simply carrying on a trade; (b) in case of doubt or ambiguity the exclusion should be construed in favour of the assured applying the ‘contra proferentem’ doctrine.
17. The judge stated that, like many questions of construction, the matter was a short point of impression, and he stated his conclusion shortly as follows:

“Mr Charkham, for the underwriters, put his submission on this point in his skeleton argument with telling brevity as follows:

“The vessel was detained under the Australian Fisheries Management Act 1991. The act regulates commercial fishing. Commercial fishing is a trade. Ergo the vessel was detained by reason of infringement of a trading regulation.”

I accept Mr Charkham’s submission. Like Customs’ regulations which Lord Denning MR said in “THE ANITA” [1971] 1 Lloyd’s Reports 487 at page 492 “must be given a business-like interpretation”, trading regulations must equally be given a business-like interpretation. Most vessels insured under the Institute War Clauses are going to be used for trading purposes. Owners or managers may themselves be directly involved in the sale or purchase of goods, but more often they will not be. They will be involved in trading ventures which may well be subject to regulations, breach of which may lead to a vessel’s seizure. It is natural that underwriters offering war and strikes cover should draw the line at covering vessels whose owners or managers choose to run the risk of engaging in such ventures in breach of regulations governing them. That being the broad and commercially sensible purpose behind the relevant words of clause 4.1.5, I see no reason to give the expression “trading regulations” a particularly restricted interpretation.

As I have mentioned, the Act had the twin objectives, in summary, of economic advancement and environmental protection. An important part of the statutory scheme was the imposition of control over commercial fishing. Sections 100 and 101 were specifically directed towards unlicensed commercial fishing by foreign vessels. I do not regard it as a strained interpretation of the word “trading” to say it includes commercial fishing. On the contrary, bearing in mind that the expression is to be understood in a business-like way, if a businessman were asked whether he would describe commercial fishing as a form of trade or trading, I would expect his answer to be, “of course”. In deference to Mr Hill’s argument about the parsing of the phrase, I would read the word “trading” as derived from the verb “trade” in its intransitive sense; i.e. ‘to take part in a trading or commercial venture”. I would regard regulations which govern such activities as naturally described by the words “trading regulations”.

18. Toulson J added later in his judgment that he did not think it right to have resort to the ‘contra proferentem’ rule because in his view the meaning of the words ‘trading regulations’ was not ambiguous. However, he observed that the argument that a ‘contra proferentem’ approach should be adopted presented a difficulty rather than a support to the claimants, in the light of the observations of Hobhouse J in “The Wondrous”, [1991] 1 Lloyd’s Rep 416 when, in relation to the incorporation of the Institute War Clauses in a policy, he stated:

“I bear in mind that the wording of these policies represents the proposal of the assured through his professional agent (the broker) for subscription by the underwriter and, therefore, in the event of ambiguity, it must be construed against the assured (e.g. AS Ocean and Black Sea and Baltic General Insurance Co Limited (1935) 51 Lloyd’s Law Reports 305 at page 307).”

19. The judge then turned to Issue 2 and rejected the argument of the defendants that the failure to pay the draft bonds put forward by the Australian Government solicitor against the possible outcome of the criminal proceedings amounted to a failure to provide security within the sense contemplated by Exclusion 4.1.6. He held that the security contemplated was one relating to claims against the vessel, whereas here the bond required in the Australian procedures was principally a form of recognisance for the attendance of the master and fishing master at their trial. Finally, he rejected the defendants’ argument that the bond requirement was to be construed as a ‘financial cause’ of the detainment of the vessel. In this respect he stated:

“It seems to me that, in any given case, the court has to ask itself as a matter of fact whether the real or effective or dominant cause of the seizure and detention is a financial cause or something else. In the case of the “The Wondrous” the reason for the deemed detainment was financial. In the present case, it seems to me that the dominant reason for the detainment of the vessel by the AFMA was that it had been caught fishing in the Australian Fishing Zone, and the fact that its release might have been procured by the payment of money should not lead to the conclusion that the cause of the detainment was financial. The conclusion which I have therefore reached is that the claim by the mortgagees on the assumed facts fails by virtue of exclusion 4.1.5 and not 4.1.6.”

THE FMA

20. Before proceeding to the grounds of appeal it is convenient to set out the scheme of the FMA.
21. By s.3(1) its principal objectives are stated to be:

“(a) Implementing efficient and cost-effective fisheries management on behalf of the Commonwealth; and

(b) ensuring that the exploitation of fisheries resources and the carrying on of any related activities are conducted in a manner consistent with the principles of ecologically sustainable development and the exercise of the precautionary principle, in particular the need to have regard for the impact of fishing activities on non-target species and the long term sustainability of the marine environment; and

(c) maximising economic efficiency in the exploitation of fishery resources; and

(d) ensuring accountability to the fishing industry and the Australian community in AFMA’s management of fisheries resources; and

(e) achieving government targets in relation to the recovery of the costs of AFMA.”

22. The FMA lays down a comprehensive scheme for the management and regulation of fishing within the Australian Fishing Zone which it establishes. Part 1 deals with various preliminary matters including the extent of and exceptions to, the fishing areas regulated. Part 2, Divisions 1-4, deal with plans of management and the grant of various fishing rights and options and Divisions 5 and 6 with the grant of permits to Australian boats and scientific permits.
23. Division 7 relates to the grant of foreign fishing licences and Division 9 to the grant of foreign master fishing licences. Under the former, by s.34(1), AFMA may, on application made in approved form, grant a licence authorising the use of a specified foreign boat for commercial fishing in a specified area of the Australian Fishing Zone. Under the latter it may grant to a ‘foreign master’ a fishing licence, authorising the grantee to be in charge of a foreign boat which is being used for commercial fishing in such an area. Such licences are granted subject to various specified conditions with which the holder must comply. Under s.100(1) a person must not, at any place in the Australian Fishing Zone use a foreign boat for commercial fishing unless there is in force a foreign fishing licence authorising the use of the boat at that place and, if he does so, he is guilty of an offence punishable on conviction by a fine. Under s.101 it is similarly an offence for a person to have in his or her possession or charge a foreign boat equipped with nets traps or other equipment for fishing unless authorised by a foreign fishing licence. So far as enforcement is concerned, it is clear that, under the provisions of the FMA to which I have earlier referred at paragraphs 13 and 14 above, the relevant officers were empowered to board, search and subsequently detain and seize the vessel by way of enforcement measures.

ISSUE 1

Trading Regulations

24. Upon this appeal, Mr Persey QC for the claimants prefaced his submissions with three preliminary propositions which are not in dispute. First, the court should give Clauses 4.1.5 and 4.1.6 a businesslike interpretation in the context in which they appear: see the observations of Lord Denning MR in “The Anita” [1971] 1 Lloyds 487 at 492. Second, that it is for the underwriters to bring themselves within the exceptions set out in those clauses: see again “The Anita” at 492 (per Lord Denning MR) and 495 (per Sir Gordon Wilmer). Third, in defining the insured risks under the War Risks Policy it is necessary to have regard both to the perils insured and the exclusions, since together they delimit the risk. As stated by Hobhouse J in “The Wondrous” [1991] 1 Lloyd’s Rep 400 at 416-417:

“The Institute Clauses include a coherent scheme of the formulation of the risks covered and to take only one part is not only contrary to that scheme, it is also contrary to the express wording of the clauses themselves and to the terms of the incorporation. The risks are the perils with the exclusions; together they delimit the risks covered. Accordingly the defendants are entitled to rely on the relevant parts of the cl.4.”

See also, on appeal, [1992] 2 Lloyd’s Rep 566 at 572 lhc per Lloyd LJ.

25. Mr Persey submits that the judge fell into error at p.11A of his judgment when he stated:

“When one reads together Clause 1 (the insured perils) and Clause 4 (the exceptions), the broad picture which emerges is that the policy is intended to provide cover against a vessel being seized or damaged as a result of war or political or industrial action. It is not intended to provide cover against arrest by reason of civil claims or by reason of a vessel engaged in illegal trading.” (emphasis added)

26. Mr Persey rightly accepts that cover was not provided against arrest by reason of civil claims. However, he submits that the judge put the matter too widely, or at least begged the question by his reference to “illegal trading”. He submits that, in the passage quoted, the judge overlooked that the War Risk cover provided was intended (subject to exceptions), to provide cover against seizure and detention as a result of any political or executive act in anything other than civil proceedings, and thus included seizure arising out of criminal conduct or activity unless occurring with the privity of the assured. In this respect, he also rightly observed that the privity of owners had not been pleaded and there was no evidence before the court or by way of any agreed statement of fact to that effect. Accordingly, submits Mr Persey, the seizure and criminal proceedings arising out of the conduct of the master were prima facie within the risk insured, subject only to the proper interpretation of the term ‘trading regulations’.
27. In this connection, Mr Persey no longer places reliance upon the so-called ‘contra proferentem’ rule, conceding that, if the task of the court is to ascertain the extent of the risk in the light of the defined perils read together with the relevant exclusion, there is no room for the operation of that rule. However, he otherwise repeats the submissions made below.
28. He accepts that the judge rightly held that the FMA regulates, inter alia, commercial fishing, but submits that he was wrong to hold that, simply because commercial fishing may be a trade and (indeed was the trade of the owners), the vessel was detained by reason of infringement of a trading regulation. He submits that the principal meaning of ‘trade’ when used as a verb or participle involves a commercial transaction between two parties, being classically the actual process of buying, selling or otherwise dealing in goods and services, either in the domestic market or the international market. He submits that, in the context of the Institute War Clauses, drafted as a ‘package’ applicable to all types of vessel, the word ‘trading’ should be read in that sense. Thus, he submits, regulations forbidding, controlling or otherwise regulating the sale or importation of goods into a country and the supplying, delivery or, carriage of goods for that purpose would rank as trading regulations, but regulations prohibiting fishing for purposes of conservation do not.
29. Mr Charkham for the underwriters supports the reasoning of the judge.
30. In our view Mr Persey is right. The exception in respect of ‘trading regulations’ was introduced into Exception 4.1.5 of the Institute War Clauses in the aftermath of the Iran-Iraq war and the effect upon trading vessels of the regime of sanctions widely operated at that time. As part of a long-standing regime of interlocking clauses designed and applied (on occasions subject to deletions) as a package for inclusion in policies relating to vessel of all kinds, the majority of which will be trading vessels concerned with carriage of goods by sea in furtherance and/or fulfilment of international trading transactions, it seems to us that the phrase ‘trading regulations’ falls to be construed with that in mind. While it is always necessary to construe the effect of ‘standard’ clauses in the context of the overall provisions of the contract in which they appear, it would in our view be wrong to accord to the label ‘trading regulations’ a varied purpose or meaning according to the nature or function of the particular vessel insured (in this case a fishing vessel) or the particular trade or business of the owner. Neither in themselves can affect the nature and character of the regulation which has been infringed. The question whether or not a regulation is a trading regulation depends upon its own nature and purpose and not upon the fact that it may, incidentally, affect a shipowner in the course of the operation of his trade or business.
31. The aims of the FMA are ecological and environmental. So far as the ‘regulations’ contained within it were passed to further those aims they were plainly not trading regulations. It is true that the FMA’s aims also include the preservation and proper management of an important commercial resource, namely Australian fish stocks; in that context it regulates fishing within Australian waters whether for pleasure or gain. However, such regulation is not aimed at (or indeed concerned with) the processes by which any fish caught are thereafter sold, supplied or traded. The question to be asked is whether, in the ordinary language and understanding of commercial men, a regulation whose purpose is the conservation and management of fishing stocks is a ‘trading regulation’ in the sense contemplated by the policy. We do not think the answer is provided by simply asserting that, because commercial fishing is a trade to which the regulation applies, the regulation is therefore a trading regulation.
32. In this connection, Mr Charkham has drawn attention to the following observation in Arnould’s Law of Marine Insurance and Average (16^th ed) para 357, by way of comment on wording identical to Exception 4.1.5, contained in Clause 5.1.4 of the 1995 Hull Clauses cover:

“The exception relating to “customs regulations” has been broadly construed, as referring to laws in force in the country concerned, whatever their form, which deal with smuggling or other offences in the realm of customs .... The other expressions in this clause (quarantine, trading regulations), should no doubt also be construed broadly.”

33. However, the authority referred to for the proposition in the first sentence is “The Anita” [1970] 2 Lloyd’s Rep 365, reference to which shows that the relevant provision of the Vietnam decree under consideration in that case was stated to cover inter alia “contraband” and referred specifically to “those who import or attempt to import products or goods whose import is prohibited by the legislation in force”. Thus, while no formal customs code was apparently involved, the nature and purpose of the provision was quite clearly one relating to contraband, the traditional area of concern of customs regulations. As observed by Sir Gordon Willmer in “The Anita” in the Court of Appeal at [1971] 1 Lloyd’s Rep 495:

“The ordinary man, if asked what was the reason for the ship’s confiscation, would surely reply that it was by reason of the members of the crew having been caught smuggling.”

34. By way of contrast in this case, it seems to us that, faced with the same question, the ordinary man would reply that the ship’s seizure was by reason of the crew having been caught illegally fishing, rather than for trading illegally. Furthermore, we regard the requirement or imposition by the insurers of a warranty as to ‘no illegal fishing’ as some indication of the parties’ contemplation that fishing in breach of local laws or regulations would not otherwise be excluded from the scope of the policy by reason of the exception in respect of ‘trading regulations’.
35. We are conscious that our conclusion as to the businesslike interpretation of the term ‘trading regulations’ is contrary to that which the judge thought so plain. However, it seems to us that, taken to its logical conclusion, the judge’s unqualified acceptance of Mr Charkham’s submission that, if a national law operates to place restrictions on a trade, it is a trading regulation, would mean that Exception 4.1.5 has the potential to apply to every local statute or regulation the effect of which is to prescribe or place limitations upon a shipowner’s activities and breach of which may give rise to seizure or detention. If that is so, its scope would extend to the full range of regulatory measures which may affect a shipowner whether in relation to carriage of goods, pollution, health and safety, or conditions of employment. Just as commercial fishing is a trade, so is the operation of a ship for reward, whether for carriage of goods, dredging or operating as a cruise liner. Upon that basis, to interpret the expression ‘trading regulations’ without the imposition of any generic limitation would be unreasonably to emasculate the breadth of Clause 1.2.
36. We therefore accept the thrust of Mr Persey’s submissions and would allow the appeal under Issue 1.

ISSUE 2

37. We now turn to consider the cross-appeal under Issue 2.
38. We have so far only shortly indicated the area of dispute under Issue 2. The relevant facts were these. The vessel was formally seized on 17 October on the day that she was boarded and was from 24 November detained by AFMA pursuant to the relevant provisions of the FMA. Once the Master and Fishing Master had been charged, it was open to AFMA under s.88(1) of the FMA to release the boat to the owners on such conditions as AFMA thought fit “including conditions as to the giving of security for payment of the value of the property if it is forfeited and for the payment of any fines that may be imposed under this act in respect of offences that AFMA has reason to believe have been committed ....”
39. Following their being charged on 19 November 1997, the Master and Fishing Master were given bail without conditions on 11 December 1997 until 5 February 1998 when bail was extended, again without conditions, to 6-8 July 1998, their anticipated trial date.
40. By 15 January 1998 the Australian Government solicitor had provided owners’ solicitors with draft bond documentation. He also informed them that AFMA ‘is prepared to negotiate on the provision of reasonable bonds by your client for the release of the “Aliza Glacial”’ and invited owners’ comments on the documents provided. The drafts which were each headed “Security” recited that the vessel was under the control of the AFMA and its powers under s.88 to direct release to the owners on such conditions as it thought fit. Two separate forms of security were provided, one for A$ 9,768,705 against “possible forfeiture orders and fines that may be imposed by a court in relation to the charges” and the further security for a A$ 275,000 “to ensure the operation of a Vessel Monitoring System on board the vessel until completion of all legal proceedings relating to the charges”. The body of the security provided that, in the event of conviction of the Master and Fishing Master and any consequent forfeiture order being made, the Australian government could retain the amount of the security which also covered any fine imposed and not paid by the owner. The security was also to be forfeit if the Master and Fishing Master failed to appear for the hearing of the charges or on any occasion to which they had been bailed to appear, unless excused from attendance. It does not appear that the solicitor’s offer of negotiation was taken up. From that time on, until it was eventually sold in December 1998, the vessel remained subject to the detention of AFMA pursuant to its powers under the FMA.
41. Following commencement by the claimants of their foreclosure proceedings on 20 February 1998, Ryan J gave summary judgment in their favour in those proceedings on 20 March 1998 and directed that the vessel be valued and sold. However, AFMA, having given no directions for release of the vessel pursuant to s.88(1) of the FMA, Ryan J ordered the trial of a preliminary issue to decide whether the rights of the AFMA and the government of Australia under the FMA constituted a defect of title to the vessel which a purchaser would acquire upon the sale ordered by the court. By order dated 18 September 1998, Ryan J answered that issue in the negative.
42. By that time the Master and Fishing Master had failed to appear on the date to which they had been bailed (6 July 1998) and bench warrants had been issued for their arrest. In his judgment dated 19 October 1998 Ryan J stated that the only prospect of the trial being brought to a conclusion and an application for forfeiture of the ship under the FMA being made depended on their return to Australia and, since that prospect was so remote and there were many difficulties which stood in the way of the ship being confiscated under the Australian Proceeds of Crime Act 1987, he would give directions for the sale of the vessel. He directed the Admiralty Marshal to accept the claimants’ tender to purchase the vessel and to conclude the sale. The sale was concluded on 21 December 1998. In the event the Master and Fishing Master were never tried or convicted for illegal fishing.
43. Exclusion 4.1.6 excludes (a) the operation of ordinary judicial process: (b) failure to provide security and (c) any financial cause. We omit reference to failure to pay any fine or penalty because such failure cannot be demonstrated in this case. Nor does it appear that any exclusion on that particular ground was argued before the judge. We shall deal with the other exclusions in order.

The operation of ordinary judicial process

44. It is plain that the scope of the words “ordinary judicial process” is confined to civil proceedings for the enforcement of private rights and it does not extend to judicial process for the purpose of enforcing public or criminal laws, even if taking place within the ordinary judicial system of the country concerned: see Arnould para 361. It was recognised for the underwriters before the judge and in this court that, at any rate as from its initial seizure until the arrest by the Admiralty Marshal following issue of the claimant’s forfeiture proceedings, the seizure and detention was the result of executive action under the FMA. However, it is argued for the underwriters that, once the claimants brought their mortgagees’ action and the vessel had been arrested by the Admiralty Marshal pursuant to those proceedings, following which the vessel was in the joint custody of the Marshal and the AFMA, the further detention of the vessel was by reason of ordinary judicial process.
45. Mr Meeson, for the twelfth defendants, who has principally argued this point, has relied upon the fact that in their claim, the claimants assert that, by reason of the length of its detention from 17 October 1997 to 21 December 1998 the vessel was a constructive total loss pursuant to Clause 3. He submits that, for the bulk of that time, i.e. from the time of its arrest, effective control of the vessel passed to the Admiralty Marshal and thereafter the authorities were powerless to sell the vessel other than through the court; on that basis the effective cause of the loss was ‘ordinary judicial process’. Like the judge below, we reject that analysis. In the proceedings before Ryan J, he was trying an issue as to whether the statutory rights of detention and control over the vessel enjoyed by AFMA would constitute a defect of title to the vessel which a purchaser would acquire upon the sale of the vessel ordered to be sold by the court in an action in rem. In answering that question in the negative, the relevant part of his judgment reads as follows:

“... the legislature has not provided that the general power of sale exercisable by a Court of Admiralty, including conveyance to a purchaser from the Marshal of a clean title of the vessel should, in all cases, override the right of detention under the Act and the inchoate right of the Crown to the forfeiture of the vessel.

In these circumstances, I consider that the legislature intended to leave to the Court of Admiralty, in the exercise of its discretion, the adjustment of the competing rights of the authorised officer under the Act on the one hand, and of the plaintiff in an action in rem and other persons concerned in the resolution of that action on the other. This interpretation allows the Court of Admiralty to make an order, for example securing the salvor’s reward for salvage of the vessel while she is under detention ... it also permits the Court in an appropriate case, to defer the sale to preserve the utility of the detention of the vessel under the Act if those who would be entitled to claim on the fund in the event of a sale refused to allow an order for forfeiture, if made, to attach to that fund in lieu of the vessel.”

46. We find nothing in the judgment of Ryan J to suggest that, as between AFMA and the owners, no security having been provided, AFMA’s rights of seizure and detention were other than effective until the moment of sale pursuant to the order of the court. The original seizure and continuing detention remained operative to deprive the owners of the free use and disposal of the vessel until sale occurred. Arrest by the Admiralty Marshal superimposed a fetter upon the owners’ ability to use the vessel but had no significant causative effect upon it. It certainly did not prolong such deprivation. Ryan J referred to the vessel, following commencement of the claimants’ proceedings, as being in the joint custody of AFMA and the Admiralty Marshal. The reason the judicial process became extended was because of the stance of the FMA in asserting and seeking to protect its statutory rights of detention which only ended upon its sale. Had the claimants not invoked the court process, there is no reason to suppose that the detention of the vessel would not have continued indefinitely, and at least until the date of deemed constructive total loss provided for in Clause 3.
47. In this context (as below in relation to the non-provision of security) reliance has been placed by the defendants upon the principle that:

“If the loss is caused by two causes effectively operating at the same time and one is wholly expressly excluded from the policy, the policy does not pay”

per Roskill LJ in Wayne Tank and Pump Co Limited –v- Employers Liability Assurance Corporation Limited [1974] QB 57 at 75; see also P. Samuel & Co Ltd –v- Dumas [1924] AC 431 at 467 per Lord Sumner:

“Where a loss is caused by two perils operating simultaneously at the time of loss and one is wholly excluded because the policy is warranted free of it, the question is whether it can be denied that the loss was so caused, or if not the warranty operates.”

It is also submitted that, where two or more causes are operating concurrently, they do not have to be exactly co-extensive in time; thus a later cause may join with a previous and continuing cause so as to become concurrent.

48. Both propositions are correct. Nonetheless, whenever an argument as to causation arises in respect of rival causes contended for under a policy of insurance, the first task of the court is to look to see whether one of the causes is plainly the proximate cause of the loss. This of course means proximate in efficiency and not in time; what is frequently described as “the effective or dominant cause” (see per Lord Denning MR in the Wayne Tank case at p.66F-G and per Roskill LJ at 72A). If in a case where one of two rival causes is an insured peril and the other is the subject of an exception, it can be shown that the effective and dominant cause was the peril rather than the exception, that is decisive in favour of the insured. It is only if the court is driven to the conclusion that there was “not one dominant cause, but two causes which were equal or nearly equal in their efficiency in bringing about the damage”, one being a peril and the other an exception, that the exception prevails. (ibid at p.67). For the reasons which we have set out in paragraph 46 above, we would regard the detention by AFMA and its continuing assertion of its rights in that respect as the effective and dominant cause of the owner’s loss of use of the vessel and their consequent claim for constructive total loss, rather than the judicial process initiated by the claimants, the extended period of which was caused by AFMA’s continuing intervention to vindicate its rights of detention.

Failure to provide security ... or any financial cause

49. These two exceptions may be considered together in this case. The essence of the underwriters’ and brokers’ case is that the failure of the owners to provide security in the form of the bonds proffered by the AFMA in the amount of some A$10 million falls within both exceptions. The steps in their argument can be shortly stated. (1) The bonds were described as, and were plainly in the nature of, a security; they were proffered with a view to the release of a vessel and its equipment which would otherwise be detained against the possibility of forfeiture orders following the trial of the Master and Fishing Master. (2) They were accompanied by a letter making clear that AFMA was prepared to ‘negotiate on the provision of reasonable bonds’ to be provided by the owners. (3) Had bonds been provided in the sum originally requested, or some negotiated lesser amount, the vessel would have been released. (4) Had that been done, no question of a constructive total loss (on which basis the owners claimed upon their underwriters) would have arisen. (5) Thus, to the extent that any loss suffered by reason of the original detention was extended and augmented by owners’ failure to provide security, that failure was causative of the owners’ loss. (6) The case could equally well be put as damage arising from ‘any financial cause’, namely the failure of the owners to put up the money for the security necessary to secure the ship’s release.
50. The judge rejected the defendants’ submissions below essentially for two reasons. First, in respect of the failure to provide security, he accepted that such a provision might apply in the context of criminal proceedings (as the reference also to ‘any fine or penalty’ also suggested). However, he said:

“I am inclined to accept Mr Hill’s argument that the businessman would have had in mind when considering a clause of this kind security as something relating to claims against the vessel. Here, the bond required was, among other things, a form of surety for the attendance of defendants. I think that it is an over-wide interpretation of security in such a clause to treat it as extending to a requirement to put up recognisances for an individual charged with a criminal offence. On that ground, I would accept Mr Hill’s argument that this part of the clause is not applicable in the present circumstances.”

51. Second, in respect of ‘any financial cause’, he referred to the decision of this court in “The Wondrous” [1992] 2 Lloyd’s Rep 566, in which Lloyd LJ stated at 573:

“The financial cause must, of course, affect the ship. Otherwise there would be no detainment. But assuming the ship is detained by a failure to pay money on the part of the cargo interest, it comes within the ordinary meaning of the words 'financial cause’. I accept that the ordinary meaning of the words is ‘very wide. But they are the words which the parties have chosen. In the context of a War Risks policy the words can and should be given their ordinary meaning.”

52. The judge observed that in that case it was easy to see that the primary reason for the vessel’s inability to leave Banda Abbas was a financial cause given that port dues had not been paid, nor a tax on freight. However, he continued:

“Wide as the words ‘any financial cause’ are, it seems to me they must have some limitation. Suppose that a vessel was seized by a terrorist organisation wanting to raise money, a ransom demand was made for a million pounds and the owner declined to pay the money: could it be said that the detention of the vessel thereafter was through a financial cause? In a literal sense, it could, but no one would suggest that such a conclusion would accord with the spirit of the policy. The perils insured against include seizure of vessels by terrorist organisations and a common major procedure would be to make a monetary demand. It is easy to say as a matter of instinct that the exclusion under 4.1.6 would not apply in those circumstances, but as a matter of construction, I ask the question why it would not? It seems to me that, in any given case, the court has to ask itself as a matter of fact whether the real or effective or dominant cause of the seizure and detention is a financial cause or something else. In the case of “THE WONDROUS”, the reason for the deemed detainment was financial. In the present case, it seems to me that the dominant reason for the detainment of the vessel by the AFMA was that it had been caught fishing in the Australian Fishing Zone, and the fact that its release might have been procured by the payment of money should not lead to the conclusion that the cause of the detainment was financial.”

53. Deciding the point on those grounds, the judge observed that it was unnecessary for him to decide whether or not the editors of Arnould were correct in their view expressed as follows in relation to the exceptions contained in Clause 5 of the Institute War and Strikes Clauses, which is in identical terms to Exception 4.1.6 in this case:

“The structure of Clause 5 pre-supposes that the loss (which would otherwise be insured) is one “arising from” the various exceptions. Failure to provide security, or to pay a fine or penalty may in some circumstances prevent restoration of the vessel, after there has already been an operation of insured perils and after there is therefore either already a loss, or a situation has already arisen which (if not remedied) will develop into one of total loss. It is open to question whether these exceptions in 5.1.5 should apply in such circumstances; the wording of the clause can more aptly be applied where the failure to provide security or effect payment is what brings about the operation of an insured peril.”

54. The suggested limitation upon the application of the exceptions as advocated in that passage was urged upon the judge below and has been repeated by Mr Persey in this court.
55. Dealing first with the failure to provide security, like the judge we accept that, when considering a clause of this kind, one is contemplating a clause relating to claims against the vessel, and not a form of recognisance or surety for an individual charged with a criminal offence. However, unlike the judge, we consider that, despite the circumstances in which it was demanded, the security was one which, on a businesslike interpretation, was in respect of a claim or (more accurately) a potential claim against the vessel, in the sense that the FMA authorised its detention against the event of its forfeiture following conviction of the Master and Fishing Master (i.e. in assertion of what Ryan J described as the “inchoate right” of the Crown to forfeiture of the vessel).
56. We therefore proceed to consider the question raised in Arnould in the passage quoted at paragraph 48 above.
57. We agree with the broad point made that the structure of Clause 4 pre-supposes that the loss which would otherwise be insured is one ‘arising from’ the various exceptions and thus that the wording of the clause is most obviously apt for application where the failure to provide a security or effect payment is what brings about the operation of the insured peril and not vice versa. That was certainly the position in “The Wondrous”, in which a wide meaning was accorded to ‘financial cause’, the exception there under consideration.
58. We also consider that it is plainly reasonable for insurers to seek to exclude from cover a seizure or detention precipitated (i.e. originally caused) by financial weakness or default of the insured, whereas it is less obviously so where the assured is placed in a financial difficulty or dilemma as result of a seizure made or detainment initiated in circumstances which fall within the perils insured. That is because, if the insured unreasonably fails in such circumstances to provide the security or otherwise expend money to secure the release of his detained vessel, the insurer may plead that the insured is in breach of his obligation to sue and labour, whether under s.78(4) of the Marine Insurance Act 1906 or (as in this case) by reason of Clause 13.1 of the InstituteTime Clauses Hulls (see paragraph 9 above). In deciding whether or not such a breach amounts to a defence to the claim of the insured, the test of proximate cause as between the occurrence of the peril and the breach of the assured will in practice be applied as the touchstone of liability: see generally Arnould at para 770 p.617-20 and State of Netherlands –v- Youell [1998] 1 Lloyd’s Rep 236 at 244-5 per Phillips LJ. That is, of course, a point which, had the war risks underwriters not repudiated liability for breach of warranty, they might have sought to take by way of defence against the owners; it is not, however, a point which the MII underwriters could take against the claimants since, upon that basis, there would be prima facie coverage in respect of the peril under the owners’ policy even if, by reason of the insured’s breach of Clause 2 of the Institute War Clauses, their claim for constructive loss might be defeated.
59. The broad question raised is whether or not the exceptions are intended to co-exist with, or be read subject to, other defences available under the terms of the policy. The editors of Arnould do not answer that question beyond suggesting that, if and insofar as the exceptions extend to circumstances other than those where a prior failure to provide security is what causes the operation of the insured peril in the first place, a ‘reasonableness limitation’ should be imposed on its operation. In particular, they suggest that the exception should not:

“be construed so as to afford a defence in circumstances where it would have been unreasonable to provide the security etc demanded in order to recover the vessel, or where the amounts involved would otherwise enable her to be treated as a total loss.”

See also Stringer –v- English & Scottish Marine Insurance Co (1869) LR 4 QB 676 at 691-2, affirmed on appeal at LR 5 QB 599 at 603, a case in which the court held it to be no answer to a claim for total loss that the vessel could have been recovered by provision of bail to its full value. We agree that such a limitation is indeed appropriate, and would hold that the exception in respect of a failure to provide security should be read as inoperative in a case where the amount and circumstances of such provision would otherwise enable the vessel to be treated as a total loss.

60. In our opinion (subject to such limitation) the exclusion in respect of failure to provide security does not fall to be read as applying only to the situation where the failure to give security itself gives rise to the operation of the original seizure or detention. We consider that it is the contractual intention that the exceptions in 4.1.6 fall to be considered independently of other defences available to the insurers. In this case it appears to us that Exception 4.1.6 is different in nature from the preceding Exceptions 4.1.1 to 4.1.5 and the Exception which follows (4.1.7). Those other exceptions are defined by reference to the particular circumstances in which physical damage, seizure or detainment occur, whereas the terms of Exception 4.1.6 are not so constrained and appear to us to me to make clear that, losses arising from the causes listed are intended to be excluded in any event. In this context, use of the phrase “Loss ... or expense arising from” the various exceptions does no more than import the usual test of causation as between peril and exception, namely that of proximate cause, primacy being attached to the exception over the peril in any case where competing causes are equal or nearly equal in bringing about the damage.
61. Further, we consider that Exception 4.1.6 falls to be construed against the background that the owners’ policy is one in which the relevant peril is defined as “loss of or damage to the vessel” (Clause 1). In that context, the burden rests upon the insured to establish its actual or constructive total loss. The policy plainly contemplates, as indeed is the position in this case, that following seizure and/or detainment, the deeming provision contained in the detainment clause (Clause 3) is likely to be relied on by the insured as the mode of proof of loss. Clause 3 requires that, in the event of seizure, detainment etc “the assured shall thereby have lost the free use and disposal of the vessel for a continuous period of twelve months”. If a claim is made under Clause 3, this seems to us to import a test of causation which must be applied not simply to the cause of the original seizure (not enough in itself to amount to loss of the vessel) but to the full 12 month period of the detainment relied on as constituting the loss of the vessel.
62. That being so, in this case, where the loss of the vessel relied on is a constructive total loss accruing as a result of a detainment of at least twelve months, it is the task of the court to consider whether the insured peril is indeed the proximate cause of that loss or whether that loss equally falls within the exclusion. In this connection, however, if it be shown that it was not reasonable for the owners to provide the surety demanded in respect of the vessel because the sum required exceeded the full value of the ship and would otherwise enable her to be treated as a constructive total loss, the exclusion should be treated as inapplicable.
63. Mr Meeson’s submissions have run as follows. He rightly points out that, in considering whether the claimants are able to show that the loss was prima facie covered by the owners’ policy, the agreed statement of facts records, and the parties have accepted, that the claim of the owners was for constructive total loss of the vessel pursuant to Clause 3 (Detainment). No argument has been advanced or addressed to the effect that the owners might have claimed on the basis of a partial loss, so as to justify any assertion by the claimants that such partial loss at least was prima facie covered by the owners’ policy. He submits therefore that the claimants must prove detention for twelve months as a result of an insured peril. That, he submits, cannot be demonstrated because, for the bulk of the twelve month period under Clause 3 (i.e. February 1998-October 1998) the proximate cause of the detention, effective and concurrently operative, was the failure of the owners to provide security for the release of the vessel, either in the sum originally required or in some lesser amount following the offer of negotiations which was never taken up.
64. Subject to the question of the value of the vessel as against the amount of the security demanded we consider that Mr Meeson is right. Upon the agreed facts, as supplemented by the documents before us, as from mid-January the owners had the clear opportunity to secure the release of the vessel from detainment by AFMA by putting up the security requested or by agreeing some lesser sum in response to the invitation in the government solicitor’s letter. However, the owners did not do so and thus the detention continued.
65. In those circumstances, subject only to argument upon the value of the vessel in relation to the security demanded, we consider that, as from January 1998, the failure of the owners to provide security to AFMA for the release of the vessel was an effective cause operating concurrently with AFMA’s original seizure and detention so as to deprive the owners of their use of the vessel.
66. The point upon value which Mr Persey has raised is simply this. He submits that, in the light of the claimant’s eventual purchase of the vessel for US$ 4.5 million from the Australian Admiralty Marshal, it is plain that the amount demanded as security by AFMA (in total some A$ 10 million) was far in excess of the value of the vessel and he therefore asserts that the exception in 4.1.6 is not applicable. Mr Meeson, on the other hand, submits that it is not open to the court to draw any such inference. First, he points out that there is no agreement between the parties as to the value of the vessel or her machinery and equipment; nor as to the basis or circumstances of the sale to the claimants by the Admiralty Marshal. Second, he relies upon the fact that the owners’ policy was a valued policy under which the vessel was insured for an insured value of NOK 65 million, approximately equivalent to A$ 13.5 million at the relevant time. He says that this is of significance because in his submission it is the insured value rather than the actual or market value of the vessel which is relevant in relation to the owners’ claim.
67. In this connection Mr Meeson submits as follows. He acknowledges that s.27(4) of the Marine Insurance Act 1906 provides:

“Unless the policy otherwise provides, the value fixed by the policy is not conclusive for the purposes of determining whether there has been a constructive total loss.”

68. However he submits that in this case the policy does otherwise provide. Clause 2 of the Institute War Clauses incorporates Institute Time Clauses Hulls 1/10/83 (with certain exceptions which are not relevant). Clause 19 of the Institute Time Clauses Hulls (“Constructive Total Loss”) provides:

“19.1 In ascertaining whether the Vessel is a constructive total loss, the insured value shall be taken as the repaired value and nothing in respect of the damaged or break-up value of the vessel or wreck shall be taken into account.

19.2 No claim for constructive total loss based upon the cost of recovery and/or repair of the vessel shall be recoverable hereunder unless such costs will exceed the insured value. In making this determination, only the cost relating to a single accident or sequence of damages arising from the same accident shall be taken into account.”

69. Mr Meeson relies upon the words which we have italicised in Clause 19 and submits that the use of the word ‘recovery’ in the first line of Clause 19.2 is plainly intended to refer back to s.60(2)(i)(b) of the 1906 Act which provides:

“There is a constructive total loss where the assured is deprived of possession of his ship ... by a peril insured against and ... (b) the cost of recovering the ship ... would exceed their value when recovered.”

70. We do not consider that Clause 19 is of assistance to Mr Meeson in the context of this case. Clause 19.1 appears to be concerned with a claim for constructive total loss based on an accident to the vessel involving the need for salvage and/or repair. So far as Clause 19.2 is concerned, while its provisions appear apt to a claim for constructive total loss under s.60(2)(i)(b) of the 1906 Act, its terms are not applicable to the claim for constructive total loss in this case, which was made under the deeming provisions of Institute War Clause 3 (Detainment), which simply requires proof of deprivation of possession for a continuous period of twelve months in order to establish a constructive total loss. The claim of the owners was not one ‘based upon the cost of recovery’ within the meaning of ITC Hulls Clause 19.2. It follows that insofar as it is necessary to consider the value of the vessel for the purpose of deciding whether there has been a constructive total loss, the insured value of the vessel is not conclusive.
71. Accordingly, we consider that the matter turns upon whether or not, the vessel having been detained, it would have been reasonable or unreasonable for the owners to have provided security as required by AFMA, having regard to the size of the security demanded and the likelihood of its recovery as against the actual value of the vessel. That is an issue which, if it arose as between the owners and their underwriters, would require considerable investigation not only as to the actual (as opposed to the insured) value of the vessel, the prospects of negotiating a reduction in the security, the likelihood of the Master and Fishing Master attending their trial and (if they were to attend) the likely outcome of the proceedings against them. Those are not however matters on which agreement has been reached or evidence adduced on the hearing of this preliminary issue which arises between the claimants and their underwriters under the MII Policy and is concerned with the question whether or not the loss was prima facie covered by the owners’ policy. For that purpose, we are obliged to resolve the matter on the basis of the Assumed Facts and the sparse contents of the documents in evidence before us.
72. So far as the value of the vessel is concerned, it seems clear that AFMA were demanding surety in the sum of some A$ 10 million which they regarded as at least sufficient to cover the full value of the vessel. It is also apparent from the judgment of Ryan J that in April 1998 the Admiralty Marshal procured a valuation on the basis of the price obtainable from a willing buyer at that time of US$ 6 million. Finally, it is clear that the claimants subsequently purchased the vessel in November 1998 in a sale by sealed bid tenders for US$ 4.5 million. On the face it, therefore, it would appear clear that AFMA were on any view demanding, and in any subsequent negotiations would have required, a sum by way of surety substantially greater than (or at least equal to) the value of the vessel and, given the view of Ryan J that there was no reasonable prospect of the Master and Fishing Master attending their trial in Australia, the owners were entitled to take the view that it would not be reasonable to provide a sum by way of security which would exceed the value of the vessel thereby recovered and would inevitably be lost.

CONCLUSION

73. In those circumstances, we hold, on the Assumed Facts, that the claimants have established that they have suffered a loss which was prima facie covered by the owner’s policy within the meaning of Clause 6 of the MII Clauses and that the loss was not prima facie excluded by the exclusions contained in Clauses 4.1.5 and 4.1.6 of the Owners’ War Risks Cover. We therefore allow the appeal and dismiss the cross-appeal of the defendants under their respondents’ notices.
Order:
74. Appeal allowed, cross appeal dismissed
75. 1^st – 11^th Defendants to pay the costs of the appeal
76. No Order for costs of hearing 30.04.02
(Council to provide minute of Order) (Order does not form part of the approved judgment)