High Court: Mr Justice Teare

Mr Roger ter Haar QC (instructed by Brown Jacobson LLP) for the Appellant

Mr Peter MacDonald Eggers QC (instructed by Norton Rose LLP) for the Respondent

Readers will remember that this case was first reported in Case Update No. 2 when the Court of Appeal upheld the High Court's decision that the Reinsurer's were entitled to commence proceedings in England for a declaration of non-liability under the Reinsurance Policy on the grounds that there had been a breach of the typhoon warranty.

Facts

The PRINCESS OF THE STARS (the "Vessel") was a roll-on roll-off passenger cargo vessel operating in the Philippine Islands. On 21 June 2008, she sank with the tragic loss of more than 500 passengers and crew having headed into the pathway of typhoon “Frank”. The incident was all the more tragic because the Philippine government had issued a typhoon warning on the evening the Vessel left her port of departure. The warning encompassed the port of departure, the port of destination and the Vessel’s planned route.

Over 40 cargo claims have been brought in the Philippines against the owners of the Vessel ("Owners"). Further claims in respect of the lost cargo have been brought directly against Owner's cargo liability insurer, Oriental. By the underlying cargo liability policy (the "Original Policy"), Oriental would indemnify Owners “for all sums which the insured [Owners] shall become legally obligated to pay as damages for loss or damage of merchandise or goods under his custody.”

Oriental reinsured their potential liability in the London market with reinsurers led by Amlin (the "Reinsurance Policy" and "Reinsurers"). The Reinsurance Policy contained an English law and jurisdiction clause, and a "follow the settlements" clause. Importantly, both the Original Policy and the Reinsurance Policy contained a typhoon warranty which stated:

“[...] it is expressly warranted that the carrying vessel shall not sail or put out of Sheltered Port when there is a typhoon or storm warning at that port nor when her destination or intended route may be within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening point. Violation of this warranty shall render this policy void”.

This wording was virtually back to back with the Original Policy.

Reinsurers commenced proceedings in the High Court in England for a declaration of non-liability under the Reinsurance Policy on the grounds that there had been a breach of the typhoon warranty when the Vessel set sail from Manila to Cebu on 20 June 2008. This claim is therefore preemptive in the sense that, to date, Oriental has made no claim against the Reinsurers under the Reinsurance Policy, although it appears that at least 40 claims have been made against the Owners by cargo owners or their subrogated insurers and in at least 20 of those cases the cargo owner has also made a claim against Oriental as Owner's insurer. Filipino judgment on these claims is not expected for a number of years.

Judgment

In the Court's view, the typhoon warranty consisted of two limbs:

  1. Limb 1 contemplates a scheduled vessel sailing out of a sheltered port when there is a typhoon or storm warning at that port.
  2. Limb 2 contemplates a scheduled vessel sailing out of a sheltered port when her destination or intended route may be within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening point.

Limb 1

The Court noted that a continuing warranty is a Draconian term, the breach of which produces an automatic cancellation of the cover, regardless of whether a loss is causally connected to the breach of warranty. The Court found that the object of the warranty was to protect the Reinsurers from the liability arising from the grave danger of typhoons that can travel at varying speeds and in directions that cannot be predicted.

The underlying policy of the warranty is safety first. The Court concluded that as it was not in dispute that the Vessel sailed from Manila at a time when in Manila there was a typhoon warning, the warranty had been breached.

Given the importance of this decision, both in London and the Philippines, the judge went on to consider Limb 2 of the warranty even though it was not necessary, given his findings for Limb 1.

Limb 2

The judge found that Captain Marimon intended to follow the usual route and that he would depart from it if the weather became very bad before the last point when the Vessel could take a potential alternative route west of Tablas Island. Having made that finding, the judge decided that it followed that the usual route was the intended route for the purposes of Limb 2. On this basis, Limb 2 of the warranty had also been breached.

As a result, the typhoon warranty had been breached, and the Reinsurance Policy between the Reinsurers and Oriental could be avoided. The Reinsurers were entitled to the declaration they sought, notwithstanding the status of the Philippine litigation.