For the first time since 1974, The Supreme Court has had the chance to reconsider the "proximate cause" rules where there are multiple causes of loss.
 
In 2006, Petroleo Brasileiro (Petroleo) had chartered The KOS at a rate of $45,000 per day. By May 2008, the market rate had risen to $158,864 per day. When Petroleo failed to pay the next hire instalment on 31 May of that year, the owners exercised their prerogative under the charterparty and terminated the hire. They did this at 14.41 GMT on 2 June 2008.
 
The vessel had just finished loading, so the initial exchanges were about whether the owners were entitled to terminate with immediate effect. They offered to continue the journey at the new rate, but no consensus was reached. The cargo was then discharged by 06.00 GMT on 5 June 2008 at the port of loading, a detainment of 2.64 days.
 
Key issues

It was agreed that there had not been a repudiatory breach, so there was no question of damages for breach of contract. That left two key issues:

  1. Were the owners entitled to payment for the 2.64 days detainment?
  2. If so, at what rate?

The Supreme Court decided unanimously in favour of the owners on the basis that an involuntary bailment had arisen on termination.

The loss was calculated at the market rate – an aggregate of $300,601 – plus bunkers consumed in the period.

However, the most interesting part of the discussion in the Supreme Court centred on the indemnity clause in the charterparty. The majority of the court (Lord Mance dissenting) concluded that the owners were also entitled to rely on a clause in the charterparty indemnifying them "against all consequences or liabilities that may arise from … the master otherwise complying with charterers’ or their agents’ orders".

Proximate cause

The Supreme Court took it as read that the phrase "may arise from" had the same meaning as "proximately caused by". Lord Mance cited with approval from The Ann Stathatos 83 Ll L Rep 228, which dealt with a similar express charterparty indemnity. In that case, Devlin J said "It is a contract of indemnity, and I can see no reason for treating it differently from any other contract of insurance" so there is no doubt the case stands as authority on insurance as well as indemnity clauses.

The lower courts decided that the deliberate action of the owners in withdrawing the ship was the (i.e. the sole) proximate cause. That was outside the indemnity. The owners argued that, as bailees, they had no option but to see that the cargo was safely discharged. The timing of the withdrawal was determined by the external circumstances. The bailment was thrust upon them because Petroleo’s goods had been loaded onto the vessel, so a (i.e. one of several) proximate cause of the detainment was the master "complying with [the] charterers’ orders".

Lord Sumption stated the current orthodoxy regarding the identification of proximate causes: "Like all questions of causation, this one is sensitive to the legal context in which it arises. It depends on the intended scope of the indemnity as a matter of construction, which is necessarily informed by its purpose."

The purpose of the indemnity, Lord Sumption concluded, was to make the charterers responsible for any "risk or cost of a kind which [the owners] had not contractually agreed to bear". If the charterers’ order "was an effective cause … it does not matter whether it was the only one". Detaining the ship to allow her to be unloaded after the end of the charter was not a risk that the owners had agreed to bear. Consequently, "the charterers’ order was an effective cause".

Agreeing with the lower courts, Lord Mance answered the rhetorical question, the loss was caused by the master ordering the loading, by saying, "the natural answer, it seems to me, is certainly not". He was convinced "that loss flowed from the owners’ exercise of their option to withdraw".

More than one cause?

They could have left their differences there but Lord Mance went on to attack the notion that there could be more than one cause of loss in insurance cases. He found support in certain sections of the speeches from Leyland Shipping v Norwich Union [1918] AC 350 and The Ann Stathatos for the view that the search was for the proximate cause.

Lord Mance pointed out that in cases usually cited in support of the proposition that there can be multiple causes – starting with Reischer v Borwick [1894] 2 QB 54 and Wayne Tank v Employers Liability Assurance [1974] QB 57 – only one cause was found to be proximate. He was prepared to accept that there may be cases where two causes were "nearly equal in their efficiency", but he dismissed such instances as "largely theoretical analysis which finds little practical application in the authorities".

However, Lord Clarke – in an insightful analysis of The Ann Stathatos case – undermined Lord Mance’s reliance on that decision. He then went on to say that a full Court of Appeal in Midland Mainline Ltd v Eagle Star Insurance Co Ltd [2004] 2 Lloyd’s Rep 604 "expressly held at para 48 that there can be more than one proximate cause of loss".

First Supreme Court case

Surprisingly, this seems to be the first Supreme Court case that addresses squarely the validity of the "multiple proximate cause rules" derived from Wayne Tank and The Miss Jay Jay [1987] 1 Lloyd's Rep. 32. Whatever view is subsequently taken about Lord Mance’s conclusion on charterparty indemnities, the idea that there can be more than one proximate cause of loss in an insurance claim now seems to be more firmly established than before.