EWCA Civ 1314
The appellant’s fishing trawler, The Resolute, was seriously damaged by a fire in December 2006.
The contract of insurance under which the vessel was covered contained a warranty given by the appellant that there would be “… Owner and/or Owner’s experienced Skipper on board and in charge at all times and one experienced crew member.” At the time of the fire, the vessel was moored in port and empty.
The owner claimed on the insurance policy but was denied recompense by the insurer on the grounds that the above warranty had not been complied with. While the owner argued that the clause was clearly intended to refer only to periods when the vessel was navigating or working and, if applied literally, would give rise to absurd results, the insurer submitted that the clause should be given its literal meaning.
The Admiralty Court found in favour of the insurer and dismissed the claim on the grounds that the appellant had not complied with the warranty. Although Judge Mackie QC refused permission to appeal, this decision was subsequently reversed by Sir Paul Kennedy and an appeal was subsequently brought before the Court of Appeal.
The main principles of contract interpretation considered in the judgement of Sir Antony Clarke MR in the Court of Appeal are as follows:
A clause in a contract must be construed according to its factual matrix (i.e. with regard to the context). Investors Compensation Scheme Ltd. v. West Bromwich Building Society  1 WLR 897 was cited: “Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”
Sirius Insurance Co v. FAI Insurance  UKHL 54  1 WLR 3251, per Lord Hoffman: “There has been a shift from literal methods of interpretation towards a more commercial approach.”
McGillivray on Insurance Law (paragraphs 10-50 and 19-53):
“The first relevant rule of construction is that the apparently literal meaning of the words in a warranty must be restricted if they produce a result inconsistent with a reasonable and businesslike interpretation of such a warranty … [T]he second principle of construction which assists the assured who contends that he has complied with the warranty is that any ambiguity in the terms of a policy must be construed against the insurer.”
Application to the facts
Some additional facts, all of which would have been known to both parties, were held to be relevant.
EU regulations limit the number of days which a vessel like The Resolute is permitted to fish (in the relevant year, 227 days). Such vessels are therefore intermittently tied up for periods between trips. Some vessels are also stored up for these periods in sheds ashore. During such periods, the skipper is expected to go ashore from time to time, both in connection with the operation of the vessel (e.g. a fish auction) and for various recreational activities.
The Court of Appeal held that, while it should not invent a new bargain for the parties, the warranty should be interpreted in a commercial fashion, using the same assumptions which the parties would themselves have made.
The natural inference of the words “Warranted Owner and/or Owner’s skipper on board and in charge at all times” was that the owner or skipper should be on board to protect the vessel against any navigational hazards. The second part of that warranty, requiring in addition to the owner and/or skipper “one experienced crew member,” strongly supported the assumption that the underlying purpose of the warranty was to protect the vessel during navigation or operation as a fishing vessel (i.e. when a minimum of two crew members would be required).
The Master of the Rolls also considered the significance of the requirement to have experienced crew “on board and in charge at all times”. He considered that to give this statement a literal meaning would be illogical and contrary to the intention of the parties. Applying the contra proferentem rule, if the insurer had wanted two crew members on board while the boat was docked it should have clearly stipulated this. Having two crew members aboard could only be required in a situation in which their presence was necessary. The appeal was allowed; the owner was entitled to recover under the contract of insurance.