In a marine voyage policy to which English law applies, where the insurance (risk) attaches under the Transit Clause of the Institute Cargo Clauses but the ship, instead of sailing for the destination specified in the policy, sails for any other destination, the insurance will retrospectively be deemed never to have attached at all.
The Court of Appeal recently delivered its reserved judgment in a marine cargo policy claim arising from a so-called ‘phantom ship’ fraud.
As Potter LJ explained in the leading judgment:
"It appears that a 'phantom' ship or vessel is a term used .. to describe a vessel which has no valid classification, is not registered with any recognised ship registry and is usually operated by criminals. It is employed as a vehicle for fraud on cargo owners, the modus operandi being that, as part of a pre-arranged scheme to which the owners and/or master are party, shortly after leaving the port of shipment ostensibly bound for the port to which the vessel's cargo is contracted to be delivered, delays en route are reported during which the phantom vessel in fact proceeds to a new location to discharge her cargo and achieve her disappearance usually by assuming a new identity. Phantom ship frauds are a phenomenon well known in Far East shipping circles …"
The claimant purchased a rice cargo on CIF Dakar terms. The defendant insured the cargo for "all risks as per the Institute Cargo Clauses (A)" in respect of a voyage "from Kohsichang, Thailand to Dakar port, Senegal", aboard MV "PRESTRIOKA". The policy was expressly subject to English law and practice. The cargo was duly loaded on board but after sailing from Kohsichang the ship simply disappeared and the cargo was never delivered.
The central legal question was whether and when the risk attached under the policy.
The Transit Clause 8 of the ICC(A) ("the Transit Clause"), provides:
"8.1 This insurance attaches from the time the goods leave the warehouse or place of storage at the place named herein for the commencement of the transit…"
Section 44 of the Marine Insurance Act 1906 ("s.44"), provides
"Where the destination is specified in the policy, and the ship, instead of sailing for that destination, sails for any other destination, the risk does not attach."
The claimant argued that the Transit Clause should be interpreted as displacing s.44, because, where the policy contains a Transit Clause, the insurance attaches when the goods leave the warehouse. Therefore it cannot subsequently "un-attach" if the vessel then sails for a destination other than the one specified in the policy.
Potter LJ stated that the Transit Clause is an example of the extension of a marine policy to any land risk incidental to any sea voyage, as envisaged by s.2(1) MIA. But he stressed that such an extension does not alter the fundamental nature of a marine voyage policy, which is to cover a marine adventure defined by its two marine termini.
The judgment clarifies that, although the Transit Clause and s.44 are both concerned with the attachment of the insurance, they are actually dealing with different questions. S.44 addresses the fundamental question as to whether the insurance attaches. The Transit Clause, however, is addressing the question of the duration of such insurance, always assuming that the risk has in fact attached.
Potter LJ stated that the cases clearly show:
"… that where an insurer invokes s.44, the court will conduct an ex post facto exercise to determine not simply the contractual, but the actual, destination of the ship at the time of sailing, which exercise depends upon the acts and intentions of the owners and/or Master at the time of its departure.
If the court determines that, at the time of sailing, vessel and cargo were in truth bound for a terminus ad quem other than that identified in the policy as definitive of the voyage insured, then s.44 will apply and the risk which prima facie attached when the goods left the warehouse will in the event be held not to have attached…"
The court had been asked by the claimant to consider the hypothetical example of the loss or theft of goods between the warehouse and the ship's rail. The point was not decided because it was an academic question on the facts.
It is understood that the claimant will seek to appeal this decision to the House of Lords.
The decision should sound a clear warning note to shippers or purchasers of goods to be on their guard against a possible ‘phantom ship’ fraud, particularly in South East Asia where such frauds appear to be more common.
If the carrying vessel sails for the wrong destination as a result of a such a fraud, they may find themselves retrospectively uninsured in respect of the cargo, notwithstanding the provisions of the Transit Clause.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
