NAM KWONG MEDICINES & HEALTH PRODUCTS CO. LTD. v. CHINA INSURANCE CO. LTD.

HCCL 27/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 27 OF 1999

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J U D G M E N T

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Introduction

1. This is an action brought by an assured against a defendant marine cargo underwriter, which has declined to indemnify the plaintiff under the terms of a Marine Cargo Policy dated 1 June 1998. The case is somewhat unusual, given that it has not been possible to ascertain precisely what happened to the insured cargo, the loss of which has given rise to the claim under the policy. The background, in brief, is as follows.

2. On 1 June 1998 some 15,788 drums of refined bleached and deodorized palm olein valued at US$2,442,000 were shipped on board the vessel "Pacifica" at Pasir Gudang, Malaysia. The bills of lading issued with regard to this shipment record that the discharge port for this cargo was intended to be Beihei, Guangxi, China, and that the Notify Party was Nam Kwong Medicines and Health Company Ltd of Macau, the purchaser of this shipment.

3. The voyage to Beihei should have taken 8 to 10 days. But the "Pacifica" never arrived. Ship to shore cables purporting to be from the vessel were received indicating distress said to be caused by bad weather, culminating on 19 July 1998 when Guangxi Radio received a message indicating abandonment of ship.

4. The "Pacifica" has never been found. Nor, despite alleged sightings in parts of China and in Indonesia, has her cargo of drums of palm oil. It is said that the "Pacifica" is what is known in the shipping industry as a 'phantom ship', which disappears on a voyage only to assume a new identity, thereby facilitating the theft and onward sale of her fraudulently acquired cargo.

5. The present case is the litigious by-product of these unfortunate events. The plaintiff, Nam Kwong, is a mainland Chinese company based in Macau. It had purchased this cargo of palm oil from a Singaporean company, Pao Sang Trading, by means of a letter of credit issued on its application by Credit Agricole, Pao Sang in turn having purchased the shipment from another Singaporean entity, Kong Hoo (Private) Ltd. Upon its intended arrival at Beihei the palm oil was destined to be onsold by Nam Kwong to Guangxi Beihei Corporation, another mainland company which had been responsible for setting up this sale and purchase transaction, and which was taking advantage of Nam Kwong's ready letter of credit facilities to facilitate the import of this cargo into China.

6. The insurance effected over this cargo by the defendant underwriter upon the application of Nam Kwong, Marine Cargo Policy No. PMG-98-001134-7, provides the core of this case. The Conditions to which this policy expressly was subject read thus:

"COVERING MARINE RISKS AS PER INSTITUTE CARGO CLAUSES (A) DATED 1/1/82. CLAIMS PAYABLE IN EXCESS OF 0.75% ON SUM INSURED. INSTITUTE RADIOACTIVE CONTAMINATION CLAUSE. INSTITUTE CLASSIFICATION CLAUSE."

The first and last of these Conditions figure large in the present case. It is, however, undisputed that, pursuant to Clause 19 of the ICC(A), this insurance is subject to English law and practice.

7. On 19 October 1998 the defendant, through its adjusters, Toplis and Harding (Marine) Ltd., formally declined liability under this policy. The plaintiff now seeks indemnity thereunder, hence the present proceedings, which were commenced on 25 February 1999.

8. Third Party proceedings against The People's Insurance Company of Singapore were discontinued by consent on 21 September 2000. The People's Insurance Company had insured the same cargo upon the application of Pao Sang Trading, the vendor of the palm oil under its contract with the plaintiff, which was CIF Beihei. Liability under this policy, which was subsequently assigned to the plaintiff when the documents were negotiated under the credit, also has been rejected.

The Defences

9. No issue arises as to the existence of the policy or as to the insurable interest of the plaintiff. The defendant underwriter, China Insurance Company Ltd., advances three lines of defence to this claim:

(1) a defence based on the Institute Classification Clause;

(2) a defence of material non-disclosure on the part of the plaintiff at the time that the risk was placed;

(3) a defence based upon section 44 of the Marine Insurance Act 1906.

I take these isssues in turn.

The Institute Classification Clause

10. The policy as issued states expressly that the policy was subject to the ICC. The undisputed evidence of Mr Boffey is that classification is a fundamental requirement of commercial shipping, that virtually all vessels are classed, and that about 95% are classed by societies listed in the classification clause. In this connection I accept his unchallenged opinion that the "Pacifica" was not classed with an approved Classification Society.

11. Mr Sussex SC submitted that in reality this is an end of this case, and that the defendant insurer thus is entitled to avoid liability under the policy. If, he said, the vessel is unclassed, as was this one, then notionally the 'held covered' provision would come into play, the 1/8/97 version of the ICC providing that unclassed vessels not falling within the terms of the clause "are held covered subject to a premium and conditions to be agreed". In this instance, however, it was clear that there was no question of the invocation of this clause, given that in the circumstances of this case there could have been no possibility that any underwriter would have held the vessel covered : even the plaintiff's insurance expert, Mr Shroff, agreed that in this case there was no possibility of the assured being held covered under the ICC, in that no prudent underwriter would be prepared to underwrite this risk at any reasonable premium on the basis of the facts capable of being known at the material time. I accept this view. Accordingly, the 'held covered' provision in the ICC, which is invoked in the plaintiff's Reply, does not assist; on established authority it is clear that such provision cannot be invoked where, as in this instance, it would be impossible to insure the risk at a commercial rate of premium : see, for example, Liberian Insurance Agency v Mosse, [1977] 2 Lloyd's Rep. 560, @ 567-568.

12. It follows, therefore, that the ICC argument prima facie is determinative of the case in favour of the defendant. The plaintiff, however, seeks to meet the ICC defence in several ways.

13. This issue is approached by the plea that as a matter of construction of the policy the reference to the ICC "should be ignored or rejected", but that if it should be held that the ICC effectively was contractually incorporated, then rectification is sought by deletion of the reference to the ICC "on the ground of unilateral mistake in that the ICC was introduced into the contract by unfair dealing and inequitable conduct".

14. Although rectification was not placed at the forefront of Mr Graham's closing argument, logically this aspect should be dealt with at the outset. In my judgment this plea fails, and fails signally. The evidential burden upon the party seeking rectification is an heavy one, and in all the circumstances of the present case in my view the plaintiff does not come near to discharging it.

15. From the plaintiff's standpoint the factual background to the rectification argument is unpromising. Although Mr Graham, who came but lately to the case, was right to seek to amend specifically to plead rectification, the stark fact remains that prior to the commencement of this trial rectification had not been raised in the pleadings, and none of the witness statements had dealt with the point, including in particular that of the plaintiff's only viva voce witness Mr Lao Kin Sang, an officer of the plaintiff who told the court that he had been involved exclusively after the loss and indeed throughout 1999 in instructing the plaintiff's lawyers.

16. Moreover, as Mr Sussex pointed out, despite a very early indication from Messrs Toplis and Harding, on behalf of the defendant, that liability was rejected on grounds including the Institute Classification Clause, no suggestion had come from Messrs Crump & Co (who had been instructed by the plaintiff from no later than 3 December 1998) to the effect that the ICC never had been part of the insurance contract.

17. Against this backdrop, the oral evidence on the point proved no more satisfactory. The two witnesses who spoke directly to this issue were Mr Lao Kin Sang, Business Assistant Manager of the plaintiff, and Miss Loi Hei Meng, formerly of the Marketing Department of the defendant, although now no longer employed by China Insurance. The line of demarcation was clear, and there is no room for accommodation : Mr Lao maintained that he had never been informed of the insertion of the ICC Condition in the policy as issued, whilst Miss Loi stated that, to the contrary, she had mentioned this to Mr Lao on two occasions.

18. Without wishing to be unkind, it is fair to say that neither witness provided compelling testimony on the point, although not unnaturally both Mr Sussex and Mr Graham invited the court to favour the version proffered by their own witness. The reality, it seems to me, is that neither person's account is likely to be anything but distinctly hazy, not least because the conversations in question occurred some four years ago, and until recently the issue of rectification had not assumed any profile in this litigation, so much so that late supplementary witness statements were required to deal with the point as now raised.

19. After considering the evidence and the manner in which this issue emerged, I decline to accept that the ICC clause was introduced into the policy "by unfair dealing or inequitable conduct", to quote from the Re-Re-Amended Claim. Miss Pun Chi Kin of the defendant, whom I found to be a straightforward and believable witness, made no secret of the fact that the clause had been inserted because she had been concerned about failing to locate a Lloyds Register entry regarding this vessel. I further accept the evidence of the defendant's witnesses, in particular Mr Lau Mang Tong and Miss Pun, to the effect that Miss Loi had been told of the defendant's requirement that the clause be inserted - "I mentioned this to Miss Loi repeatedly" was how Miss Pun put it - and on the probabilities it seems to me more likely than not that Miss Loi in fact did as she was told, and had drawn attention to the clause when speaking with Mr Lao of Nam Kwong. Quite what was said in terms of explanation is moot, because it is clear that Miss Loi merely was the person designated to deal with the client and that she herself had little direct knowledge of the niceties of marine insurance; equally, however, it is unlikely that the fact of the insertion of the clause, together with such information as she imparted, would have had much impact upon Mr Lao of Nam Kwong either, whom in evidence stressed his ignorance of the clause. It is also clear from his evidence that in arranging for insurance for this shipment Mr Lao principally was focused upon the fact that the cover was 'all risks', and that such included piracy and fraud; when asked in cross-examination if it was possible that Miss Loi had mentioned the ICC clause, he responded "I do not know".

20. In evaluating this issue I bear in mind, also, that Miss Loi no longer is employed by the defendant, whereas Mr Lao, who remains in the employ of Nam Kwong, appeared to me to be under some pressure in parts of his evidence. Whilst I do not impute any intention on his part directly to mislead, I consider that on the probabilities it is likely that he did not register what he was told about the ICC clause, and that his recollection of what did or did not take place when speaking with Miss Loi may well have been coloured by a belated perception of the importance of the ICC in the context of this case.

21. At the end of the day, therefore, I reject the thesis that there was something underhand or smacking of sharp practice about the inclusion within the policy of the ICC condition, or that the defendant now is attempting to take unfair advantage in this regard. I find as a fact that the insertion of the clause was drawn to Nam Kwong's attention, and that it cannot be categorized as falling outside the insurance agreement. If, as seems likely, Mr Lao did not appreciate the clause or its significance when it was drawn to his attention (and apparently was not inclined to find out), it is difficult to see why the underwriter should be penalized for his ignorance.

22. It follows that on the evidence before me the plaintiff has failed to make out its case on rectification, and I move to consider alternative arguments as to why in the circumstances the ICC policy condition should be considered to be of no effect.

23. First, the suggestion was made at the outset of this case that because the ICC clause was not printed upon the reverse of the policy - a fact accepted by the defendant's witnesses to be an omission - that as a result the clause should not apply. I do not consider that this argument has merit. This is not an unusual clause - in fact the parallel policy taken out in Singapore by Pao Sang with the People's Insurance Co had an ICC clause printed on the reverse, and Mr Lao said that he had noticed the symbols on the face of the clause when he received that policy - nor was it a clause the wording of which could not easily have been discovered. I reject this point if and in so far as it continues to be maintained.

24. Second, and in light of Mr Graham's final submissions clearly a more substantial argument, is that in circumstances of facultative insurance in which, as here, an overage surcharge had been agreed and paid, and wherein there was no warranty that the ship was classed with an approved Classification Society, the ICC therefore was not effectively incorporated into the insurance agreement, since if (which was disputed) the ICC had any meaningful role in purely facultative cover, such could not be as a 'condition' but merely as an 'held covered' clause. Accordingly, so the argument went, "references to classification can have no relevance in a 'held covered' provision where there is no contractual requirement or warranty that the vessel be classed". The effect of this was, as Mr Graham suggested, that the existence of the ICC "cannot be reconciled with the main operation of the policy", and as a consequence should be ignored. Commercial commonsense was prayed in aid, as was the doctrine that "any term to be incorporated must be capable of being read sensibly and consistently in the context of the parent contract" - per Rix J in The "Northern Progress", [1996] 2 Lloyd's Rep. 319 at 327.

25. I hope that I have understood and distilled the argument correctly, its crux being the thesis that by its very nature the ICC can have no sensible place in facultative insurance. The problem with this approach, which has forcefully been put forward on the defendant's behalf, is that it does not happily co-exist with the expert insurance evidence on the point. Neither Mr Gooding, whose evidence I accept, nor Mr Shroff shared the view that there was mutual exclusivity between facultative insurance and the ICC; indeed Mr Shroff, the insurance expert called by the plaintiff, whose evidence on this point I also accept, specifically agreed in cross-examination that it could not fairly be said that in the context of facultative insurance cover the ICC makes no sense, whilst later, in response to a query from the Bench, he further agreed that "the insertion of the ICC clause is not mutually inconsistent with facultative cover", albeit he maintained that in this instance a warranty better could have been employed.

26. It follows that I am unable to accept Mr Graham's argument, persuasively though it was advanced. In my judgment the ICC policy condition cannot simply be cast aside as being of no effect, much as the plaintiff might wish to do so. To the contrary. I hold that it is contractually applicable, a conclusion which in itself is sufficient to decide this action in favour of the defendant.

27. Having reached this primary conclusion, there is no need to deal in detail with Mr Sussex's subsidiary point under this head, namely that as a matter of construction the Institute Classification Clause clearly provides that chartered vessels must be classed, with the result that the 'held covered' provision has no application to such vessels. Suffice it to say that I agree with this argument, which found favour at first instance in the Singapore High Court in The "Sirena I", [2000] 4 SLR 226, albeit this submission was rejected by the Singapore Court of Appeal in the same case : see [2001] 2 SLR 316.

Material non-disclosure

28. Mr Sussex relies on two matters of non-disclosure : first, non-disclosure of the second and third pages of what has been termed 'the P&I document'; and second, non-disclosure of the fact that the "Pacifica" was detained in Singapore pending negotiation of the plaintiff's letter of credit.

(i) The P&I document

29. Discussion of this aspect of the case requires a specific finding of fact. This document in its entirety appears to be a policy or abstract of a P&I policy, dated 20 May 1998, apparently issued by a company known as Anglo American Marine Mutual Ltd, purportedly covering Kimjit Navigation S. de R.L., owners of the "Pacifica". The evidence is that when the officers of the defendant underwriter expressed concern as to verification of the existence of the "Pacifica", given their failure to locate an entry for the vessel in Lloyd's Register, Mr Lao of Nam Kwong had sent all or part of this document to the defendant in a bid to assuage these concerns.

30. I say 'all or part' because the witnesses called on behalf of China Insurance strongly maintain that only the first page of this document was ever sighted by them, whilst Mr Lao now says that he is "100% certain" that he faxed all three pages to the defendant. As corroboration, he also now further says that he can recall that Miss Loi of the defendant had asked him about the barely legible chop on the final page of this document, wherein the name of 'Anglo American' can be just about made out.

31. To the contrary, the defendant's position is that only one page of the document was ever received, namely the first of the three pages. Nor has the original of the document been discovered, notwithstanding several requests therefore. It apparently cannot be located, although Mr Lao maintains that he believes that he gave the original to his solicitors.

32. The evidence as to whether the defendant's officers saw one or three pages of the document has been extensively canvassed. In considering this particular dispute I have been influenced by the manner in which in this action this point has developed. I accept the submission that from the outset it has been the defendant's consistent position that only one page, that is, the first page, was received, that this was the position taken at the outset on the pleadings, and further that the defendant's witnesses are unanimous on the point. In particular the evidence from the defendant's officers Mr Lau, Miss Pun and Miss Iong that they all saw the initials "AAMM" at the top of the page but were unable to identify what they meant appeared to me to possess a ring of truth (not least because the blurred Anglo American chop on the last page of the copy is legible in part at least), and lastly I accept Miss Loi's evidence that she had reverted to Mr Lao upon receipt of the first page and had asked for the missing pages, only to be told that he himself had received but one page.

33. As to the plaintiff's position, it is fair to say that this point was developed late in the day, Mr Sussex pointing out that the first time that it became apparent that it was being asserted that all three pages had been faxed to the defendant was in counsel's written opening, and that hitherto Mr Lao had not specified how many pages had been faxed, merely that he had faxed "a copy of the insurance policy of 'Pacifica'" upon receipt from Mr Cai of Guangxi Beihei. Mr Cai, in my view surprisingly given his central position in the scheme of things, has not been called.

34. Against this background, I am bound to observe that the statement by Mr Lao in his evidence about Miss Loi's query as to the illegibility of the Anglo American chop failed to strike a convincing note. More bluntly, it struck me as something which had recently occurred to him as constituting a useful corroborative detail, not least since in his previous witness statement he had merely stated that Miss Loi had asked why there was no letterhead on the top of the policy. It may, perhaps, be that in this regard Mr Lao had had a sudden flash of recollection, but given the history of this case, and of his part in it, I doubt it. As I have earlier observed, I did not form the impression that in giving his evidence he had any general intention to mislead, but I do consider that in this instance, as the plaintiff's chief witness he permitted himself a glib and untruthful response which he perceived as an attractive way of cementing what was now apparently a certain recollection that all three pages of the P&I document indeed had been faxed to the defendant.

35. So on this particular factual issue I find in favour of the defendant's version of events. However, even assuming materiality, in my judgment this finding does not resolve the non-disclosure issue in favour of the defendant.

36. Although I have concluded that in this particular Mr Lao of Nam Kwong yielded to the temptation to embroider his story, I do not think that at bottom he was other than an innocent participant in terms both of the fraudulent transaction that was perpetrated with regard to the "Pacifica" and her cargo, and in terms of his interaction with the defendant underwriter at the date of the relevant events. So that whilst I have disbelieved him in his conviction that he faxed all three pages of the document, I harbour considerable reservations as to whether at that stage he was in possession of any more than the single page which undoubtedly he did send.

37. I have no doubt that in response to the queries that had been raised by the defendant's officers about the existence of the "Pacifica" and the necessity to obtain some form of documentary proof in this regard, that a request was passed on to Mr Cai, who was in Malaysia at the time, overseeing what was happening to this shipment and liaising with other parties involved, and that this single page of the P&I document had been sent back to Mr Lao and duly was passed on by Mr Lao to the defendant. I doubt very much whether, if indeed he had been given the entire three pages, that Mr Lao himself decided to withhold them from the defendant. In short, I find that he had been given, and had sent, all that he had had to hand at the time. I recognize that this begs the question of when the other two pages, either in original or copy form, came into the plaintiff's possession, although this seems not greatly to matter in light of the finding that Mr Lao did not deliberately withhold the balance of the document.

38. I recognize, also, that this argument was not propounded by either counsel - Mr Sussex no doubt was content to impugn Mr Lao's belated assertion that he had faxed all three pages, and thus found his non-disclosure argument on the premise that this had not happened - but if this conclusion be correct, it must follow that material non-disclosure on this basis does not run, unless it were to be suggested that Mr Cai of Beihei Guangxi was acting throughout as Nam Kwong's agent. In fact, Mr Cai's alleged agency was put forward in the context of Mr Sussex's second non-disclosure point. To this I now turn.

(ii) Singapore diversion

39. The argument put forward under this head is that the defendant insurer was entitled to know, as was subsequently believed to be the case, that the "Pacifica" had diverted from Pasa Gudang in Malaysia to Singapore waters pending successful negotiation of the letter of credit opened by the plaintiff in payment for the cargo of palm olein. This, the argument went, was clearly a material matter which a prudent underwriter would have factored into his assessment of the risk.

40. The origin of the assertion that such diversion actually occurred derives from statements attributed to Mr Cai, who at the relevant time was in Malaysia and in contact with the shadowy W.K. Wong of Kong Hoo. Neither of these gentlemen appeared at the trial, and in the circumstances of a case which manifestly involved fraud on a large scale I am reluctant to accord much weight to particular statements by participants in this affair who have not come to court, and whose evidence has not been tested by cross examination.

41. I have commented earlier on the surprising fact that Mr Cai did not appear on behalf of the plaintiff, a fact of which Mr Sussex says that he was unaware until notified shortly before the trial. Be that as it may. It seems to me that the misrepresentation argument made under this second head suffers from two distinct difficulties : first, that on the evidence available I am disinclined to find as a fact that such a diversion to Singapore in fact occurred as is alleged, and second, that the argument in any event rests on the premise that Mr Cai functioned as the agent of the plaintiff, thus facilitating attribution of his knowledge to the plaintiff. Mr Sussex here relied upon s 18(1) of the Marine Insurance Act, 1906, which provides that for the purpose of disclosure the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. Thus, the argument goes, this duty extends to the agent of the assured, and accordingly there has been non-disclosure sufficient to vitiate coverage under the policy.

42. I reject this argument. I am not prepared to hold that Mr Cai acted as agent of the plaintiff for the purpose of attribution of his knowledge (whatever such knowledge did or did not include), and in so saying I have not overlooked that he appears to have been instrumental in setting up the transaction and that, oddly, on occasion he appears to have signed certain documents on the plaintiff's stationery. But it has never been part of the plaintiff's case that Mr Cai was other than an independent counterparty, and in the circumstances I do not find that Mr Cai told Mr Lao about such alleged diversion of the vessel; indeed, I suspect that Mr Cai may well have been selective about what information he imparted to Mr Lao, who until this transaction began obviously to go wrong was waiting anxiously in Macau ready to leave for the port of Beihei in order to receive his cargo as and when it arrived.

43. So I reject the 'attribution argument' in terms of Mr Cai's knowledge, or otherwise, of the whereabouts of the "Pacifica" at any given time after she sailed from Malaysia - these waters are far too murky safely to proceed on the basis of any specific untested statement. Accordingly, given that the court is not prepared, on the evidence, to infer knowledge on the part of Nam Kwong that the "Pacifica" apparently was detained in Singapore, there is no necessity further to consider the interesting argument to the effect that for non-disclosure purposes it does not matter if the vessel in truth was not so detained.

44. It follows from the foregoing that I am against the defendant on its non-disclosure arguments. As Mr Graham pointed out, in this area the onus is placed firmly on the insurer to establish that the insured did or should have had the knowledge in question. I find that this onus has not been discharged in this case. I bear in mind the observations of Staughton LJ in Kausar v Eagle Star Insurance Co Ltd, [1997] CLC 129 at 133:

"Avoidance for non-disclosure is a drastic remedy. It enables the insurer to disclaim liability after, and not before, he has discovered the risk turns out to be a bad one; it leaves the insured without the protection which he thought he had contracted and paid for...I do not say that non-disclosure operates only in cases of dishonesty. But I do consider that there should be some restraint in the operation of the doctrine. Avoidance for honest non-disclosure should be confined to plain cases."

45. Manifestly this is not such a plain case. I would add, finally, that even had the non-disclosure argument not been rejected for the foregoing reasons, in any event I should have been disinclined to accept the defendant's arguments. I take this view because, on the evidence of the defendant's witnesses, it is as plain as a pikestaff that notwithstanding the striking absence of adequate information about this vessel, not least its very existence, the defendant was going to issue this insurance cover in any event - as in fact transpired, to the evident subsequent embarrassment of those senior staff who were involved in the decision - and that this course was taken by reason of the defendant's "long time cooperation" and "close relationship" with Nam Kwong. In this regard Mr Graham was in my view correct in his observation during cross examination that those making the decision to underwrite had simply thrown the rule book away. Accordingly, although this point was not argued as such, I formed the firm opinion that even if further disclosure had been made, as is now asserted should have been the case, the same course nevertheless would have been adopted by the defendant. Against this background, therefore, I regard the non-disclosure argument as intrinsically artificial, whatever now may be asserted as to the materiality of the information allegedly undisclosed.

Section 44 of the Marine Insurance Act, 1906

46. The third plank underpinning the defendant's resistance to the plaintiff's claim is based upon s.44 of the 1906 Act, which provides:

"Where the destination is specified by the policy, and the ship, instead of sailing for that destination, sails for another destination, the risk does not attach."

47. The defendant's argument accordingly is thus: the policy as issued expressly specified that the destination was 'Beihei, Guangxi, China'. The evidence in this case, said the defendant, pointed overwhelmingly to the conclusion that upon sailing from Malaysia, the "Pacifica" did not sail for Beihei, but sailed for some other location where its cargo of palm olein was discharged as a prelude to being sold by those who perpetrated the theft.

48. Fundamental to this submission was the defendant's contention that taking the evidence as a whole, both oral and documentary, the many circumstances of cumulative suspicion led to the strong inference that the cargo was the subject of a well-planned and executed theft by the owners/operators of the "Pacifica", and that the intention to steal the cargo existed at or before the time the vessel actually sailed from Pasir Gudang. In this connection, the defendant provided a detailed seventeen point synthesis of the documentary evidence, which in my view is compelling, ranging from the conclusion of the fixture between Pao Sang Trading and the now disappeared Captain Joe Paluka, to the use of Belize registration and companies purportedly incorporated in Manila and Bangkok, none of which could now be traced, to the lack of any third party records of distress calls or rescue reports relating to the casualty of this vessel, which allegedly had perished at sea, to the fact that Kong Hoo Pte Ltd had been involved in sale transactions for other cargoes of palm olein which had disappeared on other vessels, and to the manifest oddity of the differing pricing structure in the deal between Pao Sang and Kong Hoo (US$850 per metric tonne FOB) as compared with the transaction between Pao Sang and the plaintiff (US$740 per metric tonne CIF Beihei), the latter being well below the market price for palm olein at the material time.

49. For the plaintiff Mr Graham castigated the quality of the wide variety of evidence relied upon to establish the primary contention of a "well planned and executed theft", describing the documentary sources as "a mishmash" of faxes, statements, reports and assorted correspondence, most involving multiple hearsay but not formally proved. He also suggested that little weight should be accorded to the expert opinion evidence of Captain Mukundan, whose evidence was based on his accumulated knowledge of the manner in which other cargo frauds of like ilk had been perpetrated. It was notable, however, that Mr Graham did not wish to be recorded as maintaining that there had not been a fraud in this case, his main contention being that the plaintiff had not succeeded in demonstrating that what had occurred had been set in stone from the outset.

50. If and in so far as this latter point was aimed at the submission that the Master of the vessel and his Burmese crew (the details of whom in the crew list were all false) did indeed set out for Beihei, as envisaged by the policy, and subsequently (and suddenly) came up post-departure with a plan to make off with the cargo, I reject it. I have no difficulty whatever with the contention that the circumstances of this case overwhelmingly demonstrate that what occurred to this vessel was not a spur of the moment action, but was a carefully planned and executed fraud. I so hold. I further have no difficulty in accepting Captain Mukundan's evidence relating to the similarity in pattern of this and other well-documented instances of 'phantom ship' frauds. As Mr Sussex pointed out, this case shows a striking similarity to The "Sirena I", op cit, a case in which the Singapore court described a phantom ship as "one that has no valid classification, is not registered with any recognized ship registry and is usually operated by criminals."

51. I therefore find that the "Pacifica" was a 'phantom ship' as popularly so-called - indeed I did not understand the plaintiff to be seriously contending to the contrary. I find further that on the probabilities the owners or operators must in the circumstances have been part of a plan to steal the cargo, and that the intention to steal would have been formed prior to the loading of the cargo. Against the background of these findings I turn therefore to the real argument between the parties, namely, the applicability of section 44 of the 1906 Act.

52. The submission made by the defendant is that once it be established that the "Pacifica" was a 'phantom ship', it followed as a matter of logic and irresistible inference that she sailed from Pasir Gudang for a destination other than Beihei, reliance here also being placed on Captain Mukundan's cross examination evidence that the owners of a phantom ship not only invariably are involved, but also that the captain similarly has to be so involved because the destination clearly is specified in the bill of lading, and that in phantom ship cases the vessel never gets to its destination.

53. Accordingly, it is said that in the words of the statute this vessel sailed "for another destination", and that the risk under the policy did not attach. Mr Sussex noted that, as had been pointed out by the Privy Council in Kallis v Success, [1985] 2 Lloyds Rep. 8, at 11, the 1906 Act represented a codification of the law relating to marine insurance, and that section 44 itself was based on the decision in Simon Israel v Sedgwick, [1893] 1 QB 303.

54. The Simon Israel case remained good law and could not be distinguished, he submitted. The policy in that case incorporated a warehouse to warehouse clause, and included provisions for holding covered in the event of deviation or change of voyage. The Court of Appeal construed the policy as being in substance a marine policy for a defined ocean voyage, to which the inland transits at either end were ancillary. The argument that the loss was covered by reason of the cargo having left the warehouse in the country of shipment on an intended transit to the warehouse at destination was rejected. Similarly in Kallis v Success, op cit, wherein the successor to the warehouse to warehouse clause, the transit clause, formed part of the cover, the Privy Council approving and following Simon Israel.

55. The defendant also placed reliance on two further decisions. In The "Salem", [1982] 1 Lloyd's Rep. 369, the warehouse to warehouse clause formed part of the cover under consideration, and yet, said Mr Sussex, Lord Denning had expressed the confident view, albeit obiter, that had it not been for tactical concessions made by the parties, Shell's claim in that case would have been defeated for the reason that the risk never attached by virtue of the operation of section 44 of the 1906 Act. Whilst in the most recent decision involving the point, Nema SARL v The Deves Public Co. Ltd. (unrep.), Andrew Smith J. had concluded that the argument that clause 8 of the transit clause contained in the ICC(A) did not operate so as to displace the provisions of section 44.

56. Mr Graham took strong issue with these submissions. He argued that the effect of the defendant's present contentions regarding the impact of section 44 would be drastic in terms of international cargo insurance markets and trade finance. The insurance cover in this case was subject to the Institute Cargo Clauses (A) dated 1/1/82, which was "all risks" cover, and, he said, for the past 50 years it had been known and understood by those engaged in international trade that an "all risks" policy will cover cargo interests against theft and other wrongful misappropriation by ship owners. He maintained that if the defendant was correct in its argument cargo interests would only be insured against theft by ship owners and operators in limited situations of impromptu or spontaneous theft, or possibly where at the point of departure those controlling the vessel intended to proceed to the designated port of destination in order there to steal the cargo. Plainly, therefore, the "all risks" cover would be far from the "seamless cover" anticipated by Mustill J (as he then was) in The "Salem", [1981] 2 Lloyd's Rep. 317 at 323.

57. Mr Graham invited the court to reject the defendant's argument on the basis of what he contended was the primacy of the operation of Clause 8(1) of the ICC(A), the key words of which are:

"This insurance attaches when the goods leave the warehouse for the commencement of the transit..."

Accordingly, he argued, the risk attached from the time the goods left the warehouse or place of storage in Malaysia for the commencement of the transit, the 'transit' in this instance being the "insured voyage" or "the voyage contemplated in the policy". It followed that the prior attachment of the risk ineluctably meant that section 44 had been "displaced" by virtue of clause 8(1) of the ICC(A), an analysis, he submitted, which was "entirely consistent" with the decision in Simon Israel, op cit, and with the view taken by the Privy Council in George Kallis, op cit, otherwise known as The "Intellect".

58. The gravamen of Mr Graham's submission thus appears to be that once the cargo of palm oil left the warehouse and was loaded on board the "Pacifica", pursuant to bills of lading specifying a voyage from Pasir Gudang to Beihei, this fact was and is sufficient to exclude the provisions of section 44. In other words, the cargo safely got on board the correct vessel, which, he submitted, in "ordinary parlance" sailed for Beihei, the "voyage insured" is the "contemplated voyage" (to adopt the terminology of A.L. Smith LJ in Simon Israel), and these words can only be construed to mean the voyage contemplated by the persons arranging the insurance, that is, the voyage to Beihei, and not some other voyage a dishonest owner or captain secretly may have in mind. So that - it seems to follow on this argument - what the vessel actually did is of no consequence.

59. I find it difficult to agree with this argument, and I reject it. The cases in point all appear to treat section 44 as being applicable, despite the existence of a warehouse to warehouse clause, and as Mr Sussex pointed out, the plaintiff's argument in this instance essentially is the argument rejected by the Court of Appeal in Simon Israel. I also note that in Nema v Deves, op cit, Andrew Smith J. observed that he would have reached his conclusion even in the absence of authority.

60. A voyage policy is no more than insurance on a particular risk. It is evident that if in actuality the voyage performed is not the voyage described in the policy, then equally clearly it is not the risk that the insurer has bargained to cover. In other words, the scope of the cover from shipment is defined by reference to the voyage so specified, and it is not easy to see why clause 8 of the ICC(A) should circumvent, or be regarded as circumventing, that situation. The fact that 'all risks' are to be held covered from the time of leaving the warehouse in itself cannot be determinative of insurance cover if the ocean leg of the transit is not that specified in the policy. All risks are held covered if in actuality the transit, of which the specified ocean leg is the major part, takes place as contemplated, and I am unable to see any residual iniquity if cover is regarded as lapsing if in fact the vessel promptly sails for somewhere else.

61. Nor do I consider that Simon Israel - upon which Mr Graham himself relies - to be distinguishable. The insurance in that case provided for cover from the time of leaving the warehouse. The assured did not know that the voyage was to the east of Gibraltar, and the "innocent assured" argument was rejected. In the judgment at first instance, affirmed on appeal on the basis that the risk had never attached (the voyage to Carthagena not being one of the voyages covered by the policy), Wright J. observed:

"The contention for the assured is that, when the goods left the warehouse, they being then intended by the consignors to proceed by a route covered by the policy, the declaration was rightly made, and the policy attached, and the clause applied, and the assured were entitled to change the voyage on the terms of paying extra premium to Cartagena, the amount of which is not in dispute. The point is a nice one, but I think that the contention of the underwriters must prevail. If the substance of the policy is the maritime risk, I think that the character of the preliminary conveyance before the ship is reached must be determined by that of the voyage on which the goods were actually shipped, and that the goods must, until shipment, be taken to have started for the voyage for which they were afterwards in fact shipped; and, if so, the voyage for which these goods were started was not a voyage for which they could be declared, and the policy and deviation clause never attached." [emphasis added]

Whilst in the Court of Appeal in that case, Bowen LJ stated, at [1893] 1 QB 303 at 308:

"In the present case the goods started from Bradford, and it has been contended that the moment they started from Bradford they were upon the insured voyage. If the goods had started the insured voyage, it seems to me the risk during the time that they were between Bradford and Liverpool would have been covered as incidental to and supplementary to the insured voyage. But we have here a conclusive fact that the goods never started upon the insured voyage. Accordingly, the risk between Bradford and Liverpool never could be incidental or supplementary to it. It is not necessary to decide what would have been the case supposing the goods, after having been specifically appropriated by a contract of carriage to the insured voyage, had been injured or lost during the transit between Bradford and Liverpool. It is not necessary to decide that case. In this case the facts here shew conclusively that the goods were never specifically appropriated to the insured voyage, because the person who had the control of the goods... fixed the voyage outside the policy; and if that is so, the policy never attached..."

62. Both of these passages were quoted with approval by the Privy Council in George Kallis, op cit, where the like argument that the risk attached when the goods left the warehouse on the intended voyage was similarly rejected. In Kallis, the buyers of goods claimed under insurance policies covering parcels of denim. The claim was defeated since the insured voyage was from Hong Kong to Limassol under a shipped on board bill of lading on the vessel "Ta Shun", and the loss by fire occurred on board The "Intellect" during a voyage from Keelung to Cyprus, their Lordships holding that the claimants could derive no assistance from the opening paragraph of the warehouse to warehouse clause in the policy at issue in that case.

63. That this represents the established position appears to be borne out by the established academic texts. The decisions in both Kallis and Simon Israel are referred to with approval in Arnould on Marine Insurance (16th ed.), Vol 3 at para 253, which with reference to these cases and to section 44 of the 1906 Act states :

"The risk will not attach, even if the goods leave the warehouse for the intended destination, if they do not proceed on "the transit" contemplated by the policy. If the insured adventure is for carriage in a named vessel, and the goods are never appropriated by a contract of carriage to the insured voyage but are shipped by some other vessel, the policy will not attach; neither the opening paragraph of the Transit Clause, nor Clause 8.3 can avail the assured in such circumstances (no question of transhipment or deviation or of the exercise of any liberty granted to the shipowner can arise)."

64. No reason has been suggested why the terminology of clause 8 of the ICC(A) should be treated as having an effect other than or different from that of the provision as existed in Simon Israel for cover "from the time of leaving the warehouse". Clearly it is the voyage that constitutes the key component of the transit referred to in clause 8, and the period prior to loading is not to be considered independently of the prescribed voyage. In short, it is subordinate to the voyage, which is the core of the adventure, so that if (as I have held presently to be the case) the ship sails for a destination other than the one described in the policy, the insurance does not attach.

65. It follows, therefore, that I find that the plaintiff's claim must fail upon the section 44 point also, notwithstanding Mr Graham's spirited efforts to contend otherwise.

Order

66. The plaintiff's action against the defendant is dismissed. I so

order. I further make an order nisi that the defendant is to have the costs of this action, to be taxed if not agreed.