ANBEST ELECTRONIC LTD v. CGU INTERNATIONAL INSURANCE PLC

HCCL 82/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 82 OF 2000

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J U D G M E N T

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This action

1. This is a dispute under a policy of marine insurance.

2. In this action the plaintiff, Anbest Electronic Limited (‘Anbest’) claims to recover under a contract of marine insurance covering electronic goods shipped from Hong Kong to Khor Fakkan in the United Arab Emirates (‘UAE’).  Khor Fakkan is a small town on the East Indian Ocean coast of the Emirate of Sharjah, outside the Strait of Hormuz, at which there is a port and a container terminal.

3. The contract of insurance is contained in and evidenced by an Insurance Certificate dated 23 December 1998, which was issued by the defendant insurer, then named General Accident Insurance Asia Ltd (now CGU International Insurance Plc) pursuant to Open Cover No. HK-B1789 dated 8 August 1997; that Open Cover named the plaintiff as one of the insured.

4. The insurance in question covered some 600 cartons of electronic goods carried on board the vessel “AL SABAHIA”, and expressly covered all risks as per the Institute Cargo Clauses (A) dated 1 January 1982 (‘ICC (A)), which incorporated the Institute Theft, Pilferage and Non-Delivery Clauses also dated 1 January 1982.

5. By virtue of Clause 19 of the ICC (A) the contract of insurance is expressly governed by English law.

6. The value of the loss is pleaded at US$329,712.80, and there is also an amendment to the Points of Claim specifically to plead a consequential claim arising from monies expended by the plaintiff in terms of “reimbursement of all sums properly and reasonably incurred by the plaintiff” in respect of the legal proceedings instituted in Sharjah subsequent to the loss of the goods the subject of the primary claim.

7. This action, which on its face presents as a relatively straightforward insurance claim, has been vigorously defended from the outset – there have been several contested interlocutory applications, one of which went to appeal – and has resulted in a 6 day trial involving both factual and expert evidence; in this context Mr Sussex SC, who appeared for the plaintiff assured, went so far as to submit that the defendant underwriters had sought to defend this action “by all conceivable means”, the implication being that the divers defences as were mounted to this claim possessed little merit.

The background facts

8. The electronic goods the subject of this loss, and consequential claim, were sold by the plaintiff, Anbest, to a company in the UAE named First Star Electronics (‘First Star’) pursuant to a sales contract negotiated in December 1998, this sale being evidenced by a Commercial Invoice dated 23 December 1998.

9. This was the first transaction which Anbest had done with First Star, which on 18 December 1998 had remitted a deposit of some US$10,000, pursuant to a sale in which D/P terms had been agreed.

10. The electronic goods the subject of this sale left Hong Kong on 24 December 1998 on board the vessel ‘AL SABAHIA’, having been loaded into a container No. CATU 3019704.

11. A bill of lading, No SENUHKG552617, dated 24 December 1998 was issued by DSR-Senator Lines Gmbh; the Shipper was named as Anbest, the Notify Party was named as First Star, and the Consignee was named as Habib Bank AG Zurich (Sharjah Branch).  As will be seen, this branch of the Habib Bank has a significant part to play in the sequence of events as ultimately transpired.

12. It is common ground that the vessel carrying these goods arrived at Khor Fakkan on 3 January 1999, and it appears that the container in question was discharged into the Khor Fakkan container terminal either on the date of arrival or on the following day.

13. The undisputed evidence is that the purported buyer of these goods, First Star, obtained actual physical possession of this container from the nearby Sharjah container terminal – whence, without the knowledge of Ambest, it had been transferred from the Khor Fakkan terminal on 7 January 1999.

14. Under the contract of sale, the purchaser was to make payment for the goods by a bill of exchange drawn on First Star, and on 30 December 1998 Anbest had sent all the shipping documents to a finance house, Commonwealth Finance Corporation Ltd (‘Commonwealth Finance’) with a request that it purchase the bill of exchange drawn on First Star “subject to final payment”.

15. The evidence is that Anbest, together with its parent, Thakral Corporation (HK) Ltd (‘Thakral’) – of which relationship much has sought to be made throughout these proceedings – earlier had pre-arranged banking facilities with Commonwealth Finance.

16. In order to obtain discounted payment on the bill of exchange drawn on First Star, the documents so submitted to Commonwealth Finance had included three (3) original bills of lading.

17. In the event, Commonwealth Finance did purchase the bill of exchange, and on the same day had sent the shipping documents to Habib Bank in Sharjah with the instruction that the bank deliver the documents to First Star against payment; in this connection it seems from the documents that Anbest had been given to understand – incorrectly – that Habib Bank in Sharjah were First Star’s bankers.

18. It seems that Habib Bank in Sharjah did receive the shipping documents so remitted by Anbest, probably on 3 January 1999; however, on 6 January 1999 Habib Bank sent a handwritten message to Commonwealth Finance stating that First Star did not maintain an account with them.  This message was conveyed by means of a handwritten annotation on top of the Collection Instruction dated 30 December 1998 from Commonwealth Finance to Habib Bank, which Instruction, with annotation, in turn was faxed back to Commonwealth Finance.

19. First Star, the apparent purchaser of these electronic goods, previously had provided to Anbest the number of its ‘account’ with the Habib Bank, and on 7 January 1999 Commonwealth Finance responded to Habib Bank in the terms following:

“…Pls. be advised that the A/C No of First Star Electronics with you is 37017570.  Pls. investigate and deliver the docts. to the drawee for payment under advice to us.”

20. To this message there was no reply from the Habib Bank until 25 January 1999, when they stated that the account number as given was incorrect; the response read thus:

“…The A/C number you hv mentioned is incorrect.  We tried to approach the Drawee who faxed us that they will open A/C but then did not turn up.

Pls instruct yr docs r held on yr risk and responsibility.”

21. On the following day, 26 January 1999, Anbest asked the shipping line what had happened to its goods, and on the same day Anbest was informed that First Star had taken delivery of the container by means of an original bill of lading indorsed by Habib Bank.

22. In turn, Anbest relayed this information to Commonwealth Finance by letter of 26 January 1999; the second and third paragraphs of this letter read as follows:

“We have been advised by the cargo forwarder that the customer has already taken delivery of the cargo on 5^th January 1999 against the ORIGINAL B/L endorsed by Habib Bank AG. (We fax herewith a copy of the front and and rear of the B/L copy for your reference.)  Having released documents in this manner, it is very odd for the Habib Bank to now advise that they apparently do not even have an account for the party.  Further, this is nearly 3 weeks after you have informed them the account number of the drawee and requested them to deliver documents against payment.

We shall appreciate it if you will kindly take this up strongly with Habib Bank and inform that having released the documents to the drawee, we would not hold them responsible for the payment of the same.  Please also request them to remit payment as soon as possible failing which we would have to resort to taking legal action against them…”

23. On receipt of this letter, Commonwealth Finance relayed this information to Habib Bank, which, by telefax dated 27 January 1999, claimed that the shipping documents had not been checked upon receipt but that there were only two (2) bills of lading and no packing lists; this fax concluded thus:

“Please enquire from the Shipping Company how the goods were released without proper authority from the Bank as we have not endorsed any Bill of Lading.  Please also note that we are holding the documents at your risk and await your immediate instruction.”

24. A handwritten annotation at the foot of this document was relayed by the Outward Bills department of Commonwealth Finance to Thakral Electronics, the parent of Anbest, for the attention of Mr Mohan “For your information and instructions please.”

25. In the event, Anbest was obliged to repay to Commonwealth Finance the money paid by the finance house to purchase the bill of exchange; this sum, in the amount of US$284,142 was repaid on 26 February 1999, by Thakral Electronics, Anbest originally having purchased from Thakral the electronic goods the subject of this action, and thereby having incurred a corresponding financial liability to Thakral.

26. This liability had been discharged when Thakral was paid by Commonwealth Finance when it purchased the bill of exchange which had been drawn on First Star, and thus when Thakral repaid the money advanced when Commonwealth Finance had purchased the bill of exchange, the original indebtedness of Anbest to its parent, Thakral, was reinstated.

27. This, therefore, is the somewhat tangled factual background to the present claim, the various defences to which encompass the foregoing elements.

28. However, the saga of this insurance claim does not end at this stage, and it is this latter part of the story which now has prompted the plaintiff to seek to recover expenses relating to legal proceedings in Sharjah which it says it had no option but to institute.

29. This aspect of the case arose thus.

30. Following the revelation that the Habib Bank apparently only had two (2) of the original three (3) bills of lading for this shipment, it appeared clear both to the plaintiff and to Commonwealth Finance that First Star had obtained delivery of the goods dishonestly by means of the presentation of an original bill of lading obtained from within the Sharjah branch of the Habib Bank.

31. Accordingly, proceedings were taken against the Bank in Sharjah, and were brought in May 1999 in the name of Commonwealth Finance.  The shipping line was joined as a defendant, and was ordered to produce the original bill of lading which was used to take delivery, upon the reverse of which appears the apparent endorsement of Habib Bank stating “deliver to First Star”; there also appears on the reverse of the bill an indorsement by First Star.

32. In addition, DSR-Senator Lines also produced, by letter dated 1 December 1999, not only a copy of the front and reverse side of the original bill of lading as was presented to its agent in Sharjah in order to obtain delivery of the goods, but also a copy of the relevant Delivery Order dated 5 January 1999 issued by Sealink Shipping Services LLC, of Dubai, UAE, in favour of First Star, which rehearsed on its face that the subject of the Order was one 20 foot container, Seal No 414622, containing 600 cartons of electronic goods.

33. The Sharjah proceedings took some time.  For present narrative purposes there is no need to condescend to great detail, although it is appropriate to note that an expert appointed by the Sharjah court, a banking expert who was retained to consider the case, after visiting Hong Kong came to the startling conclusion in the circumstances that there was no satisfactory evidence to suggest that Habib Bank ever had received all three bills of lading, whilst a report ordered to be prepared by the Criminal Investigation Department of the Sharjah police concluded that the stamp which appeared on the reverse of the bill of lading used to procure delivery of the goods was not taken from a stamp mould which had been proffered by the Habib Bank.

34. In the event, on 14 December 2004 the Sharjah Court dismissed the claim as brought by Commonwealth Finance against Habib Bank, the Court finding that Habib Bank never had received the bill of lading as was used to take delivery of the goods.

35. The relevance of the Sharjah litigation to this claim is that the defendant underwriters are critical of the conduct of those proceedings and take a point which, it now is said, provides a defence to the current claim.

36. These allegations will be considered later in this judgment within the context of the various specific defences as raised by underwriters in this action. 

The evidence

37. In the course of this judgment I deal with various aspects of the evidence as led in this case, which was both factual and expert.

(i)  Factual evidence

38. For or the plaintiff a total of six factual witnesses were called to give viva voce evidence: these were, in order of appearance, Mr Anil Daryanani, the company secretary and financial controller of Anbest, Mr Mike Motwani, sales manager of the plaintiff, Ms Grace Lam Chui Ping, at the material time manager of the plaintiff’s shipping department, Mr Tang May Ping, supervisor of the Export Department of Commonwealth Finance, Mr Leung Siu Fung, at the material time a clerk at Commonwealth Finance, and finally Mr Mohandas Khilani, a sales executive with the plaintiff since 1988.

39. Of these witnesses of fact, only Mr Daryanani and Mr Motwani was subjected to any real degree of cross-examination by Mr Clifford Smith SC for the defendant, although in neither case was such cross-examination lengthy.

40. Looked at in the round, the evidence of these six witnesses, which I accept, did no more than flesh out the sequence of events recited earlier in this judgment. 

41. There was nothing of factual controversy in their evidence, and each of these witnesses struck me as straightforward and as essentially truthful; true it was that there were occasional minor lapses in terms of detailed recollection, which was hardly surprising given that the factual origins of this claim were some eight to nine years old, but there was nothing in this evidence, which I accept, to concern the court in terms of essential truth, and it is fair to say that such argument as did arise on the basis of this evidence as proffered was of a purely legal nature.

42. For the defendant insurer, two witnesses of fact were called, namely Mr Lam Kwok Ping, who in 1997-1998 was the Manager for the Central District Office of the defendant insurer, then called General Accident, and second, Captain H Rawcliffe, who gave his evidence by video link from Dubai, and whom on the instructions of the defendant insurers had investigated the container movements and clearing procedures in Sharjah in 1998 with respect to the relevant container, No CATU 301970-4, which was misdelivered and which had contained the goods the subject of the plaintiff’s claim.

43. Once again, there was nothing in this evidence which struck me as particularly contentious, and in terms of factual assertion I have no difficulty in accepting that which was said.

(ii) Expert evidence

44. The expert evidence in this case fell into two categories: first, evidence from each side on Sharjah law, and second, expert evidence from the insurance industry.

45. As to Sharjah law, for the plaintiff called Dr Habib Al Mulla, whilst for the defendant Mr Badawi Noor was called, who gave his evidence by video-link.

46. In terms of particular insurance aspects raised by this case, the plaintiff’s insurance expert was Mr Alan John Prescott, whilst the defendant called Mr Nicholas Peter St John Gooding.

47. Where necessary, I comment upon specific aspects of this expert evidence during this judgment.

Findings of fact

48. With one exception, this is not a case which is fact-sensitive, in the sense that its resolution depends upon judicial evaluation of particular aspects of the evidence.

49. To the contrary.  The factual picture that emerges is tolerably clear, and it is fair to observe that the bulk of the argument received by the Court has been of a purely legal nature.

50. There is, for example, no longer any challenge to the evidence before the court that Commonwealth Finance sent 3 original bills of lading to Habib Bank, as per the testimony of Tang May Ping and Lawrence Leung, nor can there be any doubt but that Habib Bank received the package in which the 3 original bills had been inserted, since the Collection Instruction of Commonwealth Finance there appears a scribbled fax message to Commonwealth Finance from the Habib Bank.

51. On this basis, it is clear, and I so find, that an original bill of lading went missing whilst the 3 originals were in the possession of the Habib Bank, and on the evidence before the court I entertain no doubt, and further so find, that the misdelivery to First Star of the plaintiff’s container containing the goods the subject of this claim was a direct consequence of First Star dishonestly obtaining one of the three original bills of lading which had been sent to Habib Bank and with which bill of lading, duly endorsed by the Bank, First Star was able to obtain delivery absent payment therefor. 

52. I further make the inferential finding on the probabilities that First Star had obtained one of the original bills of lading from a contact within the Sharjah branch of the Habib Bank, and that with the assistance of that contact a chop purporting to be a Habib Bank chop had been appended to the reverse of the bill of lading.

53. It must follow from this that the overwhelming probability, which I so find, is that First Star actively was complicit with a dishonest employee within the Habib Bank who was responsible for sending to First Star an original bill, apparently duly ‘indorsed’ by the bank, which then facilitated the misdelivery to First Star of the container in question.

54. In this connection it seems to me to matter not whether the purported chop and signature of Habib Bank as were appended to the original bill of lading were genuine; even if the chop and the signature were forgeries, they were added to the original bill of lading, and it was by means of the presentation of that original bill that First Star was able dishonestly to obtain physical possession of the goods without payment, whereas, had the D/P terms of the sale been honoured, First Star could not have come into possession of the container without first making payment for the documents necessary to obtain such possession.

The shape of the present case

55. So far as the plaintiff is concerned, this claim is straightforward.

56. The Amended Points of Claim do little more than recite the primary facts, the terms of the insurance contract, the right of the plaintiff to be indemnified, and the wrongful act of the defendant in refusing so to indemnify; the amendment to the pleading raises the additional issue of the plaintiff commencing proceedings in Sharjah pursuant to the duties imposed by Clause 16 of the ICC (A), with a corresponding claim for legal fees and disbursements thus incurred.

57. In short, therefore, on the face of the claim as pleaded there is nothing out of the ordinary in a case of this type.

58. However, the matter becomes more complex in light of the defence pleaded thereto – or, more precisely, the Re-Re-Amended Points of Defence and Amended Counterclaim.

59. In this document a significant number of points are taken – some of which have been characterized by Mr Sussex SC as “profoundly silly” or “whimsical” or both – which range from a denial of the plaintiff’s interest in the goods at the time of the alleged loss to an averment that the sale of these goods was on C&F terms and not CIF, to reliance upon the provisions of Clauses 8 and 16 of the ICC (A), to a denial that the loss was proximately caused by a peril insured against, and thus that no liability accrued by virtue of the operation of section 55 of the Marine Insurance Act, 1906, and to a critique of the manner in which the insurer’s position had been prejudiced by the plaintiff’s conduct of the Sharjah proceedings. 

60. In this latter context a Counterclaim was added by amendment, the basis of which is that in light of the plaintiff’s decision to stop funding the Sharjah proceedings and/or the manner in which those proceedings were conducted, the defendant’s rights of subrogation have been prejudiced, and that the measure of damage thus arising from the plaintiff’s breach of its obligations is the amount of the draft drawn on First Star, or the value of the goods covered by the bill of lading, so that establishment of the Counterclaim in the relevant sum effectively will extinguish the plaintiff’s claim, if and in so far as such can be made out, which is itself denied.

61. The foregoing is intended to give no more than a flavour of the wide-ranging manner in which the defence to this action has been prosecuted.

62. Against this background, therefore, and light of the outline of this case, I propose in the ensuing part of this judgment to examine each of the allegations raised on behalf of the defendant, which as I understand it amount to no less than eight separate issues, any or all of which are said by Mr Smith SC to operate so as to defeat the plaintiff’s claim. 

The defence issues raised

(i)  Was the contract on C&F or CIF terms?

63. This was the point with which Mr Smith led in his final submissions.

64. Shorn of detail his fundamental thesis was that the sale concluded between Anbest and First Star always was a sale on C&F terms, and that the cost of procuring insurance for the buyer, First Star, was added on by Anbest as an “extra item” of charge, thereby producing a total sum which, as Mr Smith put it, was “expressed to be a CIF total value but which in reality was a C&F price with a separate charge for insurance.”

65. In this connection Mr Smith referred to Benjamin on Sale of Goods (7^th Ed) at para 21-012, which extract reads: “Generally a C&F contract will simply omit reference to insurance.  But it may require the seller to insure the goods at the buyer’s request and for his account”.  It was with this in mind that he submitted that this is precisely what had happened in the present case, and that there is no suggestion in Benjamin, op cit., that that which started out as a C&F contract is, or can be, thus ‘converted’ to a CIF contract.

66. In his skeleton argument Mr Smith reviewed in detail the sequence of events commencing when First Star and Anbest had begun negotiations for the sale of the electronic goods as ultimately transpired, focusing in particular on the relevant paper trail and the evidence of Mr Motwani of Anbest, and noted that on the documents the first reference to ‘CIF’ in any document appears in the Invoice bearing the date 23 December 1998, which gives a total price in terms of a value C&F Khor Fakkan, but then indicates the cost of insurance charges as an additional item, giving an aggregate total CIF value of US$284,142.00.

67. Thus, Mr Smith submitted, the parties had agreed that the contract of sale and purchase was to be on C&F terms, and that the explanation for the preparation of the Invoice of 23 December was that First Star had requested the plaintiff to procure insurance on behalf of First Star; this was consistent, he said, with a written request dated 27 December 1998 in which First Star had asked the plaintiff to “cover the insurance charges”, which request would be otiose if the parties had agreed the sale contract was to be on CIF terms.

68. For the plaintiff Mr Sussex SC adopted the position that the contention that the contract was on C&F terms fundamentally was unsupported by the evidence.  He suggested that the genesis of this point was the passage which had been cited from Benjamin, op cit., and he noted that the case therein quoted in support by the editors of that work actually involved an FOB contract under which the seller agreed to buy insurance for the buyer, the dispute itself concerning whether the policy as tendered was suitable.

69. He noted, also, that it was clear from the evidence of the insurance experts that the circumstances as now posited by the defendant underwriters was so rare that in practice neither had encountered it, but, he suggested, once the idea was ‘born’ the facts of this case thereafter had been ‘bludgeoned’ to suit this emergent concept.

70. Mr Sussex accepted that it is clear from the papers that at the initial stages of negotiation with First Star that the plaintiff indeed was quoting FOB prices, and then C&F prices, but that there came a stage where First Star obviously had asked the plaintiff to make the sale CIF.

71. He added that in any event this was not a ‘classic’ CIF contract, because it was on D/P terms, and that the evidence of Mr Daryanani that the intention was that the property should pass only when the buyer took up and paid for the documents had been unchallenged, and that there was no evidence of any agreement concerning the passage of risk – in which instance section 22 of the Sale of Goods Ordinance, Cap 26, provides that unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer.

72. In fact, said Mr Sussex, there is no doubt in this case but that the buyer, First Star, was charged a CIF price, and further that the goods in question clearly were to remain at the plaintiff’s risk until First Star had taken up and paid for the documents.  Moreover, the Collection Order as had been sent to Habib Bank plainly stated that the terms were ‘CIF Khor Fakkan’.

73. After reviewing the available evidence, and the submissions pursuant thereto, I find that this was a CIF contract, and not a contract on C&F terms.  Notwithstanding the ingeniousness of the argument, and the persuasive manner in which the point was developed by Mr Smith, the probabilities seem to me to point all one way, and thus I am against the defendant on the point.

74. Whilst Mr Smith took pains to criticize the evidence of Mr Motwani, I make it clear that I accept this gentleman’s evidence; Mr Motwani specifically stated that the written request of 27 December 1998 was intended to be confirmatory of an oral agreement made on the telephone on 23 December 1998 in which First Star had asked for the contract to be changed from C&F to CIF terms, and he said that the plaintiff had agreed to this request but had asked for written confirmation, which had been provided in the fax from First Star of 27 December 1998.

75. I also agree with the submission of Mr Sussex that this point, which was developed with the plain intention of invalidating the plaintiff’s utilization of the Open Cover, demonstrated no inherent commercial reality, which was that in fact First Star was charged a CIF price, that risk was to pass only when the documents had been taken up and paid for, and that First Star was to take an assignment of the insurance, which is why the relevant policy was included among the documents as sent to Habib Bank, and which First Star was to receive if and when it had discharged its contractual obligations and had purchased the documents.

76. It is also evident that the plaintiff seller, Anbest, was not in a position to utilize its Open Cover in favour of its customer, and thus to provide insurance for what was, as far as the insurers were concerned, an unknown third party, but in my view this is not such a case.

77. The plaintiff, Anbest, patently maintained an insurable interest in the goods at the time of the loss – if this point remains alive, I so find – and in fact the defendant’s own expert, Mr Gooding, accepted this proposition, together with the correlative fact that Anbest thus was bound to make a declaration of this shipment under the Open Cover. 

78. It was also the case, as Mr Sussex pointed out, that upon First Star taking up the documents upon payment for the goods, it was part of the agreement with First Star that First Star was to have the benefit of that insurance.

79. Accordingly, the argument mounted that this was a contract on C&F terms, and not ‘CIF Khor Fakkan’, fails.  I so hold.

(ii) Material non-disclosure

80. The forensic aim of the foregoing ‘C&F/CIF’ debate was to underpin a material non-disclosure argument, Mr Smith submitting that it was common ground that the Open Cover as was in place between Anbest and underwriters did not permit the assured to procure insurance for third persons, that in this case this had occurred, that the materiality of such non-disclosure was self-evident, and that had such disclosure been made either the risk would not have been accepted, or only at an increased premium.

81. However, given that I have rejected the premise that this contract was effected on C&F terms, no question of material non-disclosure arises, and this point therefore can be, and is, dismissed.

(iii)    Duration of the insurance cover

82. At the end of the day this issue probably represents the substance of this case, and involves – as have a number of recent insurance cases in the Commercial Court – reference to and consideration of Clauses 8 and 9 of the ICC (A).

83. In light of the nature of the argument, which developed in a number of guises, it may be useful to set out these two clauses in full:

“8    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, continues during the ordinary course of transit and terminates either
8.1.1	on delivery to the Consignees’ or other final warehouse or place of storage at the destination named herein,
8.1.2	on delivery to any other warehouse or place of storage, whether prior to or at the destination named herein, which the Assured elect to use either
8.1.2.1	for storage other than in the ordinary course of transit or
8.1.2.2	for allocation or distribution,
or
8.1.3	on the expiry of 60 days after completion of discharge overside of the goods hereby insured from the oversea vessel at the final port of discharge,
	whichever shall first occur.
8.2	If, after discharge overside from the oversea vessel at the final port of discharge, but prior to termination of this insurance, the goods are to be forwarded to a destination other than that to which they are insured hereunder, this insurance, whilst remaining subject to termination as provided for above, shall not extend beyond the commencement of transit to such other destination.
8.3	This insurance shall remain in force (subject to termination as provided for above and to the provisions of Clause 9 below) during delay beyond the control of the Assured, any deviation, forced discharge, reshipment ortranshipment and during any variation of the adventure arising from the existence of a liberty granted to shipowners or charterers under the contract of affreightment.
9	If owing to circumstances beyond the control of the Assured either the contract of carriage is terminated at a port or place other than the destination named therein or the transit is otherwise terminated before delivery of the goods as provided for in Clause 8 above, then this insurance shall also terminate unless prompt notice is given to the Underwriters and continuation of cover is requested when the insurance shall remain in force, subject to an additional premium if required by the Underwriters, either
9.1	until the goods are sold and delivered at such port or place, or, unless otherwise specially agreed, until the expiry of 60 days after arrival of the goods hereby insured at such port or place, whichever shall first occur,
9.2	if the goods are forwarded within the said period of 60 days (or any agreed extension thereof) to the destination named herein or to any other destination, until terminated in accordance with the provisions of Clause 8 above.”

84. There is some detail involved in this aspect of the case, but reduced to its essentials Mr Smith’s argument ran thus:

i.    as a matter of general principle, the burden lies on the plaintiff, Anbest, to establish that the loss occurred during the continuation of the cover: see ELAZ International v. Hong Kong & Shanghai Insurance Co Ltd (2006)(unrep), at para 121, per Stone J ; Verna Trading Pty Ltd v. New India Assurance Co Ltd [1991] 1 VR 129, per Ormiston J.;

ii.   on the facts of the present case, the cover terminated when the container of goods arrived at Khor Fakkan Container Terminal at 1200 hours on 4 January 1999, as this terminal represented “the Consignee’s or other final warehouse of place of storage” at Khor Fakkan for the purposes of Clause 8.1.1 of the ICC (A); alternatively

iii.  if the insurance cover did not then terminate, because the terminal at Khor Fakkan is not to be treated as “the final warehouse or place of storage”, the insurance cover terminated when the goods commenced transit from Khor Fakkan to the Sharjah Terminal at 1704 hours on 4 January 1999, a result which is arrived at, said Mr Smith, not only from application of Clause 8.2 of the ICC (A), and also because the geographical limits of the cover extended only to Khor Fakkan, which was named in the Bill of Lading both as the Port of Discharge and the Place of Delivery.

85. There is, I apprehend, no doubt about the general principle set out at (i) above, and Mr Sussex did not demur therefrom, although on behalf of his client he firmly maintained that the loss in this case indeed had taken place whilst the underwriters were on risk during the duration of the cover.

86. However, prior to examining each of these arguments, I should allude to the evidence of Captain Rawcliffe, an ex-mariner whose current title is ‘Operations Manager’ of Emirates Marine Services LLC. 

87. Captain Rawcliffe had been retained to trace from the available records the actual progress of this container from its discharge overside at Khor Fakkan, and whose Report, dated 3 July 2007, and video-link evidence I found of great assistance in factually recreating what happened to this container, and when.

88. As a matter of general practice at the port of Khor Fakkan, Captain Rawcliffe described the normal ‘terminal procedure’, wherein upon arrival at her berth, the vessel discharges the container, which then is placed in a ‘terminal stack’ at Khor Fakkan port, this stack being inside both the Customs and Port area, and which is protected by Terminal Security and by Port Police.

89. Arrangements can be made for delivery of the container direct from the Khor Fakkan Terminal, or the container can be transferred to the nearby Sharjah Terminal (on the north coast of the Emirate of Sharjah) under Customs bond, a procedure which involves the container being additionally sealed by Customs at Khor Fakkan and thence being transported by road to the Sharjah Container Terminal, wherein upon arrival it is checked and, if all is in order, then is stacked to await delivery.

90. At Khor Fakkan delivery of a container is made against a Bill of Entry as issued by the Customs.  To obtain this document requires the Consignee to have an original Bill of Lading as endorsed (if a bank is involved), the Consignee thereafter approaching the vessel’s agent in order to obtain a Delivery Order, which he can obtain if there are no outstanding charges due; in this particular instance Captain Rawcliffe had discovered that the Delivery Order for the container in question had been issued on 5 January 1999 at 1700 hours by Sealink Shipping Services, as agents for DSR-Senator Lines. 

91. Armed with the Delivery Order, a copy of original bill of lading, together with Certificate of Origin and Packing List and Invoice, a Bill of Entry then is issued, and the container terminal will release the container against this document; Captain Rawcliffe said that he had been advised that this invariable procedure is “never deviated from”.

92. He gave evidence that he had been advised that in 1999 most records were in fax or ‘hard’ copies, although nowadays computer records were in use.  Not all such ‘hard’ records had been retained, but for the purpose of this case he had investigated with the authorities the apparent movement of this particular container, No. CATU 301970-4.

93. In this connection he had obtained a copy of a ‘Track Container Movement’ from one Gulfcontainer Company Ltd for container 301970-4.

94. This record showed that the container was discharged at Khor Fakkan on 4 January1999 at midday, and subsequently was dispatched to the Sharjah container terminal on the same day at 17.04 hours.  It was received at Sharjah Terminal at 0855 on 5 January 1999 – Captain Rawcliffe noted that whilst the drive to Sharjah takes only about 2 hours, the delay in time of receipt no doubt was due to the Sharjah Container Terminal administration not commencing until 0800 hours, the driver of the rig bearing the container having to wait outside the Sharjah terminal and wait for the terminal staff to arrive in order to check the container into the terminal.

95. Container 301979-4 is recorded as having been delivered to the Consignee against a Bill of Entry on 7 January 1999 at 12.11 hours.

96. Thereafter the empty container was returned to the Sharjah Terminal on 9 January 1999 at 06.31 hours, and dispatched back to Khor Fakkan terminal on 12 January 1999 at 15.13 hours.

97. I accept as the best available evidence Captain Rawcliffe’s evidence, and it is against this factual backdrop that I revert to the specific arguments mounted as to the duration of this Open Cover.

98. In this connection I reject Mr Smith’s first substantive argument, pursuant to Clause 8.1.1 of the ICC (A), namely that the Khor Fakkan Container Terminal represented “the Consignees’ or other final warehouse or place of storage”.

99. Given that on arrival at Khor Fakkan this container remained at Khor Fakkan for 5 hours only, at all times under Customs Bond, and, as Captain Rawcliffe testified, was placed in Stack S41, which simply represents no more than a temporary position in an open air container stack, it is difficult to see how legitimately this may be characterized as a ‘final warehouse or place of storage’, and thus that it may be successfully contended that the rubric within Clause 8.1.1 is satisfied.

100. To the contrary, in this case I specifically hold that it is not. 

101. The word ‘final’ in Clause 8.1.1 must govern both ‘warehouse’ and ‘place of storage’ – see Arnould, Vol 3, at para 261 – and the phrase ‘final … place of storage’ in my view cannot sensibly be construed as fitting the circumstances in which the goods were stored in Customs bond at Khor Fakkan Terminal.  As Steel J expressed the position in an analogous situation in Bayview Motors v. Mitsui Marine [2002] 1 Lloyd’s Rep 652, at paragraph 26, page 657:

“Mr Aquino’s evidence was to the effect that the cars had been placed within a fenced off parking lot within the port.  It was, to all intents and purposes, a bonded store, run by the customs who controlled access.  Such cannot fairly be categorized as the ‘final place of storage.’  The decision in Martin was on an earlier edition of the Institute Cargo Clauses form.  The editor of Arnould expresses the view that the reasoning remains valid.  I agree.  I conclude that cover extended to 60 days after completion of discharge…”

102. This was the point emphasized by Mr Sussex, who submitted that a location within a pile of stacked containers could not on the authorities has not been regarded as falling within the phrase ‘final … place of storage’, citing John Martin v. Russell [1960] 1 Lloyd’s Rep 554; Bayview Motors v. Mitsui Marine, op cit., and, on appeal, [2003] 1 Lloyd’s Rep 131. 

103. In my judgment, therefore, under this head the insurance in question clearly had not terminated, and I so hold.

104. Mr Smith’s next argument focused upon the provisions of Clause 8.2; in fact, this aspect of the argument, as propounded, contained two distinct elements.

105. The first point taken by Mr Smith was reliance as a terminating event upon the commencement of transit from Khor Fakkan to the Sharjah Terminal at 1704 hours on 4 January 1999, Clause 8.2 providing that if after discharge overside at the final port of discharge “the goods are to be forwarded to a destination other than that to which they are insured hereunder, this insurance…shall not extend beyond the commencement of transit to such other destination.”

106. With respect, I do not consider that this argument successfully avails him.

107. I do not read the words “are to be forwarded to” within Clause 8.2 other than as reference to a pre-planned transit with the knowledge and consent of the assured. 

108. In other words, that which in my view is contemplated by Clause 8.2 is that the forwarding beyond the destination to which the goods are insured must be a transit contemplated and decided upon by the assured – hence the use of the words “are to be…”.

109. There is support for this construction in Arnould, op cit., at para 263, wherein the learned editors state:

“Clause 8.2 appears to be designed for situations where it is planned or decided that the goods should be forwarded to another destination, beyond that to which they are insured under the policy (they would normally then be covered by another policy taken out by the buyer).  The words ‘are to be forwarded’ suggest that meaning.”

110. Accordingly, Mr Smith’s assertion that the present situation falls within Clause 8.2 is rejected also.

111. The other limb to Mr Smith’s argument, as I understood it, is that in any event there could have been no continued cover after the goods had left Khor Fakkan, given that indisputably Khor Fakkan is the place stipulated in the Bill of Lading as representing the port of discharge and of delivery, and that the loss the subject of this claim, namely the actual physical abstraction of the container, took place only when the goods were in Sharjah – by which time, he said, on any basis the ‘all risks’ cover had terminated.

112. His contention was that the ‘all risks’ cover as was in place is subject to specific geographical limit, and that it is clear on the evidence, in particular from Captain Rawcliffe, that Khor Fakkan and Sharjah are quite different places approximately 120 kilometres apart; indeed, he submitted, they are as much separate places as Liverpool and St Helens were taken to be by Pearson J in John Martin, op cit.

113. Mr Smith further submitted that there is no evidence that the movement of the goods from Khor Fakkan was part and parcel of the plan to steal the goods, and he suggested that such movement as took place could have been procured simply by means of fax instructions, and that it was unnecessary to produce the original bill of lading at that stage, nor to comply with any formalities.

114. This argument begs the question as to where the loss in question actually occurred, and in this regard Mr Sussex maintains, and I agree and so find, that in these circumstances, wherein there is an overwhelming inference that this was a pre-planned theft carried out at the behest of First Star, acting complicitly with someone within the Habib Bank, a like inference legitimately may be drawn that the goods only can have been moved to Sharjah upon the specific instructions of First Star, and thus that in these circumstances the loss must be taken to have occurred upon the goods leaving Khor Fakkan, even though it appears that First Star only obtained actual physical possession of the container in Sharjah.

115. Mr Sussex points out, also, that this insurance, apart from being ‘all risks’ cover, expressly was subject to the ICC Theft, Pilferage and Non-Delivery Clause (1/12/82) which provides:

“…it is hereby agreed that this insurance covers loss of or damage to the subject-matter caused by theft or pilferage, or by non-delivery of an entire package, subject always to the exclusions contained in this insurance.”

116. He remarked that it is questionable whether, within the context of an ‘all risks’ cover, this clause in fact adds anything of substance, but he nevertheless drew the attention of the court to this element given the suggestion made by the defendant that the court should ignore the criminal law when it comes to a consideration of the concept of ‘theft’.

117. In this connection he says that it is as plain as a pikestaff that this case involves a ‘dishonest appropriation of property belonging to another with the intention of permanently depriving the other of it…” [s 2, Theft Ordinance], whilst equally it is clear that “the rights of an owner” were assumed by First Star when instructions were given to the agents acting for the shipping line, which in turn were passed on to Gulftainer Company Ltd, the operators of the container terminal at Khor Fakkan, to transfer the container in bond to the Sharjah Container Terminal, and hence such ‘assumption of rights’ clearly amounted to an ‘appropriation’ within the terms of s 4(1) of the Theft Ordinance, which provides “Any assumption of the rights of an owner amounts to an appropriation…”

118. I agree with, and accept, that factually this sequence of events must have occurred, given the evidence contained in the letter from Gulftainer Company dated 23 August 2007 to M/s Dibb Lupton Alsop, which material part of which reads “the full import container can be released for transportation under Bond from Khorfakkan port based on the receipt of instructions from the Shipping line…”, and from the evidence of Captain Rawcliffe.

119. Mr Sussex further contended that in the circumstances revealed on the evidence, and the inferences clearly arising therefrom, that the instruction to transfer the container under bond to Sharjah represented an essential element of the assumption of an owner’s rights, and was not to be classified simply as an ‘act preparatory to the theft’, as, for example, was found to be the situation in Pope’s International v. National Insurance, unrep., HCCL 194 of 1997, Judgment dated 1 June 2000.

120. Each case must be dependent upon its own particular factual matrix, and in this instance I entertain no doubt, and so find, that First Star (it is entirely improbable that it could have been anyone else) had issued instructions to the agent for the shipping line to have the container transferred in bond to Sharjah, and that in so acting First Star plainly was representing itself to have the rights of an owner; as Mr Sussex further suggests, it is also entirely probable that by the stage that such instructions were communicated that First Star, to the knowledge of the shipping line, already was in possession of the original bill of lading which it had wrongly obtained from Habib Bank, and that had this not been the situation (and doubtless was verified as such), it is very doubtful if the shipping line would have entertained any such instruction to effect such transfer in bond from the Khor Fakkan terminal to the Sharjah terminal.

121. I agree that such instruction to transfer represented an act whereby the rights of an owner were assumed by First Star, and in this instance I accept the analysis of Mr Sussex in terms of the provisions of the Theft Act.  However, whilst I accept his contentions in this regard, in principle I remain disinclined to accept that cases of this nature inevitably are to be dependent upon niceties of the criminal law; for my part I take the view that in matters of this nature there is room for a dose of robust commercial common sense.

122. Thus, in the present instance, it is abundantly clear, as a matter of practical commercial reality, that from the plaintiff’s standpoint the loss of this container must be regarded as having occurred at the point when the container left Khor Fakkan terminal without the plaintiff’s knowledge, and at the behest of First Star – as earlier observed, it could not reasonably have been anyone else – and thus that such loss occurred at Khor Fakkan during the pendency of the ‘all risks’ cover.

123. The short point is that the plaintiff never can have anticipated that this container legitimately would be delivered to First Star other than at Khor Fakkan, hence the terms of the insurance as effected pursuant to the Open Cover specifying the destination as Khor Fakkan.  The fact that, unbeknownst to the plaintiff, First Star, acting in concert with a source within Habib Bank, had contrived to cause the container to be conveyed under bond to the Sharjah terminal in my view is not to be regarded as affecting the right of the plaintiff assured under this ‘all risks’ insurance cover, albeit including the ICC Theft, Pilferage and Non-Delivery Clauses, as issued by the defendant.

124. I accept, of course, that had the goods been transferred to Sharjah terminal, and thus taken out of the “ordinary course of transit”, by reason, for example, of an election or specific decision on the part of the assured so to do, clearly there would have been a solid argument that cover thereby had ceased as being outwith its declared geographical ambit, but in my judgment this is not what in fact happened.

125. Lest I be wrong in this view, I refer also to Mr Sussex’s alternative contention, mounted against the possibility (which has not transpired) that the court was to be against his primary submission as to the location of the loss, to the effect that in any event the transfer of the goods from Khor Fakkan constituted a conversion by First Star (or at least by somebody), and that from the moment that First Star (or anyone else) caused the container to be removed from its position in the Khor Fakkan terminal this constituted a conversion, and thus that the plaintiff, there and then, sustained a loss; even if such might not then be regarded as a ‘total loss’, given the possibility of subsequent recovery, this nevertheless was a ‘partial loss’ within the meaning of the ‘all risks’ cover, Mr Sussex citing in this regard s 56 of the Marine Insurance Act 1906.

126. Accordingly, he submitted in so far as that which has been shown to have occurred is a subsequent actual total loss, the underwriter can escape liability only if he can show that the ultimate total loss did not result from the sequence of events following in the ordinary course upon the peril insured against, but from some supervening cause – which could not be the situation in the present case given the specific finding that this loss was part of a pre-arranged plan on the part of First Star.

127. Had it been relevant, I should have been minded to accept this alternative analysis, although in the event this is no more than a ‘belt and braces’ submission rendered unnecessary on the facts as now found.

128. It follows from the foregoing, therefore, that I reject the argument on the part of the defendant that no liability enured under his Open Cover because the loss of this container was outwith the geographical limit of that cover at the time of the loss.

129. It remains only to mention an additional argument, which was this: that within the issue relating to the duration of this cover there has been debate as to the relationship between the provisions of Clauses 8.1 and 8.2 on the one hand, and Clause 8.3 on the other.  In light of the conclusions I have reached, and given the applicable dates in this case, I do not think that this difference of view matters in this case, but I should, nevertheless, advert briefly to it.

130. The scheme set out within Clause 8.1 provides for continuation of the cover during “the ordinary course of transit” and provides three alternatives in which cover may terminate “whichever shall first occur”.

131. I earlier have dealt with the applicability of Clause 8.1.1, whilst the circumstances canvassed in Clause 8.1.2 clearly do not arise in the present case: there has been no election by the Assured.

132. Clause 8.1.3, however, is a purely temporal provision: it relates to termination “on the expiry of 60 days after completion of discharge overside of the goods hereby insured at the final port of discharge…”

133. Mr Sussex argues that if the first two alternatives within Clause 8.1 do not apply, then the 60 day provision prima facie applies, and that the words “at the final port of discharge” are to be read as governing “discharge overside…from the oversea vessel”; accordingly, he submits, the period of 60 days is to run from the moment that the goods are discharged overside at the final port of discharge, and – and here is the point at issue – that these words cannot be read as, in effect, imposing an immutable geographical limit upon the duration of the cover.

134. To the contrary, Mr Smith says that that which Tuckey LJ described in Bayview Motors v. Mitsui Marine [2003] 1 Lloyd’s Rep 131 at 134 as the ‘coherent scheme’ enacted within the provisions of Clause 8 means that the 60 day period prescribed in Clause 8.1.3 is a ‘long stop provision’ which ensures that cover terminates 60 days after discharge from the vessel whether or not the goods have reached the destination named in the policy, and whether or not they have been delivered to the final warehouse at such destination, but that the 60 day provision within Clause 8.1.3 cannot extend the geographical limits of the cover, and that the extended cover of 60 days from discharge applies only when the goods remain within the geographical limits of the cover.

135. By this I take Mr Smith to contend that the commencement of transit to another destination automatically will cause the cover to terminate under Clause 8.2 (if such has not already terminated); he says that the plaintiff’s argument implicitly involves the “startling proposition” that cover would continue for 60 days wherever the goods happened to be, which blatantly is to ignore the geographical limits of the cover.

136. In response, Mr Sussex argued that whilst Clause 8.2 can have the effect of curtailing Clause 8.1.3, equally, where those provisions do not apply, it does not have the effect of limiting Clause 8.1.3.  He says (and I now have accepted) that Clause 8.2 does not apply to a circumstance where the insured goods are forwarded to another destination absent the knowledge or consent of the assured.

137. This interpretation, Mr Sussex maintains, naturally fits the ethos and applicable principle within the scheme established by Clauses 8, 9 (and 10), whereby it is clear that the assured is not to lose his cover for reasons beyond his knowledge and control, in which context he points to the specific content of Clause 8.3, and says that the circumstances under consideration in this case clearly fall within the spirit of Clause 8.3; he suggested that whilst in most cases carriage beyond the destination named in the policy would be covered by Clause 8.2, the present is an exceptional case wherein Clause 8.2 does not displace Clause 8.1, and in particular Clause 8.1.3.

138. In light of the findings I have made this case does not depend upon resolution of this point.

139. Nevertheless, it seems to me that in principle Mr Sussex’s analysis is right, and that the key lies in the circumstances in which the insured goods have been caused to be transported outwith the specified geographical limit of the cover.

140. If and in so far as such goods have been wrongly abstracted from the designated destination to which they have been sent in the ‘ordinary course of transit’ – the rubric within Clause 8.1 – I can see no reason why the 60 day limit within Clause 8.1.3 should not continue to be applicable, and thus I agree with Mr Sussex’s contentions.

141. In the instant case, for example, transfer of this container from the Khor Fakkan terminal to the Sharjah terminal cannot properly be classified as within the ‘ordinary course of transit’; patently it was not.

142. So I cannot agree with Mr Smith’s proposition that as soon as the goods move outwith the specified geographical ambit of the cover, for whatever reason, that such cover automatically must cease, which I understand was the position adopted by Mr Smith.

143. In the instant circumstances, wherein the goods in question wrongfully had been abstracted from Khor Fakkan absent the knowledge and consent of the assured, I have no difficulty in holding, and so do, that the ‘all risks’ cover over these goods indeed remained in force for 60 days from 4 January 1999, and it seems to me that it must follow that this would be the position even if I had held (which I have not) that the loss in this instance is to be regarded as having taken place at Sharjah, and not at Khor Fakkan.

(iv)    The involvement of Commonwealth Finance

144. It will be recalled that Commonwealth Finance purchased from Anbest the bill of exchange drawn on First Star “subject to final payment”.

145. Several arguments have been advanced in connection with the involvement of Commonwealth Finance.

146. At one stage it was suggested that the plaintiff, Anbest, had lost its insurable interest by reason of the relationship with this finance company, and thus (I apprehend the argument would go) that in the circumstances it should have been Commonwealth Finance which should have been named as plaintiff in this action.

147. I have no sympathy with, and reject this argument (if indeed it continued to be seriously maintained).

148. Such interest as Commonwealth Finance acquired in this transaction clearly was no more than a security interest by way of pledge, whilst as to any suggestion that Commonwealth was not involved in a collection, the short point is that it had made an advance to the plaintiff equal to the value of the goods, and then had sought reimbursement from the Habib Bank via its document intituled ‘Collection Order’, which was countersigned by Anbest. 

149. On the documentary evidence it is plain that the purchase of the bill of exchange was ‘subject to final payment’, and in the event that (as occurred) the purchaser of the goods defaulted in payment, Commonwealth Finance contractually was entitled to reimbursement of the money it had advanced to the plaintiff: see Clause 4 of the General Security Agreement Relating to Goods.

150. For the avoidance of doubt, therefore, I hold that the advance made by Commonwealth was conditional upon collection of the monies from First Star, and that upon default Commonwealth was entitled to be thus reimbursed.

151. In this connection I reject the submission by Mr Smith that the plaintiff had been in breach of its duty towards the insurer by “voluntarily” agreeing to reimburse Commonwealth, and that in so doing it had failed to avert or minimize loss. 

152. I further reject Mr Smith’s ingenious alternative scenario that that which the plaintiff should have done, but wrongfully and in breach of duty did not, was to refuse to effect such reimbursement, which no doubt would have resulted in a suit by Commonwealth Finance against the plaintiff, to which Habib Bank could have been joined as third party, and thus all issues resolved in one jurisdiction, and that the “inevitable outcome” would have been that liability would have devolved upon the Habib Bank.

153. Whilst such a situation perhaps could have occurred, I can see no reason why obvious contractual obligations should have been ignored, which would have resulted in Commonwealth issuing proceedings to recover monies expressly advanced subject to payment by First Star.

(v) Lack of Insurable Interest

154. I have earlier made it clear that in this case I entertain no doubt but that the plaintiff had an insurable interest; I do not accept the contention that Anbest had lost interest in the ‘all risks’ cover upon receipt (‘contingent receipt’ perhaps is more accurate) of monies advanced by Commonwealth Finance.

155. In this connection Mr Smith further submitted that all that Anbest, qua seller, had was a contingent interest which could have been covered by seller’s interest insurance, but that this was not a category of insurance included within the Open Cover in the present case.

156. I disagree.  In this I do not think that he was supported by his own expert, Mr Gooding, and in principle I fail to see how this contention can be correct.

157. Whether the contract of sale was on FOB, C&F or CIF terms (I have, of course, held thatin this case it was on CIF terms), this seems to me to be nothing to the point, given that the plaintiff was being charged the same premium for all export shipments – as Mr Gooding recognized, shipments on FOB and C&F terms normally would be subject to a lower premium.

158. I accept and agree with the submission of Mr Sussex that ‘seller’s interest’ insurance is no more than a restricted form of cover which recognizes the reduced risk to which a seller is exposed when he sells on certain terms, but that this is a far cry from the proposition that ‘all risks’ cover does not encompass such type of cover.

159. No expert evidence was led to suggest that it was not, and accordingly I reject the defendant’s proposition.

(vi)    No loss suffered/no proximate cause

160. Two points are made in this context, neither of which strike me as having any intrinsic merit.

161. First, it is said that Anbest has suffered no loss in that the goods the subject of the sale to First Star were acquired from Thakral without payment, and that Thakral, Anbest’s parent, was the entity which received the money upon the conditional purchase, by Commonwealth Finance, of the bill of exchange drawn on First Star; thereafter, upon Commonwealth Finance failing to collect from Habib Bank, it was Thakral which reimbursed the moneys thus advanced, and that it was Thakral which has paid all the legal expenses now claimed as ‘sue and labour’ costs.

162. The shadow of Thakral has loomed large throughout this litigation, particularly within the interlocutory disputes, and for reasons which remain unclear its participation in this entire affair appears to have been regarded by underwriters in a sinister light.

163. Be that as it may.  I do not think that the evidence in this case demonstrates that Anbest made no payment for the goods purportedly onsold to First Star; to the contrary, as I recall during interlocutory argument much was made of the fact that in this transaction Anbest appeared to be onselling and yet making no profit on this transaction.

164. I do not consider that Thakral, of which Anbest is a wholly owned subsidiary, necessarily should have been made party to this litigation, which appears to be one consequence of this submission.  Nor does the fact that when a parent company defrays an expense on behalf of a subsidiary that subsidiary becomes indebted to the parent, with correlative mutual book entries no doubt reflecting that fact, occasion cause for alarm; this strikes me as a peculiarly arid argument within the jurisdiction of the Commercial Court, in particular in circumstances where, as here, Anbest was the party to the contract of sale entered into with First Star, and further was made party to the Marine Open Cover No HK-B1789, which in the relevant Schedule recites the Insured as “Thakral Corporation (HK) Ltd &/or other subsidiary companies &/or affiliate companies (details as below)”, wherein under the head “Name of Insured” appears within the 7 companies therein listed the name of ‘Anbest Electronics Ltd’.

165. Accordingly, I decline to accord any significance to this argument, and reject it.

166. Second, I have no sympathy with that which effectively is put forward as a ‘causation issue’.

167. Mr Smith says (at paragraphs 67 and 68 of his closing argument) that in any event, the claim in this action is for financial default and not for physical loss of the goods, and further that the proximate cause of the loss was (if the plaintiff is right) the wrongful obtaining of a bill of lading, or the loss of a bill of lading, which is not a peril insured against.

168. I do not consider this to be an attractive submission; to the contrary, it seems to me to be scraping the jurisdictional barrel.

169. That which occurred in the present case is similar to the events which gave rise to the decision in Australia & New Zealand Bank Ltd v. Colonial & Eagle Wharves Ltd [1960] 2 Lloyd’s Rep 241, a case in which wharfingers made delivery of goods to a person to whom delivery was intended, but without the authority of a bank which had a pledge on the goods.

170. The wharfingers claimed under an ‘all risks’ policy and were met by an argument similar to that which now is made by the defendant.  McNair J rejected the argument and found for the wharfingers, holding that there had been a loss to the wharfingers because the goods had been obtained in an unauthorized manner by means of a delivery order drawn up without the knowledge and consent of the bank; he said (op cit, at 251):

“As I followed the argument…it was that, thought the word ‘damage’ in the policy is wide enough to cover claims for the abstraction of the goods by theft and burglary, it is not wide enough to cover the case where no physical damage has been suffered by the goods and the goods have not been abstracted by a third party, but all that has happened is that the wharfingers have delivered the goods to the persons to whom they intended to take delivery.

In my judgment the short answer to this submission is that the goods were in fact abstracted by a third party, Ling, by his causing delivery orders to be presented when the goods remained subject to the Bank’s charges.  Furthermore, as it seems to me the policy clearly covers larceny, including obtaining the wool by false pretences.  On the facts of the present case, the false pretence may be said to be that the order was a valid order.  Notwithstanding that the consent of the defendants to making delivery was obtained and in that sense delivery was made to the person intended, it was still a wrongful abstraction…”

171. Mr Smith recognized the force of this decision, but sought to distinguish it on the facts on the basis that in that case the goods clearly were obtained by false pretences, but that in the present case there is nothing to indicate that the goods in question were not delivered with the knowledge and consent of the Habib Bank, who were the named consignees in the bill of lading.

172. This purported distinction will not wash in light of the specific finding I have made that this was a pre-planned theft of these goods made possible by complicity between First Star and an employee within the Habib Bank; in these circumstances it simply is not possible to maintain that what transpired took place with the legitimate knowledge and consent of that bank.  Plainly it did not.

173. Equally plainly, in this instance delivery of the relevant container was obtained in an unauthorized manner.  This was not merely a case of financial default.  The short and ineluctable point is that absent payment First Star never would have been able to get its hands on an original bill of lading, and thereafter to use that document to arrange for the wrongful abstraction of these goods.

174. In the circumstances, therefore, in my judgment this ‘causation argument’ fails in limine.

(vii)   The Sharjah Proceedings

175. At the outset of this judgment reference was made (at paragraphs 27-34) to the litigation which was instituted in Sharjah by Commonwealth Finance against the Habib Bank, which proceedings resulted in a dismissal of the claim, the Sharjah court making a finding that Habib Bank never had received a bill of lading as had been used to take delivery of the goods.

176. The defendant underwriters are critical of the events in Sharjah, and in substance say that what happened in this litigation – or, more precisely, what did not happen in terms of prosecuting an appeal against the decision of the first instance Sharjah court – constitutes a breach of the duty incumbent upon the plaintiff assured to minimize or avert loss.

177. The underwriters’ case in this regard is founded upon Clause 16 of the ICC(A), which reads:

“It is the duty of the Assured and their servants or agents in respect of loss recoverable hereunder
16.1.1	to take such measures as may be reasonable for the purpose of averting or minimizing such loss, and
16.1.2	to ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised
and the Underwriters will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges properly and reasonably incurred in pursuance of these duties.”

178. Mr Smith argues that the plaintiff has pleaded that the findings of the Sharjah court are perverse and contrary to the obvious facts: see the Re-Amended Reply, paragraph 15A.

179. He says that it is accepted by the experts on both sides that the Sharjah Court of Appeal will receive new evidence (documentary or otherwise), and may reverse the findings of the lower court on the basis of such new evidence. 

180. Accordingly, so his argument continued, given that the decision of the first instance Sharjah Court, in considering whether it had been established that the Habib Bank indeed had received the full set of 3 original bills of lading, itself was based upon the erroneous report of the court appointed expert – which report contained that expert’s obvious misconception that ‘Lawrence Leung’ and Leung Siu Fung were two different people (when in fact they were one and the same), in turn causing that expert to conclude that there was a significant disparity in the affidavit evidence as to the submission of documents by Commonwealth Finance to the Habib Bank – it followed that by “clearing up” this misunderstanding it should have been relatively easy to establish that the documents all were sent to the Habib Bank, in which event forensic evidence about the validity of the apparent chops and signatures of the Habib Bank clearly would assume less importance.

181. Thus, Mr Smith submitted, in the circumstances an appeal against the decision of the Sharjah first instance court should have been lodged, and that this was an appeal which in the circumstances “stood every chance of success” given the plaintiff’s pleaded contention as to the ‘perversity’ of the original decision.

182. It followed, therefore, said Mr Smith, that the failure to appeal this Sharjah judgment, or to procure an appeal by Commonwealth Finance, in the circumstances represented a breach of the plaintiff’s duty under Clause 16.2 of the ICC(A), and under section 78(4) of the Marine Insurance Act 1906.

183. If this be right, he continued, in the present case the plaintiff’s breach of duty would afford a complete defence as recovery of the amount claimed against the Habib Bank would extinguish the loss the subject of the current claim for indemnification under the Open Cover.

184. As for the plaintiff’s correlative claim for ‘sue and labour’ expenses, he submitted that such a claim could arise only if there was a loss within the scope of the cover, and in any event was subject to the argument concerning the plaintiff’s breach of duty and any set-off arising therefrom.

185. Moreover, said Mr Smith, as to the quantum of such expenses, the plaintiff had produced no narrative of the supporting invoices for the Hong Kong legal expenses, with the consequence that there remained outstanding the question as to the extent the replacement of Wilkinson & Grist by Richards Butler as the plaintiff’s Hong Kong solicitors dealing with the Sharjah lawyers must have involved unnecessary duplication of work; indeed, he said, this change of solicitor had occurred only when it had become clear that there was a conflict of interest after the plaintiff had indicated an intention to sue Commonwealth Finance.

186. This argument brings into sharp relief the ambit of the obligation upon an assured to exhaust alternative remedies before reverting to a claim against underwriters, although each case must turn on its own facts.

187. Clause 16 of the ICC(A) substantially corresponds with section 78 of the Marine Insurance Act 1906.  It is not a warranty, but merely a contractual stipulation, so that as the editors of Arnould express the position (see Vol 3, paragraphs 297-302):

“Failure to minimize a loss or failure to protect the value of insurer’s rights of subrogation, in breach of the duties under Clause 16, gives rise to no more than a cross-liability of the assured to the insurers in damages, and a potential for setting off that liability against the liability of the insurers under the policy, so as to afford them a complete or partial defence, according to the circumstances (more usually, the defence will at best be a partial defence).”

188. The case of Noble Resources Ltd and Unirise Development Ltd v. George Albert Greenwood (The “Vasso”) [1993] 2 Lloyd’s Rep 309 provides illustration of the difficulties faced by underwriters where an assured actively has considered whether to bring proceedings against a third party, but has decided that they are not appropriate.

189. In this case the plaintiff cargo owners claimed against the defendant, a representative Lloyd’s underwriter, in respect of the loss of the cargo which went down with the vessel ‘Vasso’.  The underwriter denied liability on the ground that the plaintiffs were in breach of the ‘duty of assured’ clause in the Cargo Institute Clauses in failing to obtain a Mareva injunction restraining the shipowners from removing from the jurisdiction any insurance proceeds in respect of the vessel’s hull and machinery.

190. In his judgment in that case Hobhouse J considered at some length the argument surrounding Clause 16/section 78; he said (op cit., at 313):

“The subject matter of cl. 16, as of s. 78, is to make express the duty of the assured to minimize or avoid a loss and to provide for the assured to be indemnified against the expenses that he so incurs.  Neither cl. 16 nor s. 78 has any role in defining the scope of the primary cover.  It states a collateral duty which arises once an insured peril has begun to take effect and confers collaterally an additional indemnity in connection with the performance of that duty.  Neither under the statute nor under the clause is the assured required to act unreasonably or to undertake any step other than one which could reasonably be expected to result in the avoidance or reduction of the loss.  The word ‘reasonable’ is included in 16.1 and the word ‘properly’ is included in 16.2.

Accordingly, on the facts of the present case the mere failure to apply for a Mareva injunction does not, without more, establish any failure to perform the duty imposed by cl. 16 (or s. 78).  The assured, and Mr Vassiliades their agent, acted reasonably and properly.  Mr Vassiliades conscientiously considered whether or not it was proper to swear an affidavit and apply for a Mareva injunction.  He concluded that it was not and the underwriters have not proved, or even begun to prove, that he was wrong.  On the correct construction of the clause more has to be shown than merely that some step was not taken.  Underwriters have to show that the step was a proper one which a reasonable assured, having regard to the interests of himself and the insurers and the provisions of the policy, should have been taken.

On the second point of construction, the argument of underwriters again departed from the long accepted understanding of the law of insurance and therefore it is of importance that it should be clearly stated to be incorrect.  The argument of underwriters is that cl. 16 should be construed as a contractual warranty of the kind referred to in s. 33 of the Act and that consequently any breach whatsoever of the assured’s duty as stated in cl. 16 has the effect of discharging underwriters from all further liability under the cover….

…the function of a warranty in a policy of marine insurance is primarily to define the extent of the cover…Clause 16 does not have that character and has nothing to do with the ambit of the policy…Clause 16, like s. 78, deals with a situation where a liability of the insurer to indemnify the assured has accrued and a duty of the assured arises to minimize the amount of that liability or even eliminate it….

Clause 16 simply imposes a duty, directly similar to that imposed by s. 78, which arises when there has been a casualty caused by a peril insured against so as to create a right to be indemnified in accordance with the terms of the policy..

The duty is essentially a duty to sue and labour.  The breach of that duty may cause loss to the insurer in which case the insurer will have a claim for damages against the assured in respect of such breach of duty insofar as the insurer has been caused loss.  Where the failure of the assured is a failure to exercise or preserve some right against a third party to which the insurer is entitled to be subrogated, the loss to the insurer will be equivalent to the value of the lost right against the third party.  This would be the position under both s. 78 and under cl. 16.  The duty is a contractual duty, the breach of which gives rise to a liability in damages.  In certain circumstances those damages may be equivalent to the full amount of the assured’s claim.  Where the subrogated right against the third party would have provided the insurer with a full reimbursement, the damages for the breach of the duty would, when set-off against the liability of the insurer to the assured, eliminate that liability and provide the insurer with a defence to the claim under the policy.  More usually, though, the defence will at best be a partial defence…”

191. I respectfully agree with, and adopt the views of Mr Justice Hobhouse as to the juridical effect of Clause 16.

192. When viewed in this light, I accept the submission of Mr Sussex that the only relevant question in this case thus is whether there is anything which was, or was not, done by the plaintiff which has caused the defendant underwriters to lose a right of subrogation which otherwise would have been available to them.  In other words, in the circumstances of this case has this plaintiff fallen short of that which a reasonable assured could be expected to have done, having regard to the interests of the insurers and of himself?

193. In my judgment the answer clearly is ‘No’.

194. In the present case that which has occurred is that the plaintiff, using the name of Commonwealth Finance, has pursued a claim in Sharjah against the Habib Bank, a claim in which it failed because the first instance court held that there was no proof that Habib Bank had received 3 original bills of lading.

195. The plaintiff decided not to pursue an appeal against this decision.

196. In this context, there is disagreement between the experts who have been called to testify as to Sharjah law.  It is perhaps fair to say that much of the evidence as to Sharjah law was not directly relevant to the present issue, but in the event, although I was assisted by both learned gentlemen, the evidence which I far preferred, and which I accept, was that of Dr Habib Al Mullah, an urbane and eminent gentleman whose evidence to this court essentially was supportive of the stance adopted by the plaintiff in terms of the decision not to appeal.

197. In any event, as Mr Sussex pointed out, even were the underwriters to establish a breach of Clause 16, any recovery thereunder could only be upon the basis of ‘loss of a chance’, since there could be no certainty that any action constituted with Anbest substituted as plaintiff necessarily would have succeeded, any more than there could be any certainty of a successful appeal within the context of the existing action, which itself had failed at first instance.

198. For my part, and having specifically accepted the evidence of Dr Habib, I am unable to, and do not, categorize the decision of the plaintiff not to appeal as imprudent or unreasonable in the circumstances of a case wherein an Emirates bank was being pursued, if I may be permitted to use a colloquial expression, its own backyard.

199. In addition, Mr Sussex has reminded the court that the evidence of Mr Daryanani, which I have accepted, is that when the plaintiff reached its decision not to cause an appeal to be filed, the defendant was offered the opportunity itself to take over the proceedings and to mount an appeal at its own cost, but declined, ostensibly on the ground that it did not have sufficient time to consider the suggestion.

200. It seems to me that this element of the case as advanced by underwriters is an inappropriate attempt to extend the conceptual envelope in terms of the application of Clause 16, which in my view is not intended to impose upon an assured an obligation to exhaust all alternative remedies prior to instituting any claim against underwriters; as Mr Sussex neatly expressed the position, “the contract of insurance does not become a recovery of last resort”.

201. Accordingly, I also reject the defendant’s Clause 16 defence of set-off based upon the Sharjah proceedings in that I do not accept that a breach of Clause 16 has been established.

202. It follows from this that the defendant’s counterclaim must be dismissed.

(viii)  Sue and labour expenses: Quantum

203. This claim, which was put in by amendment, requests at paragraph (1A) of the amended prayer for relief, “reimbursement of all sums properly and reasonably incurred by the plaintiffs in respect of the Sharjah proceedings.”

204. Particulars are provided at paragraph 22, and relate to legal fees expended in Sharjah, and to legal fees expended in Hong Kong to two firms of solicitors.

205. This element of the claim received scant attention at trial, although Mr Smith has complained about probable duplication of Hong Kong solicitors’ work.  Suffice it to say that the evidence on behalf of the plaintiff is that these sums, amounting in total to HK$593,933.84, were expended, and now are sought to be recovered in full.

206. Initially I had thought that this aspect of the claim should be remitted to be dealt with by a Master, but on reflection this strikes me as a potential waste of valuable judicial time, and in these circumstances I see no reason why the Commercial Court cannot take the usual ‘broad brush’ approach it adopts in relation to costs’ issues.

207. I think that Mr Smith’s ‘potential duplication’ argument may have some merit, and I see no reason why the defendant should be held liable to pay in full the bills from the two Hong Kong solicitors.

208. In the circumstances I will allow this element of the claim, subject to a notional deduction of approximately 25%, with the result that I hold that in terms of the ‘sue and labour’ quantum the plaintiff is entitled to recover HK$450,000.

Order

209. It follows from the foregoing that the plaintiff has succeeded in its claim against defendant underwriters.

210. No issue has been raised as to the indemnification sought under the policy in terms of the invoice price of the goods, less credit given for the US$10,000 deposit initially received from First Star, which sum no doubt was the price First Star considered worth paying in order to achieve the fraud as ultimately was practised on the plaintiff.

211. In the circumstances, therefore, I make the following Order in favour of the plaintiff:

1.	there be judgment for the plaintiff against the defendant in the sum of US$329,712.80;
2.	there be judgment for the plaintiff against the defendant in the further sum of HK$450,000.00;
3.	there be an order nisi that interest upon the foregoing US$ judgment award be at the rate of 1% over US$ prime from time to time prevailing for the period from the date of formal rejection by the defendant of the plaintiff’s claim to the date of judgment herein, and thereafter at the judgment rate from time to time prevailing until payment;
4.	there be an order nisi that interest upon the foregoing HK$ judgment award be at the rate of 1% over HK$ prime from time to time prevailing from the date of amendment to the Points of Claim to assert a claim for such HK$ sum to the date of judgment herein, and thereafter at the judgment rate from time to time prevailing until payment;
5.	there be an order nisi that the costs of this action be paid by the defendant to the plaintiff, such costs to be taxed if not agreed.

212. For the avoidance of doubt, the orders nisi specified above are to become absolute unless within 28 days of the date of this judgment application be made by either party to seek variation of such orders as now made.