Confidence redresses the balance?

By Alex Kemp, Senior Associate, Holman Fenwick Willan (HFW), IUMI Professional Partner

The past few years have seen a number of developments in the London insurance markets that could give insurers cause for concern. The new changes brought in by the Insurance Act 2015 have been extensively written about, although their effects may yet not fully be understood. We have also seen the decision in the DC Merwestone, which went all the way to the Supreme Court in 2016, to determine the scope of the fraudulent device rule. Some commentators, including some of the judges who heard the case, have said that this case could be seen as a "cheat's charter".

However, there are some positive signs for insurers. In October 2016, the Admiralty Court handed down its decision in the Atlantik Confidence in which HFW acted for the successful insurers. After a six-week hearing, seven strands of expert evidence and many factual witnesses, the court concluded that the principal behind the owner of the Atlantik Confidence had ordered the vessel to be "deliberately sunk by the Master and Chief Engineer". The owners were therefore not entitled to limit their liability.

The owners (without the support of their P&I Club which had funded the initial litigation) then applied in December 2016 to the Court of Appeal for permission to appeal. Last month the Court of Appeal firmly refused that application. The Court of Appeal stated that the Admiralty Court had been careful to draw together all the strands of the evidence and stand back and review the arguments and probability/improbability as a whole. The Court of Appeal noted that the appealing owners could not point to any evidence of significance which the Admiralty Court had ignored or failed to take into account.  As a result the appeal had no real prospect of success and there was no other compelling reason to allow the appeal. This means that the decision of the Admiralty Court stands and the finding that the owners had deliberately sunk Atlantik Confidence is final.

While this case was in the context of the Convention of Limitation of Liability for Maritime Claims 1976 (as amended), the Admiralty Court found that the test for establishing whether or not a vessel had been scuttled for the purposes of that Convention was identical to that used in the past to establish a scuttling under a marine insurance policy. This is the first scuttling case that has been heard by the English courts in some time and insurers should take much heart from the fact that the Admiralty Court was willing to make this decision.  It shows quite clearly that in the right case the Court will have no reluctance to find that an owner has deliberately sunk its vessel. The case is a helpful reminder that an insurer does not need to have "hard evidence", or a "smoking gun".  The court is entitled to look at the evidence in the round and the likelihood of the owner’s explanation for the sinking being true. The court is also entitled to look at any circumstantial evidence that may be relevant.

In a time when insurers' powers under an insurance contract may be said to be diminishing it is encouraging to see that it is still possible for insurers to vigorously defend fraudulent claims.

HFW is an ‎IPP partner and HFW partners Richard Neylon and Guillaume Brajeux are attending the Tokyo IUMI Conference 2017.