M/S RAJANKUMAR AND BROTHERS (IMPEX) versus ORIENTAL INSURANCE COMPANY LTD. on 7 February 2020

M/S RAJANKUMAR AND BROTHERS (IMPEX)

v.

ORIENTAL INSURANCE COMPANY LTD.

(Civil Appeal No. 971 of 2014)

FEBRUARY 07, 2020

[MOHAN M. SHANTANAGOUDAR ANDK. M. JOSEPH, JJ.]

Insurance:

Marine insurance – Open cover insurance – Claim forinsurance in respect of insured cargo – Denied by insurer –Consumer complaint alleging deficiency in service – Complaintdismissed by NCDRC – Appeal to Supreme Court – Held: MarineCargo Cover Note as well as Marine Insurance Policy stated thatInstitute Classification Clause (ICC) was one of the warranties/ termsof insurance – The subject vessel was neither in compliance withthe ICC, nor had the insured given prompt notification to the insurerabout such non-compliance – It is also not proved that such breachwas waived by the insurer – Hence, the insurer rightly repudiatedthe insurance claim – Marine Insurance Act, 1963 – ss. 35(3) and36(3).

Marine Insurance Act, 1963:

ss. 35(3) and 36(3) – Nature of promissory warranty and itswaiver – Held: Automatic consequence of a breach of warranty, isdischarge of insurer’s liability – Such discharge of liability doesnot require any express conduct or representation from the insurer– However, waiver of breach of warranty can be done by way ofincorporating certain terms in the insurance contract or theexclusion clause in the Institute Cargo clause or by a representationor conduct of the insurer.

Dismissing the appeal, the Court

HELD: 1.1 The Marine Cargo Cover Note as well as theMarine Insurance Policy stated that the Institute ClassificationClause (ICC) would be one of the warranties/terms of insurance.Additionally, Clause 6 of the Cover Note prescribed that the

163

A

B

C

D

E

F

G

H

[2020] 6 S.C.R.

Asubject vessel needed to conform to the current ICC, in theabsence of which, the insurance cover would be subject topayment of an additional premium. [Para 5][177-A-B]1.2 The ICC is drafted and issued by the Joint CargoCommittee of the Lloyd’s Marketing Association (a premierBmarine insurance market in London) in consultation withinsurance and shipping interests. It is commonly understood thatthis ‘classification’ relates to the seaworthiness of the vessel inwhich the cargo is carried. The ICC 01/01/2001 imposes tworequirements to ensure that the vessel complies with a certainminimum standard of seaworthiness. The first is a classificationCrequirement which requires that the vessel should be classedwith a Classification Society which is a Member/AssociateMember of the International Association of ClassificationSocieties (‘IACS’) or, in the case of vessels engaged exclusivelyin coastal trading, a National Flag Society. The second is an ageDlimitation in respect of the insured vessel. [Para 5][177-B-D; 178-E-F]

1.3 An underwriter/insurer would usually trust the qualityof, and be prepared to issue a reasonable premium for, a vesselclassed with an IACS member society. On the other hand, theEinsurer may demand a higher premium, or deny insurance coveraltogether, for a voyage in respect of a vessel classed by a non-IACS member society. Hence, the ICC prescribes classificationwith a member of the IACS as the baseline for ensuring that thepolicy involves less risk for the underwriter. [Para 5][179-E-F]

F1.4 NCDRC has relied on the older version of the ICC, i.e.the 1978 version. The 1978 version of the ICC was replaced bythe ICC 13/4/92, the ICC 1/8/97, and the ICC 01/01/2001. TheICC 01/01/2001 is the most recent version of the ICC, and theone which is relevant for the purpose of the present case. Themost recent version of the ICC, i.e., ICC 01/01/2001 does notGhelp the appellant’s case inasmuch as it is stricter in its import.English jurisprudence stipulates two requirements to avail of such‘held covered’ provisions - first, ‘prompt notification’ to theunderwriter, and second, the availability of cover at reasonable

commercial market rates. However, the wording of the ‘heldcovered’ provision in the ICC 1978, did not expressly state theserequirements, leading to the apprehension that it may beinterpreted to mean that cover could be obtained in all cases,without any precautionary measures being followed by theassured. Hence, it appears that in order to avoid any confusion,the ICC 01/01/2001 has been drafted to expressly incorporatethe aforesaid two requirements. Under the ICC 01/01/2001, theassured must immediately inform the insurer/underwriter if theydiscover that the vessel carrying the cargo does not meet theclassification requirement. Additionally, if the vessel is such thata prudent underwriter would not be prepared to underwrite therisk at a reasonable premium, the assured is not entitled to theinsurance cover. These requirements are important because theclassification of the vessel is a significant factor for influencingthe underwriter’s decision-making as regards whether aninsurance cover should be issued for the marine voyage or not.[Para 5.1][180-A-C; 181-A-C]

1.5 Sub Clause 1 of the ICC 01/01/2001 provides that cargointerests are obligated to promptly notify insurance underwritersif the cargo is being carried by a vessel which is not classed asprescribed in the ICC, and Clause 5 thereof makes it clear thatfailure to provide such information will lead to exclusion of theinsurance cover. It is the burden of the assured to inform theinsurer about such non-compliance and negotiate a reasonablepremium beforehand. [Paras 5 and 5.2][179-G-H; 180-A; 181-F]

1.6 Thus, where a vessel is not classed with a recognizedclassification society in terms of the ICC, any loss incurred bythe cargo-owner will be excluded from the scope of the insurancecover. Further, the cargo owner is required to immediately notifythe underwriters and negotiate an additional premium if the vesselis not classed in accordance with the ICC. [Para 5.6][189-D-E]

1.7 In the instant case, it is apparent that neither was thesubject vessel in compliance with the ICC clause, nor had theappellant given prompt notification to the respondent about suchnon-compliance. The appellant, in its letter had informed the AB

C

D

E

F

G

H

Arespondent that the vessel is of ‘I.R.S.’ class. However, the fullform of ‘I.R.S.’ was not specified. The appellant has contendedthat the NCDRC wrongly interpreted the term ‘I.R.S.’ to mean‘Indian Register of Shipping’ and that the subject vessel wasactually registered and classified with the ‘International Registerof Shipping’. However, the official website of the InternationalBRegister of Shipping shows that its official acronym is ‘INTLREG’.Whereas ‘I.R.S.’ is the official acronym of the ‘Indian Register ofShipping’.Hence the appellant’s contention that ‘I.R.S.’ refers tothe International Register of Shipping is prima facie notsustainable. [Para 5.7][189-E-H; 190-A]

C

1.8 The appellant had also averred in its complaint beforethe NCDRC that the Overseas Seller had produced a certificatedated 11.6.2010, certifying that the subject vessel was registeredwith an approved Classification Society as per the ICC. Further,that as per the said certificate, the class of the subject vessel was Dequivalent to Lloyd’s 100A1, and the subject vessel was seaworthyand not more than 30 years old. However, no such evidence ofthe vessel’s classification was ever provided to the respondent.It is true that the appellant has, during the course of hearing thisappeal, placed the certificate dated 11.6.2010 before this Court.However, a perusal of the certificate shows that is only a self-Ecertification wherein the vessel owners have claimed that thesubject vessel is classed with an approved classification societyas per the ICC clause. It cannot be taken as conclusive evidencethat the vessel was actually classed with an IACS member society.[Para 5.7][190-A-D]F

1.9 Even if it is accepted that the vessel is classed with theInternational Register of Shipping ‘INTLREG’, this does not helpappellant’s case inasmuch the INTLREG is not one of the 12accredited Member Societies of the IACS. Rather, it is the I.R.S.which is an IACS member. It has never been the case of theGappellant that the subject vessel was classed by the IndianRegister of Shipping. It is also not the appellant’s case that thesubject vessel was classed with a National Flag Society. Hence,the appellant had committed breach of the classificationrequirement contained in Clause 1 of the ICC. [Para 5.7][190-D-F]H

1.10 The letter dated 26.5.2010 sent by the appellant tothe respondent, in respect of the ship’s particulars, cannot besaid to constitute ‘prompt notification’ as the particulars of thesubject vessel’s classification were not clearly specified therein.The respondent may have, in good faith, assumed that ‘I.R.S.’meant that the subject vessel was classed with the ‘IndianRegister of Shipping’, and may have consequently inferred thatthe subject vessel fell within the scope of the ICC clause.[Para 5.8][190-F-H]

1.11 It was only pursuant to the appellant’s request forrelease of separate salvage security that the respondent’s claimsettling agents, M/s. W.K. Webster & Co., London by e-maildated 9.8.2010 informed the respondent that as per theirinvestigation, the subject vessel was classed with Lloyd’s Registerof Shipping only until 10.10.2007, after which the classificationwas withdrawn. Hence it was only from this e-mail that therespondents came to know that the shipment may fall outsidethe scope of the insurance cover, as per the terms of the ICC.Consequently, the ‘prompt notification’ requirement has not beensatisfied, and there is no ground for the application of the ‘heldcovered’ clause. [Para 5.8][191-A-C]

1.12 No prudent underwriter would have agreed to coverthe risk involved in a such a high value shipment under theMarine Cargo Clause even though the appellant had nodocumentary evidence on record to prove the classification ofthe subject vessel. However, neither of the parties has ledevidence on whether the respondent would have agreed to insurethe policy for a reasonable premium had the correct particularsof the subject vessel been disclosed. Hence, it is not appropriateto record any findings on the same. In any case, such questiondoes not arise inasmuch as the appellant did not provide “promptnotification” in the first place. Hence, as provided under Clause5 of the ICC, the insurer’s liability is automatically discharged.[Para 5.9][191-C-E]

1.13 Consequently, the appellant had committed breach ofthe warranty contained in the Marine Insurance Policy requiringthe subject vessel to be classed in accordance with the ICC, andsuch breach of warranty discharged the liability of the insurer.[Para 5.9][191-F]

AB

CD

EF

G

H

A2.1 A warranty imposes certain obligations on the insured,and Section 35(3) of Marine Insurance Act, 1963 makes it amplyclear that a warranty needs to be complied with, regardless ofwhether or not its non-compliance materially affects the riskinvolved in carrying the shipment. As a corollary, when a warrantyis not complied with, i.e., there is a breach of warranty, the insurerBis discharged from liability from the date of such breach, by virtueof Section 35(3). At the outset, therefore, it is important to notethat the scheme of the 1963 Act is clear inasmuch as the automaticconsequence of a breach of warranty is discharge of the insurer’sliability. Such discharge of liability does not require any expressCconduct or representation from the insurer. [Para 6][192-E-G]

2.2 However, Section 36(3) of the 1963 Act provides thatthe insurer may waive a breach of warranty. Such a waiver may bedone either by or by way of incorporating certain terms in theinsurance contract, such as the ‘held covered’ clause in the ICCDor the exclusion clause found in the Institute Cargo Clauses, orby a representation or conduct of the insurer. [Para 6][192-G-H;193-A]

2.3 It is commonly understood that a waiver in the contextof marine insurance, apart from one already provided for by wayEof ‘held covered’ or other such terms in the insurance contract,must include two elements, namely, (i) knowledge of the insurer,and (ii) unequivocal representation of the insurer. The presenceof both these elements is indispensable. [Para 6.3][194-E-F]

2.4 Even if the insurer makes an express representationFthat it would affirm the contract and indemnify the loss, if theinsurer can prove that such a representation was made withoutthe knowledge that there was a breach of warranty on part of theinsured, the liability of the insurer would stand discharged fromthe date on which the warranty was breached. Similarly, mereknowledge on the part of the insurer that there was a breach ofGwarranty would not amount to a waiver, in the absence of an expressrepresentation to that effect. [Para 6.3][194-F-H]

2.5 Insofar as the element of knowledge is concerned, ifthe vessel carrying the insured cargo incurs loss, and the insurerseeks to investigate into whether or not there was a breach ofwarranty, no knowledge can be attributed to the insurer until suchinvestigation is completed. Once there is knowledge, the secondelement, i.e., unequivocal representation comes into play. Therepresentation must be of such a nature that it is sufficient forthe insured to conclude that the insurer is aware of the breach ofwarranty and has chosen to waive such breach and indemnify theloss. The determination of whether or not these elements arepresent, assumes more complexity in cases where such arepresentation comes from an agent of the insurer, or where suchan agent has knowledge of the breach. However, these argumentswith respect to representations made by the insurer’s agent havenot been raised and hence, such issues need not be addressedfor the purposes of the present case. [Para 6.4][195-A-C]

2.6 In the instant case, though the respondent initially issuedthe Cover Note dated 14.5.2010 without knowing the particularsof the vessel in which the appellant’s cargo was to be carried, itsubsequently issued the Marine Insurance Policy after theparticulars of the subject vessel, including the purportedclassification of ‘I.R.S.’, were received. However, while theimportance of the ICC is undoubtedly more significant in casesof ‘open-cover’ insurances where the specific details of the vesselcarrying the cargo are not known to the insurer, a ‘facultative’insurance policy in which the details of the subject vessel arespecified, need not be mutually exclusive with the ICC. Mereformal issuance of the Marine Insurance Policy by the respondentdoes not indicate ‘acceptance’/waiver of the vessel’s classificationor lack thereof. [Para 6.1][193-A-E]

2.7 It was contended by the appellant that non-compliancewith the ICC stood waived by Clause 5.2 of the Marined InsurancePolicy. However, it cannot be said that the ICC was an ‘implied’warranty within the meaning of Clause 5.2. It was stated on theface of the Marine Cargo Cover dated 14.5.2010 and the MarineInsurance Policy that the ICC is one of the warranties/terms ofinsurance. [Para 6.2][193-G-H; 194-A]

A

B

C

D

E

F

G

H

A2.8 In any case, the appellant’s stand is that the subjectvessel was classed with the ‘INTLREG’ (which it has mistakenlyreferred to as ‘I.R.S.’). The very purpose of adopting the ICC isto ensure that the vessel chosen by the insured meets certainminimum standards of seaworthiness, by virtue of being classedwith one of the well-established member societies of the IACS.BThe appellant, having known that the subject vessel was classedwith the ‘INTLREG’, which neither was nor is a member of theIACS, was privy to the fact that the subject vessel was notcompliant with the minimum standard of seaworthiness as laidout in the Marine Insurance Policy. Clause 5.2 only waivesCbreaches of implied warranties of seaworthiness where theassured was not privy to the unseaworthiness of the vessel.Hence, the appellant would not be saved by Clause 5.2 of thePolicy, and it cannot be said that the respondent had waived thebreach of warranty before the appellant’s claim, by incorporatingClause 5.2 of the Policy. [Para 6.2][194-A-D]D

2.9 Under the facts and circumstances of the present case,the breach of warranty occurred when the appellant informed therespondent by letter dated 26.5.2010 that the subject vessel wasclassed by ‘I.R.S.’, thereby indicating the subject vessel wascompliant with the ICC. After the subject vessel ran aground onEthe midnight of 18.7.2010, the appellant requested the issuanceof General Average Guarantee, and the same was issued on3.8.2010. At the outset, the General Average Guarantee in ‘FormB’ dated 3.8.2010 issued by the respondent to the GAA was only an undertaking to pay the shipowners and the GAA on behalf ofFthe appellant for their contribution to the General Average, asand when such contribution was ascertained. This Guarantee wasissued as per Clause 2 of the Marine Insurance Policy, underwhich the respondent had agreed to cover all general averageand salvage charges. At the time the aforesaid General AverageGuarantee dated 3.8.2010 was issued, the respondent was stillGunder the impression that the subject vessel is in compliancewith the ICC. Obviously, such impression was based on therepresentation made by the appellant that the subject vessel wasclassed with I.R.S. It was only by the e-mail dated 9.8.2010 fromits claim settling agent that the respondent came to know thatHthe subject vessel does not meet the prescribed classification.

Subsequently, the respondent withdrew the Guarantee andrefused to pay the separate salvage security. Hence, the issuanceof the General Average Guarantee cannot be understood as awaiver inasmuch as the respondent, on the date of such issuance,did not have the knowledge of the breach of warranty committedby the appellant and was only fulfilling its duty to contribute tothe General Average in good faith, as required by Clause 2 of theMarine Insurance Policy. [Para 6.5][195-D-F]

2.10 Further, in any case, at the time of issuing the GeneralAverage Guarantee, the respondent did not expressly state thatit was aware of the non-compliance with the ICC and it was waivingthe same. In fact, the moment the breach of warranty wasdiscovered, the respondent initiated steps to withdraw theGeneral Average Guarantee that had been issued by them andrefused to pay the additional salvage security, which clearlydemonstrates that there was no intent to waive the breach ofwarranty. Therefore, it cannot be said that the respondent hadwaived the breach of warranty through its conduct orrepresentations after the claim was made by the appellant. [Para6.6][196-D-E]

2.11 Thus, the appellant had committed breach of warrantyand the same was not waived by the respondent. As a result therespondent rightly repudiated the claim of the appellant. [Para9][197-B]

Everbright Commercial Enterprises Pte Ltd v. AxaInsurance Singapore Pte Ltd[2001] SGCA 24; Thamesand Mersey Marine Insurance Co Ltd v. H T Van Laun& Co [1917] 2 KB 48; Liberian Insurance Agency Incv. Mosse [1977] 2 Lloyd’s Rep 560; Nam KwongMedicines & Health Products Co. Ltd. v. ChinaInsurance Co. Ltd. [2002] 2 Lloyd’s Rep. 591; KamHing Trading (Hong Kong) Ltd. v. The People’sInsurance Co. of China (Hong Kong) Ltd. and Anr.[2010] 4 HKLRD 630 – referred to.

John Dunt, Marine Cargo Insurance by (Informa Law,Routledge, 2009) 166 – referred to.

A

B

C

D

E

F

G

H

A

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 971 of2014.

From the Judgment and Order dated 12.11.2013 of the NationalConsumer Disputes Redressal Commission, New Delhi in ConsumerBComplaint No. 200 of 2012.

Parthiv K. Goswami, Syed Naqvi, Vinod Kumar, Rajesh Kumar,Advs. for the Appellant.

Santosh Paul, Sr. Adv., Sudhanshu Das, Akshat Vikram, Ms. ArtiSingh, Advs. for the Respondents.

CThe Judgment of the Court was delivered by MOHAN M. SHANTANAGOUDAR, J.

1. This appeal arises out of judgement of the National ConsumerDisputes Redressal Commission (‘NCDRC’) dated 12.11.2013, dismissingthe consumer complaint filed by the Appellant herein.D

2. The timeline of events giving rise to the present appeal is asfollows: The Appellant is a partnership firm in the business ofimport-export of various commodities, including steel coils. TheRespondent insurance company issued a Marine Cargo Cover Note(hereinafter ‘Cover Note’) dated 14.5.2010 for a sum of 12,63,712.50EUS Dollars, covering voyage from any port in China to Mumbai Port. Itwas stated in the aforesaid Cover Note that a policy document would beissued once the Appellant furnished the requisite particulars of the vesselin which the cargo was being carried. Accordingly, the Appellantforwarded the particulars of ‘Khalijia-III’, the vessel in which the cargowas to be carried (hereinafter ‘subject vessel’), to the Respondent, videFletter dated 26.5.2010. It was stated in this letter that the subject vesselwas built in March 1985, and its “class” was specified as ‘I.R.S.’. TheAppellant’s case is that it had communicated the aforementioned detailsregarding the subject vessel to the Respondent, as well as theRespondent’s insurance broker, as per the documents presented by theOverseas Seller.G

2.1 Thereafter, Hangzhou Cogeneration (Hong Kong) Co. Ltd.(hereinafter ‘Overseas Seller’), through its agent M/s Kirtanlal & Sons,shipped 80 prime hot rolled steel coils weighing 2000 Metric Tonnes onboard the subject vessel from Caofeidian Port, China to the Appellant,for discharge at Mumbai Port. The subject vessel was carrying on board H

consignments of prime hot rolled steel coils of seven other importerswho had also imported them from the same Overseas Seller.Subsequently, the Respondent’s brokers issued a single voyage policydated 2.7.2010 (hereinafter ‘Marine Insurance Policy’) to the Appellant.It is undisputed that the Marine Insurance Policy covered all risks as perthe Institute Cargo Clauses (A), Institute War Clause, and Institute StrikeClause.

2.2 The subject vessel reached Mumbai port on 6.7.2010 andwas allotted a berth on 14.7.2010 for discharge of the cargo. However,on account of failure of the vessel’s crane during discharge, furtherdischarge could not take place, and the subject vessel was removedfrom the allotted berth by an order of the port authorities. Subsequently,on 19.7.2010, the Appellant came to know that the subject vessel hadrun aground on the midnight of 18.7.2010. Thus, by letter dated 20.7.2010,the Appellant informed the Respondent that there was a possibility ofthem claiming under the Marine Insurance Policy.

2.3 Thereafter, the shipowners engaged the services of M/S. SmitSingapore Private Ltd. (‘Salvors’) for the purpose of recovering thecargo. The shipowners also appointed M/s Richard Hogg Lindley as theGeneral Average Adjustor (‘GAA’). The GAA sent an email dated27.7.2010 to both the Appellant and the Respondent, stating that thesituation had given rise to a “General Average”. The concept of GeneralAverage, in maritime law, refers to a loss mitigation measure wherebyall those who are interested in a marine adventure make pro ratacontributions towards the losses sustained or expenditure incurred intime of peril for the common good of all parties.[1] For instance, if a shipruns aground, as in the present case, the shipowners and the cargointerests are mutually liable for reimbursing the losses arising from suchan event. If there is a contract of marine insurance in respect of thevoyage, the insurer will be liable for reimbursing the amount on behalf ofthe assured cargo owner.

Accordingly, the Appellant requested its insurer i.e. the Respondent,to issue a General Average Guarantee in ‘Form B’, as required by theGAA. The Respondent consequently issued a guarantee dated 3.8.2010,agreeing to pay the GAA on behalf of the Appellant, for contribution 1 Kyraki Nouassia, The Principle of Indemnity in Marine Insurance Contracts: AComparative Approach (Springer, 2007) 161.

A

B

C

D

E

F

G

H

Atowards the General Average, as well as towards other special charges.These documents were submitted by the Appellant to the GAA.

2.4 After the receipt of the General Average Guarantee, the GAArequested the Appellant to pay a separate salvage security of 25 percent of the ‘Cost, Insurance, and Freight’ (‘C.I.F.’) value of their cargo,Bwhich amounted to 256,880 US dollars. Hence, by letter dated 5.8.2010,the Appellant requested the Respondent to issue the salvage security.The Appellant contends that the Respondent did not issue the separatesalvage security as required, resulting in the withholding of the releaseof the Appellant’s consignment at Mumbai port, and exposing it to heavydemurrage and likelihood of further damages. In addition to not issuingCthe salvage security, the Respondent, by letter dated 20.8.2010, informedthe Appellant that they were withdrawing the General Average Guarantee,‘Form B’ issued by them earlier in respect of the Appellant’s consignmenton the subject vessel, on account of non-compliance with the ‘InstituteClassification Clause’ (‘ICC’) in the Marine Insurance Policy.D

2.5 Unfortunately for the Appellant, on 7.8.2010 there was acollision between the subject vessel and a navy vessel in the watersnear Mumbai Port. On 13.8.2010, the Salvors claimed a maritime lien onthe cargo. Further, the Salvors initiated arbitration proceedings againstthe Appellant and the shipowners. During the course of the aforesaidEarbitration proceedings, the Salvors obtained interim orders from theHon’ble High Court of Mumbai, restraining the Appellant from removingtheir consignment from Mumbai Port. Ultimately, vide order dated24.8.2010, the High Court directed that the Appellant would be allowedto take its consignment on furnishing security in the form of a bankguarantee in the sum of Rs. 14 crores. The Appellant furnished theFsecurity as directed and took delivery of the consignment from theMumbai Port Trust on 3.9.2010. On 2.12.2011, the Arbitrator passed anaward against the Appellant and other cargo owners, finding them liablefor reimbursing the costs incurred by the Salvors.

2.6 The Appellant, by letter dated 2.2.2012, requested theGRespondent to settle the losses incurred by it, and also forwarded a copyof the aforementioned arbitration award dated 2.12.2011. A legal noticewas also sent on 21.6.2012, followed by a reminder on 4.7.2012, butthese went unanswered. Hence, the Appellant filed a consumer complaintbefore the NCDRC against the Respondent, asking for compensation H

on account of the losses incurred, for deficiency in service, and for thelegal and other incidental expenses.

2.7 The Respondent did not file a written statement before theNCDRC, and its request for consideration of written arguments wasrejected. However, counsel for the Respondent was allowed to makeoral submissions on the questions of law involved in the case. TheNCDRC found that the Appellant had failed to prove that the subjectvessel was in compliance with the ICC stated in the Marine InsurancePolicy. It noted a communication dated 9.8.2010, in which theRespondent’s claim settling agent in London had informed the Respondentthat the subject vessel was classed with Lloyd’s Register of Shippinguntil 10.10.2007, after which Lloyd’s had withdrawn the aforesaidclassification, and that the subject vessel appeared to be outside thescope of the ICC. The NCDRC further found that the subject vesselhad been more than 25 years old on the date of loss i.e. when it ranaground on 18.7.2010, and the Appellant had not produced any documentshowing that the subject vessel was classed as ‘I.R.S.’ Hence, thecomplaint was dismissed.

3. Heard learned counsel for both parties.

3.1 Learned counsel for the Appellant submitted that the ‘I.R.S.’classification was granted to the subject vessel by the ‘InternationalRegister of Shipping’, which is an independent classification society.Further, that after the issuance of the Cover Note, the Appellant hadprovided all particulars regarding the subject vessel, and expressly askedthe Respondent whether the subject vessel was acceptable. It was arguedthat had the Respondent indicated at the time of the issuance of theMarine Insurance Policy that the classification was not acceptable; theAppellant could have paid an extra premium to purchase the policy. Thisis as per the terms of Clause 6 of the Cover Note, which reads thus:

“6 For coverage of shipments by sea: the vessel shall conform tothe current Institute Classification Clause; otherwise the covershall be subject to additional steamer extra premium such ascoverage, under tonnage, non- classification and non approval extraat underwriter’s discretion.”

Learned counsel also referred to the Institute Marine CargoClause (A) (‘Cargo Clause’) within the Marine Insurance Policy,which provides for waiver of any breach of implied warranties ofseaworthiness of the subject vessel. He argued that under the terms of AB

C

D

EF

G

H

Athe Cargo Clause, the Respondent would have the right to not indemnifythe Appellant only if the Appellant or its servants were privy to suchunseaworthiness. It was argued that the Appellant was merely acargo-importer, and not the vessel owner, and had communicated all theparticulars of the vessel as provided to it by the Overseas Seller.Therefore, the Appellant could not be said to have been privy to theBunseaworthiness, if any, of the subject vessel.

Lastly, it was contended that indemnification by the Respondentcould not be dependent on the amount of loss caused to the insured or onthe nature of accident that caused the loss. It was argued that that oncethe Respondent provided the General Average Guarantee, it was estoppedCfrom claiming that the Appellant had breached the ICC.

3.2 On the other hand, learned counsel for the Respondent arguedthat there was a clear breach of the ICC, inasmuch as the Appellant hadfailed to disclose that the classification granted to the subject vessel byLloyd’s Register of Shipping had been withdrawn on 10.10.2007. So farDas the I.R.S. classification is concerned, it was submitted that ‘I.R.S.’referred to Indian Register of Shipping, and not International Register ofShipping, as claimed by the Appellant. Furthermore, it was contendedthat although the Appellant claimed to possess a certificate proving the‘I.R.S.’ classification of the subject vessel, it had neither submitted theEsaid certificate to the Respondent, nor produced the same before theNCDRC.

In response to the Appellant’s argument that the Respondent wasestopped from claiming breach of the ICC by its conduct in providingthe General Average Guarantee, it was submitted that at the time whenFsuch Guarantee was sought for by the Appellant, the priority of all partiesinvolved was to ensure mitigation of losses by saving as much of thecargo as possible. It was only after the collision of the subject vessel on07.08.2010 that the Respondent began investigating into the seaworthinessof the vessel, and found out that it was not a classed vessel at the time ofissuance of the Marine Insurance Policy. Therefore, it was submittedGthat the Respondent would not be estopped from claiming breach of theICC merely because it had, in good faith, provided the General AverageGuarantee so as to mitigate the Appellant’s losses.

4. Upon our perusal of the material on record and after hearingthe learned counsels, we find that two issues arise in the instant case:H

First, whether the Appellant had committed breach of warrantywith respect to compliance with the ICC?

Second, whether the Respondent had waived such breach ofwarranty by the Appellant?

5. With respect to the first issue, it is not disputed that both theCover Note and the Marine Insurance Policy stated that the ‘ICC’ wouldbe one of the warranties/terms of insurance. Additionally, Clause 6 ofthe Cover Note, as mentioned supra, prescribed that the subject vesselneeded to conform to the current ICC, in the absence of which, theinsurance cover would be subject to payment of an additional premium.

At this juncture, we find it useful to dwell upon the scope andrelevance of the ICC in marine insurance contracts. The ICC is draftedand issued by the Joint Cargo Committee of the Lloyd’s MarketingAssociation (a premier marine insurance market in London) inconsultation with insurance and shipping interests. It is commonlyunderstood that this ‘classification’ relates to the seaworthiness of thevessel in which the cargo is carried.[2] The relevant portion of the latestversion of the ICC, as revised in 2001 (‘ICC 01/01/2001’), which was inforce at the time of the Marine Insurance Policy, and continues to be inforce till date, reads as follows:

“QUALIFYING VESSELS

1 This insurance and the marine transit rates as agreed in thepolicy or open cover apply only to cargoes and/or interests carriedby mechanically self-propelled vessels of steel construction classedwith a Classification Society which is:

1.1 a Member or Associate Member of the InternationalAssociation of Classification Societies (IACS), or 1.2 a National Flag Society as defined in Clause 4 below, but onlywhere the vessel is engaged exclusively in the coastal trading ofthat nation (including trading on an inter-island route within anarchipelago of which that nation forms part).

Cargoes and/or interests carried by vessels not classed as abovemust be notified promptly to underwriters for rates and conditionsto be agreed. Should a loss occur prior to such agreement beingobtained cover may be provided but only if cover would have 2 See John Dunt, Marine Cargo Insurance (Informa Law, Routledge, 2009)166.

A

B

C

D

E

F

G

H

178SUPREME COURT REPORTS

[2020] 6 S.C.R.

Abeen available at a reasonable commercial market rate onreasonable commercial market terms.

AGE LIMITATION

2 Cargoes and/or interests carried by Qualifying Vessels (asdefined above) which exceed the following age limits will beBinsured on the policy or open cover conditions subject to anadditional premium to be agreed.

Bulk or combination carriers over 10 years of age or other vesselsover 15 years of age unless they:

2.1 have been used for the carriage of general cargo on anestablished and regular pattern of trading between a range ofspecified ports, and do not exceed 25 years of age, or C

2.2 were constructed as containerships, vehicle carriers ordouble-skin open-hatch gantry crane vessels (OHGCs) and haveDbeen continuously used as such on an established and regularpattern of trading between a range of specified ports, and do notexceed 30 years of age.

xxx

PROMPT NOTICEE

5 Where this insurance requires the assured to give prompt noticeto the Underwriters, the right to cover is dependent uponcompliance with that obligation.”(emphasis supplied)

As is evident from the above, the ICC 01/01/2001 imposes tworequirements to ensure that the vessel complies with a certain minimumFstandard of seaworthiness. The first is a classification requirement whichrequires that the vessel should be classed with a Classification Societywhich is a Member/Associate Member of the International Associationof Classification Societies (‘IACS’) or, in the case of vessels engagedexclusively in coastal trading, a National Flag Society. The second is anGage limitation in respect of the insured vessel. The IACS consists of 12member societies, as listed below:

(i) American Bureau of Shipping (A.B.S.)

(ii) Bureau Veritas

(iii) China Classification Society (C.C.S.)H

A

(iv) Croatian Register of Shipping (C.R.S.)

(v) Det Norske Veritas-Germanischer Lloyd (D.N.V.-G.L.)

(vi) Indian Register of Shipping (I.R.S.)

(vii) Korean Register of Shipping (K.R.)

B

(viii) Lloyd’s Register (L.R.)

(ix) Nippon Kaiji Kyokai (ClassNK)

(x) Polish Register of Shipping (P.R.S.)

(xi) Registro Italiano Navale (R.I.N.A.)

C

(xii) Russian Maritime Register of Shipping (R.S.)

The official statement provided by the IACS about its QualityStandards is significant for understanding why classification of a cargovessel with a member-society of the IACS, as opposed to any othersociety, is considered as a yardstick to judge whether the voyage policycan be reasonably insured. Members of the IACS have to comply withthe IACS ‘Quality System Certification Scheme’ (QSCS), which, after25 years of continuous evolution, is considered as the ‘gold standard’ forship classification societies. Moreover, every IACS member is requiredto have its own ‘Internal Quality Management System’ for ensuring thatclassed vessels meet certain minimum criteria of quality. The audits ofall IACS members, and of those societies who wish to be considered forsuch membership, are carried out by independent accreditation bodies,[3]which lends further legitimacy to the classification accorded to vesselsby IACS members.

D

E

Thus, it can be inferred from the above that an underwriter/insurerFwould usually trust the quality of, and be prepared to issue a reasonablepremium for, a vessel classed with an IACS member society. On theother hand, the insurer may demand a higher premium, or deny insurancecover altogether, for a voyage in respect of a vessel classed by anon-IACS member society. Hence, the ICC prescribes classificationGwith a member of the IACS as the baseline for ensuring that the policyinvolves less risk for the underwriter.

3 International Association of Classification Societies, QualitySystem Certification Scheme (QSCS), http://www.iacs.org.uk/quality/quality-system-certification-scheme- qscs/ (Last visited Feb. 2, 2020).

H

ATherefore, Sub Clause 1 of the ICC 01/01/2001 provides thatcargo interests are obligated to promptly notify insurance underwritersif the cargo is being carried by a vessel which is not classed as prescribedin the ICC, and Clause 5 makes it clear that failure to provide suchinformation will lead to exclusion of the insurance cover.B5.1 It has been contended by the Appellant that the NCDRC has A

B5.1 It has been contended by the Appellant that the NCDRC haserred in relying on the older version of the ICC, i.e. the 1978 version.We are in agreement with the said contention of the Appellant, inasmuchas the 1978 version of the ICC was replaced by the ICC 13/4/92, theICC 1/8/97, and the ICC 01/01/2001. As mentioned supra, the ICC 01/01/2001 is the most recent version of the ICC, and the one which isCrelevant for the purpose of the present case.

However, the most recent version of the ICC, i.e., ICC 01/01/2001, parts of which we have quoted earlier, does not help the Appellant’scase inasmuch as it is stricter in its import. We find it useful to undertakea comparative analysis of the older versions of the ICC and the ICC 01/D01/2001 in this regard. Clause 1 of previous versions of the ICC statedthat, “The marine transit rates agreed in this insurance apply only tocargoes and/or interests…classed as below by one of the followingclassification societies.” This phrasing had led to confusion as to whethera failure of the vessel to comply with the classification requirement wouldEmean that the risk was completely excluded from cover or merely thatthe premium rate, as agreed upon, would no longer apply and the assuredwould have to pay a different premium rate.[4] Hence, in the ICC 01/01/2001, Sub Clause (1) was modified to read as follows:

“This insurance and the marine transit rates as agreed in the policyFor open cover apply only to cargoes and/or interests…classedwith a Classification Society...” (emphasis supplied)

The word ‘insurance’ was specifically added in the ICC 01/01/2001 to clarify that the insurance itself, and not merely the rate ofpremium, is subject to compliance with the classification requirement.[5]GFurthermore, the 1978 version provided that:

“Cargoes and/or interests carried by mechanically self- propelledvessels not falling within the classification of the above are held coveredsubject to a premium and on conditions to be agreed.” (emphasis supplied)

4 Dunt, supra note 2, at 167.

H5 Dunt, supra note 2, at 167.

The aforementioned ‘held covered’ provision acted as a savingclause to cater for situations where an assured discovered that the vesselin which their cargo was being carried fell outside the classification and/or age requirement in the ICC. In such a situation the assured cargoowner could still avail of the insurance cover subject to negotiatingpayment of an additional premium with the insurer.

English jurisprudence stipulates two requirements to avail of such‘held covered’ provisions - first, ‘prompt notification’ to the underwriter,and second, the availability of cover at reasonable commercial marketrates. However, the wording of the ‘held covered’ provision in the ICC1978, quoted supra, did not expressly state these requirements, leadingto the apprehension that it may be interpreted to mean that cover couldbe obtained in all cases, without any precautionary measures beingfollowed by the assured. Hence, it appears that in order to avoid anyconfusion, the ICC 01/01/2001 has been drafted to expressly incorporatethe aforesaid two requirements. Under the ICC 01/01/2001, the assuredmust immediately inform the insurer/underwriter if they discover thatthe vessel carrying the cargo does not meet the classification requirement.

Additionally, if the vessel is such that a prudent underwriter wouldnot be prepared to underwrite the risk at a reasonable premium, theassured is not entitled to the insurance cover.[6] These requirements areimportant because, as discussed earlier, the classification of the vessel isa significant factor for influencing the underwriter’s decision-making asregards whether an insurance cover should be issued for the marinevoyage or not.

5.2 We find it useful to refer to some of the common law decisionson the impact of non-compliance with the classification requirement inthe ICC. The courts of Singapore and Hong Kong have frequently beenseized with this question, and have held that non-compliance would renderthe claim of the assured excluded from cover, and that it is the burden ofthe assured to inform the insurer about such non-compliance and negotiatea reasonable premium beforehand.

5.3 In Everbright Commercial Enterprises Pte Ltd v. AxaInsurance Singapore Pte Ltd [2001] SGCA 24, the respondentinsurance company issued an ‘open cover note’ to the appellant in thatcase, trading in respect of shipment of wood logs from the Solomon 6 Dunt, supra note 2, at 168.

A

B

C

D

E

F

G

H

AIslands to Tuticorin, India. The arrangement between the parties underthe terms of the aforesaid ‘open cover’ was that the appellant wouldprovide the respondent’s insurance broker, Wilcom, the details withrespect to the description of the goods, and the ports of loading anddischarge, for the purposes of issuance of the cover note. However, theparticulars of the carrying vessel were to be declared subsequent to theBcover note being issued. The insurance policy was to be issued onlyonce the vessel was on the way to the port of discharge.

The cover note was issued by Wilcom on behalf of the insurer on9.5.1997. On 2.7.1998, the appellant communicated the particulars ofthe ship to Wilcom, including that the class of the vessel wasC‘HSR-100A1’. Subsequently, before the insurance policy could be issued,the ship was lost. The insurer came to know that the ship was a ‘phantomship’, i.e. one which has no valid classification, is not registered with anyrecognized ship registry, and is usually operated by criminals. Hence,the insurer repudiated the appellant’s claim on the ground that the vessel Ddid not comply with the requirements of the ICC 13/4/92 (which was theversion of the ICC in force at that time) as stipulated in the cover note.

The Singapore Court of Appeal upheld the repudiation. It alsoheld that though the appellant cargo company had given prompt notice, itwould not be saved by the ‘held covered’ clause as no reasonableEunderwriter would agree to issue cover for a vessel with a suspiciousclassification background, even for a higher premium. It is pertinent tonote that the above decision in Everbright Commercial Enterprises(supra) was rendered in the context of the ICC 13/4/92 when the ‘heldcovered’ provision did not expressly provide for the requirements of‘prompt notification’ and ‘availability of reasonable premium’. However,Fthe Court relied upon the common law interpretation of ‘held covered’,as laid down in the decisions of Thames and Mersey Marine InsuranceCo Ltdv. H T Van Laun & Co [1917] 2 KB 48 and Liberian InsuranceAgency Inc v. Mosse [1977] 2 Lloyd’s Rep 560, to incorporate theaforesaid requirements, and made the following observations:G“35 In construing this clause, we should bear in mind that thepurpose of adopting the ICC is to ensure that the vessel chosenby the insured to carry his cargo would meet certain standards ofseaworthiness and maintenance by virtue of the fact that thecarrying vessel is classed by one of the well-establishedinternational classification societies listed in the ICC and is withinH

certain age limits. In an open-cover insurance, as in thepresentcase, the ICC is adopted and forms part of the cover note, and isprincipally intended to deal with the agreed rates of premium forthe insurance of a shipment in a case where the cover is providedbefore the particulars of the carrying vessel are declared to theunderwriter. Where the carrying vessel subsequently declared hasa listed classification and is within the age limitation, the ICC appliesthe agreed rates of premium for the insurance of such shipment.Where, however, the carrying vessel declared does not have alisted classification or is not within the age limitation, such agreedrates are not applicable for the insurance of the shipment; but insuch event, the shipment is, nonetheless, covered and falls withinthe held covered clause, subject to the payment of a premium aswell as on conditions to be agreed between the underwriter andthe insured. In Marine Reinsurance (1981) by Robert H Brownand Peter B Reed, the learned authors said at p 127:

When operating a cargo open cover the underwriter is notin a position to examine each risk separately, nor to assess it onthe basis of the carrying vessel. He is obliged to accept all validdeclarations declared under the open cover. However, to ensurethat he obtains a premium commensurate with the additional riskarising from the use of inferior vessels or bad management heattaches a “classification clause” to the open cover.The effect ofthis clause is to apply a higher premium rate to shipments carriedby overseas vessels that do not meet the minimum requirementsof the classification clause.

The held covered clause is in effect a safety net to provide shippersa cover for their cargoes in the event that the carrying vesselsdeclared by them do not satisfy the requirements as to class andage specified in the ICC, subject to the payment of a premiumand on conditions to be agreed…

Xxx

53 Reverting to the present facts, one has to ask what a reasonablecommercial rate of premium would be, that would have been fixed,if the parties were aware of all the facts affecting the risk involvedin shipping the cargo on board the Sirena 1. No regard should begiven to the fact that the Sirena 1 eventually turned out to be aphantom ship since that would be erroneously taking into account AB

C

D

E

F

G

H

A

B

C

D

E

F

G

H

SUPREME COURT REPORTS

the “casualty” that happened later. Instead, the focus should beon all the facts that were available on 2 July 1998,when Everbright declared the details of the Sirena 1 to AXA…Itis clear from the Greenock case ([49] supra) and the two caseswhich followed it, that it does not matter that the relevant factsaffecting the risks were not known to the parties until after theloss had already occurred. All the facts that were available at thattime should be taken into account. The following are the relevantand undisputed facts about the Sirena 1 which we find couldhave been known to the parties on 2 July 1998:

(a) The vessel was not classed by any recognised classificationsociety. Its classification was stated as HSR-100A1. It is unclearwhich classification society classed the vessel. It was speculatedthat “HSR” could either be Hellenic Shipping Registry of Greeceor Honduras Shipping Registry. A proper check would haverevealed that the Sirena 1 had no proper classification…

(c) The vessel was not listed or found in the Lloyd’s Register ofShips…

(e) The cover was on Institute Cargo Clauses (All Risks) terms.

(f) The shipment was a chartered shipment, where there is higherrisk involved, bearing in mind the size and value of the cargo to beinsured.

54 Before the incidence of the loss, it was probably unlikely that areasonable and prudent underwriter would conclude withreasonable certainty that the Sirena 1 was a phantom ship. But itdoes not follow that a reasonable and prudent underwriter wouldbe prepared to provide insurance for the kind of risks involved. Inour view, when confronted with the facts which we have discussed,a reasonable and prudent underwriter would be put on enquiryand upon enquiry, they would find that there was no record ofSirena 1, and what emerged would be a vessel with a highlysuspect background. Clearly, there were sufficient warning signswhich would persuade a reasonable and prudent underwriter toreject providing cover rather than to accept a higher premium tocover the increased risks. This is especially so since the policyrequired was on Institute Cargo Clauses (All Risk) terms and thevalue to be insured was high as it was a chartered shipment. In our judgment, in the circumstances, a reasonable commercial rateof premium would not be available for insuring the shipment oflogs on board the Sirena 1, and consequently Everbright wouldnot be able to invoke successfully the held covered clause…”

Thus, it can be seen from the above that the lack of recognizedclassification was a significant factor in leading the Court to concludethat the appellant therein would not be saved by the ‘held covered’ clause.This is because no underwriter/insurer would agree to insure a highvalue shipment, and include all risks arising thereunder for a voyageinvolving a vessel which is of suspect classification, even if the assuredagreed to pay a higher premium in respect of the same.

The Court further held that the fact that the insurer had notspecifically informed the appellant, prior to loss of the ship, that the vesselwas not included in the ICC, would not amount to a case of estoppel bysilence or acquiescence. Rather, it was held that it was the obligation ofthe assured to ensure that the shipment complied with the terms andconditions of the cover note, as elucidated by the Court in the followingterms:

“57 In considering this issue of estoppel, it is helpful to bear inmind the obligations of each party in effecting the insurance underthe cover note. It is not disputed that the insurance sought to beeffected by Everbright with AXA was not a facultative insurancewhere the insured provides full details of the shipment, includingthe relevant particulars of the vessel, to the underwriter forconsideration on whether the shipment would be accepted forimmediate insurance. What the parties here had arranged for wasan open-cover insurance or one akin to an open-cover insurance,where a cover note incorporating the ICC was first issued for theprospective shipment of cargo and the relevant particulars relatingto the shipment were to be declared later by Everbright to AXA.In respect of this arrangement, the obligation was on Everbrightto ensure that their shipment complied with the terms and conditionsof the cover note, and only if such shipment complied with theterms would there be insurance coverage for the shipment. AXA,on their part, had no right to reject a vessel which complied withthe terms and conditions, but they were under no obligation to A

BC

D

EF

G

H

Ainform Everbright, if the vessel declared did not fall within theterms of the ICC.”

It is true that the Court’s reasoning in Everbright was significantlypredicated upon the fact that the respondent insurer had issued an‘open-cover’ insurance in which the insurer had only issued a cover-noteBbased on the details of the cargo and the port of origin and destination of

the voyage, and the relevant particulars of the vessel had not beenprovided to the insurer in advance. This is important to note because inthe present case, though the Respondent initially issued the Cover Notedated 14.5.2010 (supra) without knowing the particulars of the vessel, itsubsequently issued the Marine Insurance Policy dated 2.7.2010 afterChaving received the Appellant’s communication that the vessel wasclassed as ‘I.R.S.’

Subsequent common-law decisions, however, have held that theobligation of the assured to inform the correct details in respect of thevessel’s classification extends even where a policy is issued after theDparticulars of the vessel have been provided.

5.4 In Nam Kwong Medicines & Health Products Co. Ltd. v.China Insurance Co. Ltd. [2002] 2 Lloyd’s Rep. 591, the insurer deniedliability for loss of goods during sea voyage inter alia on the ground thatthe vessel was unclassified, and thus, there was a breach of the ICC. ItEwas contended by the insured that in ‘facultative’ insurance covers wherethere was no warranty that the ship was classed with an approvedclassification society, and where an ‘overage’ surcharge (i.e. an extrapremium with respect to the age of the vessel) had been duly paid, theICC could not be made applicable.

F

The High Court of Hong Kong rejected the argument of theinsured, holding that facultative insurance covers and the ICC were notmutually exclusive, and that the requirement of ICC classification wasno different from the one that existed in open- cover insurances. TheCourt also reaffirmed the principle of English law as stated in LiberianGInsurance Agency (supra), i.e., that the ‘held covered’ clause ininsurance contracts could not be invoked in cases where it would havebeen impossible to insure the risk at a reasonable commercial rate ofpremium.

5.5 In Kam Hing Trading (Hong Kong) Ltd. v. The People’sInsurance Co. of China (Hong Kong) Ltd. and Anr. [2010] 4 HKLRDH

630, the respondent insurance company repudiated the claim of theappellant cargo seller on the ground that the vessel carrying was notclassed in compliance with the ICC. It may be worth noting that in KamHing Trading (supra), the appellant cargo company had produced acertificate to show that the vessel was classed by the InternationalRegister of Shipping. However, it was observed by the High Court ofHong Kong that the International Register of Shipping was not a Memberor Associate Member of the IACS, as required by the ICC 01/01/2001.

It was argued by the appellant that the burden to verify whetheror not the vessel was classed was upon the insurer, and that once theinsured had provided the name of the vessel to the insurer, the insurerhad the means to verify the class of the vessel from registers/databasesof ships, and the subsequent issuance of a marine cargo policy by theinsurer amounted to acceptance of the non-classed vessel.

The High Court of Hong Kong, referring to the decision of theSingapore Court of Appeal in Everbright Commercial Enterprises(supra), held that as per the ICC 01/01/2001, the insured was obligatedto disclose that the vessel was not classed in accordance with the ICC.The Counsel for the appellant sought to distinguish Everbright on theground that in Kam Hing, a policy had been issued subsequent to theopen cover-note. However, the High Court of Hong Kong held that theobligation to disclose the vessel’s classification was a continuing obligation

- the assured was required to provide a ‘prompt notice’ to the insureronce it became privy to the fact that the vessel was non-classed, even ifsuch information was discovered after the policy had already beenissued. The following observations of the High Court of Hong Kong arerelevant to the instant case:

“172. It was the evidence of Mr Bilney, which in its substantiallyamended form I accept, that the ICC/01 class requirement is ofcentral importance, and constitutes a condition of the insurance. Ialso accept the evidence of Mr Xie that such internal check aswas made by the insurer did not extend to class, and in any eventmy view is that as a matter of principle that in the situation as hadarisen the plaintiff was obliged to ensure by ‘prompt notice’ to theinsurer that the carrying vessel was an “approved” vessel in termsboth of the Open Cover and after issue of an actual policy; theOpen Cover and the Cargo Policy each incorporated the ICC,and I have no doubt that this must be a continuing obligation onthe part of the insured.

AB

C

D

E

F

G

H

A

B

C

D

E

F

G

H

xxx

174. It follows that I reject the plaintiff’s submission that the legal/evidential ‘burden’ of discovering the non- compliant class of thevessel lay on the insurer, which in light of such information as itmay then discover of its own volition then has to evaluate whether,and upon what terms, it is going to assume the increased risk, justas I reject the argument that the formal issuance of a cargo policyeffectively is conclusive of the insurer’s acceptance of the situationand/or that by such issuance a ‘non-ICC-classed’ vessel therebyis, in effect, somehow transmuted to an ICC/01 ‘approved vessel’.

xxx

179. Accordingly, I reject the argument that in the circumstancesof this case the information given by the insured to the insurerconstituted ‘prompt notice’ in ICC/01 terms (see clauses 1 and 5of ICC/01), and that thereafter it was the responsibility of theinsurer to do its own investigation from the primary (but patentlyincomplete) data provided by the putative insured, and thereafterto ‘fill in the blanks’ in terms of acceptance or otherwise arisingfrom any perception of increased risk due to any knowledge whichmay have been gained as to the ‘non-ICC-classed’ status of thiscarrying vessel.

180. I accept the contention of the 1st defendant that the wholeobject of the ICC/01 - even absent an express ‘held covered’clause - is to place the underwriter on risk, and that if the assuredwishes to seek extended cover - as for example, due to the use,as here, of a non-ICC-classed vessel - then “prompt notice” (videClause 5 of the ICC) must be given to underwriters.

xxx

181. In this context I record, and also accept, Mr Bartlett’ssubmission that the plaintiff never pleaded a case that it did send‘notice’ to the insurers, and factually never did so, although henoted that at trial Mr Sussex but “faintly” had referred to an emailfrom a Mr Sunny Ng of the plaintiff to loss adjusters dated 27December 2007 as comprising such ‘notice’. I agree with thesubmission that this email clearly was nothing of the sort, and said no more than it was attaching documents pursuant to a requestfrom the loss adjusters for such documents, and made no mentionof a desire to engage in negotiation for revised insurance terms,and thus could not possibly constitute nor purport to be a ‘notice’to insurers; indeed, in her evidence Ms Lui had confirmed that theplaintiff had never sent nor instructed the 2nd defendant to sendsuch a notice to the insurer under ICC/01.”

Therefore, where the insurer issues the insurance policy basedon incomplete or incorrect details provided by the assured, it does notamount to acquiescence to improper classification of the vessel. It is theduty of the assured to provide the full and correct particulars of thevessel at the time of issuance of the policy, irrespective of whether ornot the insurer carries out any due diligence from their end. Since nosuch prompt notice was given by the appellant in Kam Hing Trading(supra), the High Court held that the appellant was excluded from thescope of the insurance cover. The High Court further observed thateven if such evidence had been given, there was no evidence to showthat premium could have been obtained at reasonable market terms, andhence the ‘held covered’ clause would not apply.

5.6 Thus, it can be seen from the above decisions that where avessel is not classed with a recognized classification society in terms ofthe ICC, any loss incurred by the cargo-owner will be excluded from thescope of the insurance cover. Further, the cargo owner is required toimmediately notify the underwriters and negotiate an additional premiumif the vessel is not classed in accordance with the ICC.

5.7 In the instant case, it is apparent that neither was the subjectvessel in compliance with the ICC clause, nor had the Appellant givenprompt notification to the Respondent about such non-compliance. TheAppellant, in its letter dated 26.5.2010 (supra) had informed theRespondent that the vessel is of ‘I.R.S.’ class. However, the full form of‘I.R.S.’ was not specified. As mentioned supra, the Appellant hascontended that the NCDRC wrongly interpreted the term ‘I.R.S.’ tomean ‘Indian Register of Shipping’ and that the subject vessel wasactually registered and classified with the ‘International Register ofShipping’. However, our perusal of the official website of the InternationalRegister of Shipping shows that its official acronym is ‘INTLREG’.[7]

7 See International Register of Shipping, ‘About’, https://intlreg.org/about/.

AB

C

D

E

F

G

H

AWhereas ‘I.R.S.’ is the official acronym of the ‘Indian Register ofShipping’.[8] Hence the Appellant’s contention that ‘I.R.S.’ refers to theInternational Register of Shipping is prima facie not sustainable.

The Appellant had also averred in its complaint before the NCDRCthat the Overseas Seller had produced a certificate dated 11.6.2010,Bcertifying that the subject vessel was registered with an approvedClassification Society as per the Institute Classification Clause. Further,that as per the said certificate, the class of the subject vessel wasequivalent to Lloyd’s 100A1, and the subject vessel was seaworthy andnot more than 30 years old. However, no such evidence of the vessel’sclassification was ever provided to the Respondent. It is true that theCAppellant has, during the course of hearing this appeal, placed thecertificate dated 11.6.2010 before this Court. However, a perusal of thecertificate shows that is only a self-certification wherein the vesselowners have claimed that the subject vessel is classed with an approvedclassification society as per the ICC clause. It cannot be taken as Dconclusive evidence that the vessel was actually classed with an IACSmember society.

Even if we were to accept the Appellant’s contention that thevessel is classed with the International Register of Shipping (hereinafter‘INTLREG’ for convenience), this does not help its case inasmuch theEINTLREG is not one of the 12 accredited Member Societies of theIACS. Rather, it is the I.R.S. which is an IACS member. It has neverbeen the case of the Appellant that the subject vessel was classed bythe Indian Register of Shipping. It is also not the Appellant’s case thatthe subject vessel was classed with a National Flag Society. Hence wefind that the Appellant had committed breach of the classificationFrequirement contained in Clause 1 of the ICC.

5.8 The letter dated 26.5.2010 sent by the Appellant to theRespondent, in respect of the ship’s particulars, cannot be said toconstitute ‘prompt notification’ as the particulars of the subject vessel’sclassification were not clearly specified therein. The Respondent mayGhave, in good faith, assumed that ‘I.R.S.’ meant that the subject vesselwas classed with the ‘Indian Register of Shipping’, and may have 8 See Indian Register of Shipping, ‘About IRClass’, https://www.irclass.org/about-irclass/.H

consequently inferred that the subject vessel fell within the scope of theICC clause.

It was only pursuant to the Appellant’s request for release ofseparate salvage security that the Respondent’s claim settling agents,M/s. W.K. Webster & Co., London by e-mail dated 9.8.2010 informedthe Respondent that as per their investigation, the subject vessel wasclassed with Lloyd’s Register of Shipping only until 10.10.2007, afterwhich the classification was withdrawn. Hence it was only from thise-mail that the Respondents came to know that the shipment may falloutside the scope of the insurance cover, as per the terms of the ICC.Consequently, we find that the ‘prompt notification’ requirement has notbeen satisfied, and there is no ground for the application of the ‘heldcovered’ clause.

5.9 Further, as per the observations of the Singapore Court ofAppeal in Everbright Commercial Enterprises (supra), we consider ithighly unlikely on the facts of this case that any prudent underwriterwould have agreed to cover the risk involved in a such a high valueshipment under the Marine Cargo Clause (which covers almost all risksof loss or damage), even though the Appellant had no documentaryevidence on record to prove the classification of the subject vessel.However, neither of the parties has led evidence on whether theRespondent would have agreed to insure the policy for a reasonablepremium had the correct particulars of the subject vessel been disclosed.Hence we do not consider it appropriate to record any findings on thesame. In any case, such question does not arise inasmuch as the Appellantdid not provide “prompt notification” in the first place. Hence, as providedunder Clause 5 of the ICC, the insurer’s liability is automaticallydischarged.

Consequently, we conclude that the Appellant had committedbreach of the warranty contained in the Marine Insurance Policy requiringthe subject vessel to be classed in accordance with the ICC, and suchbreach of warranty discharged the liability of the insurer.

6. The second issue which then arises for our consideration iswhether the Respondent had, through its conduct or in any of itscommunications, waived the requirement of compliance of the subjectvessel with the classification requirement of the ICC. In this regard, itmay be of use to refer to Sections 35 and 36 of the Marine InsuranceAct, 1963 (‘1963 Act’):

A

BC

D

EF

G

H

“35. Nature of warranty.—(1) A warranty, in the followingsections relating to warranties, means a promissory warranty, thatis to say a warranty by which the assured undertakes that someparticular thing shall or shall not be done, or that some conditionshall be fulfilled, or whereby he affirms or negatives the existenceof a particular state of facts.

A

B

(2) A warranty may be express or implied.

(3) A warranty, as above defined, is a condition which must beexactly complied with, whether it be material to the risk or not. Ifit be not so complied with, then, subject to any express provisionCin the policy, the insurer is discharged from liability as from thedate of the breach of warranty, but without prejudice to any liabilityincurred by him before that date.

36. When breach of warranty excused.—(1) Non- compliancewith a warranty is excused when, by reason of a change ofDcircumstances, the warranty ceases to be applicable to thecircumstances of the contract, or when compliance with thewarranty is rendered unlawful by any subsequent law.

(2) Where a warranty is broken, the assured cannot avail himselfof the defence that the breach has been remedied, and the warrantycomplied with before loss.

E

(3) A breach of warranty may be waived by the insurer.”

A warranty imposes certain obligations on the insured, and Section35(3) makes it amply clear that a warranty needs to be complied with,regardless of whether or not its non-compliance materially affects theFrisk involved in carrying the shipment. As a corollary, when a warrantyis not complied with, i.e., there is a breach of warranty, the insurer isdischarged from liability from the date of such breach, by virtue of Section35(3). At the outset, therefore, it is important to note that the scheme ofthe 1963 Act is clear inasmuch as the automatic consequence of a breachof warranty is discharge of the insurer’s liability. Such discharge ofGliability does not require any express conduct or representation from theinsurer.

However, Section 36(3) of the 1963 Act provides that the insurermay waive a breach of warranty. Such a waiver may be done either byor by way of incorporating certain terms in the insurance contract, such H

as the ‘held covered’ clause in the ICC or the exclusion clause found inthe Institute Cargo Clauses, or by a representation or conduct of theinsurer. We shall first examine whether the Respondent had waived thebreach of warranty by way of incorporating certain terms in the contract.

6.1 In the instant case, though the Respondent initially issued theCover Note dated 14.5.2010 without knowing the particulars of the vesselin which the Appellant’s cargo was to be carried, it subsequently issuedthe Marine Insurance Policy after the particulars of the subject vessel,including the purported classification of ‘I.R.S.’, were received. However,while the importance of the ICC is undoubtedly more significant in casesof ‘open-cover’ insurances where the specific details of the vesselcarrying the cargo are not known to the insurer, as held in Nam KwongMedicines (supra), a ‘facultative’ insurance policy in which the detailsof the subject vessel are specified, need not be mutually exclusive withthe ICC.

It is not the Appellant’s case that the Respondent had chosen toissue the Marine Insurance Policy despite being informed by the Appellantthat the vessel was non-classed. Rather the Appellant had representedthat the subject vessel was ‘I.R.S.’ classed. That being the case, asnoted in Everbright Commercial Enterprises and Kam Hing Trading(supra), it was not the Respondent’s burden to have investigated theAppellant’s claim and informed the Appellant that the subject vesselwas non-classed. Hence, at the outset it is important to note that themere formal issuance of the Marine Insurance Policy by the Respondentdoes not indicate ‘acceptance’/waiver of the vessel’s classification orlack thereof.

6.2 At this juncture, it may be pertinent to refer to Clause 5 of theMarine Insurance Policy which provides for exclusion of loss arisingfrom unseaworthiness of the subject vessel.

“5.1 In no case shall this insurance cover loss damage or expensearising from unseaworthiness of vessel or craft…

5.2 The Underwriters waive any breach of the implied warrantiesof seaworthiness of the ship and fitness of the ship to carry thesubject-matter insured to destination, unless the Assured or theirservants are privy to such unseaworthiness or unfitness.”

It was contended by the Appellant that non-compliance with theICC stood waived by Clause 5.2, as stated above. However, it cannot A

B

C

D

E

F

G

H

Abe said that the ICC was an ‘implied’ warranty within the meaning ofClause 5.2. It was stated on the face of the Marine Cargo Cover dated14.5.2010 and the Marine Insurance Policy that the ICC is one of thewarranties/terms of insurance.

In any case, the Appellant’s stand is that the subject vessel wasBclassed with the ‘INTLREG’ (which it has mistakenly referred to as‘I.R.S.’). As the Singapore Court of Appeal has observed in EverbrightCommercial Enterprises (supra) and as discussed supra, the verypurpose of adopting the ICC is to ensure that the vessel chosen by theinsured meets certain minimum standards of seaworthiness, by virtue ofbeing classed with one of the well-established member societies of theCIACS. The Appellant, having known that the subject vessel was classedwith the ‘INTLREG’, which neither was nor is a member of the IACS,was privy to the fact that the subject vessel was not compliant with theminimum standard of seaworthiness as laid out in the Marine InsurancePolicy. Clause 5.2 only waives breaches of implied warranties ofDseaworthiness where the assured was not privy to the unseaworthinessof the vessel. Hence, the Appellant would not be saved by Clause 5.2 ofthe Policy, and it cannot be said that the Respondent had waived thebreach of warranty before the Appellant’s claim, by incorporating Clause5.2 of the Policy.

6.3 We may now turn to whether the Respondent waived theEbreach of warranty by its conduct or any representation. During thecourse of arguments, it was put to the learned counsel for the partieswhether the act of provision of General Average Guarantee amountedto a waiver of breach of warranty. It is commonly understood that awaiver in the context of marine insurance, apart from one already providedFfor by way of ‘held covered’ or other such terms in the insurance contract,must include two elements, namely, (i) knowledge of the insurer, and (ii)unequivocal representation of the insurer. The presence of both theseelements is indispensable.

For instance, after the occurrence of loss, even if the insurer makesan express representation that it would affirm the contract and indemnifyGthe loss, if the insurer can prove that such a representation was madewithout the knowledge that there was a breach of warranty on part ofthe insured, the liability of the insurer would stand discharged from thedate on which the warranty was breached. Similarly, mere knowledgeon the part of the insurer that there was a breach of warranty would notH

amount to a waiver, in the absence of an express representation to thateffect.[9]

6.4 Insofar as the element of knowledge is concerned, if the vesselcarrying the insured cargo incurs loss, and the insurer seeks to investigateinto whether or not there was a breach of warranty, no knowledge canbe attributed to the insurer until such investigation is completed.[10] Oncethere is knowledge, the second element, i.e., unequivocal representationcomes into play. The representation must be of such a nature that it issufficient for the insured to conclude that the insurer is aware of thebreach of warranty and has chosen to waive such breach and indemnifythe loss. The determination of whether or not these elements are presentassumes more complexity in cases where such a representation comesfrom an agent of the insurer, or where such an agent has knowledge ofthe breach. However, these arguments with respect to representationsmade by the insurer’s agent have not been raised before us, and hence,such issues need not be addressed for the purposes of the present case.

6.5 Under the facts and circumstances of this case, the breach ofwarranty occurred when the Appellant informed the Respondent by letterdated 26.5.2010 that the subject vessel was classed by ‘I.R.S.’, therebyindicating the subject vessel was compliant with the ICC. After the subjectvessel ran aground on the midnight of 18.7.2010, the Appellant requestedthe issuance of General Average Guarantee, and the same was issuedon 3.8.2010. At the outset, the General Average Guarantee in ‘Form B’dated 3.8.2010 issued by the Respondent to the GAA was only anundertaking to pay the shipowners and the GAA on behalf of the Appellantfor their contribution to the General Average, as and when suchcontribution was ascertained. This Guarantee was issued as per Clause2 of the Marine Insurance Policy, under which the Respondent had agreedto cover all general average and salvage charges. Clause 2 reads asfollows:

“2. This insurance covers general average and salvage charges,adjusted or determined according to the contract of affreightmentand/or the governing law and practice, incurred to avoid or inconnection with the avoidance of loss from any cause, exceptthose excluded in Clauses 4, 5, 6 and 7 or elsewhere in thisinsurance.”

9 Baris Soyer, Warranties in Marine Insurance (Cavendish, 2001) 206-213.

10 Udm 209.

A

BC

D

EF

G

H

AAt the time the aforesaid General Average Guarantee dated3.8.2010 was issued, the Respondent was still under the impression thatthe subject vessel is in compliance with the ICC. Obviously, suchimpression was based on the representation made by the Appellant thatthe subject vessel was classed with I.R.S. It was only by the e-maildated 9.8.2010 from its claim settling agent that the Respondent came toBknow that the subject vessel does not meet the prescribed classification.Subsequently, the Respondent withdrew the Guarantee and refused topay the separate salvage security. Hence, the issuance of the GeneralAverage Guarantee cannot be understood as a waiver inasmuch as theRespondent, on the date of such issuance, did not have the knowledgeCof the breach of warranty committed by the Appellant and was onlyfulfilling its duty to contribute to the General Average (as explained supra)in good faith, as required by Clause 2 of the Marine Insurance Policy.

A

6.6 Further, in any case, at the time of issuing the General AverageGuarantee, the Respondent did not expressly state that it was aware ofthe non-compliance with the ICC and it was waiving the same. In fact,Dthe moment the breach of warranty was discovered, the Respondentinitiated steps to withdraw the General Average Guarantee that had beenissued by them and refused to pay the additional salvage security, whichclearly demonstrates that there was no intent to waive the breach ofwarranty. Therefore, it cannot be said that the Respondent had waivedEthe breach of warranty through its conduct or representations after theclaim was made by the Appellant.

7. Since we have concluded that the liability of the insurer wasdischarged on account of the breach of warranty caused bynon-compliance with the classification requirement within the ICC, weFdo not consider it relevant to deal with the age limitation requirementtherein for the purpose of the present case.

8. It is pertinent to note that during the course of hearing thepresent appeal, three other parties, namely K. Amishkumar Trading Pvt.Ltd., Baijnath Melaram and Viraj Impex Pvt. Ltd. (‘Intervenors’) filedIntervention Applications No. 3 of 2016, No. 4 of 2016 and No. 5 ofG2016 respectively in the present appeal. The aforesaid Intervenors filedindividual consumer complaints against the Respondent before theNCDRC, which are presently pending adjudication.

The Intervenors’ applications were allowed by this Court videorder dated 27.10.2017. We do not consider it appropriate to decide theH

Intervenors’ claims on merits at this stage, especially since these mayrequire separate findings of fact as to the terms and conditions of thepolicies issued by the Respondent to them, the warranties made by theIntervenors to the Respondent and so on. Hence, we direct that theIntervenors be relegated to record their evidence before the NCDRC,and the NCDRC is requested to hear the matters on merits and decidethe same expeditiously, in accordance with the law as stated by us above.

9. Thus, we conclude that the Appellant had committed breach ofwarranty and the same was not waived by the Respondent. As a result,the Respondent rightly repudiated the claim of the Appellant.

10. In view of the above, the impugned judgement of the NCDRCstands confirmed, and the appeal is dismissed.

Kalpana K. Tripathy

Appeal dismissed.

A

B

C

D

E

F

G

H