Delos Shipholding SA & Ors v Allianz Global Corporate and Speciality SE & Ors [2025] EWCA Civ 1019

[2025] EWCA Civ 1019Case No CA-2024-000950
IN THE COURT OF APPEAL (CIVIL DIVISION)
[2024] EWHC 719 (Comm)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
KING’S BENCH DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
Mrs Justice Dias
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 30/07/2025
Before
LADY JUSTICE ASPLINLORD JUSTICE MALESLORD JUSTICE POPPLEWELL
Between
DELOS SHIPHOLDING S.A.Respondents/ClaimantsNICHOLAS G. MOUNDREAS SHIPPING S.A.RespondentFML SHIP MANAGEMENT LTDRespondentTHE NATIONAL BANK OF GREECE S.A.RespondentALLIANZ GLOBAL CORPORATE AND SPECIALTY S.E.Appellants/AXA CORPORATE SOLUTIONS ASSURANCEDefendantsGENERALI IARDAppellantHELVETIA ASSURANCES S.A.AppellantMAPFRE GLOBAL RISKS, COMPANIA INTERNATIONAL DE SEGUROS Y REASEGUROSAppellantSOCIETÀ ITALIANA DI ASSICURAZIONI E RIASSICURAZIONI P.A.Appellant
Philippa Hopkins KC, David Walsh KC and Lorraine Aboagye (instructed by Adams & Moore Solicitors LLP) for AppellantsPeter MacDonald Eggers KC, Sandra Healy and Sophie Hepburn (instructed by Hill Dickinson International) for RespondentsHearing Hearing dates: 9 & 10 July 2025
Approved JudgmentThis judgment was handed down remotely at 10.30am on 30 July 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................
[1]From 17th February 2019 until 9th January 2020 the first respondent’s Capesize bulk carrier ‘WIN WIN’ was detained by the Indonesian authorities for having anchored inside Indonesian territorial waters without permission. As a result she became a constructive total loss in accordance with the terms of the war risks policy issued by the appellant insurers. The insurers defended the respondents’ claim on the policy on a number of grounds, all of which were rejected by the judge, Mrs Justice Dias.[2]The insurers have permission to appeal on two issues. The first concerns the application of the duty of fair presentation, imposed by section 3 of the Insurance Act 2015, to a one ship company with a sole nominee director who exercised his extensive powers as a director only in accordance with instructions received from the company’s beneficial owners. The second concerns an exclusion from cover in the event of ‘Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainment not arising from actual or impending hostilities’.[3]The parties addressed these issues in reverse order during the hearing and I shall take the same course.[4]I have concluded that the appeal should be dismissed. It will therefore be unnecessary to decide the further issues raised by the Respondents’ Notice.

Background

[5]For the purpose of this appeal, the following brief summary will suffice. A fuller account can be found in the judge’s judgment.[6]The first respondent (‘Delos’), a company registered in the Marshall Islands, was the registered owner of the vessel. Its sole nominee director was Mr Evangelos Bairactaris, a Greek maritime lawyer and registered member of the Piraeus Bar Association. He is the managing partner and principal fee earner of a firm which has provided legal services to the NGM group of companies (the ‘NGM Group’), as well as to other Greek shipowning clients, for many years. He was also the sole director on a similar nominee basis of a number of other ship-owning SPVs within the NGM Group.[7]The second and third respondents (‘NGM’ and ‘FML’) were respectively the commercial and technical managers of the vessel. The fourth respondent (‘the Bank’) was not a co-assured under the policy but was the mortgagee of the vessel and the loss payee under the policy.[8]Delos and NGM were part of the NGM Group, a well-known and successful Greek shipping group founded by Mr Nikolaos Moundreas. The group is owned and controlled by Mr Nikolaos Moundreas and his three children. While he remains the ultimate decision-maker, day-to-day activities are supervised and monitored by his son, Mr Georgios Moundreas. NGM was, but FML was not, a company within the NGM Group.[9]The vessel’s war risks insurance had been placed with GAREX since 2008. GAREX is an underwriting agency based in Paris which specialises in marine war risks and underwrites for a pool of insurers, including the appellant insurers. The policy was renewed on 29th June 2018 for the period 1st July 2018 to 30th June 2019.[10]In late 2018 the vessel discharged a cargo of iron ore at Bayuquan in China, following which she proceeded to Zhoushan for repairs. The vessel was then ordered to Singapore to take on bunkers. Bunkering was completed on 13th February 2019 and on the same day NGM’s Operations Department ordered her to proceed to Singapore OPL (outside port limits), where she was to find a safe anchorage and drop anchor awaiting further instructions.[11]On 14th February 2019 the vessel left Singapore and dropped anchor in a position just inside Indonesian territorial waters. This was within an area, partly inside and partly outside Indonesian territorial waters, which was generally understood to be Eastern OPL Singapore and which had for many years been used as an anchorage by hundreds, perhaps even thousands, of vessels without any problem. Many other vessels were also anchored in the vicinity when the ‘WIN WIN’ arrived and, before February 2019, there had been no known instances of any vessel being detained or reprimanded by the Indonesian authorities simply for anchoring within territorial waters.[12]This all changed very suddenly in February 2019. Starting on about 8th February 2019 the Indonesian Navy arrested a large number of ships for anchoring in territorial waters without permission.[13]On 17th February 2019 the ‘WIN WIN’ was boarded by armed personnel from the Indonesian Navy who demanded and removed all her documents and told the master that she was being detained because she had entered Indonesian waters illegally. The master apologised and offered to move to international waters immediately but the Navy dismissed these offers and ordered him to shift to a different location close to the naval base on Batam Island. Initially the master refused to comply on the ground that this new location was unsafe for a vessel of the size of ‘WIN WIN’. The following day, however, he was ordered to a different location in the port of Batuampar and threatened with seizure of the vessel and the arrest of himself and the entire crew if she did not move. Accordingly the vessel shifted to the new location where she dropped anchor on 18th February 2019.[14]On 19th February 2019 the Navy again boarded the vessel and demanded to inspect the entire crew and their passports. The master and the second officer were taken to the Batam Naval Base for interrogation and a Ship Investigation Report was prepared stating that the vessel had anchored illegally without a permit.[15]Attempts were made over the following weeks to obtain the release of the vessel, but eventually it became apparent that the vessel would only be released without allowing legal proceedings to take their course in exchange for an illicit or ‘unofficial’ payment, in other words a bribe. The NGM Group was not prepared to make such a payment and all negotiations were terminated around 11th April 2019. The vessel remained detained.[16]The war risks policy provided that the vessel would be a constructive total loss if detained for a period of six months. From 19th August 2019, once this period expired, a series of notices of abandonment were given to the insurers, which they declined.[17]On 9th October 2019 the Batam District Court convicted the master of one of the charges against him. He was sentenced to 7 months’ imprisonment suspended for one year and a fine of Rp 1 million (around US$7,000) plus costs of Rp 5,000. On 11th October 2019 the prosecutor lodged a notice of appeal to the High Court of Pekanbaru which affirmed the verdict of the District Court on 12th December 2019. The fine was paid and the master was released on 8th January 2020. The vessel was formally redelivered to the respondents on 9th January 2020. In the event, in part because of difficulties caused by Covid-19, the vessel did not leave Indonesian waters until 7th August 2020.

The reason for the detention of the vessel

[18]Although the detention of the vessel was unexpected, and the result of an unheralded change in the practice of the Indonesian authorities, it was at all times lawful in accordance with Indonesian law. Articles 193.1 and 219.1 of Law No. 17 of 2008 on Shipping provided (in translation) that: ‘Article 193 (1) While sailing, a Master must adhere to the provisions related to the traffic procedures:a. Traffic procedures;b. Navigational routes;c. Route systems;d. Ship traffic areas; ande. Navigational Aids. Article 219 (1) Every vessel that sails is obligated to possess a Port Clearance issued by the Harbour master.’ a. Traffic procedures; b. Navigational routes; c. Route systems; d. Ship traffic areas; and e. Navigational Aids.[19]The vessel did not have the necessary clearance to anchor and the master therefore committed a criminal offence under Indonesian law.[20]These provisions were in accordance with the United Nations Convention on the Law of the Sea, which provides for vessels to have a right of innocent passage through a state’s territorial waters without calling at any port, but this does not extend to stopping or anchoring without permission except where this is incidental to ordinary navigation or rendered necessary by force majeure.[21]The preamble to the Indonesian Law on Shipping records that its object and purpose, among other things, is to strengthen national resilience, to provide for a national transportation system to support economic growth and regional development, and to strengthen state sovereignty.[22]There was some suggestion at the trial that the vessel may have been detained because it was suspected of smuggling, or because the Indonesian Navy saw an opportunity to extract a bribe from the respondents. However, the judge rejected these suggestions. She found that there was a legitimate reason to arrest and detain the vessel under Indonesian legislation and that this happened because of a change of policy on the part of the Indonesian government with a view to asserting its sovereignty over its territorial waters.

The policy

[23]The policy was concluded on 29 June 2018. The insurers agreed to insure part of the NGM Group fleet (including the vessel) against war and political risks for the policy period 1st July 2018 to 30th June 2019. Delos, NGM and FML were all named assureds in respect of the vessel and the Bank was named as mortgagee and loss payee. The policy insured the vessel for US $25 million in respect of Hull and Machinery, US $6.25 million in respect of Increased Value and US$ 6.25 million in respect of Disbursements and Additional Owners’ Interest. These were agreed values such that the total amount recoverable in the event of a total loss was US $37.5 million.[24]The policy was governed by English law but it expressly incorporated the American Institute Hull War Risks and Strikes Clauses dated 1st December 1977 and the Addendum thereto dated 1st April 1984. These effectively write back into the policy the war risk perils expressly excluded by the American Institute Hull Clauses. Thus the policy covered ‘Capture, seizure, arrest, restraint or detainment, or any attempt thereat’ (these being risks which had been excluded by the Hull Clauses and were written back in by the War Risks Clauses).[25]However, this was subject to certain exclusions from cover, as follows:
‘EXCLUSIONS (1) This insurance does not cover any loss, damage or expense caused by, resulting from, or incurred as a consequence of: (a) Any hostile detonation of any weapon of war described above in paragraph (2); (b) Outbreak of war (whether there be a declaration of war or not) between any of the following countries: United States of America, United Kingdom, France, the Union of Soviet Socialist Republics or the People’s Republic of China; (c) Delay or demurrage; (d) Requisition of preemption; (e) Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments not arising from actual or impending hostilities; (f) Capture, seizure, arrest, restraint, detainment or confiscation by the Government of the United States or of the country in which the Vessel is owned or registered.’ (a) Any hostile detonation of any weapon of war described above in paragraph (2); (b) Outbreak of war (whether there be a declaration of war or not) between any of the following countries: United States of America, United Kingdom, France, the Union of Soviet Socialist Republics or the People’s Republic of China; (c) Delay or demurrage; (d) Requisition of preemption; (e) Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments not arising from actual or impending hostilities; (f) Capture, seizure, arrest, restraint, detainment or confiscation by the Government of the United States or of the country in which the Vessel is owned or registered.’
[26]Exclusion 1(e) is the relevant exclusion in this case.[27]The 1984 Addendum provided that:
‘3. In the event that the Vessel shall have been the subject of capture, seizure, arrest, restraint, detainment, confiscation or expropriation, and the Assured, by reason thereof, has lost the free use and disposal of the Vessel for a continuous period of twelve (12) months (even though condemnation has not occurred), then for the purposes of ascertaining whether the Vessel is a constructive Total Loss, the Assured shall be deemed to have been deprived of the possession of the Vessel without any likelihood of recovery.’
[28]The period of 12 months referred to in the standard clause was reduced to six months in the policy on this vessel.

Clause 4.1.5 of the English Institute Clauses 1983

[29]As I shall explain, the terms of clause 4.1.5 of the English Institute War and Strikes Clauses 1983 played a part in the judge’s reasoning. Accordingly I set out side-by-side exclusion 1(e) in the American clauses and clause 4.1.5 of the English clauses so that the similarities and differences between the two clauses can be seen: American exclusion 1(e) English clause 4.1.5 This insurance does not cover any loss, damage or expense caused by, resulting from, or incurred as a consequence of: … (e) Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments not arising from actual or impending hostilities. This insurance excludes: … 4.1.5 arrest restraint detainment confiscation or expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations.

The judgment – exclusion 1(e)

[30]It was common ground before the judge that the vessel had not been arrested or detained under any customs or quarantine regulation. (To avoid repetition, I shall refer to ‘detention’ to cover all of the terms used in the exclusion, i.e. arrest, restraint and detainment, as there is no need on the facts of the present case to distinguish between them). The insurers’ case was that exclusion 1(e) applied on the basis that there had been a detention which was ‘similar’ to a detention under customs or quarantine regulations and which did not arise from actual or impending hostilities.[31]In the absence of any authority dealing with exclusion 1(e), which has formed part of the American Institute War Risks Clauses since at least the 1940s, the judge’s approach was to consider the broadly similar wording of clause 4.1.5 of the English Institute Clauses 1983 and its predecessors. This exclusion referred to arrest ‘under quarantine regulations or by reason of infringement of any customs or trading regulations’, the words ‘or trading’ having been added in the 1983 revision. She referred to cases holding that the term ‘customs regulations’ in the English wording should be construed broadly to include regulations, in whatever form and wherever to be found, which regulate or deal with the imposition of customs duties and the import and export of goods, and includes regulations concerned with smuggling (The Anita [1970] 2 Lloyd’s Rep 365; The Kleovoulos of Rhodes [2003] EWCA Civ 12, [2003] 1 Lloyd’s Rep 138; The B Atlantic [2012] EWHC 802 (Comm), [2012] 1 Lloyd’s Rep 629). She considered that, in the absence in the English wording of any reference to arrests of a ‘similar’ nature, giving a broad construction to ‘customs regulations’ was the only way in which the clause could be construed to cover things to do with smuggling.[32]From this she reasoned that the American wording achieves the same result in a different way, with effect being given to the ‘similar’ wording by construing it to cover arrest for breach of any regulation which in substance equates to a customs regulation as construed under English law. In effect, therefore, she treated the ‘similar’ wording in the American clause as doing the same work as is done in the English clause by adopting a broad construction of ‘customs regulations’, with the consequence that it is unnecessary to adopt the same broad construction of that term in the American clause. Her conclusion was that:
‘119. … In my judgment an arrest, restraint or detainment is “similar” for the purposes of exclusion (e) if the underlying purpose and objective of the arrest is materially the same as the underlying purpose and objective of an arrest under customs and quarantine regulations.’
[33]The judge considered that this construction was supported by what she regarded as a significant difference in the wording of the English and American clauses: while the English clause excludes cover for detention ‘under’ quarantine regulations or ‘by reason of infringement’ of any customs or trading regulations, the American clause is limited to detention ‘under’ such regulations, so that (she said) the scope of the American exclusion without the ‘and similar’ wording would be narrower. The judge considered that the ‘and similar’ wording in the American clause was intended to broaden the scope of the exclusion so that it applies in the same way as the English clause.[34]Applying this approach, the judge compared the object and the terms of the Indonesian Shipping Law with the object and the terms of the Indonesian Customs and Quarantine Laws. Having done so, she concluded that there was no sufficient similarity between the vessel’s arrest under the Shipping Law and an arrest under the Customs or Quarantine Laws to attract the operation of the exclusion.

The appellants’ submissions – exclusion 1(e)

[35]Ms Philippa Hopkins KC for the appellant insurers criticised the judge’s approach, submitting that there was no good reason to think that exclusion 1(e) in the American clauses was intended to achieve the same result as the equivalent English clause. There were material differences between the two clauses. Rather, the same considerations which had caused the term ‘customs regulations’ to be construed broadly in the English clause were equally applicable to the same term in the American clause, but the latter was then broadened further by the addition of the ‘similar’ wording, which must be given some meaning, whereas the judge’s approach had effectively made it redundant.[36]Ms Hopkins advanced two interpretations of exclusion 1(e). Her primary case, which she termed ‘the wider construction’, was that the exclusion excludes all detention under ordinary peacetime laws. On this interpretation the effect of the ‘and similar’ wording is that any regulation which is not concerned with hostilities is similar to a customs or quarantine regulation. She submitted that customs and quarantine regulations are merely examples of the kind of regulation dealt with by the exclusion.[37]Ms Hopkins’ alternative submission, ‘the narrower construction’, invoked two maxims known to lawyers and students of Latin as ‘ejusdem generis’ and ‘noscitur a sociis’. These were explained by the Divisional Court in Financial Conduct Authority v Arch Insurance (UK) Ltd [2020] EWHC 2448 (Comm), [2020] Lloyd’s IR Rep 527:
‘67. In respect of certain policies, reference was made by the parties to the maxims or canons of construction ejusdem generis (of the same kind) and noscitur a sociis (known by its associates). These are specific applications of the primary principle, which is to read the words of a particular provision in context: see Colinvaux’s Law of Insurance (12th ed) at §3-055. 68. For instance, if a clause in an insurance policy covers, or excludes, the risk of damage to a number of items, it is likely that the words used denote things of the same genus (ejusdem generis), and each word can take its meaning from the words with which it is linked or surrounded (noscitur a sociis). In Watchorn v Langford (1813) 170 ER 1432, the insurance policy covered “stock in trade, household furniture, linen, wearing apparel and plate”. When the insured’s linen drapery goods were destroyed in a fire, the House of Lords held that the policy did not respond because the reference to “linen” must have been to household linen or linen in clothing, rather than drapery.’
[38]Ms Hopkins submitted that both customs regulations and quarantine regulations are concerned with state sovereignty or security, and in particular with controlling the introduction of people or things into a state or its territorial waters – for shorthand, they are concerned with clearances. Thus customs regulations provide that goods cannot be imported, either at all or without permission, while quarantine regulations prohibit entry or prohibit departure without clearance from the state in question. Accordingly Ms Hopkins advanced two versions of this ‘narrower interpretation’. The first was that the ‘similar’ wording should be interpreted as covering any exercise by a state of control over its territory, including its territorial waters. The second was that it covers any regulation dealing with permission to enter or leave a state or its territorial waters.

Analysis – exclusion 1(e)

(e) The approach to interpretation of the exclusion

[39]I consider that there is force in Ms Hopkins’ criticism of the judge’s approach. There is no reason to suppose that parties who adopt the American Institute clauses intend that exclusion 1(e) should have the same effect as clause 4.1.5 in the equivalent English Institute clauses. The wording of the two clauses is different and each has, so far as relevant, a different drafting history, with the American clause apparently pre-dating the English clause. Each clause must therefore be interpreted on its own terms. Nevertheless, the principles which govern the interpretation of a clause in a marine insurance policy are common to the two clauses. In each case the object is to ascertain the objective meaning of the clause, giving effect to its language and taking account of the commercial background. That background includes, in both cases, the fact that the clause forms part of a widely used form which has to be applied to vessels trading worldwide, and needs to be interpreted as it would be understood by commercial people in the shipping and marine insurance industry. It would therefore be surprising if, as the judge held, a term such as ‘customs regulations’ has a different and narrower meaning in the American clause from its meaning in the English clause.[40]It is also necessary to keep in mind that the perils and exclusions together express the ambit of the cover and they have to be construed together, each being looked at in the light of the other, and with neither having primacy over the other: The Wondrous [1991] 1 Lloyd’s Rep 400, 416-7; The B Atlantic [2016] EWCA Civ 808, [2017] 1 WLR 1303, para 34.[41]Exclusion 1(e) is concerned with ‘Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restraints or detainments …’ As a matter of strict language it might be said that it is the arrest, restraint or detainment which has to be similar to an arrest, restraint or detainment under customs or quarantine regulations, but as all arrests are similar in that they place a vessel under the control of the arresting state, it is clear that the similarity with which the clause is concerned is whether the regulation under which the arrest is effected is similar to, or has a similar purpose to, a customs or quarantine regulation.[42]The starting point, therefore, is to decide what is meant in exclusion 1(e) by ‘customs or quarantine regulations’. Only then is it possible to approach the question whether a regulation pursuant to which a vessel is arrested or detained is of a similar character to a customs or quarantine regulation.

Customs regulations

[43]We were referred to one American case, Blaine Richards & Co Inc v Marine Indemnity Insurance Company of America 635 F.2d 1051 (1980), in which the meaning in a cargo policy of an exclusion for seizure and destruction of cargo under ‘customs regulations’ was considered. The cargo was detained upon arrival in the United States by the Food and Drug Administration because it had been fumigated with a pesticide widely used in Europe, but not approved by the FDA. The Court of Appeals for the Second Circuit held that the ‘customs regulations’ exclusion applied (it appears that no consideration was given to whether this was a detention pursuant to a quarantine regulation):
‘Although FDA regulations are not technically United States Customs Regulations, which are issued by the United States Customs Service pursuant to the Customs statutes set out in Title 19 of the United States Code, we believe that the phrase “customs regulations” in the War Risks policy should be construed in a reasonable manner which would give proper effect to the intentions and expectations of the parties. Therefore, detention due to regulations concerning imported food should be regarded as “customs regulations”.’
[44]I agree with this approach. What matters is not whether the regulation in question is characterised as a customs regulation under the domestic law of the state in which the vessel is arrested, but whether it regulates matters which commercial people would regard as typically governed by customs regulations. In this way, proper effect is given to the reasonable intentions and expectations of the parties.[45]The same approach can be seen in the English cases concerned with clause 4.1.5 of the English Institute clauses.[46]In The Anita [1970] 2 Lloyd’s Rep 365 the vessel was seized in Vietnam pursuant to a law concerned with smuggling offences when large quantities of unmanifested goods were found hidden in a cavity behind the ship’s rudder. This was held to be a breach of customs regulations for the purpose of the war risks policy, even though the smuggling law was not part of the Vietnamese customs code. As Lord Denning MR put it:
‘The underwriters said that there was infringement of the Vietnam “customs regulations”. The shipowners denied it. I think the underwriters are clearly right. The words “customs regulations” must be given a businesslike interpretation. They cover the Customs code of 1931 which dates from the French regime. Also the special Decree No. 4/65 which was passed by the new regime in Vietnam to deal with emergency conditions. The regulations contained in it were plainly broken.’
[47]Although it has sometimes been said in later cases, and it is said in Arnould, Law of Marine Insurance and Average, 20th Ed (2021), para 24-43, that The Anita gave the words ‘customs regulations’ a wide meaning, I respectfully disagree. As I understand the decision, the Court of Appeal did not need to give these words a wide meaning. It simply gave them, in the context of a war risks policy, what it regarded as ‘a businesslike interpretation’, that is to say it interpreted the words as they would ordinarily be understood by business people, who would regard a regulation prohibiting and punishing smuggling as a customs regulation. Indeed, in The Kleovoulos of Rhodes [2003] EWCA Civ 12, [2003] 1 All ER (Comm) 586, para 38, Lord Justice Clarke echoed Lord Justice Fenton Atkinson’s comment in The Anita that he could ‘see no distinction between smuggling and infringement of customs regulations’, while smuggling was described by Lord Justice Christopher Clarke in The B Atlantic [2016] EWCA Civ 808, [2017] 1 WLR 1303, para 36, as ‘a paradigm case’ in which detention occurs because of an infringement of customs regulations.[48]The Kleovoulos of Rhodes was another case where the vessel was detained because of smuggling. It is valuable for present purposes because of what was said by Lord Justice Clarke about the approach to the construction of a clause such as clause 4.1.5 in the English clauses:
‘29. As just stated, the expression “customs regulations” must be construed in its context. Thus it must be construed having regard to its place in the contract as a whole and the contract must be construed having regard to the surrounding circumstances. The most important of the surrounding circumstances in this case seems to me to be that the Institute Clauses were drafted for use in insurance contracts throughout the world. It is common ground that they date from 1959 and that the present clause 4.1.5 is in the same form now as it was in 1959 except that the words “or trading” did not then appear in the clause. They were added when the Institute Clauses were reviewed in 1983. 30. The Institute Clauses are intended for use in policies insuring vessels trading worldwide and wherever they are owned or managed. Thus there is no reason to construe them by reference to European as opposed to international practices. Equally I do not, for my part (and contrary to the respondents’ submissions), think it is appropriate to construe the expression “customs regulations” by reference to the English statutes which confer powers and impose duties on HM Customs and Excise. While they no doubt throw some light on matters which might be regarded as the subject of “customs regulations”, given that the Institute Clauses are intended to operate in an international sphere and that they are more likely than not to be used in cases which have no connection with England at all, English statutes of that kind do not seem to me to be of particular significance. The express provision that “this insurance is subject to English law and practice” does not have the effect that terms intended for use in an international context should be construed by reference to English statutes such as the Customs and Excise Management Act 1979 or the Misuse of Drugs Act 1971 or their predecessors the Customs and Excise Act 1952 or the Dangerous Drugs Act 1951. 31. Similarly, it does not seem to me to be to be correct to approach the construction of the expression “customs regulations” in clause 4.1.5 by trying to ascertain the meaning of the word “customs” in an English legal dictionary, or indeed in English law and, having done so, by holding that “customs regulations” should be construed accordingly. To do so seems to me to run the risk of failing to construe the expression “customs regulations” in the context of the Institute Clauses.’
[49]Applying this approach,

Lord Justice Clarke concluded that:

‘41. Quite apart from the question whether The Anita gives the expression “customs regulations” a settled meaning, the construction of the term adopted by the court seems to me to be correct. In ordinary parlance I would describe customs regulations as including both regulations imposing duties and regulations prohibiting imports altogether. It seems likely that both might be drafted in the same way. Thus a regulation might provide that the import of goods is absolutely prohibited or prohibited unless duty at a certain rate is paid. It does not seem to me to make sense to construe “customs regulations” in clause 4.1.5 as including the latter but not the former because I can see no reason why the parties to an insurance contract of this kind should draw that distinction. In particular I can see no reason why the parties should agree to exclude a CTL arising from detention caused by the infringement of a regulation prohibiting the import unless duty is paid and not to exclude a CTL caused by detention caused by the infringement of a regulation which prohibits the import absolutely. Such a distinction seems to me to make no commercial sense. 42. In all the circumstances I agree with the judge that, when construed in its context in the light of the principles identified above, the expression detainment “by reason of infringement of any customs or trading regulations” in clause 4.1.5 of the Institute Clauses includes both the above types of regulation. In short, it naturally includes regulations absolutely banning imports just as it includes regulations imposing import duties and any other construction would make no commercial sense in the context of the Institute Clauses.’
[50]The same approach is equally applicable to exclusion 1(e) in the American Institute clauses.[51]Similarly in The Aliza Glacial [2002] EWCA Civ 577, [2002] 2 All ER (Comm) 39, a case concerned with the term ‘trading regulations’ in clause 4.1.5 in the English clauses, the critical question was how that term would be understood ‘in the ordinary language and understanding of commercial men’, so as to give it a ‘businesslike interpretation’: see paras 30 to 35. This approach was followed in The B Atlantic [2012] EWHC 802 (Comm), [2012] 1 Lloyd’s Rep 629, paras 22 and 23, where Mr Justice Hamblen said that the exclusions contained in clause 4.1.5 must be given a ‘businesslike interpretation in the context in which they appear’, in the light of the fact that the clauses are to be used worldwide and are intended to cover laws in force anywhere in the world without turning on niceties of local law.[52]Applying this approach, I would accept Ms Hopkins’ submission that ‘customs regulations’ in the American clauses’ exclusion 1(e) should be interpreted in the same way as the same words in clause 4.1.5 in the English clauses have been interpreted. Giving those words a businesslike interpretation, they refer to laws, however classified under domestic law, which regulate the import of goods into the territory of the state concerned, either by prohibiting such imports or by imposing a liability to make payment as a condition of importation.

Quarantine regulations

[53]It appears that the meaning of the words ‘quarantine regulations’ in either the American or the English versions of the clause has not been considered judicially in either country. Nevertheless it is clear that the same approach must be adopted, interpreting the words as they would be understood by business people, without regard to the niceties of local law. Applying that approach, it is clear that quarantine regulations are laws concerned with the protection of health, whether of people or animals. ‘Under’ and ‘by reason of the infringement of’[54]The judge attached significance to the fact that the English version of the clause refers to detention ‘under’ quarantine regulations or ‘by reason of’ infringement of customs regulations, while the American clause refers to detention ‘under’ both kinds of regulation. She considered that the words ‘by reason of’ were of wider scope, because a detention could occur by reason of infringement of a customs regulation even if it was not a detention under the regulation. Accordingly the American clause would have provided for a more limited exclusion if it were not for the effect of the ‘and similar’ wording which operated to bring back the two versions of the clause into alignment with each other.[55]I do not accept this reasoning. In my judgement, and in agreement with Lord Justice Lloyd in The Wondrous [1992] 2 Lloyd’s Rep 566, 571, I consider that there is no significance to be attached to the fact that in the English clause the detention in one case must be ‘under’ a particular kind of regulation and that in the other case it must be ‘by reason of’ a different kind of regulation. I note that Arnould, para 24-46, takes the opposite view from the judge, suggesting that ‘under quarantine regulations’ is broader wording than ‘by reason of infringement of customs regulations’, but I consider the better view to be that these are equivalent wordings and would be so understood by business people. In any event the contrast in this respect between the language used in the English and in the American clause does not shed any light on the scope of the American clause. ‘and similar’[56]Once it is concluded that ‘customs regulations’ in the American Institute clause refers to laws regulating the import of goods into the land territory of a state and that ‘quarantine regulations’ refers to laws for the protection of health, it is possible to consider the effect of the ‘and similar’ wording in exclusion 1(e). In my judgement this is straightforward. Plainly the ‘and similar’ wording must be construed by reference to customs or quarantine regulations. In my judgement this wording refers to detention under regulations which have a similar purpose to regulations concerning the import of goods or the protection of health. This is a less demanding connection than is required by the judge’s interpretation, supported by Mr Peter MacDonald Eggers KC for the respondent insureds, which was that the purpose of the ‘similar’ regulation must be ‘materially the same’ as the purpose of a customs or quarantine regulation, but a connection is nevertheless required.[57]Examples of what might qualify as a similar regulation on this basis were canvassed in argument at the hearing. It is unnecessary to reach any decision about these, but one possibility is the detention of a vessel passing through a state’s territorial waters on the ground that it was engaged in smuggling prohibited goods into the territory of another state or was carrying an infected cargo. However, it is unnecessary to decide whether this would fall within the ‘and similar’ wording. It is sufficient to say that this wording extends the scope of the exclusion beyond what it would be if those words were not there.[58]The detention of the vessel in the present case occurred because, contrary to its previous practice, the Indonesian government decided to assert its sovereignty over its territorial waters by arresting and detaining vessels which had anchored without permission. In my judgement this had no relevant similarity to an arrest or detention under customs or quarantine regulations. It was completely unconnected with the import of goods (the vessel was in ballast) and with health (there was no question of any cargo being infected, as there was none, and no suggestion of any member of the crew having any disease) and there was no suggestion that the crew was engaged in smuggling. The point is really as straightforward as that.[59]I would therefore reject both the wider construction and both versions of the narrower construction advanced by Ms Hopkins. The wider construction (detention under any ordinary peacetime law) disregards the need for the detention to have been effected under a customs or quarantine regulation or a regulation which is similar to a customs or quarantine regulation. It treats the exclusion as if it referred to any detention under any regulation not arising from actual or impending hostilities and renders the reference to customs or quarantine regulations superfluous. That does considerable violence to the language of the exclusion. As the judge said, if this was the intention of the drafters, they expressed themselves in an extraordinarily obscure way.[60]The narrower construction (exercise of control/clearances) proceeds on the basis that customs regulations and quarantine regulations are members of the same genus, to use the Latin term. But that is not necessarily so and in my judgement is not so in the present case. The exclusion simply refers to two different kinds of regulation and extends to other regulations which have a similar purpose to either of them.[61]Alternatively, if the two different kinds of regulation, customs and quarantine, have anything in common it is that they are concerned with who and what is on board the vessel (including more or less intangible things such as diseases and infections). On that alternative basis also, a regulation concerned with permission to anchor in territorial waters, which has nothing to do with anyone or anything on board the vessel, could not be regarded as falling within the ‘and similar’ wording.[62]For these reasons, which differ to some extent from those of the judge, I conclude that exclusion 1(e) does not avail the appellant insurers in this case and would reject their appeal on this ground.

The duty of fair presentation

[63]I turn now to the separate question whether there was a breach by the respondent insureds of the duty of fair presentation which entitled the appellant insurers to reject liability for the claim. This question arises out of the fact that serious criminal charges had been brought against Delos’s sole director, Mr Bairactaris, which were not disclosed to the insurers when the policy was renewed in June 2018.

The criminal charges against Mr Bairactaris

[64]In March 2018, some three months before the policy was renewed, criminal charges were brought against a well-known Greek shipowner and public figure, Mr Evangelos Marinakis, and three other people alleging against each of them that he was a member of an organised crime group and involved in drug trafficking. The charges arose out of the detention in 2014 of another vessel, ‘NOOR 1’, in connection with drug smuggling and apparently related to the financing of the transaction rather than the actual trafficking, the traffickers themselves having already been prosecuted and convicted in 2016. Mr Bairactaris was one of the people charged alongside Mr Marinakis. Although the charges against Mr Marinakis were widely publicised, the charges against Mr Bairactaris were not.[65]Mr Bairactaris has always denied the charges against him and we were told that they have now been discontinued. He has remained a registered member of the Piraeus Bar Association with a thriving practice. It has never been the insurers’ case that he was guilty of these charges, but they do say that the fact of the charges was a material circumstance which ought to have been disclosed to them in accordance with the insured’s duty of fair presentation and that the failure to disclose this fact entitled them to avoid the policy.

Relevant provisions of the Insurance Act 2015

[66]The Insurance Act 2015 reformed the law concerned with disclosure of material facts following a joint report by the Law Commission and the Scottish Law Commission (Law Com No. 353 / Scot Law Com No. 238).[67]Section 3 of the Act provides for a duty of fair presentation as follows: ‘3. The duty of fair presentation(1) Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk.(2) The duty imposed by subsection (1) is referred to in this Act as “the duty of fair presentation”.(3) A fair presentation of the risk is one— (a) which makes the disclosure required by subsection (4), (b) which makes that disclosure in a manner which would be reasonably clear and accessible to a prudent insurer, and (c) in which every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is made in good faith.(4) The disclosure required is as follows, except as provided in subsection (5)— (a) disclosure of every material circumstance which the insured knows or ought to know, or (b) failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.(5) In the absence of enquiry, subsection (4) does not require the insured to disclose a circumstance if— (a) it diminishes the risk, (b) the insurer knows it, (c) the insurer ought to know it, (d) the insurer is presumed to know it, or (e) it is something as to which the insurer waives information.(6) Sections 4 to 6 make further provision about the knowledge of the insured and of the insurer, and section 7 contains supplementary provision.’ (a) which makes the disclosure required by subsection (4), (b) which makes that disclosure in a manner which would be reasonably clear and accessible to a prudent insurer, and (c) in which every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is made in good faith. (a) disclosure of every material circumstance which the insured knows or ought to know, or (b) failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances. (a) it diminishes the risk, (b) the insurer knows it, (c) the insurer ought to know it, (d) the insurer is presumed to know it, or (e) it is something as to which the insurer waives information.[68]For present purposes the critical provision is subsection (4)(a): disclosure is only required of material circumstances ‘which the insured knows or ought to know’. What this means is explained in section 4:
‘4. Knowledge of insured (1) This section provides for what an insured knows or ought to know for the purposes of section 3(4)(a). (2) An insured who is an individual knows only— (a) what is known to the individual, and (b) what is known to one or more of the individuals who are responsible for the insured’s insurance. (3) An insured who is not an individual knows only what is known to one or more of the individuals who are— (a) part of the insured’s senior management, or (b) responsible for the insured’s insurance. … (6) Whether an individual or not, an insured ought to know what should reasonably have been revealed by a reasonable search of information available to the insured (whether the search is conducted by making enquiries or by any other means). (7) In subsection (6) “information” includes information held within the insured’s organisation or by any other person (such as the insured’s agent or a person for whom cover is provided by the contract of insurance). (8) For the purposes of this section— (a) “employee”, in relation to the insured’s agent, includes any individual working for the agent, whatever the capacity in which the individual acts, (b) an individual is responsible for the insured’s insurance if the individual participates on behalf of the insured in the process of procuring the insured’s insurance (whether the individual does so as the insured’s employee or agent, as an employee of the insured’s agent or in any other capacity), and (c) “senior management” means those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised.’ (a) what is known to the individual, and (b) what is known to one or more of the individuals who are responsible for the insured’s insurance. (a) part of the insured’s senior management, or (b) responsible for the insured’s insurance. (a) “employee”, in relation to the insured’s agent, includes any individual working for the agent, whatever the capacity in which the individual acts, (b) an individual is responsible for the insured’s insurance if the individual participates on behalf of the insured in the process of procuring the insured’s insurance (whether the individual does so as the insured’s employee or agent, as an employee of the insured’s agent or in any other capacity), and (c) “senior management” means those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised.’
[69]So far as actual knowledge is concerned, in the case of corporate insureds such as the respondents the relevant knowledge is that of two categories of individual identified in subsection (3). The first category consists of those who are ‘part of the insured’s senior management’, a phrase which is defined by subsection (8)(c) to mean ‘those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised’.[70]The section assumes, therefore, that a corporate insured will have a senior management consisting of one or more individuals. Identification of the individuals who comprise that senior management will be a question of fact, requiring an evaluation of the significance of the roles played by various individuals in the making of decisions about how the insured’s activities are to be managed or organised. In the present case the issue on actual knowledge is whether Mr Bairactaris formed part of the insureds’ senior management. He was the only person connected in any way with the respondents who had any knowledge of the charges against him. Accordingly, if he was not part of the insureds’ senior management, there was no relevant individual who had actual knowledge of the charges.[71]The second category of individual referred to in subsection (3) whose actual knowledge will be relevant consists of those individuals who are ‘responsible for the insured’s insurance’. In the present case that was Mr Tsouris, the NGM Group’s Insurance and Claims manager. However, he did not know about the charges against Mr Bairactaris.[72]In addition to an insured’s actual knowledge, an insured is required by section 3(4)(a) to disclose every material circumstance which it ought to know. What an insured ought to know is explained by section 4(6) and consists of those matters which ‘should reasonably have been revealed by a reasonable search of information available to the insured’, including by the making of enquiries. There are therefore two matters to be considered in this regard: first, what search should reasonably have been carried out; and second, what should reasonably have been revealed by such a search.[73]In the present case, if Mr Bairactaris was not part of the insureds’ senior management, the only way in which the charges against him could have been discovered was by asking him a question which would have elicited that information. Accordingly the issues for the judge were what, if any question should reasonably have been asked of Mr Bairactaris and what information should reasonably have been elicited by such a question. Like most issues concerned with what conduct should be regarded as reasonable, these are questions of fact.[74]Although these are the decisive provisions of the Act in the present case, it is relevant to note that materiality is defined by section 7(3), which provides that:
‘A circumstance or representation is material if it would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms.’
[75]The remedies for breach of the duty of fair presentation are set out in section 8: ‘8. Remedies for breach(1) The insurer has a remedy against the insured for a breach of the duty of fair presentation only if the insurer shows that, but for the breach, the insurer— (a) would not have entered into the contract of insurance at all, or (b) would have done so only on different terms.(2) The remedies are set out in Schedule 1.(3) A breach for which the insurer has a remedy against the insured is referred to in this Act as a “qualifying breach”.(4) A qualifying breach is either— (a) deliberate or reckless, or (b) neither deliberate nor reckless.(5) A qualifying breach is deliberate or reckless if the insured — (a) knew that it was in breach of the duty of fair presentation, or (b) did not care whether or not it was in breach of that duty.(6) It is for the insurer to show that a qualifying breach was deliberate or reckless.’ (a) would not have entered into the contract of insurance at all, or (b) would have done so only on different terms. (a) deliberate or reckless, or (b) neither deliberate nor reckless. (a) knew that it was in breach of the duty of fair presentation, or (b) did not care whether or not it was in breach of that duty.[76]Subsection (1) gives statutory force to the common law requirement that the breach of the duty of fair presentation must induce the insurer to enter into the contract (Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501).[77]Schedule 1 sets out the remedies for breach of the duty, and represents a significant change from the position at common law. The remedies vary depending on whether the breach is deliberate or reckless. In the present case any breach was found by the judge not to have been deliberate or reckless, so that the remedies available to the insurers were those set out in paragraphs 4 to 6 of Schedule 1:
‘3. Paragraphs 4 to 6 apply if a qualifying breach was neither deliberate nor reckless. 4. If, in the absence of the qualifying breach, the insurer would not have entered into the contract on any terms, the insurer may avoid the contract and refuse all claims, but must in that event return the premiums paid. 5. If the insurer would have entered into the contract, but on different terms (other than terms relating to the premium), the contract is to be treated as if it had been entered into on those different terms if the insurer so requires. 6 (1) In addition, if the insurer would have entered into the contract (whether the terms relating to matters other than the premium would have been the same or different), but would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim. (2) In sub-paragraph (1), “reduce proportionately” means that the insurer need pay on the claim only X% of what it would otherwise have been under an obligation to pay under the terms of the contract (or, if applicable, under the different terms provided for by virtue of paragraph 5), where— X = Premium actually charged x 100 Higher premium’
X = Premium actually charged x 100 Higher premium’ Higher premium’

Extraneous materials

[78]We were referred by both parties, without objection, to three categories of extraneous material, namely the Law Commission Report, the Explanatory Notes which accompanied the 2015 Act, and the Parliamentary debates on the Bill which became the Act. The parties relied on this material not only to explain such matters as the context for the Act and the mischief at which it was directed, but also in order to support their submissions as to what the provisions of the Act were intended to mean. We heard no submissions as to whether this was a legitimate approach, but it is unnecessary to pursue that matter further as, to my mind, the relevant provisions of the Act are clear and the extraneous material to which we were referred would do no more than confirm the conclusions as to the meaning of the relevant provisions which I would have reached in any event.

The judgment – duty of fair presentation

[79]The judge said that while one would normally expect a director to be part of a company’s senior management, there was no hard and fast rule to this effect. Although Delos’s constitutional documents gave Mr Bairactaris very extensive powers as sole director, President, Secretary and Treasurer, that was a matter of form rather than substance. In reality, Mr Bairactaris was contractually obliged to act and did act only on the instructions of members of the Moundreas family. He exercised no independent judgement and made no decisions. He was simply a vehicle, as a matter of administrative convenience, for carrying out decisions made by NGM and the Moundreas family, by signing documents (typically documents drafted by his law firm in its capacity as the NGM Group’s external lawyers) in accordance with their instructions.[80]The judge said that the use of special purpose vehicles with nominee directors was a common arrangement in the shipping industry and that, in any transaction involving Delos, the participants would have regarded themselves as dealing with the NGM Group rather than focusing on the specific company or its directors. Accordingly Mr Bairactaris could not in any way be regarded as the visible or public face of Delos.[81]In these circumstances the judge concluded that Mr Bairactaris played no role at all, let alone a significant one, in the making of decisions about how the activities of Delos were to be managed. She described Ms Hopkins’ submission that Mr Bairactaris nevertheless played a significant role in deciding how Delos’s activities were to be organised on the basis that the company’s only activities were of a financial and legal nature as smacking somewhat of desperation. It was inappropriate to take such a narrow view of Delos’s activities, which included operating the vessel which it owned for profit, an activity in which Mr Bairactaris played no role at all. But even if its activities were confined in this narrow way, the fact remained that Mr Bairactaris made no decisions at all, but simply acted on someone else’s instructions. Accordingly the insurers’ case on actual knowledge failed.[82]The judge appears to have understood that this conclusion meant that Delos did not have any senior management at all, but said that she saw nothing odd about this.[83]Turning to what the insureds ought to have known, the judge said that what would constitute a reasonable search would depend on the context and the type of business which the insured was conducting, in this case a family owned and run Greek shipping group. The first way in which the insurers put their case was that regular enquiries should have been made of Mr Bairactaris to ensure that he continued to be a fit and proper person to hold a nominee directorship, and that this would have included a specific enquiry whether he was the subject of any criminal proceedings. The judge did not accept that a reasonable search required the NGM Group to make those enquiries of a respected practising lawyer with whom it had a long-standing relationship of trust and confidence, particularly in view of the extremely limited role which Mr Bairactaris was in fact performing. There was no evidence that other similar shipping groups made such enquiries of their nominee directors.[84]The second way in which the insurers put their case was that Mr Bairactaris should have been asked prior to placement whether he knew of any circumstances which might affect the risk. The judge regarded this as unrealistic in view of the fact that Mr Bairactaris had no operational role or function regarding the trading of the vessel or her insurance and would not have known anything about the risk to be insured. Asking this question would therefore have been (reasonably regarded as) a pointless exercise.[85]The judge went on to say that if Mr Bairactaris had been asked a direct question whether he was the subject of criminal proceedings, he would have disclosed the charges against him. However, it was much less clear whether he would have done so in response to a general and routine question whether he knew of any circumstances which might affect the risk, as he did not regard the charges as relevant to the performance of his functions.[86]These conclusions – that the insureds did not know and that the insurers had failed to prove that they ought to have known about the criminal charges – were sufficient to dispose of the defence that the insureds were in breach of the duty of fair presentation. However, the judge went on to indicate what her conclusions would have been on other issues raised under this heading. These were, in outline, as follows:(1) The charges against Mr Bairactaris could not plausibly have increased the risk of detention of the vessel or given rise to the risk of a fraudulent or inflated claim, but there was nevertheless something undesirable, from the perspective of a prudent underwriter, about insuring a vessel associated, at least on paper, with someone accused of being a member of an organised crime gang. Accordingly the charges were material on the basis that a prudent underwriter would have wanted to consider imposing a condition, for example that Mr Bairactaris should be replaced as a nominee director.(2) If the charges had been disclosed, the insurers would have been prepared to write the risk on the same terms and for the same premium, but would have imposed a condition requiring the replacement of Mr Bairactaris as nominee director of those companies where he was appointed. However, the insureds would have complied with that condition, with the consequence that the insurers would have no remedy under Schedule 1 to the 2015 Act.(3) It was arguable, albeit the judge did not decide the point, that the insurers had affirmed the policy.(4) It was unnecessary to decide whether, even if the insurers were entitled to avoid it as against Delos and NGM, the claim against FML would have been unaffected as this was a composite policy.

The appellants’ submissions – duty of fair presentation

[87]For the insurers Ms Hopkins challenged the judge’s conclusions on the knowledge issues, while Mr David Walsh KC dealt with the issue of inducement and remedy. Ms Hopkins submitted that the starting point should be that a director is part of the senior management of a company. Indeed she submitted that the sole director of a corporate insured with no employees will always be part of the company’s senior management, on the basis that there is nobody else who could be. On the facts of the present case, the judge was wrong to say that Delos’s activities included operating the vessel for profit as that was the function of NGM and FML. Rather, Delos was a special purpose vehicle whose only activity consisted of dealing with the paperwork associated with the company’s administration, i.e. the legal and financial formalities associated with ownership of a vessel. That comprised the organisation of the company’s activities and was a matter in which Mr Bairactaris had a significant role. If the judge’s reasoning was correct, that would lead to the startling conclusion that Delos had no senior management within the meaning of the Act at all, which could not be what Parliament and the Law Commission had intended.[88]On the issue of what the insureds ought to have known, Ms Hopkins did not repeat the submission made to the judge that Mr Bairactaris should have been asked whether he was the subject of any criminal proceedings. She limited her case to a submission that, as the sole director of not only Delos but many other companies within the NGM Group, he should have been asked whether he knew of any circumstances which might affect the risk. She submitted that the fact that he had no operational role was not a good reason why that question need not be asked because there were potentially material circumstances which might have been known to him in his capacity as the sole director. Indeed, this was demonstrated by the very fact that the judge found the charges against Mr Bairactaris to be material.[89]On the issue of inducement and remedy, Mr Walsh pointed out that according to paragraph 5 of Schedule 1 to the Act, if the insurer would have entered into the contract, but on different terms, the contract is to be treated as if it had been entered into on those different terms if the insurer so requires. But the Act does not go on to require consideration of whether the insured would then have taken steps to comply with those different terms. In the present case the judge had found that the insurers would have entered into the contract, but only after imposing a condition that Mr Bairactaris should resign as a director. Accordingly the policy had to be treated as if it contained such a condition. As Mr Bairactaris had not in fact resigned as a director, the insurers were entitled to reject the claim and that was the end of the matter. It was irrelevant that, as the judge had found, if such a condition had been imposed, Mr Bairactaris would in fact have resigned. Analysis – duty of fair presentation Actual knowledge

Analysis – duty of fair presentation

[90]I deal first with the issue of actual knowledge. ‘Senior management’ is defined by section 4(8)(c) of the 2015 Act to mean ‘those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed and organised’. Who those individuals are in any particular case is a question of fact which requires an evaluation of all the circumstances. Thus it is necessary to identify the insured’s activities, to identify the individuals who make decisions about how those activities are to be managed and organised, and to consider the significance of each individual’s role in such decision-making. That is the kind of evaluative assessment with which this court should not interfere unless it is clear that the trial judge has gone wrong (see In re Sprintroom Ltd [2019] EWCA Civ 932, [2019] BCC 1031, paras 72 to 78, referring to a number of well-known authorities explaining the limited scope of appellate review in such a case).[91]In the present case I see no basis for thinking that the judge has gone wrong. On the contrary, on the basis of the facts which she found, which do not appear to have been seriously disputed, her decision that Mr Bairactaris was not part of Delos’s senior management was inevitable. In short, I agree with her reasoning as I have summarised it in paras 79 to 81 above.[92]In my judgement the judge was right to say that Delos’s activities consisted of owning and operating the vessel for profit. It mis-characterises those activities to say that they consisted of nothing more than administering the paperwork. For example, it was Delos which entered into contracts for the trading of the vessel, including charterparties and bills of lading, under which it acquired valuable contractual rights to freight or hire and undertook significant liabilities. If any disputes had arisen under those contracts, it was Delos which would have been the claimant or defendant in any litigation or arbitration. If profits were earned after taking account of operating expenses and loan repayments, it was probably important for tax purposes that those were the profits of Delos, a Marshall Islands company. I see no basis on which such activities can somehow be disregarded or treated as if they were not the activities of Delos. On the judge’s findings, Mr Bairactaris played absolutely no part in them, and had no role, let alone a significant role, in the making of decisions about them.[93]But even if the company’s activities can be narrowly confined to matters of legal and financial administration, it remains the case that Mr Bairactaris had no decision-making role. He simply did what he was told. So even on this basis, he does not come within the definition of ‘senior management’ in section 4(8)(c). It is not enough that he was merely ‘involved’ in such activities.[94]I would reject Ms Hopkins’ submission that the sole director of a corporate insured with no employees will always be part of the company’s senior management. There is nothing in the Act to require this. Whether an individual is part of an insured’s senior management depends on the factual issues raised by section 4(8)(c). I agree that a director (and perhaps even more so in the case of a sole director) will usually form part of a company’s senior management, but that is because in the ordinary course of events a director will satisfy the statutory definition, and not because of any rule of law which forces a director within the definition even when the facts do not fit.[95]This does not mean that Delos had no senior management. The individuals who played significant roles in the making of decisions about how Delos’s activities were to be managed and organised included at least Mr Nikolaos Moundreas and Mr Georgios Moundreas. These were the principal individuals who made relevant decisions and gave instructions to Mr Bairactaris. Other members of the Moundreas family or officers of NGM may also have come within the definition of Delos’s senior management, depending on the role which they played and the significance of those roles in the making of relevant decisions. A person may play a significant role in the making of decisions about how a company’s activities are to be managed or organised without holding any formal position in, or being an employee of, the company. However, it is unnecessary to explore how far Delos’s senior management may have extended beyond Mr Nikolaos Moundreas and Mr Georgios Moundreas as it is common ground that no potentially relevant individual knew anything about the charges against Mr Bairactaris.[96]So far as relevant, the conclusion which I have reached from the plain wording of the Act is confirmed, and certainly not contradicted, by the Law Commission Report and the Explanatory Notes. Paragraph 8.59 of the Report gives a series of examples of who would constitute the ‘senior management’ of various kinds of organisation. While it is fair to say that, in the examples given, the Law Commission expressed the view that the members of the board of directors would constitute the senior management, none of the examples resembles a one ship company with a nominee director.[97]Paragraph 54 of the Explanatory Notes says that, in a corporate context, senior management ‘is likely to include members of the board of directors but may extend beyond this, depending on the structure and management arrangements of the insured’, while paragraph 55 expresses the view that the categories of persons comprising senior management ‘are expected to be construed relatively narrowly, but are capable of being applied flexibly’. I respectfully agree. It is likely that, in most cases, members of the board of directors of a company will form part of (and in some case the entirety of) its senior management, but that will not necessarily be the case. It all depends upon the facts.[98]We were referred to a statement in Parliament by the Secretary to the Treasury which explained why an earlier version of the Explanatory Notes had been regarded as too narrow:
‘The Lloyd’s Market Association is concerned that the existing definition is too narrow and refers only to the board of the company, rather than potentially capturing people who are more operational. We have therefore amended the explanatory notes to make it clear that the senior management is likely to include the board, but can also go beyond it, depending on the corporate structure of the relevant policyholder.’
[99]We heard no submissions as to whether a statement about the intention underlying an amendment of the Explanatory Notes, as distinct from the Bill itself, is admissible in accordance with Pepper v Hart [1992] UKHL 3, [1993] AC 593, but in any event this is of no real assistance. It adds little or nothing to what is apparent from the terms of the Act and the Explanatory Notes themselves, which is that identification of the individuals comprising senior management will depend on the corporate structure of the relevant policyholder.

Ought to know

[100]I turn next to the issue of what the insureds ought to have known. The short – but sufficient – answer here is that the judge found that the making of reasonable enquiries did not require Mr Bairactaris to be asked whether he knew of any circumstances which might affect the risk. Having regard to the fact that he had no operational role or function regarding the trading of the vessel and her insurance, the judge considered that he would not have known anything about the risk to be insured and that this would reasonably have been regarded as a pointless question. This was, in my judgment, a conclusion which the judge was entitled to reach.[101]Indeed, as all concerned within the NGM Group would have known that Mr Bairactaris did not know anything about the commercial or technical management of the vessel, in effect a general question whether he knew of any circumstances which might affect the risk would only have been an obscure way of asking whether there were any circumstances affecting his own fitness to be a director. But that is a question which the judge found did not need to be asked in view of Mr Bairactaris’s position as a respected professional adviser with a long-standing relationship with the NGM Group, and which Ms Hopkins has not pursued.[102]Although the question of what was required by a reasonable search must be answered objectively, it is relevant that there was no evidence that such a question, whether a direct question about a nominee director’s own position or a more general question concerning knowledge of circumstances which might affect the risk, was asked routinely or at all by other Greek shipping groups using nominee directors, despite the fact that such a corporate structure is common.

Should reasonably have been revealed

[103]The conclusions reached so far mean that the appeal must be dismissed. It is therefore unnecessary to decide, but may be useful to draw attention to, a point which arose in argument. Section 4(6) of the 2015 Act provides that an insured ought to know ‘what should reasonably have been revealed by a reasonable search’, including the making of enquiries, language which might suggest that this is a purely objective question and that it does not matter what in fact such enquiries would have revealed.[104]However, if that is how section 4(6) is to be understood, it could mean that an insured who had done everything required by the Act to discover material circumstances by making reasonable enquiries nevertheless lost the benefit of its insurance because those enquiries would not in fact have revealed the circumstances in question, even though they should reasonably have done so. Such a result might be thought to be unfair, and contrary to the purpose of the 2015 Act.[105]Whether that is the effect of section 4(6) does not need to be determined on this appeal and probably cannot be, as the judge did not make (and did not need to make) all the findings which might be relevant to such a question. While the answer to the question must depend on the meaning of the words ‘what should reasonably have been revealed by a reasonable search’ in section 4(6), it appears that the Law Commission used the words ‘would’ and ‘should reasonably’ interchangeably, without focusing on the potential difference between them. Thus paragraphs 8.20 and 8.77 refer to information which a risk manager ‘would have discovered’ and to matters ‘which would be revealed’ by a reasonable search, while paragraph 8.86 says that:
‘We recommend that the insured ought to know only what should reasonably have been revealed by reasonable search. The insured should not be taken to have constructive knowledge of information which could not reasonably have been discovered, such as information which would have been withheld through negligence or fraud.’
[106]Paragraph 56 of the Explanatory Notes refers to ‘information that could reasonably be expected to be revealed by a reasonable search of available information’ and suggests that this is largely a codification of principles derived from case law.[107]I would therefore leave this issue open, to be decided in a case where it will be decisive and all relevant findings have been made.

Inducement and remedy

[108]It is also unnecessary to determine whether the judge was wrong to decide that the insurers failed on the issue of inducement and remedy on the basis that, if a condition had been imposed that Mr Bairactaris should resign, he would have done so. That said, I found Mr Walsh’s submissions summarised at para 89 above persuasive.[109]Paragraph 5 of Schedule 1 requires that the contract is to be treated as if it had been entered into on the terms which the insurer would have required, but there is nothing in the Act to call for investigation of any further counterfactual. In other words, the Act requires a notional change to the terms of the contract, but says nothing about a notional change to the facts. It is easy to see that a counterfactual enquiry about what the insured would have done could add unnecessary complexity to what should be a relatively straightforward matter, and not easy to see where the line should be drawn.[110]For example, compliance with a notional condition might involve the insured in expense which, in the real world, has not had to be incurred. If it is relevant to consider whether the insured would have incurred that expense in order to comply with the condition, must it give credit against its claim on the policy for the expense which it ought to have but has not in fact incurred? The Act simply does not address such questions. There is nothing in the Act to say that such credit must be given. On the other hand, if it need not be, the insured may be better off by breaching the duty of fair presentation and then saying that it would have complied with any condition which the insurers would have imposed, and can therefore recover in full under the policy. That can hardly have been intended.[111]The Law Commission Report provides some support for this view:
‘The limits on considering what would have happened 11.79 We have explained that proportionate remedies seek to put the insurer, as far as practicable, into the situation it would have been in had it received a fair presentation of the risk. Note the phrase “as far as practicable”. Here we look at the limits of what is practicable in considering what the world might have been like in hypothetical circumstances. 11.80 The parties have already been brought together under the influence of the insured’s breach of the fair presentation duty and are (subject to avoidance) stuck with each other. We do not think that it is right or realistic to encourage speculations about what would have happened if the parties had negotiated on a different basis. 11.81 For example, if the insurer would have charged a higher premium, we do not think it should be open to the insured to say that it could have obtained the insurance at a lower premium elsewhere. Nor where the insurer would have contracted on different terms should it be open to the insured to say that it could have obtained the insurance elsewhere on more favourable terms. 11.82 Similarly, it should not be open to an insured to say that it would have complied with any term which the insurer would have imposed (for example, an exclusion or warranty) and so the loss should be covered. During consultation, the example was put to us of a business which keeps its vehicles in an area which has suffered a series of thefts of commercial vehicles. The business fails to disclose this and a vehicle is stolen. The insurer responds that had this information been properly disclosed it would have required the vehicles to be parked in a secure location, which the business says it would have done if this term had been imposed. Consultees were rightly concerned about the circularity of such arguments.’
[112]Mr MacDonald Eggers’ only answer to this point was to draw a distinction between a term such as a warranty which would have to be complied with during the performance of the contract and a term which would be imposed prior to the inception of the risk, submitting that in the latter case it would be open to the insured to prove that it would have complied with such a term. I did not find that distinction compelling and can see no basis for it in the terms of the Act.

The Respondents’ Notice

[113]The respondents submitted that the judge’s decision could if necessary be upheld on the following additional grounds:(1) the charges against Mr Bairactaris were not material;(2) the insurers were not induced to enter into the contract by the alleged non-disclosure at all;(3) the insurers affirmed the contract; and(4) the policy was a composite policy, so that any breach of the duty of fair presentation by one insured did not prejudice the rights of other insureds who were not in breach of that duty.[114]In view of the conclusions already reached, it is unnecessary to decide the issues raised by this Respondents’ Notice and I do not propose to do so, despite the interesting submissions which we heard, including from Ms Lorraine Aboagye, junior counsel for the appellants.

Disposal

[115]I would dismiss the appeal.

LORD JUSTICE POPPLEWELL:

[116]I agree.

LADY JUSTICE ASPLIN:

[117]I also agree.