Oceanus Capital SARL v Lloyd's Insurance Company S.A. [2026] EWCA Civ 863

[2026] EWCA Civ 863Case No CA-2026-000025
IN THE COURT OF APPEAL (CIVIL DIVISION)
[2025] EWHC 3293 (Comm)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
Sue Prevezer KC (sitting as a Deputy High Court Judge)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 06/07/2026
Before
LORD JUSTICE NEWEYLORD JUSTICE MALESLORD JUSTICE POPPLEWELL
Between
OCEANUS CAPITAL SARLClaimant/RespondentLLOYD'S INSURANCE COMPANY S.A.Defendant/Appellant
David Bailey KC and Emma Franklin (instructed by Kennedys Law LLP) for Defendant/AppellantNicholas Vineall KC and Neil Dowers (instructed by Wikborg Rein LLP) for Claimant/RespondentHearing Hearing dates : 17 and 18 June 2026
Approved JudgmentThis judgment was handed down remotely at 14.00pm on 6 July 2026 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................

Introduction

[1]On 27 December 2023 the M/V Vyssos (‘the Vessel’) struck a mine whilst in Ukrainian waters en route to Izmail, a Ukrainian port up river from the mouth of the Danube. She became a constructive total loss. She was not covered under the owners’ marine war risks policy because she was at the time trading outside warranty limits. The claimant (‘Oceanus’) brought a claim as mortgagees of the Vessel under a policy of mortgagees’ interest insurance (‘the MII Policy’) underwritten by the defendant (‘Insurers’), who declined cover. The trial in the Commercial Court was heard by Ms Sue Prevezer KC sitting as a Deputy High Court Judge (‘the Judge’). She found for Oceanus on the issues of liability and gave judgment in its favour for the agreed quantum of US$ 3.6 million plus interest. She granted Insurers permission to appeal.

The facts

[2]The Vessel was a dry bulk carrier built in 2007. At the material time she was owned by Lyra Mare Limited (‘Lyra Mare’). Lyra Mare's insurance policies included a marine war risks policy issued by Vessel Protect on behalf of 100% Lloyds underwriters on terms equivalent to the current Institute War and Strikes Clauses Hulls (‘the War Risks Policy’). The War Risks Policy was a valued policy with an agreed value of US$ 5.8 million. It provided cover for trading worldwide, subject to, in relevant part, the Navigation Limitations for Hull War, Strikes, Terrorism and Related Perils Endorsement JW2005/001A and Listed Areas JWLA/030 4 April 2022. Lyra Mare warranted that the Vessel would not enter, sail for or deviate towards the waters described in the Listed Areas, which included the territorial waters of Ukraine, unless otherwise agreed by the underwriters of the War Risks Policy in return for payment of an additional war risk premium.[3]By a Term Loan Facility dated 23 December 2022 (‘the Facility’) Oceanus provided US$ 3 million in financing to Lyra Mare, secured by way of a first preference mortgage over the Vessel dated 3 February 2023, and a General Assignment of the same date assigning all rights and interests of every kind which Lyra Mare at any time has, amongst other things, to sums payable under or in relation to the insurances of the Vessel. The War Risks Policy provided for Oceanus to be a loss payee and the latter’s interest as assignee was endorsed on the policy and acknowledged by its underwriters.[4]By Clause 17.2 of the Facility, Lyra Mare covenanted that it would procure that the Vessel was fully insured against, inter alia, war risks, on such conditions as Oceanus should approve in writing. In the event that Lyra Mare failed to comply with its obligations under Clause 17.2, Oceanus was entitled, at Lyra Mare's cost and expense, to take out such insurances for the Vessel as Oceanus might deem necessary in order to protect its interests and exposure under the Facility. Further, Clause 19 of the Facility headed "Events of Default" provided that in the event, amongst other things, of non-payment under the Facility or any non-compliance in connection with Clause 17.2, Oceanus was entitled, on notice to Lyra Mare, to cancel any undrawn portion of the Facility; to declare that all or part of the loan, together with interest and all other amounts accrued or outstanding be immediately due and payable; to start enforcement proceedings in respect of the security; and to exercise all other rights, remedies, powers or discretions under the Facility. The repayment schedule in respect of the loan was set out at Schedule 3 to the Facility. It provided for 19 quarterly payments of US$ 125,000, followed by a larger final payment.[5]The terms of the MII Policy are contained in a cover note issued on behalf of Insurers. It identified the “interest insured” as “A) Mortgagees Interest Insurance B) Mortgagees Additional Perils (Pollution) Insurance” for 12 months from 3 February 2023, and the sum insured as US$ 3.6 million. The attached wording was on the terms of the Institute Mortgagees Interest Clauses Hulls C1337 (1.3.97) (‘the MII Clauses’) and Mortgagees Additional Perils (Pollution) (LSW489) Amended (‘the Pollution Clauses’).[6]The MII Clauses included the following relevant terms: A. RECITAL Whereas the Assured has entered into a loan agreement commensurate with which the Assured holds certain collateral security including a first mortgage on the Mortgaged Vessel and endorsements of its interests on the Owners’ Policies and Club Entries Now it is agreed as follows 1. INSURING CLAUSE1.1 This insurance will indemnify the Assured for loss resulting from loss of or damage to or liability of the Mortgaged Vessel which, in the absence of an insured peril set out in Clause2.1 below, would prima facie be covered by the Owners' Policies and Club Entries, and not excluded therein, but in respect of which there is subsequent non-payment (or reduced payment which is approved in advance by the Underwriters hereon) by any of the Underwriters of Owners' Policies and Club Entries as a result of any insured peril, provided always that such insured peril occurs or exists without the privity of the Assured.1.2 The indemnity payable hereunder shall be:1.2.1 the amount of the Assured 's net loss and any amounts recoverable under Clause 6 herein, collectively not exceeding the sum insured on the Mortgaged Vessel [which was US$ 3.6 million as 120% of the loan], or1.2.2 the amount of the unrecoverable claim or part thereof under any of the Owners' Policies and Club Entries whichever is the lesser amount.1.3 All the above is subject to the Definitions Exclusions Warranties and Conditions below. 2. DEFINITIONS 2.1 Insured Perils … 2.1.2.3 breach of trading warranties contained in any of the Owners' Policies and Club Entries2.2 Owners' Policies and Club Entries —means hull and machinery policies on terms equivalent to or wider than the current Institute Time Clauses Hulls or American Institute Hull Clauses, (if taken, increased value policies on terms equivalent to Institute Time Clauses - Hull Disbursements and Increased Value (Total Loss only and Excess Liabilities) or American Institute Increased Value and Excess Liabilities Clauses), war risks on terms equivalent to current Institute War and Strikes Clauses Hulls - Time and full protection and indemnity risks on conditions equivalent to the rules of a P&I Club that is a member of the International Group of P&I Associations.2.3 Net Loss - means the Assured's loss under the loan agreement to the extent secured by mortgage on the Mortgaged Vessel net of any amounts recovered or recoverable under all security arrangements contained in or collateral to the loan including but not limited to all mortgages (whether on vessels insured hereunder or on other vessels), liens, any floating and fixed charges, security interests, guarantees, insurance policies and pledges. … 4. WARRANTIES It is warranted in respect of the Mortgaged Vessel that: 4.1 Owners' Policies and Club Entries have been taken out and, except as a result of the occurrence or existence of an insured peril without the privity of the Assured, shall be maintained throughout the currency of this insurance for an insured value and limit of liability not less than the amount insured hereunder or the amount of the outstanding loan to the extent secured by the Mortgaged Vessel … 6. DUTY OF ASSURED (SUE AND LABOUR) … 6.2 It is the duty of the Assured and their servants and agents to take such measures as may be reasonable for the purpose of averting or minimising a loss which would be recoverable under this insurance. 6.3 The Underwriters will reimburse charges properly and reasonably incurred by the Assured their servants or agents for such measures except for legal costs and expenses incurred by the Assured in relation to any claim under Owners' Policies and Club Entries which shall only be reimbursed in accordance with clause 6.4 herein. … 6.5 Any amounts payable under this clause shall be included within and shall not be additional to the sum insured. [all emphasis as in original][7]The only clause in the Pollution Clauses which was relied on was: “7. CHANGE OF OWNERSHIP OR CONTROL This policy will terminate automatically at the time of any change of class, ownership, management or control of a Mortgaged Vessel of which the Assured has knowledge or privity, unless the Assured gives prompt notice of such change in writing to the Underwriters hereon and agrees to pay an additional premium, if required.[8]On 3 February 2023 Lyra Mare took delivery of the Vessel, the Facility was drawn down, the War Risks Policy incepted and the MII Policy became effective. On 30 April 2023 Lyra Mare defaulted on the first quarterly payment to Oceanus under Schedule 3 of the Facility and thereafter defaulted on all repayments. The Facility remains in default to date and there has been no repayment of either principal or interest.[9]At the material time the Vessel was managed by Nava Shipping Limited (‘Nava’). She was on charter from Lyra Mare to Azov Wave Shipping and Trading Co Limited (‘Azov’), and sub chartered to Maxgrain SA (‘Maxgrain’) under a voyage charter dated 19 July 2023 to carry corn in bulk from Izmail to Ukraine. Oceanus' investment advisor, NRP Marine Asset Management AS (‘NRP’) corresponded with Nava and charterers of the Vessel as Oceanus' representative and agent. The person at NRP who was primarily involved was a fund partner, Mr Wilhelm Magelssen, who gave evidence at the trial. Because Lyra Mare had failed to make any of the repayments due under the Facility, and failed in a number of its functions, including payment of the Master, Oceanus, through NRP, was taking a closer interest in the Vessel’s employment than might otherwise be the case for mortgagees.[10]In early October 2023, whilst the Vessel was on sub-charter to Maxgrain, it was arrested by Maxgrain in Romania. Supplies to the crew had not been paid for and Oceanus, through NRP, had to step in. It engaged Wilhelmsen Insurance Services AS (‘Wilhelmsen’) which provided port services globally, a representative of whom visited the Vessel and procured the necessary supplies.[11]In early November 2023, NRP was informed that Maxgrain required the Vessel to call at Odessa, Ukraine, outside the warranted trading limits defined in the War Risks Policy. NRP requested to see evidence that additional war risks cover was in place for the voyage and was provided with a copy of an additional war risks cover note procured by Azov for a single call to Odessa (the ‘November Additional Cover Note’). This was issued by CR International Sarl and evidenced cover underwritten by various insurers. It was not an extension or endorsement to the War Risks Policy, but separate additional cover written by different underwriters. The trade from Ukraine was then completed without relevant incident. It appears that Lyra Mare was obliged to permit the Vessel to trade from Ukraine as part of a tripartite settlement agreement between Lyra Mare, Azov and Maxgrain dated 18 October 2023, which had been concluded without the knowledge of Oceanus or NRP in order to secure the Vessel's release following its arrest by Maxgrain in Romania. The settlement agreement included a provision requiring between two and five trips to Ukraine to load grain for discharge in Italy.[12]In early December 2023, Wilhelmsen was informed by Nava of a further intended voyage visiting Ukrainian waters. It is common ground that Oceanus knew that this further trading would again be a breach of the trading warranties under the War Risks Policy in the absence of an endorsement evidencing those underwriters’ agreement in return for additional premium.[13]Over the next three weeks there followed a series of communications sent and received on behalf of Oceanus by Mr Magelssen of NRP and Ms Trine Kjellsby, a senior insurance broker at Wilhelmsen, in which Oceanus was seeking confirmation and evidence from Lyra Mare that war risk cover for this proposed voyage had been obtained; and making clear that the Vessel should not enter Ukrainian waters without such cover. The detail of the communications is set out in the judgment below and need not be repeated in full here. By 25 December 2023 the Vessel’s entry into Ukrainian waters was fast approaching. On that day, Mr Magelssen emailed Mr Andriopoulos of Nava saying that "The vessel now being in bosphorus I assume she will reach Sulina tonight/tomorrow and then the intention is Izmail. Please ensure that war risk is in place for loading Ukraine before leaving Romanian waters. Believe it is for Azovs bill but you as Owners must ensure that the insurance is in place - we can obviously not enter Ukrainian waters before[e] we have seen evidence that apropriate insurance is in place." On 26 December 2023, Mr Heidenreich of NRP emailed Mr Andriopoulos, asking "Any update on this? See vessel is now just outside river delta to Izmail. Needless to say this is vital and urgent that we are comfortable with insurance cover".[14]As this exchange illustrates, both Nava and NRP were looking to Azov to take out and provide evidence of the necessary war risk cover for the visit. On 25 and 26 December 2023, Mr Magelssen was therefore also exchanging WhatsApp messages with Mr Yigiter, the owner of Azov, in which he further enquired about additional war risks cover being in place. At 10.21 on the 25 December, Mr Magelssen asked "Can you now please urgently send the signed cover notes for war insurance Ukraine loading and proof of payment". When Mr Yigiter responded "OK", Mr Magelssen asked him to let him know when he had sent them. At 17.37, Mr Magelssen WhatsApped again saying "Sorry for pushing but where is the war insurance now?" … "Starting to worry a bit about war insurance". Mr Yigiter sought to reassure Mr Magelssen that there was no need to worry, but when Mr Magelssen asked again at 15.17 on 26 December "Now that vessel has reached Sullina, I assume war risk cover notes have been issued now", he was told "not yet, plse wait me" … "tomorrow early date will be with us, no worry"; and at 15.20, Mr Yigiter told Mr Magelssen that the cover notes would be "just with in 2 hour with u, ok"… "I am pressing them". At 18.00 on the 26 December, Mr Magelssen sent a further WhatsApp making clear to Mr Yigiter that "I just need to see proof of war insurance – then everything can proceed".[15]Following this WhatsApp exchange, at 21.59 on 26 December Mr Yigiter sent to Mr Magelssen by WhatsApp a CR International Sarl cover note in largely similar form and terms to the November Additional Cover Note (‘the December Additional Cover Note’) purporting to confirm additional war risks insurance cover for the further voyage to Ukrainian waters on similar terms to the November Additional Cover Note. The December Additional Cover Note purported to cover a single call to Odessa. Mr Magelssen queried this reference in a WhatsApp message to Mr Yigiter as he understood that the Vessel was going to Izmail, not Odessa. However he was reassured by the fact that under the sub heading "PERIOD", the cover note stated "Vessel is anticipated to enter Ukrainian waters to Izmail from Romania ….". He sought confirmation from Ms Kjellsby by email at 22.43 "Is the vessel insured for Izmail calling. Reason asking is should we hold vessel back by instruction or are we ok from a need to have on the current cover note". Ms Kjellsby confirmed at 22.46 that "Everything is in order. No need to hold back Vessel but would ask for confirmation of payment when the policy is paid". Mr Magelssen then sent a WhatsApp message to Mr Yigiter saying “everything ok Could you also send proof of payment of premium then everything ok”, to which Mr Yigiter responded “Just tomorrow can do”, to which Mr Magelssen replied “That’s fine.” The casualty occurred at 08.20 local time the following morning.[16]In cross-examination in relation to this further trading in December, Mr Magelssen accepted that he was chasing Lyra Mare and the charterer for the additional cover because he knew that if the Vessel traded in Ukraine, it would be in breach of the trading warranties and there would be no cover under the War Risks Policy. Mr Magelssen stressed that he was not content with the Vessel trading to Ukraine at all, but that his only option was to make sure that the Vessel had sufficient additional war risks insurance.[17]Following the mine strike on the morning of 27 December, the Vessel's engine room flooded and the Master beached the Vessel in an attempt to save the hull and prevent a collision with another vessel. The Vessel was then attended to by local salvors and towed to Izmail where she was again beached. On or around 8 February 2024, the Vessel was declared a constructive total loss.[18]In the event, the December Additional Cover Note turned out to be a forgery. The November Additional Cover Note was genuine, but no further cover had been sought or put in place for the December voyage by Lyra Mare or Azov and no additional war risk premium had been paid to cover the voyage.[19]On 29 December 2023, the marine adjuster appointed by Lyra Mare put the underwriters identified in the December Additional Cover Note (via CR International Sarl) on notice of a claim arising out of the mine strike. On 3 January 2024, Oceanus put Insurers on notice of a claim under the MII Policy. On 5 January 2024, CR International Sarl confirmed that the December Additional Cover Note was a forgery and that no insurance for the December voyage had been taken out through them. On 19 June 2024, Oceanus made a claim under the War Risks Policy, which was declined due to the breach of the trading warranties.[20]At the trial of Oceanus’ claim against Insurers under the MII Policy it was common ground that(i) the Vessel was damaged by the mine strike;(ii) damage from the mine strike would prima facie be covered under Clause 1.1 of the Institute War and Strikes Clauses incorporated into the War Risks Policy and not excluded therein;(iii) the Vessel was trading in breach of the trading warranties in the War Risks Policy at the time of the mine strike entitling underwriters of the War Risks Policy to decline payment, which they did; and(iv) a breach of the trading warranties in the War Risks Policy was an "insured peril" under Clause 2.1.2.3 of the MII Policy. The parties had also agreed the value of Oceanus' claim at US$ 3.6 million net of interest and costs.[21]Insurers relied at trial on three alternative defences:(1) the proximate cause of Oceanus' loss was its inability to recover under the December Additional Cover Note due to it being a forgery and not its inability to recover under the War Risks Policy as a result of an insured peril under the MII Policy; as a matter of common sense and legal analysis, the proximate cause of Oceanus' loss is the invalidity or nullity of the December additional cover which was supposed to provide prima facie cover for the loss of or damage to the Vessel whilst in Ukrainian waters in December; it was the fact that this cover did not respond on account of its forgery which was the effective and proximate cause of Oceanus' loss; such forgery and the consequential non-payment under the December additional cover was not a risk assumed by the Insurers; it is not an insured peril under the MII Policy and is therefore not a loss covered by the policy;(2) alternatively, Oceanus' claim is excluded by the express proviso in Clause 1.1 of the MII Policy, namely that Oceanus was privy to the occurrence and/or the existence of the relevant insured peril, namely breach of the trading warranties in the War Risks Policy;(3) further or alternatively, even if the privity proviso is inapplicable, the loss was not fortuitous, as the breach of the trading warranties was a known certainty to Oceanus; Oceanus made the voluntary choice to rely on the December Additional Cover Note rather than holding the Vessel back by instruction from breaching the trading warranties under the War Risks Policy; when Oceanus agreed to the Vessel going to Ukrainian waters it was fully aware that if the Vessel sustained war risks damage when there, the War Risks Policy would not respond; that was a risk which Oceanus accepted by relying on the December Additional Cover Note.

The Judgment

[22]The Judge rejected each of these three defences. Without doing full justice to her reasoning it may be summarised as follows.[23]As to proximate cause, the argument before the Judge was framed by rival submissions as to the nature of the mortgagees’ interest which was insured under the MII Policy. Oceanus’ primary contention was that it was its interest in the Vessel, not its interest qua assignee of the War Risks Policy, and accordingly that the search for a proximate cause was for what damaged the Vessel, namely the mine strike; on this case Oceanus recognised that it was also necessary to establish that an Owner’s Policy providing prima facie cover had failed to respond by reason of a breach of trading warranties, but that was a secondary contingency, not the interest insured, as had been held to be the case in the MII policy considered by Mustill J in Continental Illinois National Bank & Trust Co v Bathurst (The Captain Panagos DP) [1985] 1 Lloyd’s Rep 625; alternatively, if the interest insured was the non-responsiveness of the War Risks Policy, the proximate cause was the breach of the trading warranties by Lyra Mare. The proximate cause was not and could not be the non-existent additional cover purportedly evidenced by the December Additional Cover Note which did not and could not cause any damage to anyone. Insurers argued that the interest insured was the right to claim under the War Risks Policy, that is to say its collateral security as assignee and loss payee under that policy, relying on what Calver J said in Piraeus Bank AE v Antares Underwriting Ltd (The ZouZou) [2022] EWHC 1169 (Comm) [2022] 2 Lloyd’s Rep 1. It was the failure of the December cover which caused that financial loss, but that was due to deceit which is not an insured peril.[24]The Judge resolved this issue as to the nature of the interest insured in favour of Oceanus so as to conclude that the proximate cause of the loss was the mine strike. However she held that resolution of the insurable interest dispute did not matter because ultimately what had to be decided was whether the terms of cover of the MII Policy were met in the circumstances of the case. The twin requirements were a loss “resulting from a loss of or damage to…the Mortgaged Vessel” and a claim which would have been prima facie payable under the War Risks Policy but for the insured peril of breach of the trading warranties. Those requirements were fulfilled irrespective of the nature of the interest assured. The December additional cover was not and could not be a proximate cause of the loss because it never existed:
“a forged policy does not exist as a matter of fact”
. The relevant policy which existed at the time of the mine strike was the War Risks Policy and the MII Policy terms were fulfilled in relation to that Owners’ Policy.[25]As to the privity issue, the Judge held that, contrary to Insurers’ submissions, privity in this policy bore the same meaning as in s. 39(5) of the MIA, as explained in Compania Maritima San Basilio v Oceanus Mutual Underwriting Association (Bermuda) Ltd (The Eurysthenes) [1977] QB 49, namely both knowledge and consent. There was no such consent because(a) Oceanus’ assent to the Vessel going into Ukrainian waters was conditional on additional war risks cover being in place, which did not occur;(b) Oceanus’ assent was obtained by fraud which prevented it amounting to consent for privity purposes; and(c) it was highly doubtful whether there was anything Oceanus could have done to prevent the Vessel going there in any event. She found as a fact that had Oceanus given an instruction to Lyra Mare not to go to Izmail, which was the only step it could have taken, the Vessel would probably have sailed into Ukrainian waters regardless of such instruction from Oceanus.[26]As to the fortuity issue, the argument advanced by Insurers, based on what was said by Hobhouse J in Ikerigi Compania Naviera SA v Palmer (The Wondrous) [1991] 1 Lloyd’s Rep 400, was that there is no cover where a loss is such as will occur in the ordinary course of events from a choice by the assured; and that here the choice to allow the Vessel to go to Ukrainian waters was made by Oceanus in the full knowledge that that would amount to a breach of the trading warranties in the War Risks Policy. The Judge rejected this argument for the reasons advanced by Oceanus. In summary the loss was fortuitous because the mine strike happened by chance and was not an inevitability.

The grounds of appeal

[27]The grounds of appeal advanced by Insurers largely reflect the arguments advanced to the Judge and rejected by her. They are in summary that(1) the proximate cause of the loss was the forgery of the December Additional Cover Note which was not an insured peril;(2) alternatively Oceanus was privy to the breach of the trading warranties in the War Risks Policy and so the claim fell outside the wording of the insurance clause;(3) further or alternatively the loss was not fortuitous because Oceanus knew that the Vessel trading to Ukrainian waters would amount to breach of the trading warranties under the War Risks Policy.

The insured interest and the insured loss

[28]Both Mr Bailey KC for the Insurers and Mr Vineall KC for Oceanus sought to frame their submissions on appeal, as they had before the Judge, by reference to the true nature of the MII Policy, on which their submissions were fundamentally at odds. I find it convenient to record and address these submissions before turning to the individual grounds of appeal.[29]Mr Bailey identified the key features of the MII Policy, relevant to the present dispute, as the following. The interest insured under the MII Policy is the mortgagees’ collateral security as loss payee and assignee of the Owners’ Policies and Club Entries as defined (to which I shall refer as ‘Owners’ Policies’ for short, and ‘Owners’ Policy’ where the singular is appropriate). This follows from the terms of the Recital and the Insuring clause, and was held by Calver J to be the nature of the MII policy in The ZouZou at [231(v)]. The MII Policy is not a conventional first party property insurance whereby Insurers promise to prevent or hold the assured harmless against loss of or damage to the Vessel. Loss of or damage to the Vessel is a necessary but insufficient occurrence to trigger coverage under the MII Policy. The insured interest is not any property interest qua mortgagees. The relevant loss insured against (being the first reference to “loss” in the first line of the Insuring Clause) is the mortgagees’ net loss which results from(i) loss and/or damage to the Vessel which is prima facie covered by the Owners’ Policies, coupled with(ii) non-payment under the relevant Owners’ Policy caused by an insured peril as defined in clause 2.1. The mortgagees’ net loss resulting from non-payment under the Owners’ Policies must be proximately caused by an insured peril named in clause 2.1. There is only cover under the MII Policy if the relevant insured peril occurs or exists without the privity of the Assured. The insured perils are specifically defined. There is no right to an indemnity under the MII Policy if the proximate cause of the non-payment is fraud or deceit or another act or omission unless the relevant conduct falls within the definition of an insured peril. The risk of non-payment because an Owners’ Policy is null and void ab initio, whether as a result of it being a forgery or otherwise, is not an insured peril under clause 2.1 (in contrast, for example, to avoidance of the Owners’ Policies on the grounds of misrepresentation or non-disclosure, which is an insured peril under clause 2.1.1); and the risk of non-existent primary cover is borne and retained by the mortgagees (warranty at clause 4.1). The risk of non-payment because an Owners’ Policy has been cancelled or terminated on account of the non-payment of premium is excluded (clause 3.1.1). The War Risks Policy, the additional war risks policy taken out for the first voyage to Ukraine in November 2023 and the December additional cover all fall within the definition of “Owners Policies and Club Entries” in the MII Policy (Clause 2.2.). In summary, the risk of a loss to the mortgagees as a result of loss of or damage to a Vessel and the non-payment by the relevant Owners’ Policy is retained and borne by the mortgagees unless the proximate cause of that loss is one of the insured perils defined in Clause 2.1 of the MII Policy.[30]Mr Vineall submitted that Oceanus’ insured interest was its security interest in the Vessel as mortgagees, an interest recognised by s. 14(1) of the Marine Insurance Act 1906 (‘the MIA’), which provides:
“Where the subject matter is mortgaged, the mortgagor has an insurable interest in the full value thereof, and the mortgagee has an insurable interest in respect of any sum due or to become due under the mortgage.”
As a matter of construction of the MII Policy wording there are six relevant ingredients which must be fulfilled to make good Oceanus’ claim, all of which were established in this case. The first was a “loss” within the meaning of the word as it first appears in clause 1.1 (the eighth word). This means loss to the mortgagees’ insured interest and is not to be equated with the measure of indemnity defined in clause 2.1, which merely caps such loss by confining it to the measure set out in that clause as the recoverable amount of the loss suffered, which may be greater than the actual loss. “Loss”, as this first ingredient, was satisfied in this case because loss of the Vessel gave rise to impairment of Oceanus’ security interest in the Vessel, which was the insured interest. It was sufficient for this ingredient that there was some loss to the security interest, not how the amount of such loss was quantified: it is not the recoverable loss quantified under clause 1.2. The second ingredient is that that loss is a loss “resulting from loss of or damage to ..…Vessel”. This was established because the casualty proximately caused the loss to Oceanus’ security interest in the Vessel. The third ingredient is that the loss or damage to the Vessel is prima facie covered under one of the Owners’ Policies (as defined) and not excluded therein. This meant under the Owners’ Policies as a whole. This was fulfilled because cover prima facie existed under the War Risks Policy. The fourth and fifth ingredients are that although prima facie cover exists there is non-payment by underwriters of an Owners’ Policy who were entitled to refuse payment; and such non-payment is the result of one of the insured perils identified in clause 2.1. The fourth and fifth requirements were fulfilled because the War Risks Policy underwriters had legitimately declined to pay on the grounds that the Vessel was in breach of trading warranty limits when in Ukrainian waters at the time of the casualty. The sixth ingredient is that the insured peril occurs or exists without the privity of Oceanus. This was fulfilled because, for the reasons given by Judge and addressed under ground 2, Oceanus was not privy to the breach of trading warranties.[31]Accordingly, Mr Vineall submitted, there were two sets of contingencies to cover, each of which had two limbs. The first was(i) a loss to the mortgagees’ insured interest(ii) resulting from loss of or damage to the Vessel. Such loss or damage was an insured peril although not described as such, and the words “resulting from” connoted a test of proximate cause as the relevant test of causation between the loss and damage to the Vessel and the mortgagees’ loss or damage to its security interest. The second contingency was (i) prima facie cover under Owners’ Policies, which was not excluded therein (ii) non-payment of which resulted from breach of the trading warranties occurring or existing without Oceanus’ privity. These were a second set of insured perils, but whilst the words “resulting from” again connoted proximate cause, they were not addressed to causation of the loss; rather they were directed to the reason for the non-responsiveness of the relevant Owners’ Policies, which was not itself the insured loss or the insured interest. Therefore, he submitted, the only issue which arose in this case as a matter of the MII Policy wording was whether there was privity. Grounds 1 (causation) and 3 (fortuity) involved Insurers seeking to invoke general principles of insurance law to impose restrictions on cover which were not in accordance with the MII Policy terms.[32]In evaluating these rival submissions it is necessary to say something about three separate aspects of marine insurance namely(1) insured interest;(2) insured loss; and(3) insured risks, or as they are commonly referred to in marine insurance, insured perils.[33]An insurable interest is what gives an assured the entitlement to protect itself by way of a contract of insurance: Lucena v Crauford (1806) 2 B & PNR 269, 127 ER 630. It is not the same as the insured loss, which is the loss which the underwriters agree to indemnify. Mortgagees have an insurable interest in a vessel if and to the extent that the mortgage provides security for repayment of the loan, the security interest being proprietary in nature. Loss of or damage to the vessel directly reduces the value of this security. It is this interest which is recognised by s. 14 of the MIA and which is typically insured by mortgagees of vessels. The insurance may take one or both of two forms. It may be by participation in the owners’ policies, as original co-assured or loss payee or assignee, giving a right in each case for the mortgagees to receive the proceeds of the owners’ policy from the owners’ underwriters. The mortgagees’ rights under such owners’ policies are, however, notoriously susceptible to the underwriters being able to decline cover as a result of conduct by the owner beyond the mortgagees’ control, which is why mortgagees often take out separate cover to protect their own interest. The latter is termed mortgagees interest insurance (‘MII’).[34]It is possible for mortgagees under a MII policy to insure either or both of(1) their security interest in the vessel and/or(2) their financial interest in being paid on owners’ policies, as was recognised in The Captain Panagos DP. That case involved a MII policy which provided cover if there was loss of or damage to the vessel, and if there was subsequent non-payment under owners’ policies. The issue was whether the mortgagees could recover for the value of damage to the vessel, or the amount payable under the owners’ hull and machinery policy, which was higher because it was a valued policy. The rival arguments turned on whether what the policy insured was the owners’ interest as assignee of the hull policy or their security interest in the vessel: p.629. Mustill J regarded each alternative as plausible from a business common sense point of view. His conclusion that the recovery was limited to the value of the damage to the vessel because the interest insured was the mortgagees’ security interest in the vessel was reached from an analysis of the particular contractual terms of the policy in that case. He held that failure to effect a recovery under the owners’ hull policy was not an element in the insured risk but no more than a condition precedent to the right to recovery. In The ZouZou Calver J said at [231(v)] that the interest insured under the MII policy in that case was not the mortgagees’ interest as mortgagees but its interest as assignee and loss payee of the owners’ policies. He noted that that was common ground between the parties. The comment was obiter, did not affect the outcome of the issue under consideration, and was not the subject of any argument. It arose on a different policy wording, which notably included an express provision that the measure of indemnity should not be determined by reference to the value of the vessel or the insurable value of the vessel.[35]The wording of the policies in those two cases was materially different from that in the other case and from the wording of the MII Policy in this case. They each illustrate that the nature of the interest insured under a MII policy must be ascertained from the particular wording of the policy. I will return to the terms of the MII Policy in this case which bear on the issue.[36]The insured loss is not the same as the insured interest. It will often be clearly defined by the policy terms as that which the insurers will indemnify. However where it is not so defined, it may be taken as co-extensive with the insured interest. That was the position in The Captain Panagos DP. An insured loss measured by reference to the insured interest will differ where the insured interest is a security interest in the vessel from that which would follow from the insured interest being payment under owners’ policies. Mortgagees’ security interest in a vessel is limited to the lower of the value of the vessel and the amount of the outstanding loan, in each case at the time of the casualty. These will typically fluctuate over the period between the inception of the insurance and the casualty. By contrast the mortgagees’ interest in the proceeds of the owners’ policies is, so far as underwriters are concerned, not dependent upon the outstanding amount of the loan; and, moreover, it will not always depend upon the fluctuating value of the vessel: it does not do so in a valued policy. Nevertheless it is worth observing that in commercial terms the mortgagees’ ultimate financial interest under both kinds of policy, owners’ policies and MII cover, is the security interest in the vessel recognised by s. 14, although the insured loss may be different. Mortgagees’ financial interest in an owners’ policy itself depends upon the security interest in the vessel because if mortgagees recovers more as assignee of an owners’ policy than the amount of their security interest, for example because the amount payable exceeds the outstanding loan, they are obliged to account to the owner for the excess. The mortgagees’ financial interest as assignee of the owners’ policy is in commercial terms the extent of their security interest in the vessel, notwithstanding that the insured loss under an owners’ policy may exceed the value of this insured interest and mortgagees may have a right against the insurer, as assignee, to payment of the full amount of the owners’ insured loss.[37]It is for this reason that Mr Vineall is correct to contend that the definition of “Interest: A) Mortgagees interest Insurance”, is a pointer towards the insured interest being Oceanus’ security interest in the Vessel, because it is that interest which is protected by its interest in the Owners’ Policies as well as its interest separately insured by Insurers under the MII Policy. That is not conclusive, but it provides the correct starting point.[38]It is reinforced by the fact that the warranty in clause 4 in relation to Owners’ Policies is limited to the amount secured on the mortgage at any given time. It is further demonstrated, to my mind conclusively, by the definition of Net Loss in clause 2.3. The Net Loss is limited to the loss of Oceanus’ security interest because it refers to the loss under the loan agreement “to the extent secured by the mortgage” and is further limited by other recoveries which the mortgagees are entitled to look to apart from the security provided by the mortgage.[39]Moreover, the insurance cannot simply be an insurance of Oceanus’ interest in the assigned proceeds of the Owners’ Policies, as Mr Bailey submitted, because it applies to amounts which ex hypothesi are not due under those Policies: the MII Policy only responds if Owners’ Policy underwriters refuse to pay because they are entitled to do so as a result of one of the insured perils vitiating cover.[40]I have addressed questions of insured interest at greater length than necessary in this case out of deference to the arguments of the parties. I would accept Mr Vineall’s argument that the insured interest under the MII Policy is Oceanus’ security interest in the Vessel for the reasons I have identified. However what matters for the resolution of the issues in the case is an identification of the insured loss and insured perils. In this MII Policy the insured interest does not dictate the insured loss. The latter is carefully delineated by the express language of clause 1.2 as the lesser of two alternatives. The first alternative is identified in clause 1.2.1 as Net Loss, as defined in clause 2.3 (plus sue and labour amounts recoverable under clause 6, which can for present purposes be ignored). The Net Loss is limited by its clear language to the loss of security interest; it refers to the loss under the loan agreement “to the extent secured by the mortgage.” This is not simply the amount of the outstanding balance on the loan, but depends upon the value of the Vessel. If the outstanding loan is US$ 3 million, the security interest is US$ 2 million if the value of the Vessel is only US$ 2 million. The Net Loss in such a case is US$ 2 million, not US$ 3 million because only US$ 2 million is secured by the mortgage.[41]The second limb of the definition of loss in clause 1.2.2 is the amount of the unrecoverable claim under the relevant Owners’ Policy. This is essentially a limit on the recoverable loss defined in clause 1.2.1 which arises from the requirement that the contingency in the body of1.1 is fulfilled, namely non-payment under an Owners’ Policy providing prima facie cover. But it is not necessarily less than the Net Loss in clause 1.2.1 and does not mean that mortgagees can recover the amount which the relevant Owners’ Policy would have paid and which it would have received as loss payee or assignee. This may be illustrated by my example in which at the time of the casualty the outstanding loan is US$ 3 million and the value of the Vessel is US$ 2 million. The relevant Owners’ Policy in this case is a valued policy providing for payment of US$ 5.8 million in the event of a total loss. Leaving aside the additional cover for sue and labour amounts, and any question of recoveries under other security, the insured loss would be the Net Loss under clauses 1.2.1 and 2.3 which would be US$ 2 million, not US$ 3 million, as explained. The mortgagees would not recover the US$ 5.8 million which would be received as assignee under the relevant Owners’ Policy as the agreed value under such policy. The security interest as the insured loss is equally illustrated by an example without the relevant Owners’ Policy being a valued policy, or in the case of a partial loss. Suppose the outstanding balance on the loan were US$ 1 million and the value of the loss of or damage to the Vessel US$ 2 million. The recoverable loss under clause1.2 would be US$ 1 million, not the US$ 2 million which would have been recoverable under the Owners’ Policy, because the former is loss which Oceanus would have suffered to its security interest in accordance with the definition of Net Loss in clause 2.3.[42]This illustrates why Mr Bailey is wrong to categorise the insured loss, as well as the insured interest, as Oceanus’ inability to recover the proceeds of insurance under Owners’ Policies by reason of prima facie cover being vitiated by an insured peril, or as he put it at one stage “the amount of the loan effectively that remains outstanding as a result of the failure of the Owners’ Policies’ to respond”. The measure of loss is limited by the value of its security interest in the Vessel and is not calculated by reference to the irrecoverable amount under the Owners’ Policy save insofar as that provides a cap on the recoverable loss. The existence of that cap does not make it the insured loss, any more than a fixed monetary limit would. Nor is it the amount of the loan outstanding simpliciter which is recoverable, but rather, as defined in clause 2.3, the outstanding loan to the extent secured by mortgage on the Mortgaged Vessel, which depends on the value of the Vessel not just the amount of the outstanding loan.[43]I would not accept Mr Vineall’s argument that the “loss” first referred to in clause1.1 is, as he submitted, a reference to the loss caused by the casualty to Oceanus’ insured interest in an abstract and unquantified way. The word “loss” follows the words “This insurance will indemnify the Assured for” and is thus identified as the insured loss, indemnity for which is afforded by the policy. That loss is articulated more fully in clause1.2 as “the indemnity payable hereunder”. The “loss” referred to by the word in the first line of clause 1.1 is the insured loss as defined in clause 1.2. Nevertheless that does not undermine the essential submissions of Mr Vineall as to the insured loss being Oceanus’ security interest in the Vessel. That is the measure of loss identified in clause 1.2 subject only to the cap imposed by clause 1.2.2 of the irrecoverable amount under the Owners’ Policy providing prima facie cover. That does not affect the nature of the insured loss being the mortgagees’ insured interest, namely its security interest in the Vessel, any more than would a fixed sum as a financial limit of indemnity. Nor is this analysis affected by the fact that additional cover is afforded for sue and labour amounts as is often the case in marine insurance.[44]As the above analysis and examples illustrate, the insured loss is not the inability of Oceanus to recover the amount it would have received under the Owners’ Policy but for non-payment because cover did not exist by reason of a clause 2.2.1 insured peril. That suggestion was central to Mr Bailey’s argument, and is mistaken.[45]Mr Bailey sought to buttress his argument on this point by reference to the general principle that loss must be caused by an insured peril, as articulated and developed for example in FCA v Arch at [162]-[163]. He submitted that it followed that the wording of clause 1.1 must be read in a way which requires the insured perils in clause 2.1 to be proximately causative of the insured loss; and that because the insured perils exclusively related to the reasons for the Owners’ Policy failing to respond, it must be the non-responsiveness of such policy which constitutes the insured loss.[46]This argument is unsound both in principle and by reference to the wording of the clause. As to principle, there is no support for this approach in the fact that the contingencies in clause 2.1 are described as insured perils. A contract of insurance may have a number of contingencies, which have to operate in a sequence, each of which is part of the insured peril and which collectively can be characterised as the insured peril. An example is afforded by the Hiscox policy in relation to business interruption losses in FCA v Arch, which required four sequential risks to eventuate, each proximately causative of the previous one: see [216]. The approach to determination of whether the composite insured peril is causative of the insured loss is to require all the constituent elements of the insured peril to operate on the previous one in the sequence, so as in combination to cause the insured loss to occur; it is not to take one or more of them individually so as to examine its individual causative potency in causing the insured loss by reference to a direct causative link between that individual peril and the insured loss, whether by application of a but for or any other test of causation: FCA v Arch at [217] to [244].[47]In this MII Policy there are three sets of such risks:(1) the occurrence of loss of or damage to or liability of the Vessel;(2) which occurred by reason of one of the perils insured under the Owners’ Policies which would operate to give prima facie cover under such Policies; and(3) non-payment under such Policies as a result of one of the perils defined in clause 2.1. In each link the causative test is one of proximate cause, because this is the general approach to causation (FCA v Arch at [162], [163]ff and Brian Leighton Garages v Allianz, [27]-[30] and [65]); and general causative wording such as “as a result of” does not modify the proximate cause general rule. It is the combination of each of these insured perils, operating in sequence on each other, which must proximately cause the insured loss. It is not the case that taken individually each must be the proximate cause of the loss without reference to the others. In the MII Policy, the role of the “insured perils” as defined in clause 2.1 is not to provide the direct link of proximate cause with the insured loss but merely to provide a direct causative link in the third of the sequences of causation identified above, namely the reason why a prima facie cover does not respond; then there must be a proximately causative link between the other two elements of risk: between loss of or damage to the Vessel and the risks covered in the Owners’ Policy which mean that the latter would provide prima facie cover; and then a proximately causative link between Oceanus’ insured loss and the loss of or damage to the Vessel.[48]The wording of clause 1.1 makes that clear. What must be “a result of any insured peril” is non-payment under an Owners’ Policy providing prima facie cover, which is not itself Oceanus’ insured loss, but a condition of the right to recover under the policy which is one part of a composite sequence of insured perils. The words in clause 1.1 “as a result of any insured peril” plainly govern the reason for the non-payment under an Owners’ Policy providing prima facie cover. Mr Bailey sought to suggest that they can be read back all the way to govern the word “loss” when first used in the first line, putting into imaginary brackets all the words in between. But that is inconsistent with the syntax of the clause, not only because the words “as a result of any insured peril” plainly govern the immediately preceding words, but also because it is clear that the words which follow “which” in the second line qualify the “loss of or damage to or liability of the Vessel”; they cannot qualify the previous use of the word “loss” when first used in the clause because such loss is Oceanus’ loss as the measure of indemnity under this MII Policy, as defined in clause 1.2, which is not the subject matter of Owners’ Policies.[49]Lord Justice Males characterised the cover in essentially the same way when suggesting in the course of argument that clause 1 as a whole could be read as an agreement to indemnify loss suffered by Oceanus (as defined) which was caused by certain kinds of physical loss or damage to the Vessel, namely those which are prima facie insured under Owners’ Policies but which those underwriters do not pay for one of the reasons identified in clause 2.1 occurring or existing (without privity).[50]That is not to say, as Mr Vineall submitted, that the contingencies of prima facie cover under an Owners’ Policy, and non-payment under it by reason of one of the “insured perils” identified in clause 2.1, are not insured perils or part of the insured peril but merely contingencies as contractual conditions of cover. It would be difficult to reconcile such a construction with the deliberate choice of the epithet “insured perils” to define the contingencies in clause 2.1. But nor does it mean, as Mr Bailey submitted, that loss of or damage to the Vessel is not part of the insured peril. His criticism of the Judge’s finding that a proximate cause of Oceanus’ loss was the loss of or damage to the Vessel as a result of the mine strike is to that extent misplaced. It was based on the false premise that there could only be a single insured peril proximately causing the loss, which was one of those set out in clause 2.1, whereas an insured peril may be a composite of one or more insured perils operating on another one so as proximately to cause the insured loss in combination, as is the case in this MII Policy.[51]In summary, therefore, Insurers’ argument that the insured loss is the irrecoverable amount of the relevant non-responding Owner’s Policy is inconsistent with the wording of each of clauses 1.1, 1.2 and 2.3. The insured loss is the loss to Oceanus’ insurable interest in the Vessel, namely its security interest in the Vessel itself, subject to a cap in the amount which would be recoverable under an Owners’ Policy providing prima facie cover. The existence of such a policy which would prima facie respond to the casualty, and the reason for non-payment under it, are part of the insured perils but the irrecoverable amount is not the insured loss.

Ground 1: Proximate Cause

[52]Against that background I can deal relatively briefly with this ground.[53]The principle that a loss must be proximately caused by an insured peril is expressed in s. 55 of the Insurance Act 1906, which provides:
“55 Included and excluded losses. (1) Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.”
[54]The general principle is a familiar one, but as s. 55 says in terms, it is subject to the terms of the policy. The Judge was right to treat the question as one which ultimately involved determining whether the terms of clause 1 were fulfilled. Subject to the issue of privity they were.[55]There were essentially two strands to Mr Bailey’s argument. The first was that the December additional cover was a prima facie policy in the sense that the parties treated it as cover which would have provided war risks insurance for the voyage to Ukrainian waters. Had such cover been valid it would have been the relevant Owner’s Policy under the MII Policy providing prima facie cover. However it failed to respond because it was a fraudulent nullity, which is not an insured peril. It was the forgery which was the proximate cause of the Vessel not having prima facie war risks cover, not the failure of the War Risks Policy to respond, which Oceanus knew it wouldn’t.[56]This argument misreads clause 1 which requires prima facie cover under something which falls within the definition of “Owners’ Policies and Club Entries”, which it is clear from the definition in clause 2.2 are a description of contracts of insurance which exist, not a policy which “prima facie” exists. What is required is prima facie cover under an existing policy of insurance, not a policy which prima facie appears to exist but does not. If the assured cannot identify an Owners’ Policy which would provide prima facie cover for the casualty, the MII Policy does not provide for any indemnity. The existence of such an Owners’ Policy is part of the insured peril.[57]Mr Bailey’s alternative argument was that the December Additional Cover Note existed as a document, and that a forged document is capable of having a causative effect irrespective of the non-existence of what it purports to record. Here the representation that there was additional cover was what led Oceanus to agree that the Vessel should go to Ukrainian waters. The relevant counterfactual is that of valid cover, in which case the MII Policy would not have responded because Oceanus would have suffered no loss. In reality, therefore, it was reliance on this forged document which caused the loss.[58]There are two answers to this argument each of which is sufficient.[59]First, Mr Bailey’s argument is that the relevant inquiry is affected by what Oceanus subjectively believed when agreeing to the Vessel going to Ukrainian waters. But cover under the MII Policy depends upon whether the insured perils in combination proximately caused the insured loss, which is an objective question unaffected by what Oceanus thought was the position. The insured perils all occurred in relation to the War Risks Policy and in combination proximately caused the insured loss. The MII Policy conditions were fulfilled in the circumstances which in fact existed because the only relevant Owners’ Policy in existence was the War Risks Policy and that failed to respond to the casualty by reason of the insured peril of the Vessel trading in breach of warranty limits imposed by that policy. The objective fact that there was cover under the terms of the MII Policy is not affected by the circumstance that the assured subjectively but erroneously thought that there was other insurance which would prevent it suffering an insured loss under the MII Policy.[60]Secondly, it is difficult to see why the relevant counterfactual should be, as Mr Bailey suggested, that the forged cover note was valid, rather than that the forged cover note had not been presented. The relevant counterfactual to dishonest conduct by Owners (or Azov) is what would have happened had there been no dishonesty. Since Owners/Azov were not in fact prepared to take out additional war risk cover and pay additional premium, the natural inference is that the honest counterfactual would have been to abstain from pretending that there was cover. Had that happened, on the Judge’s findings, the Vessel would still have gone to Ukrainian waters despite any objection by Oceanus, and the loss and claim would have happened as it did. The deception was not causative of the insured loss occurring because had there not been any such deception the Vessel would still have gone to Ukrainian waters in breach of the trading warranties in the face of objection by Oceanus.[61]This conclusion accords with the commercial reality of Oceanus’ position, whose approach to events cannot fairly be criticised as a matter of propriety or good practice. As Mr Vineall observed, it is a curious and uncommercial aspect of Insurers’ argument that Oceanus is worse off by having been positively deceived by Owners/Azov than it would have been if it had merely been kept in the dark about the Vessel undertaking a voyage to Ukrainian waters, or taken no interest in war risk insurance, which is especially anomalous since its involvement made no difference to the Vessel being sent there. Ground 2: Privity The law

Ground 2: Privity

[62]On the appeal, it was common ground that the Judge was right to conclude that “privity” in clause 1.1 of the MII Policy bore the same meaning as it bears in s. 39(5) of the MIA which provides “… where with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness”. I agree with the parties and the Judge that privity is to be given the same meaning in this clause as in s. 39(5), although I do not rely in support of that conclusion, as Mr Vineall’s submissions did (albeit faintly), on the wording of clause 7 of the Pollution Clauses, referring to “knowledge or privity”. That is because the MII Clauses and Pollution Clauses are two sets of clauses which may be used independently of each other and so must be capable of being construed in isolation from the other and bearing the same meaning when used in isolation as when used in combination. Nevertheless the s. 39(5) jurisprudence gives a well-known meaning to the word privity in the context of that aspect of marine insurance and the word will have been chosen in the MII Clauses against that background of established meaning, to which it is equally apposite.[63]In The Eurysthenes, each member of the Court of Appeal confirmed that what was required for privity included two elements, namely(1) knowledge of unseaworthiness and(2) concurrence (per Lord Denning MR and Roskill LJ) or consent (per Geoffrey Lane LJ who equated concurrence with consent). Knowledge includes “turning a blind-eye” where an owner believes or suspects the vessel to be unseaworthy but refrains from inquiry so that he should not know it for certain: ibid and Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2001] UKHL 1 [2003] 1 AC 469.[64]Mr Vineall and Mr Bailey each placed emphasis on a particular aspect of the test in s. 39(5). Mr Vineall drew attention to the fact that each member of the Court in The Eurysthenes emphasised that what was necessary was not merely knowledge of the facts which constituted the unseaworthiness but also knowledge that those facts rendered the vessel unseaworthy: see pp. 68D, 76E, 81F. So, he submitted, what mattered for the purposes of the present dispute was not merely whether the facts were such that relevant insured peril(s) occurred or existed, but whether Oceanus appreciated that such peril(s) occurred or existed. For his part, Mr Bailey drew attention to what was said about the concurrence/consent ingredient by Kerr J in Piermay Shipping Co SA v Chester(The Michael) [1979] 1 Lloyd’s Rep 55 at p. 66 that privity can range from active complicity to mere passive concurrence. It is not necessary to explore the parameters of whether and to what extent passivity may be sufficient to amount to concurrence or consent because, on the facts of this case, Oceanus clearly made a conscious decision not to try and hold back the Vessel on the basis that it was satisfied with the December Additional Cover Note, and its belief that that meant that war risks cover was in place for the proposed visit to Ukrainian waters. Mr Vineall did not seek to argue that that could not amount to consent or concurrence, but rather that the consent or concurrence was not to the existence of the relevant peril(s) and/or that the consent was vitiated or conditional, as more fully addressed below.

Submissions

[65]Mr Bailey’s submission was attractively simple and straightforward. The relevant Owners’ Policy providing prima facie cover is the War Risks Policy, which is that upon which Oceanus relies in making its claim under the MII policy. Non-payment under that policy resulted from the fact that the visit to Ukrainian waters was in breach of the trading warranties, which is the relevant insured peril under clause 2.1.2.3, and again is the insured peril upon which Oceanus relies in advancing its claim under the MII Policy. When Oceanus agreed that the Vessel should proceed to Ukrainian waters it knew that the War Risks Policy would not respond for that reason, having sought confirmation of additional war risk cover and been provided in response with evidence of cover from other underwriters in the form of the December Additional Cover Note. Oceanus knew that the insured peril would occur or exist when the Vessel entered Ukrainian waters, as it did, and consented to the Vessel doing so, relying on the December Additional Cover Note. It was therefore privy to the relevant insured peril existing and occurring. It is irrelevant that it did so in the mistaken belief that it had cover under other war risks insurance which would protect it against the consequences of that breach of warranty in the War Risks policy. It knew that the additional cover would not cure the breach of the trading warranty.[66]Mr Vineall did not dispute that Oceanus knew at the time it agreed to the Vessel entering Ukrainian waters that doing would be a breach of the trading warranties in the War Risk Policy and that it would entitle those underwriters to refuse payment. He sought to meet Insurers’ privity argument in two alternative ways. First he argued that the knowledge and consent required by the clause was knowledge or consent to an insured peril preventing the recovery prima facie covered under any Owners’ Policy. In this case Oceanus honestly and reasonably belied that the December Additional Cover Note was genuine and provided war risks cover for the visit. That cover would be an ‘Owners’ Policy’ such that, had the position been as Oceanus honestly and reasonably believed it to be, there would have been no operative insured peril. The knowledge and consent required by clause 1.1 is that there will be non-responsiveness of Owners’ Policies, plural, which would otherwise provide prima facie cover, looking at those Policies as a whole. The second and alternative argument was that if knowledge was correctly focussed on the position under the War Risks Policy alone, nevertheless the consent to the Vessel trading to Ukrainian waters was secured by the deception practised on it by forgery of the December Additional Cover Note which vitiated consent; and/or the consent was given subject to the condition precedent that additional war risk cover was in place and that condition was not fulfilled as a result of the absence of any genuine additional cover. Mr Vineall made clear that he did not pursue as a third alternative that if privity was otherwise established it was defeated by the fact that the Vessel would have proceeded to Ukrainian waters irrespective of the consent given.[67]In response to the second argument, Mr Bailey accepted that, in principle, a fraudulent deception could vitiate consent for the purposes of privity, but submitted that it needed to be a deception in relation to the subject matter of the consent or something substantially and closely connected to it, not deception as to a collateral matter. He relied in this connection on the principles applied to consent for the purposes of sexual offences in the authorities culminating in R v Lawrance [2020] EWCA Crim 971, in which the principle articulated at [35] was:
“The question is whether a lie…is so closely connected to the nature or purpose of the sexual intercourse, rather than the broad circumstances surrounding it that it is capable of negating consent. Is it closely connected to the performance of the sexual act.”
[68]Mr Bailey submitted that the deception in this case was not as to the subject matter of the consent, which was consent to the Vessel trading in breach of the trading warranties under the War Risks Policy. Rather it was a deception in relation to the financial consequences of that occurring, which is not closely connected to knowledge and consent to the insured peril occurring or existing. It simply involved being deceived into a mistaken belief about something else which would have provided financial recompense for the casualty from other underwriters. It was deception as to something collateral.

Analysis and conclusions

[69]I was initially attracted by Mr Vineall’s first submission, but on closer examination it raises issues which were not addressed in the evidence or findings by the Judge, nor addressed in argument before us.[70]I see considerable force in the aspect of the argument which was addressed, which I would express in the following way. In order to determine whether the assured is privy to the existence or occurrence of an insured peril it is necessary to identify the relevant insured peril, of which there a number enumerated in clause 2.1 including, for example, avoidance for misrepresentation or non-disclosure, and a wide category of breach of warranty or conditions, in which breach of trading warranties is just one example in a non-exhaustive list of six different kinds. But in order to identify the relevant insured peril it is necessary first to identify the relevant Owners’ Policy which provides prima facie cover. Not all of the Owners’ Policies which meet the definition will matter because the cap on loss in clause 1.2 is the amount of the unrecoverable claim or part thereof under any of the Owners’ Policies.[71]Take a case of double insurance under which loss of or damage to or liability of the Vessel is covered in whole or in part under two separate Owners’ Policies. Assume Policy A does not respond, for non-disclosure to which the assured is privy, and Policy B does not respond for non-disclosure to which the Assured is not privy. Privity to the non-responsiveness of Policy A is irrelevant because it would not be the relevant policy. The assured could bring a claim under the MII Policy based on Policy B which would fulfil all the ingredients of cover.[72]When it comes to examining whether there is cover under the MII Policy, identifying the relevant Owners’ Policy which fulfils the ingredients of cover is addressed as a matter of objective fact. But when it comes to addressing privity, what the assured must know/believe, and concur in, is the occurrence or existence of a relevant peril. That must involve knowledge or belief that it is a potentially relevant peril, in just the same way as for s. 39(5) the assured must know not only of the facts rendering the vessel unseaworthy but that they render it unseaworthy. Knowledge or belief that a peril is a potentially relevant peril entails knowledge or belief that it is the peril in a relevant policy as a necessary ingredient of privity. What matters for privity is that the assured is complicit in something which makes the MII Policy susceptible to paying out in the event of a casualty, in just the same way as in s. 39(5) privity to unseaworthiness makes a policy susceptible paying out in the event that such unseaworthiness gives rise to the casualty. If the assured knows something about one Owners’ Policy, but honestly and reasonably believes that it is not a relevant Owners’ Policy, he is not privy to the existence or occurrence of an insured peril which contrary to such belief turns out to be relevant. To hold that the assured was privy in those circumstances would run contrary to the concept of privity requiring complicity in something which renders the MII Policy susceptible to responding.[73]Up to this point, as I say, I see considerable force in Mr Vineall’s submission. But it depends upon the further contention that had the December Additional Cover Note evidenced genuine cover, the War Risks Policy would not have been a relevant Owners’ Policy in respect of which a claim would arise under the MII Policy. This was simply assumed as part of Mr Vineall’s submission, but it seems to me that if the December Additional Cover Note had evidenced genuine cover, the War Risks Policy would be irrelevant in most but not necessarily all circumstances. It would be irrelevant to a claim under the MII Policy if(a) the additional war risk underwriters were liable to pay under such cover and were solvent or(b) those underwriters were entitled to decline payment for one of the reasons identified as insured perils under clause 2.1. In the first case there would be no Net Loss (whether or not underwriters in fact paid out, because clause 2.3 excludes from Net Loss amounts which are “recoverable”). In the second case the additional cover would be the relevant Owners’ Policy providing prima facie cover under which there was non-payment due to an insured peril. But what if the additional cover did not respond because underwriters were entitled to refuse cover for a reason not included in clause 2.1? Or if cover were excluded by clause 3 of the MII Policy, which excludes cover where the underwriter declines to pay for non-payment of premium, or fails to pay due to insolvency? In those circumstances Oceanus could still look to rely on the War Risks Policy as the relevant non-responsive Owners’ Policy, and privity to the insured peril in that Policy would be privity to the relevant insured peril. It is true that the existence of the additional cover would very probably and in the normal course of events have rendered the War Risks Policy irrelevant to cover under the MII Policy, but it would not necessarily do so in a very narrow range of circumstances.[74]There does not appear to have been any exploration in the evidence about the state of mind of Mr Magelssen in this respect, and no finding by the Judge about it. What matters for these purposes is his actual subjective state of mind not what he would have appreciated had he thought about it: The Star Sea at [25]. The Judge’s finding goes no further than that Mr Magelssen relied on the existence of the apparent additional war risk cover in giving his “ok”, as is obvious from the communications. We heard no argument about it, or on the further question which it raises as to who would bear the burden of proof that Oceanus did not know or believe the War Risks Policy to be potentially relevant to a claim under the MII Policy.[75]In those circumstances I would prefer not to express any concluded view on Mr Vineall’s first submission on privity. I do not find it necessary to do so because I would accept his second and alternative submission that the consent of Oceanus to the Vessel trading to Ukraine in this case was “vitiated” by the deception practised on it.[76]In HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6 [2003] 1 All E.R. (Comm) 349 | [2003] 2 Lloyd's Rep. 61 insurers sought to avoid liability under a policy on the grounds, among other things, of fraudulent non-disclosure by the insured's agent. The insured relied on a clause in the policy providing that the insured “should have no liability of any nature” to the insurers for information provided by others. The House of Lords held that this clause did not relieve the insured of the consequences of fraud by its agent. Lord Bingham of Cornhill said at [15]:
"… fraud is a thing apart. This is not a mere slogan. It reflects an old legal rule that fraud unravels all: fraus omnia corrumpit. It also reflects the practical basis of commercial intercourse. Once fraud is proved, 'it vitiates judgments, contracts and all transactions whatsoever': Lazarus Estates Ltd v Beasley [1956] 1 QB 702 at 712 per Denning LJ. Parties entering into a commercial contract will no doubt recognise and accept the risk of errors and omissions in the preceding negotiations, even negligent errors and omissions. But each party will assume the honesty and good faith of the other; absent such an assumption they would not deal."
[77]Care must be taken in applying a principle that fraud unravels all to a supposed principle that “fraud vitiates consent”. It is not a general rule that fraud vitiates consent, in the civil or criminal law, as Robert Goff LJ explained in Whittaker v Campbell [1984] 1 QB 318, where the Court held that it had no application at all to consent obtained by a fundamental lie for the purposes of the offence of taking a vehicle without the owner’s consent in s. 12 Theft Act 1968. See also Philipp v Barclays Bank UK Plc [2023] UKSC 25 [2024] A.C. 346 at [103], in which the maxim that fraud vitiates consent was described as “an obfuscation” as part of the Supreme Court’s rejection of an argument that fraud vitiated intention in the context of a person giving instructions to a bank. The position was explained by Lord Nicholls in Shogun Finance Ltd v Hudson [2003] UKHL 62 [2004] 1 A.C. 919 in the following terms at [7]-[8] in a passage approved in Philipp:
“7. Similarly with consent: as noted by Robert Goff LJ in Whittaker v Campbell [1984] QB 318, 327, in this context fraud does not 'vitiate' consent. Professor Glanville Williams rightly said that the maxim 'fraud vitiates consent' is thoroughly misleading: see 23 Canadian Bar Review (1945) 271, 291-292. Whether a person has consented to this or that is a question of fact. Fraud does not negative a fact. As with intention, so with consent, fraud negatives legal rights or obligations otherwise flowing from a person having given his consent to a particular happening. Fraud can destroy legal rights; it cannot destroy facts. 8. This distinction, between negativing intention or consent and negativing the rights otherwise flowing from intention or consent, is important. It explains why the law treats a contract induced by fraud as voidable, not void. The necessary coincidence of intention, or consensus ad idem, may exist even where the intention and consent of the victim were induced by fraud. An intention thus induced is regarded by the law as sufficient to found a contract, even though the victim may repudiate the contract as soon as he discovers the fraud.”
[78]The true principle is, therefore, that fraud may negative legal rights or obligations flowing from consent having been induced by the fraud. Before us it was common ground that a principle that “fraud vitiates consent” was of application to the consent necessary in order to establish privity in this case. Provided that is understood as meaning that fraud may prevent the consent amounting to privity as a matter of legal rights and obligations I would agree. References in what follows to fraud vitiating consent are to be understood in this sense: fraud unravels the legal consequences of consent; it does not destroy the fact of consent.[79]If one asks the question “consent to what?” the answer is that the activity consented to is the Vessel trading in Ukrainian waters. But that does not fully capture the nature of consent for the purposes of privity, which is consent with knowledge, and there must be a relevant connection between the fraud which causes the consent to be given and that to which the assured must be privy in terms of knowledge. This too was common ground. It is therefore better framed, as Lord Justice Newey expressed it in the course of argument, as consent to the Vessel going to Ukraine in breach of the trading warranties.[80]The cases relied on by Mr Bailey on consent to sexual offending are not directly analogous. As the Court stated in Lawrance at [42] and the Court reaffirmed recently in R v BVA [2025] EWCA Crim 1359 [2026] 1 WLR 621 at [44], [45], those cases do not turn on any common law principle, but on the specific wording of the definition of consent in s. 74 of the Sexual Offences Act 2003. Different public policy considerations are in play in relation to criminalisation of offenders and protection of victims in the criminal sphere of sexual offending from those which apply more generally in civil law in the context of commercial dealings, and specifically to the concept of privity in marine insurance.[81]However a similar general approach is appropriate in the current context, namely to address whether the deception has a sufficiently close connection to the subject matter of privity to vitiate the consent element in such privity.[82]Mr Bailey posited examples of deceptions which would clearly be collateral to that consent, such as the assured being deceived by a fraudulent representation that the vessel would proceed at 5 knots when the intention was to steam at 7 knots, but for which the assured would not have assented to the voyage; or an intention to spoof satellite tracking which would identify the position of the vessel. Mr Vineall did not dispute that these would be deceptions which were not sufficiently connected to the subject matter of privity as to vitiate consent.[83]What is “sufficient”? Without attempting an exhaustive definition, in the circumstances of the current case it is sufficient, in my view, if the deception is such as to affect the assured’s knowledge or belief as to whether the War Risks Policy will be relevant to whether the MII Policy will be called on to respond to a casualty. If the assured is deceived into thinking that the War Risks Policy will not be a relevant Owners’ Policy, or very probably and in the normal course of events will not be a relevant Owners’ Policy, that ought to be sufficient because it undermines the complicity which is the essence of the protection which Insurers are legitimately seeking in the privity exception to liability. Oceanus gave its consent to the Vessel entering Ukraine waters in breach of the trading warranties in the War Risks Policy because it believed the Vessel had alternative equivalent cover to that in the War Risks Policy for that voyage. In the normal course of events and save in a very narrow range of circumstances that would have resulted in the War Risks Policy being an irrelevant Owners’ Policy for the purposes of a claim under the MII Policy. The deception practiced on Oceanus meant that had the position been as fraudulently portrayed to it, the knowledge of and consent to the breach of trading warranties in the War Risks Policy would very probably and in the normal course have been immaterial to cover under the MII Policy. That was a deception which affected the very operation of the terms of this MII Policy, not merely the financial consequences of being unable to recover under it. The connection between the deception in this case and the subject matter of the consent is very close. It is not aptly described, as Mr Bailey sought to describe it, as collateral, or merely going to the financial consequences of the matter of which there was knowledge and to which consent was given.[84]Mr Vineall’s alternative argument that the consent was conditional on there being additional war risk insurance in place, a condition precedent which was not fulfilled, was contained in his skeleton argument but not addressed orally, although he confirmed at the conclusion of oral argument that it was maintained. It was not addressed by Mr Bailey in his skeleton argument or orally. In the light of my conclusions I do not need to address it, and would prefer not to express any views about it without having had the benefit of any significant argument on the point.[85]In conclusion on this issue, it is worth considering what the position would have been had the deception not been of additional war risk cover under a separate policy, but of additional war risk cover by an endorsement to the War Risks Policy covering a trip to Ukrainian waters in return for additional premium. In that case the deception would have been as to whether the trading warranties would be breached if the Vessel went to Ukraine and, as Mr Bailey accepted, in those circumstances the deception would undoubtedly vitiate consent as being fundamental to any consent to there being a breach of the trading warranties. Yet in commercial terms it would have been a matter of indifference to Oceanus whether the additional war risk cover were provided by the underwriters of the War Risks Policy or other reputable underwriters under separate additional cover. It would equally have been a matter of indifference to Insurers. What both Oceanus and Insurers would be concerned with is the extent of war risks cover of Owners’ Policies as a whole. For the consequences of this happenstance to make all the difference to whether the MII Policy responds would strike business people as surprising, and I can see no justification for such an uncommercial result. Ground 3: Fortuity Submissions

Ground 3: Fortuity

[86]Mr Bailey founded this ground upon what Hobhouse J said in The Wondrous as part of his reasoning for rejecting owners’ claim for loss arising from detention of the vessel for a particular period by the port authorities at Bandar Abbas, the dominant cause of which was the failure by the owners to pay port duties. The policy covered loss of hire due to “restraint or detention”. He said at pp. 415-416:
“The next question is whether this loss was caused by a peril insured against under the policy. The plaintiffs' case as previously mentioned was that all they need show was that there was a "restraint or detention" of the vessel. I accept their submission that the fact that the detention was under the ordinary laws not fatal to their case … But it was still necessary for the plaintiffs to show that the detention was fortuitous. How to characterize the element of fortuity in this context is not easy. If the owners had asked themselves at the time of placing the cover or at the time of making the charter-party whether detention for any substantial period after loading a cargo at Bandar Abbas was to be anticipated or likely to occur in the ordinary course, they would have correctly answered that it was not. But on the other hand, where a situation comes about as a result of the voluntary conduct of the assured, it would not normally be described as fortuitous. It did not happen by chance but by the choice of the assured. Put another way, it would be in the ordinary course that, if the owners of a vessel do not pay the port dues for which they are liable to the port authority in respect of the stay of the vessel in that port (or provide acceptable security), the vessel will not be cleared. For the purposes of the law of insurance, in the absence of an express agreement to the contrary, a policy should not be construed as covering the ordinary consequences of voluntary conduct of the assured arising out of the ordinary incidents of trading; it is not a risk.”
[87]Mr Bailey submitted that there was no fortuity in this case because Oceanus chose to send the Vessel to Ukraine in knowledge that there was no cover under the War Risks Policy and the absence of such cover under the War Risks Policy was the inevitable consequence of its choice to do so.[88]Mr Vineall advanced two separate arguments, each of which was said to be sufficient. The first was based on the common ground that the fortuity principle required the loss to be an inevitability, not the insured peril. Since the loss was to Oceanus’ insured interest in the Vessel, which only occurred by reason of the Vessel fortuitously hitting a mine, the loss was therefore fortuitous; alternatively, and even if it could be said that the loss was the loss of cover under the War Risks Policy, that too was contingent on damage to the Vessel which was caused by the fortuity of the mine strike. Secondly there was in this case no deliberate choice by Oceanus, with knowledge of the result of insured loss, for the reasons advanced in relation to privity. If the consent required for privity was vitiated by the deception about the December additional cover, so too was the “choice” by Oceanus to allow the Vessel to enter Ukrainian waters.

Analysis and conclusions

[89]The argument under this heading proceeded on the basis that an insurance is a contract of indemnity against a risk, not an inevitability, and that what Hobhouse J said in The Wondrous was an application of this more general principle. I have reservations about whether the principle is correctly stated this widely. As Donaldson LJ observed in his analysis in Soya GmbH Kommanditgesellschaft v White [1982] 1 Lloyd’s 136, the question of inevitability is subjective, not objective, and the parties to contracts of marine insurance can insure against events which unknown to them are inevitable; he said that the principle was better expressed in term of “known certainty” rather than “inevitability” (at p.149 col 2). Moreover, as he observed, the principle is not an absolute one but merely a principle of construction: the parties will not be taken to have contracted against known certainties unless the contract contains very clear words because that would be a highly improbable contract for an underwriter to make in the course of his business. The House of Lords ([1983] 1 Lloyd’s Rep 122, 126) expressly left the point open.[90]It is not, however, necessary to explore the breadth of the principle because it is clear that it has no application to the facts of this case. I have accepted Mr Vineall’s argument that the loss insured is Oceanus’ interest in the Vessel. That loss has arisen, and only arisen because the damage to the Vessel occurred as the result of a fortuitous mine strike. That fortuity caused that loss.[91]Moreover, where there are a number of insured perils which must act in combination with each other so as compositely to bring about the insured loss, as I have explained that there are in the MII Policy, the fortuity principle can be of no application unless the inevitability is of each of them acting with the others so that the combination of them is inevitable. If one is fortuitous, the combination of all of them will be fortuitous. For that reason also the fact that the mine strike was fortuitous renders the loss resulting from the combination of the insured perils fortuitous because the “loss” must be one “resulting from loss of or damage to or liability of the Mortgaged Vessel”. That is so irrespective of the characterisation of the insured interest or the insured loss.[92]Mr Vineall’s first argument is therefore a conclusive answer to this ground. So too is his second. If the argument depends upon the “choice” made by Oceanus, as it does on the way Mr Bailey advances the case, the relevant “choice” was that of Oceanus giving consent to the Vessel going to Ukrainian waters in breach of the trading warranties under the War Risks Policy. If, as I have concluded, that consent is vitiated by the deception practised on Oceanus for the purposes of privity, I cannot see any reason as a matter of logic or commercial sense in treating the “choice” as somehow untainted by the deception for present purposes, when both are based on the same consent. Conclusion[93]For these reasons, which largely mirror those given by the Judge, I would dismiss the appeal.[94]I agree.[95]I also agree.