Oceanus Capital SARL v Lloyd's Insurance Company SA [2025] EWHC 3293 (Comm)

[2025] EWHC 3293 (Comm)Case No CL-2024-000481
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 17 December 2025
Before
SUE PREVEZER KC
Between
OCEANUS CAPITAL SARLClaimantLLOYD’S INSURANCE COMPANY S.A.Defendant
Nicholas Vineall KC and Neil Dowers (instructed by Wikborg Rein LLP) for ClaimantDavid Bailey KC and Emma Franklin (instructed by Kennedys Law LLP) for DefendantHearing Hearing dates: 3 & 4 November 2025
JUDGMENT

Introduction

[1]The M/V Vyssos (the “Vessel”) was a cargo ship built in 2007, owned by Lyra Mare Limited (“Lyra Mare”) and managed by Nava Shipping Limited (“Nava”). At all material times Lyra Mare’s interest in the Vessel was insured under, amongst others, a marine war risks policy issued by Vessel Protect on behalf of 100% Lloyds underwriters on terms equivalent to current Institute War and Strikes Clauses Hulls (the “War Risks Policy”). The War Risks Policy provided cover for trading worldwide, subject to certain warranties, including in relevant part, a warranty that the Vessel would not enter, sail for or deviate towards certain waters, including the territorial waters of Ukraine (together “the Trading Warranties”) unless otherwise agreed by the underwriters of the War Risks Policy in return for payment of an additional premium.[2]By a Term Loan Facility dated 23 December 2022 (the “Facility”), the Claimant, Oceanus Capital Sarl (“Oceanus”) provided USD3,000,000 in financing to Lyra Mare, secured by way of a first preference mortgage over the Vessel dated 3 February 2023 and endorsements of Oceanus’ interests on Lyra Mare’s policies and club entries. By a General Assignment dated 3 February 2023 (the “Assignment”), Oceanus, as mortgagee, took an assignment of all rights and interests of every kind which Lyra Mare had (or at any time has) to, in or in connection with, inter alia, sums payable under or in relation to the insurances of the Vessel. Further, by a Mortgagee’s Interest Insurance cover note, effective from 3 February 2023 to 2February 2024, the Defendant, Lloyd’s Insurance Company SA (the “Insurer”) underwrote cover of Oceanus’s interest as mortgagee of the Vessel (the “MII Policy”). At all material times, Oceanus’ investment advisor, NRP Marine Asset Management AS (“NRP”) corresponded with Nava and charterers of the Vessel as Oceanus’ representative and agent.[3]On 21 December 2023 whilst the Vessel was on charter from Lyra Mare to Azov Wave Shipping and Trading Co Limited (“Azov”) and sub chartered to Maxgrain SA (“Maxgrain”), Oceanus was informed that Maxgrain intended to trade the Vessel into Ukrainian waters, outside the territorial limits defined in the Trading Warranties. Oceanus insisted that appropriate additional war risks cover be put in place to cover the trading, and in a series of WhatsApp exchanges and emails (detailed below), acting by its agents NRP, Oceanus sought the production of the signed cover note for the additional war risks insurance and confirmation of payment prior to the Vessel entering Ukrainian waters. On 26 December 2023, the day before the relevant trade to Ukraine, Oceanus was provided with a copy of what appeared to be a cover note evidencing additional war risks cover for the voyage (the “December Additional Cover”). On 27 December 2023, the Vessel was damaged by a mine strike in Ukrainian waters (the “Mine Strike”) and ultimately declared a constructive total loss. Following the Mine Strike, it transpired that the December Additional Cover was a forgery and no additional war risks cover had been put in place.[4]By the present proceedings, Oceanus seeks a declaration that it is entitled to an indemnity under the MII Policy for loss resulting from the damage to and/or loss of the Vessel due to the Mine Strike and payment pursuant to the indemnity, alternatively damages for breach of the MII Policy, together with interest and costs. The quantum of Oceanus’ total loss is agreed at USD3.6 million net of interest and costs. Oceanus’ claim under the MII Policy has been declined by the Insurer on the basis that the proximate cause of Oceanus’ loss was its inability to recover under the December Additional Cover 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. Alternatively, Oceanus’ claim is excluded by the express proviso in the insuring Clause 1.1 of the MII Policy, namely that Oceanus was privy to the occurrence and/or the existence of the breach of the Trading Warranties. Further or alternatively, even if the proviso is inapplicable and the loss was caused by an insured peril of the MII Policy, the existence and/or occurrence of the insured peril was not fortuitous, as the breach of the Trading Warranties was a known certainty to Oceanus.

Factual Background

[5]At the trial of this matter, which took place over 3-4th November 2025, there was a very significant degree of common ground between the Parties and limited factual dispute. The Court heard evidence from one witness of fact for Oceanus, Mr Wilhelm Magelssen, a fund partner at NRP, who gave evidence as to, among other things, the trades to Ukraine and the arrangement of the December Additional Cover. The Insurer did not serve any witness evidence and there was no expert evidence for either party. The key contemporaneous documents, which were identified in an agreed chronology, and the relevant evidence are summarised below.[6]The Vessel was at all material times owned by Lyra Mare and managed by Nava. By the Facility, Oceanus provided USD3,000,000 to Lyra Mare, secured by a first mortgage over the Vessel dated 3 February 2023 and endorsements on Lyra Mare’s policies and club entries, one of which was the War Risks Policy, effective from 3 February 2023 to 2 February 2024, which insured Lyra Mare’s interest in the Vessel on terms equivalent to current Institute War and Strikes Clauses Hulls. This provided cover for trading worldwide, subject to, in relevant part, the Navigation Limitations for Hull War, Strikes, Terrorism and Related Perils Endorsement JW2005/OO1A and Listed Areas JWLA/030 4 April 2022. In effect, Lyra Mare warranted that the Vessel would not enter, sail for or deviate towards the waters described in the aforementioned Listed Areas unless otherwise agreed by the underwriters of the War Risks Policy in return for a payment of an additional war risk premium.[7]Further, 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 shall 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 may 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, inter alia, 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 and to start enforcement proceedings in respect of the security and 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 20 x 3 monthly periods of payments of USD125,000, culminating in a larger final payment. The Facility was signed and executed on 23 December 2023.[8]By the MII Policy, the Insurer underwrote cover of Oceanus’ interest as mortgagee of the Vessel. The Insurer itself is reinsured 100% by the member(s) of Lloyd's Syndicates 2623 and 623 managed by Beazley Furlonge Limited. The MII Policy contains and incorporates, amongst others, the following terms: 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, 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. […] 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 [...] 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 […] 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. […] Any amounts payable under this clause shall be included within and shall not be additional to the sum insured.[9]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. However, on 30 April 2023 Lyra Mare defaulted on the first quarterly payment to Oceanus under Schedule 3 of the Facility and in cross examination Mr Magelssen accepted that the Facility was a complete disaster from day one, with Lyra Mare being in default from the first opportunity. The Facility remains in default to date and no part thereof (neither principal nor interest) has been paid to Oceanus.[10]In 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 had to step in. It engaged Wilhelmsen Insurance Services AS (“Wilhelmsen”) which had port services globally and a representative visited the Vessel and procured the necessary supplies.[11]In early November 2023, Oceanus was informed that Maxgrain required the Vessel to call at Odessa, Ukraine, outside the limits defined in the Trading Warranties. Oceanus requested to see a cover note confirming that additional war risks cover was in place for the trading and Azov provided via Lyra Mare a copy of an additional war risks cover note for a single call to Odessa placed through CR International Sarl and underwritten by various insurers (the “Additional November Cover”). The trade to Ukraine was then completed without relevant incident. It appears that Lyra Mare was obliged to permit the Vessel to trade to Ukraine as part of a tripartite settlement agreement between Lyra Mare, Azov and Maxgrain dated 18 October 2023, which had been concluded without Oceanus’ knowledge in order to secure the Vessel’s release following its aforementioned arrest by Maxgrain in Romania.[12]In cross examination concerning this initial trading in November 2023, Mr Magelssen accepted that if the Vessel had been lost or damaged during this time, the only policy under which a claim could have been made was the Additional November Cover. If that cover had not responded, Oceanus would have looked to the MII Policy provided that the loss was caused by an insured peril thereunder. However, the sum insured under the Additional November Cover was USD5.8million and if that policy had paid out, Mr Magelssen confirmed that this would have been more than enough to cover the monies outstanding under the Facility at that time and there would in fact have been no need to make a claim under the MII Policy.[13]Further, Mr Magelssen’s evidence, at Paragraph 21 of his Witness Statement, was that after the settlement agreement had been entered into between Azov, Maxgrain and Lyra Mare, there was nothing Oceanus could do to prevent the Vessel going to Ukraine, as the settlement agreement included a provision requiring between 2-5 trips to Ukraine to load grain for discharge in Italy. This evidence was challenged in cross examination by Mr Bailey KC on the basis that Oceanus had ample powers under the Facility, the mortgage and the General Assignment to take any steps it considered necessary to protect its security interest in the Vessel and in the insurance policies, given that the Facility was in default. Whilst Mr Magelssen accepted that Oceanus could have accelerated the loan and taken over the management of the Vessel and that he could have told the charterer to wait until it had proper insurance before going into Ukrainian waters, he stated that, in reality, he was sitting at his desk in Oslo, the Vessel was already in the Black Sea at the time he was notified and he could not physically reach it there; he could only try and hold the Vessel back until he had the proper documentation in relation to the additional war risk, which is what he did. Further, whilst he accepted that Oceanus had the power to give an order to Lyra Mare requiring the Vessel not to go into Ukrainian waters, whether that order was complied with was another matter entirely. There was no evidence from the Insurer to suggest that Mr Magelssen’s evidence on this issue was incorrect or that his assumptions (as to what could or could not be done as a matter of practicality) were unreasonable and the Court accepts Mr Magelssen’s evidence of the practical reality of the position Oceanus found itself in at this time.[14]In early December 2023, Wilhelmsen was informed by Nava of a further intended trading into Ukrainian waters. It is common ground that Oceanus knew that this further trading would again be a breach of the Trading Warranties and that if this occurred, the War Risks Policy would not provide cover. On 4 December 2023, Mr Magelssen sent a WhatsApp message to Mr Erhan Yigiter, the owner of Azov, asking if additional war risks insurance was in place to cover the impending trading and on 5 December 2023, Ms Trine Kjellsby, a senior insurance broker at Wilhemsen wrote to Mr Yigiter stating “We look forward to your URGENT reply with the signed Cover note for the trip to Ukraine waters and confirmation of payment”. Ms Kjellsby followed up this message again the next day with a similar message. On 8 December 2023, Mr Magelssen sent a further WhatsApp message to Mr Yigiter asking “Hi again. Could you please send the war risk docs and evidence of payment of same to Trine in Wilhelmsen? She is still waiting for it”.[15]On 21 December 2023, Nava sent an email to NRP stating that the Vessel’s "Itinerary is Istanbul, Sulina, Odessa, South Italy. Dates will be given as soon as they are known": and by WhatsApp on the same day, Mr Magelssen pressed Mr Yigiter for sight of the additional war risks insurance. On 23 December 2023, Mr Magelssen sent a further request by WhatsApp to Mr Yigiter, in which Mr Magelssen asked Mr Yigiter “Where are we with cover notes on war insurance…. I would need everything Trine asked for including proof of payment”… “And Trine needs all she has asked for before going into Izmail – extremely important” “Which is SIGNED (not draft) cover notes and proof of payment just to be clear”. Mr Yigiter indicated that this would be provided and Mr Magelssen made clear that “Ok – but we don’tgo in until Trine has seen them” “We don’t go to Ukraine without insurance – that’s all I am saying”. When asked by Mr Yigiter if the Vessel will wait in the Bosphorous, Mr Magelssen stated “No I don’t but Vessel needs War Insurance before entering war zone” “But it is important with the cover notes for Ukraine”.[16]Between 25 December 2023 and 26 December 2023, NRP and Nava exchanged emails about the Vessel’s intended trade to Ukraine in which NRP again insisted that Nava ensure appropriate additional war risks insurance was in place before entering Ukrainian waters. Specifically, on 25 December 2023, Mr Magelssen emailed Messrs Heidenreich and Amundrud of Nava 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 a[o]propriate insurance is in place.” On 26 December 2023, Mr Heidenreich emailed Mr Magelssen, 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”.[17]On 25 and 26 December 2023, Mr Magelssen also exchanged WhatsApp messages with Mr Yigiter, 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 Magelsssen 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”.[18]Following this WhatsApp exchange, at 21.59 on 26 December Mr Yigiter produced to NRP by WhatsApp the December Additional Cover, purporting to confirm additional war risks insurance cover for the further voyage to Ukrainian waters on similar terms to the Additional November Cover. The Cover Note, headed CR International - RISK DETAILS, under the sub heading “TRADING” purported to cover a single call to Odessa, Ukraine, subject to Navigation Limitations for Hull War, Strikes, Terrorism and Related Perils Endorsement. Mr Magelssen queried this reference as he understood that the Vessel was going to Izmail, but 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 ….” and when he sought confirmation from Ms Kjellsby by email at 10.43pm “ Is the vessel insured for Izmail calling. Reason asking is should wehold vessel back by instruction or are we ok from a need to have on the current cover note”, Ms Kjellsby confirmed (at 10.46pm) that “Everything is in order. No need to hold back Vessel but would ask for confirmation of payment when the policy is paid”.[19]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 December 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 Risk Policy. He stated that he had been told by Wilhelmsen that Oceanus needed the additional policy and that on receipt of the December Additional Cover, he read some of it and then forwarded it to Ms Kjellsby. The document was 13 pages long so he read the main headlines and asked her to read it through carefully and to make sure it was okay. As stated above, he had noticed that TRADING was described as a single call to Odessa but was reassured by the wording under the heading PERIOD (above), and he got feedback from Ms Kjellsby which he regarded as the important thing, in fact, “the only important thing”. Mr Magelssen stressed that he was not content with the Vessel trading to Ukraine but his only option was to make sure that the Vessel had sufficient additional war risks insurance. When Mr Magelssen was challenged by Mr Bailey KC for a second time about all the options open to Oceanus, including giving an instruction to Lyra Mare and the Vessel not to go into Ukrainian waters, (which option Mr Magelssen accepted he had), he repeated his view that sitting in Oslo on 26 December, he could not physically take control of a Vessel in the Black Sea. Again, and in the absence of any evidence to contradict Mr Magelssen’s evidence of the practical realities, the Court accepts Mr Magelssen’s explanation of the reality of the situation. The Court found Mr Magelssen to be an honest and truthful witness.[20]In the event, the cover note purporting to contain the terms of the December Additional Cover was a forgery. There had been no further war risks insurance put in place by Lyra Mare or anyone else and no additional war risks premium paid to cover the voyage.[21]On 27 December 2023, the Vessel was instructed to proceed up the Danube river towards Izmail, Ukraine. At 08.20 hours LT on 27 December, the Vessel was damaged by the Mine Strike outside the territorial limits defined in the Trading Warranties. Following the Mine Strike, the Vessel's engine room was 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, Ukraine, where it was again beached. On or around 8 February 2024, the Vessel was declared a constructive total loss.[22]On 29 December 2023, the marine adjuster appointed by Lyra Mare put the ostensible underwriters of the December Additional Cover (via CR International Sarl) on notice of a claim arising out of the Mine Strike. On 3 January 2024, Oceanus put the Insurer on notice of a claim under the MII Policy. On 5 January 2024, Mr Hayward, the Head of Marine at CR International Sarl confirmed that the December Additional Cover was a forgery and that no risk 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. The Insurer has since declined Oceanus’ claim under the MII Policy. Summary of the Parties’ positions.[23]The trial of this matter came on quickly following the issue of the Amended Claim on 19 August 2024 and the service of the Claim Form and Particulars of Claim on 21 August 2024. The Insurer’s Defence was served on 18 September 2024 and Oceanus’ Reply on 8 October 2024. A CCMC scheduled for 29 November 2024 was vacated due to lack of judicial availability, but directions were agreed between the parties. One dispute on cost budgeting was resolved on paper. Disclosure was limited and Mr Magelssen’s witness statement dated 31 January 2025 was served on even date. For the purposes of the trial, the Court was provided with full skeleton arguments from both Mr Vineall KC and Mr Dowers for Oceanus and Mr Bailey KC and Ms Franklin for the Insurer. The Court was further assisted by Leading Counsels’ careful and detailed oral submissions during the hearing on 3-4 November 2025, for which the Court is most grateful.[24]As stated above, it was common ground at the hearing 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 1 October 1983 form incorporated into the War Risks Policy;(iii) the Vessel was trading in breach of the Trading Warranties in the War Risks Policy at the time of the Mine Strike; 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.[25]In summary, Oceanus’ case is that the loss it has suffered falls squarely within the indemnity in the insuring clause under the MII Policy, subject only to the pleaded issues of privity and fortuity which it contends the Court should determine in its favour. Oceanus contends that Clause 1.1 of the MII Policy provides for the Insurer to indemnify Oceanus against loss if(i) Oceanus has suffered loss resulting from loss of or damage to the Vessel;(ii) the loss of or damage to the Vessel would, in the absence of an insured peril, prima facie be covered by Owners’ Policies and Club Entries (and not excluded therein), here relevantly the War Risks Policy;(iii) there is a non-payment or reduced payment in respect of the loss of or damage to the Vessel;(iv) the non-payment or reduced payment is a result of an insured peril under the MII Policy; and(v) the insured peril occurred or existed without the privity of Oceanus and was not fortuitous. Oceanus contends that all of the aforesaid have occurred. Oceanus formulates its claim for loss in two alternative ways. Either (i) Oceanus has lost the value of its interest in the Vessel as mortgagee and has thereby lost its primary security for the loan or (ii) Oceanus has lost the payment it would have received as endorsee of the War Risks Policy. In either event, Oceanus has suffered loss, resulting from the loss of the Vessel.[26]The Insurer’s defence to Oceanus’ claim, put simply, is that 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 that 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. That forgery (and the consequential non-payment under the December Additional Cover) was not a risk assumed by the Insurer’s; it is not an insured peril under the MII Policy and is therefore not a loss covered by the policy. Further or alternatively, even if Oceanus can establish that the proximate cause of its loss was the breach of the Trading Warranties, an insured peril under the War Risks Policy, Oceanus was privy to the occurrence or existence of that insured peril and the loss is excluded by the proviso in Clause 1.1 of the MII Policy. Yet further, the relevant loss, namely the non payment under the War Risks Policy was not fortuitous. Oceanus made the voluntary choice to rely on the December Additional Cover rather than holding the Vessel back by instruction from breaching the Trading Warranties under the War Risks Policy. Oceanus was fully aware that if the Vessel sustained war damage while trading in Ukrainian waters (a restricted area in breach of the Trading Warranties), the War Risks Policy would not respond, and that was a risk that Oceanus accepted by relying on the December Additional Cover.[27]By the date of the hearing, the Parties had agreed the value of Oceanus’ claim at USD3.6 million net of interest and costs and the following issues from the Agreed List of Issues remained to be determined:a. What was the proximate cause of Oceanus’ loss? (Issue 1)b. Did Oceanus have any mechanism by which it could have prevented the Vessel from trading to Ukraine? (Issue 2)c. Did the breach of the Trading Warranties occur or exist with the privity of Oceanus? (Issue 3) d.

(i) Oceanus’ submissions

[28]As summarised above, Oceanus claims the loss of its interest as mortgagee, alternatively the loss of an indemnity under the War Risks Policy. Oceanus’ loss is framed in one of two ways: Oceanus’ primary interpretation of the MII Policy is that the insuring clause (Clause 1.1) simply requires Oceanus to have suffered “loss as a result of loss of or damage to the Vessel”. It is common ground that the Vessel is a constructive total loss and Oceanus’ loss is the loss of the value of its security interest in the Vessel. If however it is wrong in that analysis and the Court takes the view that the insuring clause requires Oceanus’ loss to have been caused by “loss of or damage to or liability of the Mortgaged Vessel… in respect of which there is subsequent nonpayment (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”, then Oceanus’ loss may be framed as the loss of an indemnity under the MII Policy. The proximate cause of the former loss, it contends, was the damage to the Vessel as a result of the Mine Strike; the proximate cause of the latter was Lyra Mare’s breach of the Trading Warranties. Either way, it is entitled to recover under the MII Policy and neither formulation of Oceanus’ claim is based on the loss of an indemnity under the non-existent December Additional Cover which, Oceanus contends, could not have and did not cause loss to Oceanus or to anyone.[29]According to Oceanus, the wording of the MII Policy is clear and straightforward. It insures Oceanus’ interest in the Vessel qua mortgagee against the risk that the Vessel is damaged in circumstances in which Lyra Mare’s cover under the War Risks Policy would prima facie respond but does not in fact respond because of an insured peril as defined under the MII Policy. The cover note of the MII Policy refers to “Mortgagee interests” and “Mortgagee Interest Insurance/Mortgagee Additional Perils (Pollution) Insurance”. Clause 1.1 states that “this insurance will indemnify the Assured for loss resulting from loss of or damage to or liability of the Mortgaged Vessel”; the first reference to loss is the loss of Oceanus, as Assured, which is the impairment of its interest qua mortgagee resulting from the loss of the Vessel, the second reference to loss. Accordingly, what is insured is the loss to Oceanus resulting from loss of or damage to the Vessel, and Oceanus is protected against the contingency that there is damage to the Vessel to which the War Risks Policy does not respond, provided that the non payment under the War Risks Policy is as a result of an insured peril so defined at Clause 2.1.2 of the MII Policy. The relevant insured peril in the present instance is the breach of the Trading Warranties (at Clause 2.1.2.3) which it is common ground has occurred in the present instance. Lyra Mare and Oceanus are unable to recover under the War Risks Policy because of that breach; indeed, that is the only reason why there is no recovery under the War Risks Policy. Accordingly, the MII Policy responds to indemnify Oceanus, subject only to the questions of privity and fortuity. Oceanus’ claim is not under the December Additional Cover which simply did not exist. Had it existed, it would likely have responded and had it responded, it is likely that Oceanus would not have needed to have called on the MII Policy.[30]Accordingly, Oceanus submits that the insuring clause in the MII Policy requires two causal connections:(i) Oceanus suffers loss “resulting from” loss of or damage to the Vessel; and(ii) there is non-payment by Lyra Mare’s insurers under the War Risks Policy “as a result of” any insured peril under the MII Policy. It contends that both causal connections are satisfied on the present facts; Oceanus has suffered loss resulting from the damage to the Vessel caused by the Mine Strike (whether that loss is the loss of its interest in the Vessel or the loss of an indemnity as endorsee of the War Risks Policy); and the War Risks Policy has not paid out as a result of breach of the Trading Warranties, which is an insured peril under the MII Policy.[31]Mr Vineall KC was at pains to stress that Oceanus’ interest which is insured by the MII Policy is its interest qua mortgagee of the Vessel and not its interest qua assignee of Lyra Mare’s War Risks Policy. The question for the Court, Mr Vineall KC contended, is “what is it that has damaged Oceanus’ interest qua mortgagee of the Vessel?”. It is not the absence of a response under the War Risks Policy; it is the damage to the Vessel caused by the Mine Strike and there is then a contingency which limits the circumstances in which Oceanus can recover its loss resulting from that damage. Oceanus has not lost its interest as loss payee or as assignee of the War Risks Policy- it is simply that the War Risks Policy does not respond due to the breach of Trading Warranties which is an insured peril under the MII Policy. Mr Vineall KC stressed that this point was made clear at Paragraph 7 of the Particulars of Claim, where it is pleaded that the MII Policy underwrote cover of Oceanus’ interest as mortgagee of the Vessel, which paragraph is admitted by the Insurer at Paragraph 8 of its Defence. The argument raised by the Insurer at trial that the interest insured is Oceanus’ interest as loss payee and assignee of the War Risk Policy is therefore a new and unpleaded argument. Further, Mr Vineall KC drew the Court’s attention to the Assignment dated 3 February 2023 and the relevant definition of Assigned Property (at Clause 1.1) namely “sums payable under or in relation to the Insurances of the Vessel”. It is not an assignment of the policies themselves but the sums payable thereunder. However, the substantive point is that Oceanus does not need to insure its interest as assignee of the benefit of Lyra Mare’s policies; the benefit is whatever it is and if Lyra Mare’s policies pay out, Oceanus receives the money. However, if the policies do not pay out, there is no money to be obtained and so Oceanus insuring its interest as assignee adds nothing. What Oceanus needed to insure and did insure under the MII Policy is its interest as mortgagee against the circumstances in which there is no benefit to Oceanus in the assignment to it of the benefits under Lyra Mare’s policies.[32]As Mr Vineall KC noted, the irony of the present position if the Insurer is correct on its claim that the proximate cause of loss is the forged December Additional Cover, is that Oceanus’ position has been made worse by it taking a close interest in the Vessel’s whereabouts. Subject to the privity and fortuity points (below), it is common ground that if the Vessel had simply sailed into Ukrainian waters without Oceanus’ knowledge and suffered the Mine Strike, the MII Policy would have responded. It is not suggested by the Insurer that Oceanus ought to have realised that the December Additional Cover was a forgery nor was Mr Magelssen’s evidence that Oceanus could not have physically stopped the Vessel from trading in Ukrainian waters seriously challenged. In the ordinary course, if Oceanus had known nothing at all about the venture into Ukrainian waters, the War Risk Policy would not have responded and the MII Policy would have responded. In such circumstances, Oceanus would have had no benefit from being an assignee of the loss payments under the War Risks Policy but it would have sustained a loss which would have been covered by the MII Policy.[33]In response to the Insurer’s argument that Oceanus’ interest was as an assignee of the loss payments, Mr Vineall KC referred the Court to Colinvaux & Merkin’s Insurance Contract Law (2024) at B-0800-B802 and in particular to the first two sentences at B-804. Whilst Mr Vineall KC accepted the correctness of the first sentence that “IMICH Cl 1 provides that the policy insures the interest of the assured, as the mortgage, in a vessel or vessels which are set out in the schedule to the policy”, he contended that the second sentence “That interest is the right to claim under the owner’s marine or war risks policy (as the case may be) in its capacity as assignee or loss payee for loss or damage to the mortgaged vessel” was in fact inconsistent with the first. Mr Vineall KC noted that the only authority cited for the second sentence is the decision of Calver J in Pireaus Bank AE v Antares Underwriting Limited “The ZouZou” [2022] EWHC 1169 (Comm) on which Mr Bailey KC relied, and that prior to the Pireaus Bank decision only the first sentence appeared in the text to the 12th edition of Colinvaux & Merkin. Mr Vineall KC took the Court to sections 24-005 to 24-008 of the 12th Edition and the reference therein to The Captain Panagos [1985] 1 Lloyds Rep 625 where Mustill J held that a mortgagee’s interest policy which insured against non payment following loss or damage to the vessel was a marine policy and not a financial guarantee policy and noted that this principle has been retained by Clause 1.1 of the standard wording which specifically states that the policy insures the mortgagee’s interest in the Vessel as opposed to the mortgagee’s interest in its liability. In the Captain Panagos, the policy covered “loss or damage to…the vessel” and provided that the insurer would pay “the lesser amount of such damage or liability and the total indebtedness”. In that case, Mustill J held that the words “such damage or liability” in the indemnity clause referred back to the words “loss or damage to…the vessel” so that the measure of the indemnity was not financial loss as such but loss determined by the insurable value of the vessel.[34]As regards the decision in Pireaus Bank, Mr Vineall KC took the Court to Paragraphs 227 et seq of Calver J’s judgment, where the Learned Judge considered the question whether there was cover under the MII Policy on the facts. The relevant coverage wording of the policy is set out at Paragraphs 228-229 of the Judgment. The “Interest” insured under the MII policy is stated as “Mortgagee and/or Lessors and/or Innocent Owners Interest as Assignees and Loss Payees under the owners Policies….” and as regards COVERAGES it provides “This insurance to indemnify the Insured for loss of or damage to or liability arising in connection with the vessel (i) which is prima facie covered by the Owner’s Policies and/or Club Entries as per Section 3 but n respect of which there is subsequent non payment or part non payment by Underwriters of the Owners’ Policies and/or Club Entries resulting from any act or omission of any one or more of the Owners and/or Operators and/or Charterers and/or Managers of the vessel concerned and/or their Servants and/or Agents or anyone else held responsible, ……….. (v) in the event of the total Loss of the Mortgaged vessel which is allegedly not recoverable under either Owners’ hull and machinery or war risk policies due to a dispute on the grounds that the loss has not been proved to have been proximately caused by a peril insured under those policies and is not otherwise excluded from payment by any exclusion or other provision therein”. Mr Vineall KC’s first point was that the Interest and Coverage wording in Pireaus Bank is very different from the wording in the present case, in particular, the coverage clause does not contain the double reference to damage or to loss which is present in Clause 1 of the MII Policy (and referred to above). Further, where at Paragraph 231 the Learned Judge sets out what he considered to be the correct approach to the coverage arguments and holds at (v) that “The “Interest” insured under the MII Policy is the Bank’s interest, not as mortgagee but its interest as Assignees and Loss Payees under the owners Policies and Club Entries (as defined in the Conditions hereto….” this holding went by concession (as recorded in f/n61 to the Judgment) and the Learned Judge heard no argument on the point. In any event the point is obiter as it is not necessary for the conclusion set out at Paragraph 232 of the Judgment that the claimant could not recover under the MII Policy something that was never covered by the underlying policy. In Piraeus Bank there was no constructive total loss under the Owner’s Policies or the loss was excluded thereunder and it did not therefore matter what the nature of the insured interest of the claimant was. In the present case, Oceanus is not seeking to recover something that was not covered by the War Risks Policy. The amount of the indemnity sought by Oceanus under the MII Policy is the amount not paid under the War Risks Policy.[35]In summary, Mr Vineall KC’s argument was that the purpose of the MII Policy is to protect Oceanus against the risk of a lawful non payment by the underwriters under the War Risks Policy. Paradoxically, if the Insurer is right and the loss which is protected by the MII Policy is Oceanus’ interest as assignee of the payments under the War Risks Policy, then if the War Risks Policy does not respond, Oceanus has not lost anything to claim for under the MII Policy. Mr Vineall KC asked rhetorically; if the interest insured under the MII Policy is Oceanus’ interest as loss payee, what risks or perils is that interest insured against? As mentioned above, Mr Vineall KC drew support for his argument from the decision in Captain Panagos above, where the insuring clause was very similar to (but not on all fours with) the present Clause 1.1 of the MII Policy and where neither side argued that the insurance was of the interest qua loss payee or insurance of the interest qua assignee of the underlying policy. Further, Mr Vineall KC made the point that the MII Policy is not insuring Oceanus for the consequences of the “insured perils” (set out at Clause 2.1.2); its purpose is to protect Oceanus and its interests in case that the War Risks Policy (amongst others) does not respond because of an insured peril- in the present instance, the breach of the Trading Warranties. The breach of the Trading Warranties (and non payment under the War Risks Policy) is the trigger for Oceanus being able to recover its loss, qua mortgagee, from the Mine Strike under the MII Policy. Where Oceanus’ insured interest under the MII Policy is its interest as mortgagee, then clearly the proximate cause of that loss is the Mine Strike. The December Additional Cover never existed and was not causative of any loss. (ii) The Insurer’s submissions[36]Mr Bailey KC submitted that Oceanus’ claim proceeds on the mistaken assumption that the purpose and function of the MII Policy is to provide seamless cover to protect Oceanus against loss of or damage to the Vessel and any losses suffered in the event that Lyra Mare’s primary policies prove to be ineffective. This assumption, Mr Bailey KC contended, is overly simplistic and wrong. The MII Policy is not a primary insurance on property nor a form of fidelity insurance protecting Oceanus as mortgagee against the generic risk of dishonesty on the part of Lyra Mare’s clients or charterers. In particular, the MII Policy does not respond where here (putting to one side arguments of privity and fortuity), the proximate cause of Oceanus’ loss is the invalidity or nullity of the primary policy that is supposed to provide prima facie cover for the loss of or damage to the Vessel- namely the December Additional Cover. The MII Policy is a contingent and secondary form of insurance that insures Oceanus against financial loss as a result of Lyra Mare’s primary insurance cover (being Oceanus’ collateral security for the loan) not responding to a claim for loss or damage to the Vessel caused by certain defined conduct on the part of Lyra Mare, specified as “insured perils”.[37]Mr Bailey KC contended that the central task for the Court was to understand what the MII Policy means. Accepting what Calver J said in Pireaus Bank that “The purpose of MII Insurance is to protect the Bank against the risk ofnon-payment under the Owners’ policy”, he contended that the interest insured under the MII Policy is the mortgagee’s collateral security as loss payee and assignee of the owners’ policies. This, he stated, is reflected in the wording of the Recital and Clause 1 of the MII Policy, and in this regard, he relied on the second sentence in Colinvaux & Merkin’s Insurance Contract Law at B-804 (set out above). This feature of the MII Policy, Mr Bailey KC submitted, is fundamentally different to other wordings in mortgagee interest policies available in the market and which have been subject to previous decisions, for example, that considered in The Captain Panagos, where the policy was construed as an insurance against physical loss and damage, and non payment under the owner’s policy was a condition precedent to the right of recovery rather than, as here, an element of the insured risk. It is also different, Mr Bailey KC contended, to that in the Piraeus Bank case, where, “loss” was construed as meaning the total loss of the vessel albeit such loss was insufficient to trigger coverage unless caused by a peril insured under the mortgagee’s insurance. The relevant “loss” insured against by the MII Policy (being the first reference to “loss” in the first line of the Insuring Clause, Clause 1) is Oceanus’ net loss which results from(i) loss and/or damage to the Vessel which is prima facie covered by Lyra Mare’s policies, coupled with(ii) non-payment under the relevant Lyra Mare policy caused by an insured peril. Oceanus’ net loss resulting from non-payment under Lyra Mare’s policies must be proximately caused by a named insured peril as defined by Clause 2.1 of the MII Policy, and there is then only cover if the relevant insured peril occurs or exists without the privity of Oceanus and is not fortuitous.[38]Mr Bailey KC contended that 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 at Clause 2.1 of the MII Policy. The risk of non-payment because one of Lyra Mare’s policies 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. That risk is borne and retained by Oceanus, as mortgagee. One sees this, for example, from Clause 3.1.1 of the MII Policy, where the risk of non-payment because one of Lyra Mare’s policies has been cancelled or terminated on account of the non-payment of premium is expressly excluded. As a matter of language, the MII Policy is crystal clear. The insured perils at Clause 2.1 of the MII Policy do not include fraud in a general sense or deception by Lyra Mare. Nor do they include circumstances where Lyra Mare represented that a policy existed where in fact it didn’t, and the risk of non existent cover is carried by Oceanus itself, as evidenced by the warranties.[39]Accordingly, for the purpose of Oceanus’ claim, the Court is looking as to whether or not the loss suffered by Oceanus, namely its inability to recover an insurance return, was caused by one of the named insured perils. In the present instance, the relevant loss is the financial loss that is caused by reason of the December Additional Cover not responding, and the relevant risk that is being insured against is the risk of financial loss due to the non payment by Lyra Mare’s underwriters as a result of one of the specific perils named in the MII Policy. In this sense, the position is on all fours with the situation in the Piraeus Bank case. At Paragraph 251 of the Judgment, Calver J stated “the purpose of MII Insurance is to protect the Bank against the risk of non payment under the owner’s policy. The coverages in Clause 1 are typical of the types of cover that a mortgagee seeks under mortgagees interest insurance in protecting itself against the owner’s insurers denying liability by reason of the owners’ misconduct in regard to the loss; non disclosure of material facts; breach of the duty of utmost god faith; breach of warranty; failure to prove the loss was caused by an insured peril and so forth”. It is not the risk of damage to the Vessel; it is the risk of non payment under the owner’s policy. In the present case, when the claim was presented under the December Additional Cover, liability was denied on the basis that the cover was a forgery. That was not one of risks that the Insurer insured against under the MII Policy.[40]In answer to a question as to why, on the Insurer’s analysis, the present position should be different from that where no additional cover had been sought by Oceanus (because, for example, Oceanus did not know about the proposed trading into Ukrainian waters), and where the MII Policy would have responded to a claim by Oceanus, Mr Bailey KC contended that the question ignored what actually happened in the present instance. What actually happened is that the December Additional Cover was sought and was a real document which had real causal impact. It was the provision of this document on 26 December 2023 which unlocked the voyage into Ukrainian waters. That cannot be ignored simply on the basis that the document turned out to be a forgery. A forged document, although a nullity, is not a document which nevertheless has no potential legal significance. It can have, because it can be ratified or there can be an estoppel.[41]Mr Bailey KC submitted that it is trite law that in order to be recoverable, an insured’s loss must be proximately caused by a peril insured against. Leyland Shipping Co v Norwich Union Fire Insurance Society[1918] A.C. 350. A proximate cause is not the first, the last, or the sole causeof the loss; it is the dominant, effective or operative cause.The test requires the application of common-sense standards. Yorkshire Dale Steamship Co v Minister of War Transport[1942] A.C. 691 at 702, 706 per Lord Macmillan. Oceanus’ argument on proximate cause, namely that the December Additional Cover could not be the proximate cause as the cover did not in fact exist, is not only inconsistent with commercial common sense but it fails properly to appreciate that the relevant causal nexus for the purposes of Clause 1.1 of the MII Policy is whether the proximate cause of Oceanus’ net loss as a result of the non-payment by Lyra Mare’s policies was an insured peril under Clause 2.1 of the MII Policy.[42]Taking a step back and looking at the circumstances of the trading into Ukrainian waters in December 2023, the Mine Strike and the position in which Oceanus found itself, if one were to ask – what caused Oceanus’ loss?- the commonsense answer would be the fact that Oceanus was duped into relying on the December Additional Cover which turned out to be a forged document. This is so because, even if there had been a breach of Trading Warranties and even if the Vessel had been lost as a result of a Mine Strike, if the December Additional Cover had been valid, then the insurance recoveries under the December Additional Cover would have exceeded the balance owing under the Facility and Oceanus would have suffered no insured loss and no claim would have been made under the MII Policy. It was the fact that the December Additional Cover did not respond on account of it being a forgery which was the effective and proximate cause of Oceanus’ loss. Whilst the damage to the Vessel resulting from the Mine Strike was operating in the background (and was a necessary but insufficient occurrence to trigger the MII Policy), it was the fact that the December Additional Cover did not pay out because it was a forgery that in fact caused the loss Oceanus has sustained. This can be illustrated, Mr Bailey KC contended, in a number of other ways. Had the December Additional Cover been a valid contract of insurance, it would still have been the case that the Vessel would have been lost and damaged as a result of the Mine Strike and no indemnity would have been payable under the War Risks Policy because of the breach of Trading Warranties. However, any loss would have been made good by reason of the December Additional Cover. It is only because Oceanus was unable to recover under the December Additional Cover that it has suffered a loss at all. It follows therefore that the cause of the loss that Oceanus has actually suffered is the fact the December Additional Cover was forged. Similarly, had the December Additional Cover been a valid contract of insurance but had failed to respond to the loss and damage to the Vessel because of a misrepresentation or non-disclosure at the time of placement, the MII Policy would have provided cover for the Oceanus’ loss. However, the reason the MII Policy would respond in such circumstances is because the loss (namely the non-payment under the December Additional Cover) would have been caused by an insured peril under Clause 2.1.1 of the MII Policy. Yet further, had the December Additional Cover been a valid contract of insurance but had been terminated for non-payment of premium before the Mine Strike, Oceanus’ claim would have been excluded under the terms of the MII Policy. It would be impossible in such a scenario for Oceanus to circumvent the exclusion on the basis that its loss was in fact caused by the failure of the War Risks Policy to respond as a result of the breach of the Trading Warranties. Moreover, had the December Additional Cover taken the form of a held covered endorsement to the War Risks Policy, the proximate cause of Oceanus’ loss would have been the fact that the forged endorsement was invalid rather than a breach of the Trading Warranties. There would be no cover under the MII Policy in such circumstances because the failure of the endorsement would not have been caused by an insured peril, and the same analysis applies if the additional cover happens to be placed with different underwriters rather than an endorsement to the War Risks Policy and it would be commercially remarkable if this were not so.[43]Accordingly, as a matter of common sense and correct legal analysis, the proximate cause of Oceanus’ loss was the fact that the December Additional Cover was invalid and did not pay an indemnity on account of the fact that it had been forged. Fraud of that sort is not a risk that the Insurer assumed given Oceanus’ warranty at Clause 4.1 because it is not an insured peril within the scope of Clause 2.1 of the MII Policy. In circumstances where the relevant interest that is being insured against is Oceanus’ interest as an assignee and as a loss payee under Lyra Mare’s policies in circumstances where those policies do not respond because of an insured peril, Oceanus’ claim under the MII Policy must fail on the grounds of proximate cause.

Decision on Proximate Cause

[44]For the reasons largely advanced by Mr Vineall KC set out above (which I do not repeat here), I consider that the proximate cause of Oceanus’ loss was the loss of or damage to the Vessel as a result of the Mine Strike and that subject to the questions of privity and fortuity (below), Oceanus is entitled to recover the sum of USD3.6m (net of interest and costs) under the MII Policy.[45]Whilst there is an interesting debate to be had as to whether the interest insured under an MII policy is a mortgagee’s interest in the vessel qua mortgagee or its interest in the proceeds of a war risks cover on the vessel qua loss payee or assignee, it seems to me that what matters ultimately and what I have to decide in the present instance is whether the specific terms of cover in the MII Policy are met on the present facts.[46]The precise scope of the cover turns upon the wording of the MII Policy and in particular of Clause 1.1 (set out above). On its proper construction, what Clause 1.1 of the MII Policy requires is a loss incurred by Oceanus, the Assured under the MII Policy, “resulting from a loss of or damage to or liability of the Mortgaged Vessel” and a claim which would have been prima facie payable under Lyra Mare’s “Policies and Club Entries” but for an insured peril referred to in the MII Policy; in the present instance, the trading in Ukrainian waters in breach of the Trading Warranties. Those two requirements are not, in my view, affected by the question of whether the interest insured is regarded as being the interest in the Vessel or the interest in the proceeds payable under Lyra Mare’s underlying policies. The answer follows, in my view, from the proper construction of the MII Policy.[47]I agree with Mr Vineall KC that the December Additional Cover, purported to be evidenced by a forged cover note produced by Lyra Mare, never existed and cannot be treated as part of Lyra Mare’s covered policies (“the Owners Policies and Club Entries”) for the purposes of Clause 1.1 of the MII Policy. A forged policy is not akin to a valid policy which has subsequently been cancelled, for example, for non payment or one which was caused to be entered into by a misrepresentation. A forged policy does not exist as a policy as a matter of fact. The relevant covered policy that existed at the time of the Mine Strike was the War Risks Policy. The loss that Oceanus has suffered, as Assured, has resulted from the loss of the mortgaged Vessel by reason of the Mine Strike, which loss would in the ordinary course have been covered by the War Risks Policy but for Lyra Mare’s breach of the Trading Warranties thereunder. It is common ground that the underwriters to the War Risks Policy have not paid under that policy as a result of the breach of the Trading Warranties and that that specific breach is an insured peril under Clause 2.1.2 of the MII Policy, in respect of which Oceanus can claim.[48]The insurable interest of a mortgagee bank/funder is defined in Section 14(1) of the Marine Insurance Act 1906, which provides “Where the subject matter insured is mortgaged, the mortgagor has an insurable interest in the full value thereof and the mortgage has an insurable interest in respect of any sum due or to become due under the mortgage”. However, as Mr Vineall KC submitted, whilst a mortgagee to whom a policy has been assigned can bring an action it its own name under the assigned policy, the obvious disadvantage is that it can be thwarted by any defence which the underwriters are entitled to raise against the original assured. A mortgagee suing as an original assured under an MII Policy however is in a better position, provided it can demonstrate its own innocence- in the present case, Oceanus needs to prove that it was not privy to the breach of the Trading Warranties and/or the loss was not fortuitous.[49]Whilst there are different forms of mortgagee interest insurance, the overriding purpose of an MII Policy is to protect a mortgagee against a loss which it reasonably expects to be covered by the owner’s insurances, and which is not ultimately covered due to some (mis) conduct on the part of the owner for which the mortgagee is not responsible, for example, a non disclosure of a material fact, wilful misconduct, a breach of duty of utmost good faith etc. The recital to an MII Policy, as in the present case, assumes that the Assured holds a first mortgage on the insured vessel, and the insuring clause, here at Clause 1.1 of the MII Policy, sets out the purpose and effect of the insurance. As set out above, in my view, the loss indemnified against by the MII Policy in the present instance is the loss resulting from the loss of or damage to or liability of the Vessel, which would prima facie be covered by Lyra Mare’s policies and club entries (here, relevantly, the War Risks Policy) if it were not for the defence based on Lyra Mare’s misconduct, namely its breach of the Trading Warranties. That breach is an insured peril under the MII Policy and it triggers a claim under the MII Policy. Oceanus warranted at Clause 4 of the MII Policy to ensure that Lyra Mare’s policies and club entries were in place and “except as a result of the occurrence or existence of an insured peril without privity of the Assured” shall be maintained throughout the currency of the MII Policy for an insured value and limit of liability not less than the amount insured under the MII Policy or the amount of the outstanding loan to the extent secured by the Vessel. If Lloyd’s succeeds in its arguments on privity, then the MII Policy will not respond, but prima facie, as I have concluded, the MII Policy responds on the present facts in the absence of privity.[50]Insofar as it is relevant for present purposes, I agree with Mr Vineall KC that in the present instance, Oceanus is not claiming damage to or loss of its interest as assignee or loss payee of Lyra Mare’s policies or club entries. Oceanus has not lost its interest as assignee or loss payee under those policies. The problem is that its interest as assignee/loss payee under those policies (specifically, the War Risks Policy) is of no use to it as the War Risks Policy does not respond on the present facts because of the breach of the Trading Warranties thereunder. As stated above, Oceanus is relying here on its loss, as mortgagee, resulting from the loss or damage to the mortgaged property, namely the Vessel which has been damaged by the Mine Strike, for which damage Oceanus would have been able to claim under the War Risks Policy but for the breach of the Trading Warranties by Lyra Mare. Oceanus’ plea at Paragraph 7 of its Statement of Claim that the MII Policy underwrote cover of its interest as mortgagee of the mortgaged Vessel was admitted at Paragraph 8 of the Insurer’s Defence and it is common ground that there would have been payment under the War Risks Policy but for the breach of the Trading Warranties thereunder and that a breach of Trading Warranties is an insured peril under Clause 2.1.1 of the MII Policy.[51]As regards Mr Bailey KC’s reliance on the decision in Pireaus Bank for his submission that the “interest” insured under the MII Policy is Oceanus’ interest not as mortgagee but as assignee and loss payee under Lyra Mare’s policies and club entries and as a consequence, the proximate cause of Oceanus’ loss is its reliance on the December Additional Cover, as Mr Vineall KC correctly submitted, the point relied upon by Mr Bailey KC in Piraeus Bank was common ground before Calver J and is in fact obiter. Further, as Mr Vineall KC submitted, the wording of the MII policy cover in Piraeus Bank (set out at Paragraph 229 of the Judgment) was markedly different to the wording of Clause 1.1 of the MII Policy.[52]The issue in Piraeus Bank was whether the determination of whether the vessel in that case was ‘lost’ had to be judged from the perspective of the owner whose interest is insured under the war risks policy, or from the perspective of the bank – i.e. whether the owner would have had a claim under the relevant war risks cover but did not because of the conduct referred to in the MII policy. (see Paragraph 231 (iii) and (iv) of the Judgment). Whilst it is correct that the parties agreed and Calver J concluded that the interest insured under the MII policy in question was the Bank’s interest not as mortgagee but its interest “as assignees and loss payees under the charterer/owner’s policies” in the proceeds of the insurance cover (see Paragraph 231(v) and f/n61 of the Judgment), it is difficult to see how the Learned Judge’s conclusion as to how the policy worked in that case would have been any different if the parties had agreed and/or the Learned Judge had regarded the mortgagee’s interest as being an interest in the vessel rather than the policy proceeds. As I have said, how an MII Policy works and how the MII Policy works in the present instance, turns on its proper construction. Whilst the coverage provided by the MII Policy in the present instance is limited to the proceeds that would have been payable under the War Risks Policy, it is not clear to me why it follows that the interest insured by the MII Policy is an interest in the proceeds rather than an interest in the Vessel or more importantly why it matters for present purposes. As stated above, in my view, it is clear on the wording of the MII Policy that the loss insured is the loss of/damage to the Vessel, and the proximate cause of that loss is whatever damaged the Vessel, here the Mine Strike. The proximate cause of the inability to recover under the War Risks Cover for that loss is the breach of the Trading Warranties, which is an insured peril under the MII Policy. Issue 2- Did Oceanus have any mechanism by which it could have prevented the Vessel from trading to Ukraine? (Issue 2)[53]In its Particulars of Claim, and in response to an allegation made by the Insurer in pre-action correspondence that the breach of the Trading Warranties occurred or existed with the privity of Oceanus, Oceanus pleaded that it had no mechanism by which it could have prevented the Vessel from trading to Ukraine in December 2023. This was denied by the Insurer in its Defence, in which it contended that Oceanus could have held the Vessel back by instruction pursuant to Clause 9 of the Assignment which gave Oceanus an express contractual right to instruct Lyra Mare not to breach the Trading Warranties.[54]Ultimately however, this issue, which is separate from but linked to Issue 3 below (the issue of privity), occupied very little time at trial and was ultimately a non issue. Whilst there was an issue on the pleadings whether the powers under Clause 9 of the Assignment, which arose “at any time after the occurrence of a default to take any action which it may deem necessary to protect and maintain the security created by the assignment” were limited to retrospective actions and to exercises ejusdem generis to the examples listed in Clause 9, whether or not Oceanus had any mechanism whereby it could have prevented the Vessel trading in Ukrainian waters in December 2023 was irrelevant, as Oceanus did not ultimately try to prevent the December trading because it believed that the December Additional Cover produced to it by Lyra Mare/the charterer insured the Vessel for that purpose.[55]However, and in any event, as Mr Magelssen explained in his witness evidence and in answer to Mr Bailey KC’s questioning in cross examination, in October 2023, without Oceanus’ knowledge or agreement, Lyra Mare had concluded a settlement with Azov and Maxgrain to release the Vessel from its arrest in Romania, which obliged the Vessel to take between two and five further trips to Ukraine. Whilst Oceanus clearly had rights under Clause 9 of the Assignment at any time after the occurrence of a default under the Facility to take any action which it may deem necessary to protect and maintain the security created by the assignment (including effecting any insurances relating to the Vessel), there were in fact no practical steps available to Oceanus in the present circumstances other than issuing an instruction to Lyra Mare not to trade to Ukrainian waters. Whilst Mr Bailey KC put to Mr Magelssen that Oceanus had that option under the security documentation, as I have stated above, I accept Mr Magelssen’s evidence that it was impossible for Oceanus to take physical control of the Vessel in the Black Sea from Oslo on December 26th in order to prevent the Vessel entering into Ukrainian waters. Further, I accept that issuing an instruction to the Vessel not to proceed was highly unlikely to have assisted Oceanus. In light of the events that transpired, I consider that it was highly probable that Lyra Mare/the charterer would have simply proceeded with the trade in Ukrainian waters regardless given that it/they produced a forged cover note in order to deceive Oceanus into thinking that the Vessel was insured to do so. Mr Bailey KC did not suggest to Mr Magelssen in cross examination any practical steps available to Oceanus other than issuing an instruction not to trade to Ukrainian waters and had such steps existed no doubt Mr Bailey KC would have produced the evidence to make that point good. But ultimately, as Mr Vineall KC contended, this issue is irrelevant to the Court’s determination as Oceanus accepts that it did not in fact try to prevent the December trade because it believed that the December Additional Cover was valid. The question therefore whether, had Oceanus not been misled by the forged document, it could have prevented the trade (either in theory or in practice) does not arise.

(i) Oceanus’ submissions

[56]Oceanus contends that the Court should interpret the proviso to Clause 1.1 of the MII Policy that the insured peril “occurs or exists without the privity of the Assured” in accordance with the standard principles of contractual interpretation, per Wood v Capita [2017] UKSC 24; [2017] AC 1173, [10]- [13], per Lord Hodge).[57]Although there is no direct authority on the meaning of the phrase “without the privity of the insured” in the present context, the Marine Insurance Act 1906 incorporates the concept of privity at s.39(5), which provides “In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but 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 (emphasis added). The section has been considered in two cases. Firstly, in Compania Maritima San Basilio v Oceanus Mutual Underwriting Association (Bermuda) Limited “The Eurysthenes” [1977] QB 49, specifically, at 68-C, where Lord Denning MR stated “Such is, I think, the meaning we should attach to the word " privity " in section 39(5). If the ship is sent to sea in an unseaworthy state, with the knowledge and concurrence of the assured personally, the insurer is not liable for any loss attributable to unseaworthiness, that is, to unseaworthiness of which he knew and in which he concurred”; at 76-D, Lord Justice Roskill stated “That must mean that he is privy to the unseaworthiness and not merely that he has knowledge of facts which may ultimately be proved to amount to unseaworthiness. In other words, if the ship is sent to sea in an unseaworthy state with his knowledge and concurrence and that unseaworthinessis causative of the loss, the time policy does not pay. There must be causative unseaworthiness of which he knew and in which he concurred”, and at 81-D where Lord Justice Lane found “For the owners to lose their cover it must be shown that the ship was sent to sea in an unseaworthy condition and that that was done with the privity of the assured. “Privity” means “with knowledge and consent.”. Secondly, in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2013] EWHC 1666 (Comm); [2013] 1 Lloyd's Rep IR 582, where Popplewell J (as he then was) stated (at paragraph 110 of the Judgment-): “Section 39(5) of the Marine Insurance Act 1906 provides that 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. The “privity of the assured” means with the assured’s personal knowledge and consent. The assured must:(i) know the facts constituting unseaworthiness; and(ii) realise that those facts render the ship unseaworthy. Knowledge for the purposes of section 39(5) includes “blind eye knowledge”, consisting of a suspicion that the vessel might be unseaworthy combined with a conscious decision not to inquire for fear of confirming that suspicion”.[58]In light of these two authorities, Oceanus contends that knowledge in and of itself is not sufficient for privity but that privity requires both knowledge and consent. The two authorities in the context of Section 39 address a closely analogous situation to the MII Policy; both scenarios concern marine insurance and both concern a situation in which an insurer will be excused liability based on an act undertaken with the “privity” of the assured. Accordingly, in performing an interpretative exercise, the meaning given to “privity” in the context of the Marine Insurance Act 1906 is highly persuasive.[59]Further, in the specific context of an MII policy, where the insured mortgagee is in the position of a lender and is unlikely to have any significant control over the mortgaged vessel’s activities, it would, Oceanus contends, produce an absurd result if knowledge were equated with privity. The mortgagee may come to know of, for example, a proposed breach of warranty and insist to the owner that they must not breach it. However, if the Owner persists in the breach and the Vessel is damaged, it would be a surprising result if the mortgagee’s cover under an MII Policy were invalidated by reason of the breach, where the mortgagee did not agree to it and did everything in his power to prevent it.[60]Moreover, Clause 7 of the Mortgagee’s Additional Perils (Pollution) (LSW 489) policy, which was placed with the MII Policy in the present case, draws a distinction between knowledge and privity. Relevantly, it provides that “any change of class, ownership, management or control of a Mortgaged Vessel of which the Assured has knowledge or privity……”, and it follows that the parties must have meant something different by the two words.[61]Oceanus contends that it was not privy to Lyra Mare’s breach of the Trading Warranties as it did not, in any real sense, have a choice as to whether Lyra Mare breached the Trading Warranties and any consent that it may be possible to infer on its part was conditional on appropriate insurance cover being put in place prior to any trade into Ukrainian waters. Oceanus was presented with a fait accompli by Lyra Mare/the charterers and had no real or practical opportunity to prevent the trading. In this regard, Oceanus relies on the facts set out above and in particular the witness evidence of Mr Magelssen. Mr Magelssen made clear that the Vessel could not go into Ukraine without proper insurance and that condition was a contingent condition precedent to Oceanus’ consent, such that Oceanus’ consent was only valid once the condition was satisfied. As regards the ability of a party to impose conditions to its agreement or consent, Mr Vineall KC referred the Court to Schweppe vHarper [2008] EWCA Civ 442, at [64] per Dyson LJ; and H Beale (Ed), Chitty on Contracts (35th edn, 2023), at [4-198]). In the present case, the condition- namely the provision of (valid) additional cover prior to trading to Ukraine was not satisfied and the voyage was therefore not performed with Oceanus’ consent. Further or alternatively, any consent by Oceanus to the breach of the Trading Warranties was induced by the presentation of the forged December Additional Cover, which vitiated Oceanus’ consent.[62]Included in the bundle of documents for trial was a written opinion by Mr Bailey KC disclosed by the Insurer, in which Mr Bailey KC sought to draw a distinction between “collateral” conditions to consent and conditions relating to the performance of the relevant act itself, by references relating to the law of consent as a defence to sexual crimes. These arguments are summarised below, but in short Oceanus contended that the law of sexual consent was inapposite to an analysis of consent or agreement in a commercial context. In particular, consent for the purposes of the law of sexual crimes is codified in statute in s.74-77 Sexual Offences Act 2003 in an area where the law seeks to balance complex and competing priorities, including the right to bodily autonomy and the imposition of criminal responsibility. None of those considerations arise in the case of a commercial contract (as in the present), which is more sensibly analysed by reference to well known contractual principles. Further, it is well established that commercial parties have a broad freedom to place conditions on their consent or agreement. For example, a seller may impose a condition precedent that a buyer open a letter of credit before the seller is obliged to load goods (Kronos Worldwide Ltd v Sempra OilTrading Sarl [2004] EWCA Civ 3, [2004] 1 Lloyd’s Rep 260, at [08], [19], per Mance LJ). Although that condition has no relevance to the performance of the act of loading itself, there is no problem recognising it as a condition precedent to loading. However, even if consent in the criminal context is relevant, active deception as to the risks involved in a sexual act can vitiate consent (see R v Lawrance [2020] EWCA Crim 971, [2020] 1 WLR 5025, at [28], [36], per Lord Burnett). (ii) Lloyd’s submissions[63]Lloyd’s submits that Oceanus was privy to the existence and occurrence of the insured peril on which its claim is based, namely the breach of the Trading Warranties in the War Risks Policy. Oceanus knew (and admits to knowing) that the intended voyage to Ukraine would breach the Trading Warranties and that the War Risks Policy would not respond in such circumstances. Further and if necessary, Oceanus concurred in and/or gave its consent to the trade in December 2023 because it did not attempt to hold the Vessel back by instruction but confirmed it was content for the trade to go ahead. Oceanus’ argument that its consent was only conditional does not alter the position, because the condition that additional war insurance was procured was collateral rather than essential to the occurrence of the insured peril itself, and the non-fulfilment of a condition of this nature does not vitiate the consent or alter the fact that the occurrence or existence of the alleged insured peril took place with Oceanus’ knowledge, concurrence and/or consent.[64]In the absence of any decided cases on the meaning of privity in the context of an MII policy, the Insurer contends that the essence of privity for purposes of the MII Policy is knowledge, including Nelsonian or blind-eye knowledge. This, it contends, accords with the natural meaning of the word privity, viz. sharing in the knowledge of something. Knowledge (including blind-eye knowledge) coupled with passivity on the part of Oceanus is sufficient to constitute privity within the meaning of the proviso to the MII Policy. If Oceanus had actively protested the intended breach of the Trading Warranties or had sought (even unsuccessfully) to hold the Vessel back, that may have been enough to negate it being privy to the occurrence of the peril, but none of that happened in the present case.[65]Whilst the Insurer accepts that there is some dicta on the meaning of privity in the context of section 39(5) of the Marine Insurance Act to the effect that it requires knowledge and concurrence or consent, so far as the contractual context of the insuring clause in the MII Policy is concerned, passivity in the face of knowledge (given that it includes blind-eye knowledge) is sufficient to render Oceanus privy. It is the failure of Oceanus to protest or object to the impending breach of Trading Warranties, rather than any outward manifestation of consent, that renders it privy to the existence or occurrence of the insured peril. Alternatively, if and to the extent that privity requires both knowledge and concurrence or consent (as Oceanus contends), both limbs are in fact satisfied in the present case. As stated above, Oceanus knew (and admits to knowing) that the intended trading to Ukraine necessitated a breach of the Trading Warranties and that the War Risks Policy would not respond in such circumstances. Oceanus could have held back the Vessel by instruction but chose not to do so. Instead, on receipt of the December Additional Cover, it confirmed to the charterer that “everything ok” and that the voyage in breach of the Trading Warranties could proceed. In so doing it concurred and/or consented to the fact that the War Risks Policy would not respond to a loss while the Vessel was in Ukrainian waters. That was a risk that Oceanus was willing to take. Whilst it may well be the case that Oceanus was duped into believing that the risk had been hedged by the December Additional Cover, it knew the risk that it was taking.[66]Further, Oceanus had a legal entitlement to hold back the Vessel by instruction by Clause 9 of the Assignment, in circumstances where Lyra Mare was clearly in default on the loan. Moreover, Clause 17.2(f) of the Assignment provides “The Borrower shall procure that the Vessel is always employed in conformity with the terms of the instruments of insurance (including any expressed or implied warranties) and shall comply with such requirements as to extra premium or otherwise as the insurers may prescribe.”. Mr Magelssen and Ms Kjellsby specifically discussed whether or not to hold back the Vessel before it left Romanian waters and proceeded towards Ukraine. If Oceanus had instructed the Vessel not to trade in breach of the Trading Warranties but Lyra Mare had defied the instruction and gone ahead anyway, then it might be argued that Oceanus was not privy to the breach. However, in circumstances where Oceanus permitted the trade to go ahead and made no attempt to stop it, it clearly concurred and/or consented in the existence and occurrence of the breach.[67]Mr Bailey KC contended that if the Insurer is correct that passivity (such as here, a failure to object) in the face of knowledge is sufficient to constitute “privity” so that no outward expression of consent is required, then Oceanus’ argument of “conditional consent” goes nowhere. While it is theoretically possible that conditional consent could be vitiated if a condition attached to the granting of consent is not fulfilled, that is not universally so. Rather, it depends on the nature of the condition. For example, if Oceanus had only given consent to the voyage to Ukraine on condition that the crew wear camouflage, it could not realistically be said that the failure to comply with such a condition vitiated Oceanus’ concurrence or consent to the breach of the Trading Warranties. Even if the condition is of fundamental importance to Oceanus, the fraudulent non-fulfilment of that condition will not negate or vitiate consent if it is collateral and relates to the risks or consequences of the insured peril, rather than to the occurrence of the peril itself.[68]In this regard, Mr Bailey KC referred the Court to the criminal court decisions inR v Linekar [1995] Q.B. 250 and R v Lawrence [2020] 1 W.L.R. 5025 at [12] and [34] - [37] and to two US Court decisions of Rains v Superior Court (1984) 150 Cal.App.3d 933 at 939 and Freedman v Superior Court (1989) 214 Cal.App.3d 734 at 738 Mr Bailey KC argued that a good analogy is that of a sex worker who only consents to intercourse on condition that he or she is paid. His or her consent is not vitiated if the client never intends to pay or pays with forged bank notes. This is so notwithstanding the payment of funds is integral to the transaction or of fundamental importance to the sex worker concerned. The reason being that, however important, the condition is collateral and relates to the risks and consequences of the act consented to rather than the performance of the act itself.[69]On the present facts, the condition that the December Additional Cover be procured was collateral to the breach of the Trading Warranties. It was a separate transaction which was only relevant or necessary precisely because Oceanus was consenting to the breach of Trading Warranties and to the fact that the War Risks Policy would not respond as a result. The separate policy which Oceanus required related to the risks or consequences of the insured peril, rather than to the occurrence of the peril itself. Accordingly, in the circumstances and whether the meaning of “privity” in the context of the proviso to Clause 1.1 encompasses knowledge or both knowledge and concurrence or consent, Oceanus was privy to the breach of the Trading Warranties and the claim must fail.

Decision on privity

[70]It is common ground between the parties that there is no direct authority on what privity means in the context of a MII Policy, and in particular whether the word privity requires mere knowledge or knowledge and concurrence or knowledge and consent on the part of the Assured, and if it requires concurrence or consent, the nature of such consent or concurrence, for example if mere passivity is sufficient.[71]As Mr Vineall KC submitted, in the context of Section 39(5) of the Marine Insurance Act and the requirement of privity on an assured’s part of the unseaworthiness of a vessel, the Court of Appeal in Eurysthenes referred to knowledge and concurrence, and in The DC Merwestone, Mr Justice Popplewell (as he then was) referred to knowledge and consent. The Court was also referred by Mr Bailey KC, in the same context, to the House of Lords decision in Manifest Shipping Co Ltd v Uni Polaris Insurance Co Ltd and others [2003] 1 AC 469 at 515, where the House of Lords held that privity on an assured’s part of the unseaworthiness of a vessel, in its ordinary meaning, connoted knowledge, including blind-eye knowledge, which itself requires an amalgam of suspicion that certain facts may exist and a decision to refrain from taking any steps to confirm their existence. In the Manifest Shipping case, the House of Lords referred to the Court of Appeal judgment in Eurysthenes, in particular to the formulation of Lane LJ (above) and the further passage of Lane LJ’s judgment (at page 81) where he states the following:
“Knowledge of what? Again, the subsection is clear. It says unseaworthiness, not facts which in the upshot prove to amount to unseaworthiness. Accordingly, it seems clear to me that if this matter were res integra, the section would mean that the assured only loses his cover if he has consented to or concurred in the ship going to sea when he knew or believed that it was in an unseaworthy condition. I add the word “believed’ to cover the man who deliberately turns a blind eye to what he believes to be true in order to avoid obtaining certain knowledge of the truth”
. At Paragraph 116 of the Judgment of the House of Lords, Lord Scott went on to conclude that “In summary, blind eye knowledge requires, in my opinion, a suspicion that the relevant facts do exist and a deliberate decision to avoid confirming that they exist…the suspicion must be firmly grounded and targeted on specific facts. The deliberate decision must be a decision to avoid obtaining confirmation of facts in whose existence the individual has good reason to believe. To allow blind eye knowledge to be constituted by a decision not to enquire into an untargeted or speculative suspicion would be to allow negligence, albeit gross, to be the basis of a finding of privity. That in my opinion, is not warranted by section 39(5)”.[72]I agree with Mr Vineall KC that the meaning given to “privity” in the context of the Marine Insurance Act 1906 is highly persuasive in the present context and that privity cannot mean something more favourable to the insurers under the MII Policy than it means in the general common law as expounded by the Court of Appeal and the House of Lords, the latter focusing on the blind eye knowledge element of privity, and making clear that there is a relatively high degree of connivance or blame worthiness required and that an assured cannot be fixed with knowledge through negligence; it must know or have deliberately ignored signs.[73]Accordingly, the question for the Court to determine is whether Oceanus knew (including Nelsonian blindness) and consented to or concurred in the breach of the Trading Warranties. I agree with Mr Vineall KC that there is no real distinction between consent and concur in the present context; the former focuses on the individual act of agreeing to an action, whereas the latter focuses on the approval of a decision that has been made or a proposed finalised action. They are terms frequently used interchangeably to mean the same thing.[74]As set out above, Oceanus knew that the Vessel was sailing to Ukraine and that that would be a breach of the Trading Warranties. It knew that additional cover was required and it sought to ensure that such cover was obtained as had happened in November. It consented to the Vessel sailing to Ukraine on the condition that appropriate additional insurance had been arranged so that the risks covered by the War Risks Policy would be covered outside the territorial limits of that policy. Contrary to what Oceanus was told, no such insurance had in fact been arranged. Lyra Mare or the charterers procured a fake cover note purportedly covering the intended voyage and duped Oceanus into believing that insurance was in place. It is clear on the evidence that it was on that basis and that basis alone that Oceanus agreed to allow the trading to take place. Whether in fact Oceanus could have prevented the Vessel trading in Ukrainian waters had no forged cover note been produced is highly doubtful. As stated above, the Court accepts Mr Magelssen’s evidence that there was nothing he could do from his desk in Oslo on 26 December to physically take possession of the Vessel and the fact that Lyra Mare or the charterers produced a forged cover note and the parties were committed under the settlement agreement to trading in Ukraine makes it highly probable that the Vessel would have sailed into Ukrainian waters regardless of any instructions to the contrary from Oceanus.[75]In my view, on the evidence summarised above, Oceanus never validly consented to or concurred in the breach of the Trading Warranties.Any consent or concurrence on the part of Oceanus was clearly obtained by fraud and in such circumstances, it would wrong to say that Oceanus was privy to the breach of the Trading Warranties. It did not know the true position as regards the war risks insurance. It had no reason to be suspicious of the cover note that was provided to it on 26 December, in circumstances where a valid cover note had been provided for a similar voyage a month earlier. There was no turning a blind eye or blandly ignoring of the facts. As Mr Magelssen stated in evidence, Oceanus relied upon the cover note that was provided and the sign off by Ms Trine Kjellsby that “Everything is in order. No need to hold back vessel”. If Lyra Mare or the charterer’s lie to Oceanus had been to present a false copy of the War Risks Policy with the trading limits misstated or had been to say that the War Risks Policy had been amended so as to permit voyages to Ukraine, the answer would be clear: Oceanus would not have known and consented to or concurred in the breach of the Trading Warranties. There is, in my view, no reason why it should make a difference that Lyra Mare or the charterer’s lie was that the voyage was covered under a separate policy. Similarly, and as Mr Bailey KC accepted on questioning from the Court, had Lyra Mare or the charterer simply not told Oceanus that it was sailing to Ukraine and gone ahead, the MII Policy would have responded. On Mr Bailey KC’s case, Oceanus is in a worse position because it was positively lied to than it would have been if it had simply been kept in the dark. With respect, it is difficult to see the commercial sense in that.[76]More broadly, as stated above, the purpose of an MII policy is to protect a mortgagee against a loss which it reasonably expects to be covered by the charterer’s insurance, and which is not, due to some (mis)conduct on the part of the charterer for which the mortgagee is not responsible. That is exactly what has happened here. It would upend that purpose of the policy to leave Oceanus without cover because Lyra Mare’s or the charterer’s misconduct extended to fraudulently obtaining Oceanus’ consent to act in a way that was in fact in breach of its insurance. Oceanus thought that the Vessel would not be breaching the Trading Warranties because it thought that the additional cover had been obtained to permit the trading and to retain cover. In such circumstances, it was not privy to the existence or occurrence of the insured peril under the proviso to Clause 1.1 of the MII Policy. Issue 4- Was the existence or occurrence of the insured peril (the breach of the Trading Warranties), alternatively the loss suffered by Oceanus fortuitous[77]At Paragraph 26 of its Defence, the Insurer pleaded that it had a complete defence to Oceanus’ claim because the occurrence of the insured peril on which Oceanus relied for its alleged claim (the breach of the Trading Warranties) was not fortuitous. However, by the time the matter came to trial, the Insurer accepted that the correct question was not whether the insured peril was fortuitous but whether the loss suffered by Oceanus was fortuitous and its pleaded case was not pursued by Mr Bailey KC. (i) Oceanus’ submissions.[78]Mr Vineall KC made the preliminary point at trial that it is not pleaded by the Insurer that Oceanus’ loss lacked fortuity and that it was not therefore open to the Insurer to press that case. However, if the Court was persuaded to hear Mr Bailey KC on this issue, Oceanus contended that the loss that resulted from the damage to the Vessel by the Mine Strike was fortuitous in that it was not bound to occur. Mr Vineall KC took the Court to the decision of Mr Justice Hobhouse in Ikerigi Compania Naviera SA v Palmer The “Wondrous” [1991] 1 Lloyd’s Rep 400, at 416, which was discussed recently in Delos Shipping SA v Allianz Global Corporate and Specialty SE [2024] EWHC 719 (Comm)at [88]-[97]. Mr Vineall KC submitted that the test is whether there is a choice and whether the conduct of the assured is deliberate or voluntary. If the Court finds that the proximate cause of the loss is the Mine Strike, then the loss was clearly fortuitous as regards Oceanus. The Mine Strike was not an inevitability and did not result from any choice on Oceanus’ part. (ii)The Insurer’s submissions[79]In short, Mr Bailey KC submitted that it was not enough for Oceanus simply to assert that the Mine Strike happened by chance. On the basis that the relevant loss for the purpose of the insuring clause in the MII Policy consists of or includes the non-payment by underwriters under the War Risks Policy, Oceanus’ loss was not fortuitous because it was the inevitable consequence of its voluntary conduct.[80]Mr Bailey KC accepted that the basic principle was articulated by Hobhouse J in The Wondrous, and in particular at page 416, where Mr Justice Hobhouse stated “… 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… 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.” Like Mr Vineall KC, he relied on the decision in Delos Shipholding SA v Allianz Global, which made clear that for the principle to apply there must be some choice by the assured; the consequences must be such as to flow in the ordinary course of events, and that the concept of choice implies awareness that a decision is being made between two or more options which are different in some relevant sense.[81]In the present case, Oceanus had a clear choice, Mr Bailey KC submitted, either to hold (or attempt to hold) the Vessel back by instruction or to permit the Vessel to breach the Trading Warranties. Oceanus knew that if it permitted the Vessel to breach the Trading Warranties, the War Risks Policy would not respond if the Vessel suffered loss and damage while in Ukrainian waters. Oceanus chose to rely upon the December Additional Cover rather than the War Risks Policy as its collateral security while the Vessel was in breach of the Trading Warranties, and Oceanus knew that it was an inevitable consequence of its voluntary conduct in permitting the Vessel to trade in breach of Trading Warranties that, in the event of a casualty, there would be no payment under the War Risks Policy. The non-payment under the War Risks Policy was not a risk – it was a certainty that was the inevitable consequence of Oceanus’ voluntary conduct.

Decision on fortuity

[82]The Court is satisfied that the loss suffered by Oceanus was fortuitous for the reasons submitted by Oceanus. The Court has concluded that loss that Oceanus has suffered, as Assured, has resulted from the loss of the mortgaged Vessel by reason of the Mine Strike, which loss would in the ordinary course have been covered by the War Risks Policy but for Lyra Mare’s breach of the Trading Warranties thereunder. The Mine Strike was clearly fortuitous. It was not an inevitability and the loss that has been incurred by Oceanus was not bound to result from conduct voluntarily entered into by its choice. Moreover, Oceanus was fundamentally deceived by the forged December Additional Cover into allowing the Vessel to trade in Ukrainian waters. As the Court has found, Oceanus was not privy to the insured peril, the breach of the Trading Warranties and it is not right to say that Oceanus had a choice whether to rely on the December Additional Cover or to hold the Vessel back from going into Ukraine.

Conclusion

[83]In light of the above, the Court finds that Oceanus is entitled to the indemnity claimed under the MII Policy, which has been agreed in the sum of USD3.6 million. The Parties have agreed that interest shall be paid on the aforesaid USD3.6 million in the agreed sum of USD 496,652.05 by no later than 4pm 14 days from the date of this Judgment. Further, it is agreed that the Insurer shall pay Oceanus’ costs of the proceedings in the agreed sum of £300,000 (inclusive of any interest on costs) by 2 January 2026[84]Following the handing down in draft of this Judgment, the Insurer sought permission to appeal to the Court of Appeal on the basis of draft grounds of appeal provided to the Court. The Court is prepared to grant permission to appeal. This case is the first time the Court has been called upon to construe and interpret a standard London wording (Institute Mortgagees’ Interest Clauses Hulls (1/3/97 CL337-97), and the Court of Appeal may take a different view on the construction found by this Court. In the circumstances, the Court is satisfied that an appeal has a reasonable prospect of success.