Sue and Labour Expenses

134,000 by which they traced and recovered all but two of their containers. ICS then claimed US53,777.28 by virtue of a sue and labour clause contained in an All Risks policy to which the insurers subscribed in the proportion of 41.15 per cent.¹⁵ The sue and labour clause provided:

… in case of any Loss or Misfortune, it shall be lawful to the Assured, their Factors, Servants and Assigns, to sue, labour, and travel for, in and about the Defence, Safeguard and Recovery of the said Goods and Merchandises, or any part thereof, without Prejudice to this Assurance; to the Charges whereof the Assurers will contribute, each Company rateably, according to the amount of their respective subscriptions hereto.

With regard to the question of whether or not the expenses incurred to prevent a type of loss which would have been covered by the insurance the Court of Appeal commented that because the policy provided all risks cover, so long as the assured established the existence of a threat of loss or damage, no matter if that threat resulted from the insolvency of the lessee, they were entitled to recover monies laid out to avert a loss which might result from a variety of reasons. In relation to the nature of the expenses the court was persuaded that the assured took extraordinary means to recover their containers. The next issue therefore was to consider to what extent it was necessary to show the probability of loss; whether it must be proved that the loss was one which would have occurred during the currency of the policy.

Eveleigh LJ stated that there was nothing in the clause or statute which required the assured to show that a loss would ‘very probably’ have occurred. The judge added (referring to Aitchison v Lohre):

There have been very few cases on the effect of the sue and labour clause. I do not think that Lord Justice Brett was choosing words which were intended to be given almost statutory force and to lay down the elements which have to be proved before the assured can recover under the clause. He was dealing with a case where a loss would very probably have occurred and where underwriters would very probably have had to bear it. He was not concerned with the question whether the loss was probable or very probable.

Eveleigh LJ focused on what a ‘reasonable assured’ would have done in such circumstances. The judge stated that the words of section 78 of the MIA 1906 ‘to take such measures as may be reasonable for the purpose of averting or minimising a loss’ imposed a duty to act in circumstances where a reasonable man intent upon preserving his property, as opposed to claiming upon insurers, would act. It should therefore not be possible for insurers to be able to contend that, upon an ultimate investigation and analysis of the facts, a loss, while possible or even probable, was not ‘very probable’. Eveleigh LJ found it wholly unreasonable to penalise an assured upon the basis that, while he has shown that a reasonable man would have done as he did, yet in light of all that has transpired, the loss would not have been probable. Therefore the true test applicable in this case was whether or not in all the circumstances the assured had acted reasonably to avert a loss when there was a risk that insurers might have to bear it.

In addition to the observations made by Eveleigh LJ, in Integrated Container, Dillon LJ was of the view that the words in the sue and labour clause ‘in case of any Loss or Misfortune’ included a threatened loss or misfortune, and not merely a loss or misfortune which has actually occurred. The insolvency of Oyama was not a risk insured against under the policy, since it did not in itself involve any loss or misfortune to, or indeed have any effect on the subject matter of the insurance, that is, the containers. It did however have the result that ICS became entitled, as against Oyama, to resume possession of all the containers under the terms of the lease to Oyama. The position when ICS intervened was that the containers were held in warehouses by port authorities or agents for Oyama or other warehouse keepers who claimed liens on the containers for charges unpaid by Oyama. There were odd containers that were at sea, but they were eventually to be returned to one or other of those locations. None of the containers was in immediate danger of being disposed of or physically damaged, but it would inevitably follow that, if ICS did not exert themselves, they would never get the containers back at all. Either the containers would be sold towards satisfaction of unpaid charges by port authorities or warehousemen, or they would be eventually annexed by third parties as articles apparently abandoned by the true owners: in either case, Dillon LJ found, the containers would then be lost to ICS.

In Royal Boskalis Westminster v Mountain¹⁶ the insurers once again submitted that the peril must actually be in operation at the time of the sue and labour expenditure. In Integrated Containers it was held that ‘in case of any Loss or Misfortune’ included a threatened loss or misfortune. In Royal Boskalis, Rix J put emphasis on the lack of authority which had required that some actual loss must already have been suffered for the sue and labour clause to operate. It was sufficient if some misfortune had occurred and this was not the same thing as saying that some peril insured against had actually taken effect. Rix J further stated that section 78 does not say that a peril must have begun to operate for the sue and labour right or duty to come into effect, nor does it attempt to define the circumstances under which that right or duty arises save as may be inferred from such language as occurs in subsections (3) and (4) and in particular the repeated phrase ‘for the purpose of averting or diminishing a [any] loss’. Thus, Rix J concluded that the matter was one of general principle. The judge emphasised the essence of the right and duty, which was that the insurer should be saved from loss by encouraging and requiring an assured to act reasonably for the purpose of averting or diminishing loss covered by the policy. As a result, it was reasonable to infer that both right and duty were intended to operate not only where a peril had actually begun to operate, but also where it threatened to do so. According to Rix J, where the peril has begun to operate, or even where it is obviously imminent, there is a clear case for the right and duty to sue and labour.

In Royal Boskalis a Dutch company who owned a dredging fleet with ancillary dredging equipment was contracted to a dredging project at Umm Qasr in Iraq with an arm of the Iraq Ministry of Transport and Communications, the General Establishment of Iraqi Ports (GEIP). The fleet was insured against war risks. The dredging contract provided for Iraqi law and Paris arbitration under ICC rules. The project was scheduled to be completed at the end of September, 1990. While the dredging work was still being performed Iraq invaded Kuwait on 2 August 1990. Although other contractors abandoned work being done in Iraq after the invasion, the assured claimant did try and complete the dredging contract. The invasion and international sanctions against Iraq delayed the progress of the work so that the project was not in the event completed until 30 October 1990. In the meantime on 16 September 1990, the Iraqi Revolutionary Command Council resolved to promulgate Law No. 57. This took effect on 24 September 1990 but the law purported to have retrospective effect to 6 August 1990, the date when UN sanctions were imposed on Iraq. Article 7 of Law No. 57 said that all assets of the companies of those countries which had enacted sanction legislation against Iraq ‘shall be seized’. Subsequently there were negotiations between the assured and the Iraqi government about the basis on which the dredging fleet would be demobilised and released. The parties signed a finalisation agreement in December 1990. The Iraqis’ price for permitting demobilisation of the dredging fleet and its personnel was (1) the abandonment of all claims that the joint venture might have under the dredging contract (which the joint venture claimed was about Dfl. 84 m.) and (2) the payment into accounts of the Central Bank of Jordan held in Swiss and Austrian banks of Dfl. 24,250,000, the ultimate balance of a deposit which had been held at the Amsterdam-Rotterdam Bank in Holland under a letter of credit opened by GEIP as security for payments to be made by GEIP to the joint venture under the dredging contract. Following the finalisation agreement the dredging fleet and personnel were able to leave Iraq safely. The assured then claimed from the insurers under the sue and labour clause in the policy. The argument was that the value of the claims for extra payment under the dredging contract, which the assured had waived or relinquished under the finalisation agreement, should be described as sue and labour expenses. With regard to the first requirement stated above and discussed under the current heading, Rix J found that at least potentially there was in operation a peril insured against. This was the case because Law 57 did constitute a restraint or detainment of princes (albeit not one that caused the vessels’ detention) and that its practical, even if not legal, effect was an interference in the free use and disposal of the vessels. However, Rix J found that because the primary and decisive purpose of the expenses incurred in performance of the project was the performance and completion of the project, that type of the expenses did not fall under the sue and labour clause. The alternative claim of the assured with regard to the waiver of claims against GEIP will be discussed in detail under a separate heading in the following paragraphs.

II. Purpose: to avert or minimise a loss which would otherwise be covered by the terms of the policy

The expenses incurred by the assured have to be incurred to prevent or minimise the loss which would have otherwise been covered by the policy. Thus it is important to determine the cover provided by the insurance. For instance if the policy is for total loss only and if the expenditure incurred was to prevent a partial loss of the subject matter insured, the insurer is not liable for the expenses incurred by the assured.¹⁷ Two cases illustrate the point. In Great Indian Peninsula Railway Company v Saunders,¹⁸ the insurance was on goods ‘warranted free from particular average’. The ship was damaged during the voyage and was taken into an intermediate port under circumstances that constituted its constructive total loss. The cargo was not lost, it was landed and delivered to its owners, and the owners took the cargo to its destination in an undamaged state. The cargo owners paid £825 more for the new voyage and sought to recover this from the insurers under ‘the labour and travel clause’, which empowered the assured to sue, labour, and travel to save the thing assured from impending loss. The court emphasised that the expenses that can be recovered under the suing, labouring and travelling clause were expenses incurred to prevent impending loss within the meaning of the policy. Here, however, the expenses claimed did not fall within this category: the goods were given up to its owners in perfect safety and these expenses were not incurred to prevent a total loss. Great Indian v Saunders was applied in Booth v Gair¹⁹ in which a cargo of 118 boxes of bacon was shipped on board the ship Plantagenet at New York to sail for Liverpool. The cargo was insured by a policy which contained a sue and labour clause in its then usual form. The policy was also warranted ‘free from average, unless general, or the ship be sunk, stranded, or burnt’. The Plantagenet met with heavy gales and for the preservation of the ship and cargo she bore away to Bermuda as a port of refuge. The ship was so badly damaged that she could only be repaired at Bermuda at an expense exceeding her value when repaired. Surveys were then held upon the cargo, parts of it, including a portion of the bacon the subject of this case, were found to be too damaged for re-shipment, and were sold on the advice of the surveyors, and the remainder (including the remainder of the bacon the subject of this case) was transhipped on board two vessels, the Magnet and the Surprise, for Liverpool.

The assured claimed from the insurer the difference between the amount of the freight by the Plantagenet and the sum total of the freight of the Magnet and the Surprise, and the shipping and transhipment charges of the cargo. The Court applied Great Indian v Saunders and noted that if the assured intended to confine the warranty to partial loss from damage to the cargo, and to have the liability of the underwriter for expenses of transhipment, the policy could have expressed that intention but it did not in this case.

The cases of Great Indian v Saunders and of Booth v Gair were distinguished in Kidston v Empire Marine Insurance Company²⁰ in which the court awarded the cost of transhipment under sue and labour expenses. In Kidston the subject matter of insurance was the chartered freight of a ship for £2,000, the freight being valued at £5,000, for a voyage from Chincha Islands to the United Kingdom. The policy contained the usual suing and labouring clause and a warranty against particular average. During the voyage the ship was so extensively damaged in a storm that it put into the port of Rio, where it became a total wreck. The goods were landed and forwarded in another ship to their destination, at an expense less than the chartered freight, and on their arrival the chartered freight was paid. The assured was successful in his claim for a proportionate part of the expense incurred in forwarding the goods by the second ship. The court held that upon the ship becoming a wreck at Rio, and the goods having been landed there, inasmuch as no freight pro rata itineris could be claimed, a total loss of freight had arisen. The expenses incurred in forwarding the goods to England by another ship were charges within the suing and labouring clause because they were incurred for the benefit of the underwriters to protect them against a claim for total loss of freight, to which they would have been liable but for the incurring of these charges. The Court distinguished Kidston from Great Indian and Booth v Gair for the reason that the latter were cases of insurance upon goods, to which the pro rata doctrine had no application, and where, the whole or a great portion of the goods still existing in specie, it was impossible to hold that a total loss had arisen.

Another issue related to the scope of the insurance cover was seen in Xenos v Fox²¹ where the Smyrna came into collision with the Mars as a result of which the Mars sank. The owners of the Mars sued the Smyrna and her owners for the recovery of damages for the loss of the Mars but the Court dismissed the action and left each party to bear their own costs.

The owners of the Smyrna incurred considerable costs in these proceedings and claimed these expenses from the insurer under the suing and labouring clause. The Court however decided that the sue and labour clause had no application whatever to the facts of this case because that clause applied to a loss or misfortune happening to the thing insured.²² A similar discussion is seen in Cunard Steamship Company, Limited v Marten²³ where the policy was effected to protect the shipowner against ‘liability of any kind to owners of mules and/or cargo up to £20,000, owing to the omission of the negligence clause in contract and/or charterparty and/or bill of lading’. The policy contained the ordinary suing and labouring clause in the following terms:

And in case of any loss or misfortune it shall be lawful to the assured, their factors, servants, and assigns, to sue, labour, and travel for, in, and about the defence, safeguard, and recovery of the said goods and merchandises and ship, &c., or any part thereof, without prejudice to this insurance; to the charges whereof we, the assurers, will contribute each one according to the rate and quantity of his sum herein assured.

The ship sailed from New Orleans but she was stranded owing to the negligence of the shipowner’s servants. It was held that the subject matter of the policy was not mules but the shipowner’s liability to the cargo owners owing to the omission of the negligence clause in contract and/or charterparty and/or bill of lading. The sue and labour clause on the other hand referred to ‘the said goods and merchandises and ship’. Thus it was held that the sue and labour clause was intended to apply only to an insurance on ‘goods, merchandises, and ship’ and did not cover the shipowner’s liability to the cargo owner for the loss caused by his servants’ negligence.

It should be noted that collision defence and attack costs are expressly excluded from the scope of the Duty of Assured Clause in the current Hull Clauses. In this respect, the scope of the Clause is the same as that of the traditional clause in the SG form.

III. Character: they must have been reasonably incurred in or about the defence, safeguarding or recovery of the subject matter insured and must also be unusual or extraordinary or the result of unusual or extraordinary labour

Several cases discussed this third element of the sue and labour clause on various issues such as the meaning of expenses and charges which should be incurred, the reasonableness of incurring the expenses, and the unusual and extraordinary nature of the expenses. As a starting point Lee v Southern Insurance Company²⁴ can be mentioned under which the case discussed whether the expenses were incurred reasonably. In this case the cargo which was valued at £600 was insured for the voyage from Cammeroons to Liverpool. The vessel sailed with a cargo of palm oil and in the course of her voyage she encountered bad weather off the coast of Ireland; and, after having sustained considerable damage, she was stranded on the Welsh Coast, near Pwllheli, and drifted onto the beach. The cargo was discharged upon the surveyors’ recommendation and was forwarded by rail to Liverpool. The total expense of forwarding the cargo by rail to Liverpool was £212. When the assured claimed this extra cost from the insurers under the sue and labour clause the Court found that the vessel was in such a condition that she might have been repaired and have pursued her voyage and the cargo could have been stored in a warehouse and then could have been reshipped onto the vessel once it was repaired; the total cost of warehousing and reshipping the cargo would have been about £70. The expenses that were incurred as a result of the course that was adopted by the assured therefore were not properly incurred.²⁵

With regard to the meaning of the word ‘incurred’ the courts discussed whether a ‘waiver’ of the valid claims to prevent or minimise further losses covered by the insurance can be claimed under the sue and labour clause. In Royal Boskalis, the facts of which were given above, it was common ground that the finalisation agreement and hence the waiver of claims was entered into to preserve the insured property from loss from an insured peril, that is, continued seizure and detention, that the peril was operative and imminent and that the loss, had it occurred, would have been of a type recoverable under the policy. The dispute between the parties turned on the meaning of ‘charges’, and especially whether the ransom price, which took the form of a waiver of claims, can amount to charges or expenses. Rix J stated that the meaning will depend on the context. He said ‘In my judgment there is no difference in principle between a sum paid out by way of ransom and a valid claim waived by way of ransom. It is common ground that a ransom paid to recover assured property may be properly the subject of a sue and labour claim. I do not see why a waived claim may not, upon appropriate facts, be just as much regarded as a ransom.’ In the Court of Appeal Stuart Smith LJ agreed that expense involves the payment or disbursement of money or money’s worth.

The effect of illegality

The effect of illegality is clearly seen in the case of Royal Boskalis in which while Rix J found that some of the expenses incurred to prevent or minimise the insured loss were recoverable under the sue and labour clause, the Court of Appeal held that since the finalisation agreement containing the waiver could not be enforced because the agreement had been obtained by duress or illegality, it would have had no effect on the assured’s claims and they had suffered no loss.

Rix J found that whether the waiver of claims was unenforceable and ineffective was legally irrelevant when considering whether the claimants had sustained any and if so how much loss. The judge based his conclusion on the proposition that the existence of a remedy to make good the loss did not preclude the existence of the loss. However, the Court of Appeal adopted a different approach. They held that since insurance is designed to provide an indemnity against real loss, not notional loss, in this case quantification of that loss required a realistic comparison between the assured’s position before the agreement was signed and after it had been signed. Before the agreement the assured had claims for additional payment under the dredging contract and they had the advantage of D.fl. 24,250,000 deposited in the bank as security for payment of their claims and the assured could only enforce them by going to arbitration. The assured could advance the selfsame claims before the arbitrators; but they would or could be met by an additional defence, the waiver. On the other hand G.E.I.P. could not rely on the waiver. Thus, Stuart Smith LJ found (Phil and Phillips LJJ agreed) that if the waiver would not be enforced by the arbitrators, then the claims were unaffected by it, and there was no loss. The assured’s claim under the sue and labour clause could only be established insofar as they could show that Paris arbitrators would give effect to the waiver.

Ransom

Ransom, if it is not illegal, is recoverable under the sue and labour clause.²⁶ In England the Ransom Act 1782 which provided that ‘all contracts and agreements which shall be entered into … by any person or persons for ransom of any … ship or vessel … shall be absolutely void in law, and of no effect whatsoever’ was repealed.²⁷