01st Aug 2016
 EWCA Civ 808
On 13 August 2007, shortly after completion of loading of a cargo of coal in Lake Maracaibo, Venezuela for discharge in Italy, an underwater inspection by divers discovered three bags of cocaine weighing 132 kg strapped to the hull of the “B Atlantic”. Although neither owners nor crew were complicit in the smuggling (the drugs were planted by unidentified third parties), the vessel was detained and ultimately abandoned, while two members of the crew were convicted and sentenced to 9 years’ imprisonment.
The owners brought a claim for a constructive total loss and for sue and labour expenses under their war risk cover. In December 2014 Mr Justice Flaux upheld their claim (please view here), holding that the detention of the vessel was caused by the ‘malicious acts’ of the drugs smugglers who, in planting the drugs, acted recklessly as regards the likely detainment of the vessel in the event that the drugs were discovered by the Venezuelan authorities. He rejected insurers’ principal defence that the standard war risk exclusion for ‘detainment by reason of infringement of customs regulations’ applied to a situation where the ‘infringement’ relied on (the attempted smuggling of drugs by their attachment to the vessel’s hull) was no more than the very manifestation of the third parties’ insured malicious acts.
The Court of Appeal has handed down judgment on 1 August 2016 overturning Flaux J. Lord Justice Christopher Clarke (with whom Sir Timothy Lloyd and Lord Justice Laws agreed) held that the loss was caused by a combination of the initial concealment of the drugs and the subsequent detention. He further held that the exclusion for ‘detainment by reason of infringement of customs regulations’ should not be read as being subject to the limitation imposed by Flaux J. Accordingly, although the concealment was a covered peril the subsequent detention was excluded from cover, and therefore the claim failed.
Owners are represented by Alistair Schaff QC and Alexander MacDonald.
To view the judgment please click here.