On 21 June 2008, the passenger cargo vessel, Princess of the Stars, was lost in the Philippines after sailing into Typhoon Frank. Tragically, over 800 lives were also lost.

The owners of cargoes on board the vessel claimed against the shipowner and in some cases also against the shipowner’s cargo liability insurer, Oriental. Oriental had placed a reinsurance policy for its cargo liability exposure with Reinsurers in London.

The Reinsurers commenced proceedings seeking a declaration that they are not liable to indemnify Oriental because of a breach of a Typhoon Warranty in the Reinsurance Contract. The Warranty provided that the policy was void if the vessel departed on a voyage, in this case from Manila, at a time when there was a typhoon or storm warning in place at the port of sailing or where the vessel’s intended route or destination may be in the possible path of a typhoon or storm announced at the port of sailing, port of destination or any intervening port.

At first instance, Mr Justice Field held that there had been a breach of the Typhoon Warranty, because when the vessel sailed from Manila (a) there was a typhoon warning at the port of sailing, Manila, and (b) the vessel’s intended route was within the possible path of the typhoon.

Oriental appealed to the Court of Appeal. The Court of Appeal dismissed the appeal. The Court held that the language of the Warranty was unambiguous and that the Court must apply that language. The Court also held that it should not introduce words into the provision unless the words selected by the parties are commercially nonsensical and it is clear that the parties intended some other purpose. The Court therefore rejected Oriental’s argument that the Warranty had to be read in light of the Philippine Coastguard Memorandum, given that no reference was made to the Memorandum in the Warranty. The Warranty’s purpose was to ensure that no unnecessary risks were taken which would trigger liability under the policy. As there was a typhoon warning at Manila, when the vessel sailed, there had been a breach of Warranty.

The Court also held that the Master intended to take a route which was within the possible path of the typhoon and that there was a breach of Warranty on this ground as well.

To view the judgment please click here.