Teras Lyza Pte. Ltd. & 2 Ors v Argoglobal Underwriting Asia Pacific Pte. Ltd. & 4 Ors

Facts

Oversea-Chinese Banking Corporation Limited (OCBC) was mortgagee of the newly built self-elevating rig "TERAS LYZA" and a co-assured, assignee and loss payee under a hull and machinery policy written by five insurers, with MS First Capital Insurance Limited as lead. The policy, governed by English law, covered the hull and machinery up to US$56m (Section A) and increased value up to US$14m (Section B). The owner and manager, Teras Lyza Pte Ltd and Teras Offshore Pte Ltd, arranged a wet tow from Vung Tau, Vietnam, to Taichung, Taiwan, and the insurers agreed by addendum to cover the tow. Braemar was first approached as marine warranty surveyor, but Techwise was appointed instead with the insurers' approval, and the class society ABS and Techwise issued fit-for-tow and approval certificates.

The rig left on 30 May 2018. On 5 June 2018 it developed a list at about 3.45pm and capsized at 5.50pm. A notice of abandonment was rejected on 26 July 2018. After brokers reported no buyers even for scrap, the rig lost buoyancy and was released and submerged in deep water off the Philippines on 20 August 2018. The Teras companies and OCBC sued in Suit No 814 of 2021 for US$70m; the Teras companies later went into liquidation and dropped out. Kwek Mean Luck J heard the case.

Issues

1. Whether OCBC proved that the rig was a constructive total loss, and whether the documents relied on were admissible hearsay
2. Whether the loss was caused by perils of the seas rather than decrepitude or debility
3. Whether OCBC proved it was owed at least US$70m under the mortgage
4. Whether there were breaches of the duty of fair presentation or of policy warranties, and whether Section B was void as a gaming or wagering contract

Holding

The court allowed OCBC's claim in part, awarding payment under Section A for the insured value of US$56m on the basis that the rig was lost to perils of the seas. Section B was held void as a gaming or wagering contract, so the US$14m increased-value claim failed, and OCBC's unpleaded claim for damages for late payment was disallowed.

Reasoning

On constructive total loss, the test agreed by the English law experts was whether the cost of recovery and repair exceeded the insured value. OCBC relied on correspondence, salvors' and survey reports and brokers' replies that no witness proved. The judge held them admissible under the business records exception in s 32(1)(b)(iv) of the Evidence Act 1893. They were authentic, contemporaneous and largely based on disinterested third-party reports. He cured OCBC's failure to give notice, finding no prejudice because the insurers had held most of the documents since 2018 and had themselves disclosed some. Even the lowest estimates, US$50–56m for repair and US$24m for salvage, exceeded the insured value, so the evidential burden shifted. The insurers offered only an outdated view that there was no structural damage. Applying the prudent uninsured owner test with a margin of error, the loss was established.

On perils of the seas, accidental ingress of seawater is prima facie such a peril, and the insurers had to prove decrepitude. The judge rejected their reading of The Popi M that OCBC had to identify the aperture. The alleged breaches of the operations manual and load line convention were external events, not inherent weakness. The rig was new and certified, its hull was undamaged, and it showed no distress for six days. OCBC's naval architect's calculated explanation of flooding aft was preferred to the insurers' experts, whose theories were unsupported by calculations; one expert was found partisan.

On quantum, the insurers' late challenges to loan disbursement were unpleaded. In any case, OCBC's account entries and the liquidator's admission of a proof of debt for US$75,438,549.94 showed it was owed more than US$70m.

On fair presentation, the owners' knowledge could be attributed to OCBC through their actual authority to procure the insurance, but no breach was shown. Braemar had offered only comments for clarification. The alleged misrepresentation about its unavailability rested on hearsay given little weight. Technical matters such as a wet tow and freeing-port fittings were not material circumstances, because insurers rely on the surveyor's certificate. On warranties, the instruments relied on were not statutory or regulatory requirements, the weather-forecast rule applied only during the tow, and Techwise had checked crew competency. Both experts agreed that Section B was void under s 4 of the Marine Insurance Act 1906, and OCBC's contrary arguments had not been put to them.

From the judgment