Argoglobal Underwriting Asia Pacific Pte. Ltd. & 4 Ors v Overseas-Chinese Banking Corporation Limited

1 This was an appeal against the decision of a judge in the General Division of the High Court (“Judge”) to allow a claim under a marine insurance policy following the capsize of the insured vessel.

2 Oversea-Chinese Banking Corp Ltd (“OCBC”) was the mortgagee of the vessel “TERAS LYZA” (“Vessel”). OCBC was co-assured under a hull and machinery marine insurance policy (“MI”) issued by the five insurers (“Insurers”) in respect of the Vessel. On 5 June 2018, the Vessel capsized during a tow voyage from Vung Tau, Vietnam to Taichung, Taiwan. The Vessel was subsequently disposed of and submerged on 20 August 2018.

3 OCBC claimed against the Insurers under Section [A] and Section [B] of the MI. The Judge found that OCBC succeeded in its claim for payment under Section [A] of the MI for an insured value of US$56m as the Vessel was lost to perils of the seas and was a constructive total loss. The Judge rejected the Insurers’ defence that the vessel owner and vessel manager had breached their duties of fair presentation and warranties under the MI. The Judge also found that OCBC had proven the quantum of its loss under the mortgage. However, the Judge dismissed OCBC's claim under Section [B] of the MI on the basis that it was void as a gaming or wagering contract.

4 The court allowed the appeal. It addressed two issues in detail:

a. First, has the insured proved that the loss was caused by perils of the sea? A related question was whether there was any room for the presumption to apply in such circumstances.

b. Second, was the Vessel a constructive total loss (“CTL”)?

5 On the first issue, the court held that there were two conventional ways in which an insured may prove loss by a peril of the seas on a balance of probabilities: at [36].

a. First, an insured may directly prove that the loss of the vessel was caused by a peril of the seas by putting forward a cause for the loss of the vessel which was attributable to perils of the seas. An insured would have to prove this cause on a balance of probabilities: at [36(a)], [44]–[53].

b. Second, an insured may resort to circumstantial proof and rely on a rebuttable presumption that the vessel was lost by perils of the seas, if it can prove that the vessel was seaworthy and that it was lost in wholly unexplained circumstances. In doing so, an insured need not propound a cause for the loss of the vessel: at [36(b)], [54]–[68].

6 Where the conditions to the presumption are not made out and the presumption cannot be relied on, an insured may still rely on inferential reasoning and the elimination of possibilities to bolster its case. However, in this situation, an insured must propound an explanation for the loss of the vessel which is attributable to peril of the seas. The court must be satisfied that this explanation, in light of the elimination of uninsured losses, is rendered more likely than not (or in other words, proven on a balance of probabilities) to be the cause of the loss: at [37], [69]–[91].

7 In particular, the court held that the presumption was to assist an insured shipowner who was unable to identify the actual cause of the loss to discharge its burden of proof. Where a vessel was lost at sea, the shipowner would not have the means to prove the cause of the loss. In such a situation, the law permitted the shipowner to rely on the presumption that the loss was due to “perils of the sea” provided the vessel is otherwise seaworthy. However, where the loss was capable of being explained as there was sufficient direct evidence, the presumption cannot be invoked, and it would be plainly insufficient for the shipowner to claim that the cause of the seawater ingress was unknown: at [93].

8 On the first issue, the court found that OCBC had not proved that the Vessel was lost by a peril of the seas. First, OCBC did not propound a positive cause of the seawater ingress, which was necessary to prove the element of fortuity. Second, OCBC was not entitled to rely on the presumption of loss by perils of the seas. Although the court was satisfied that the Vessel was seaworthy at the commencement of the voyage, OCBC failed to show that the Vessel sank in wholly unexplained circumstances. Given that the Vessel only capsized and did not sink until 76 days later when it was scuttled, OCBC had ample opportunity to investigate the cause of the seawater ingress. However, they failed to do so and there is no expert evidence before the court that any such attempt would be futile: at [94]–[113].

9 Regarding the second issue, the court held that OCBC did not establish that the Vessel was a CTL, which was defined by the cost of recovery and/or repair exceeding the Vessel’s insured value. OCBC sought to “prove” its CTL claim in its first set of closing submissions by relying on the several documents (“CTL Documents”) which were not adduced by way of affidavit. Even though these CTL Documents were included in the Agreed Bundle of Documents in the trial below, they were not adduced through any witness. In any event, the CTL Documents ought not to have been admitted under s 32(1)(b)(iv) of the Evidence Act 1893 (2020 Rev Ed) (“EA”). Save for two documents which would have been routinely generated in the usual and ordinary course of business where a capsize had occurred and salvors were contracted, the remaining documents were commissioned for the purposes of litigation. Crucially, OCBC also failed to fulfil the notice requirement in s 32(4)(b) of the EA, read with O 38 r 4 of the Rules of Court 2014. The court should not have exercised its discretion to cure this non-compliance given the prejudice caused to the Insurers’ case. In any case, even if the CTL Documents were admitted wholesale and taken at face value, they would not have proved that the costs of repair and/or recovery exceeded the insured value of the Vessel. None of the CTL Documents indicated the costs of repair and/or recovery based on the actual damage suffered by the Vessel: at [116]–[146].

10 Finally, the court agreed with the Judge that OCBC did not breach the warranties nor its duty of fair presentation, and that OCBC had proven indebtedness under the mortgage: at [147]–[151].

11 Nonetheless, given the court’s decision on the first two issues, the appeal was allowed.