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North Star Shipping Ltd -v- Sphere Drake Plc

October 2004

In the early hours of 6th July 1994 the vessel North Star, which was berthed at a repair facility near Piraeus, Greece, was severely damaged by an explosion. Her owners, who were the claimants in these proceedings, alleged that the explosion was caused by a bomb that had been attached to the vessel's port side shell plating in way of the engine room about one metre below the waterline. It was the owners' case that terrorists or persons acting maliciously or from a political motive were responsible for what happened.

The structural damage caused by the explosion was considerable and resulted in the rapid flooding of the vessel's engine room and No.6 hold. The owners were satisfied that the vessel was damaged beyond economic repair, and their London insurance brokers were instructed to claim upon their war risks underwriters for a constructive total loss. Almost one year later, on 30th June 1995, the owners' agents wrote to the brokers in London to inform them that the North Star had been sold to a Turkish scrap buyer for US$450,000. The agents' letter also set out a long itemised list of expenses that had been incurred in preparing the vessel for sale and in towing her to Turkey, which included sue and labour costs of US$459,168.

The owners' policy claim was rejected by their war risks underwriters. In March 1996 the owners therefore issued a writ in which, in addition to the vessel's insured value of US$4 million, the owners claimed sue and labour costs - full particulars of which (it was stated) would be provided in due course. The action proceeded to trial, but no such particulars were supplied before the hearing began. Counsel for the underwriters therefore declined to address the court with reference to the sue and labour claim - on the grounds that it had not been adequately formulated and no relevant documents had been placed before the court. Counsel for the owners contended that the sue and labour claim had been explained sufficiently in the letter to the brokers of 30th June 1995, which was referred to in one of the owners' witness statements, and had been maintained in the pleadings and written submissions.

The trial judge, Mr. Justice Colman, explained that a claim for sue and labour expenses under a marine policy was a cause of action which was quite separate from a claim to be indemnified for a loss, particularly a constructive total loss. This was evident from the fact that an assured may recover sue and labour expenses even if there is no other insured loss, partial or total. It was essential, therefore, not only that such a claim should be pleaded separately but also that the pleading should contain the factual basis of the claim, identifying what measures were taken to avert or minimise an insured loss and on what grounds it is alleged that each measure was reasonable. It must then set out the cost of each of the measures relied upon.

In this case the judge found that the owners' pleading came nowhere near an adequate formulation of their sue and labour claim. Their reliance on the constructive total loss claim as a factual basis for the sue and labour claim was misconceived. The measures said to have been taken to avert or minimise loss had not been set out; nor did the pleadings provide any basis for a finding that the measures, and their cost, were reasonable. The pleading did not even refer to the letter of 30th June 1995. To allow the owners to amend their pleadings at this stage would have a seriously disruptive effect and would probably lead to the trial having to be adjourned (at considerable expense) to enable underwriters to investigate the claim and prepare their defence.

The owners had failed to provide the particulars of the sue and labour expenses referred to in the writ, and even now were unable to produce a schedule in final form. Moreover, the judge held that underwriters were entitled to ignore the reference in the witness statement to the information contained in the letter of 30th June 1995. This was because the function of a witness statement is not to act as a substitute pleading, but to adduce evidence relevant to that which has already been properly pleaded.

In the judge's view it was now too late to permit the owners to raise the claim for sue and labour expenses in the proper way. He therefore directed that that part of the owners' claim should be struck out.

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