In these morally muddied waters, there is no universally recognised principle of morality, no clearly identified public policy, no substantially incontestable public interest, which could lead the courts … to state that payment of ransom [to release cargo ships seized by pirates] should be regarded as a matter which stands beyond the pale, without any legitimate recognition.”

Masefield AG v Amlin Corporate Member Ltd [2011] Bus LR 1082, para 71, per Rix LJ.

This case, which is included in the latest (August) part of the Business Law Reports from ICLR, offers an interesting example of a conflict between law and morality. It concerned an insurance claim in respect of the loss of a cargo being conveyed on a vessel which was siezed by Somali pirates in the Gulf of Aden. The claim was brought by the cargo owners about a month after the ship had been seized. About 10 days later the ship’s owners managed to secure the release of the ship by paying a ransom to the pirates. The vessel together with its cargo was permitted to complete its voyage, but, by the time the cargo of bio-diesel was delivered, it had lost much of its value. The claimants sought to recoup the difference in value on the basis that, at the date when proceedings had been commenced, the cargo had suffered an Actual Total Loss or ATL. The defendant insurers weren’t playing.

David Steel J [2010] EWHC 280 (Comm) dismissed the claim and the Court of Appeal (Rix, Moore-Bick and Patten LJJ) affirmed his decision. There was no rule of law that capture by pirates, whatever the prospects of recovery might be, created an immediate ATL. It was a question of fact in each case. Although there was no duty on the insured to pay a ransom, the fact that payment of a ransom would probably secure the release of the vessel and her cargo could be taken into account when calculating the possibility of recovery and it could not be assumed that piratical seizure gave rise to an automatic ATL.

The claimants, represented by Sir Sydney Kentridge QC (leading Andrew Henshaw), had argued that a piratical seizure that could only be brought to an end by making a ransom payment should be regarded as though it provided no prospects of recovery at all, thus amounting to an ATL. In the words of section 57(1) of the Marine Insurance Act 1906, “the assured is irretrievably deprived” of “the subject-matter insured”.

Rix LJ, giving judgment, was evidently sympathetic to this point of view, but the harsh realities of the situation forced a different conclusion. There was no legislation against the payment of ransoms (para 63) which was therefore not illegal. Nor was it against public policy. He noted, at para 67, that the “conflicting moral and public interest imperatives” were reflected in the deliberations of a recent report of the House of Lords European Committee Combating Somali Piracy: the EU’s Naval Operation Atalanta, published on 14 April 2010 (HL Paper 103). Among its recommendations were, first, that the “fragile status quo” (as one witness put it) under which payment of ransom to pirates was not illegal, either under international law, or under UK criminal law, should continue; and, secondly, that skilled and experienced ransom negotiators should be employed to ensure safe recovery of ship and crew. Indeed (at p 18, para 58), “Where insurance policies do not already insist on experienced negotiators, they should do so.”

Commenting on this, Rix LJ observed, at para 71:

There is thus something of an unexpressed complicity: between the pirates, who threaten the liberty but by and large not the lives of crews and maintain their ransom demands at levels which industry can tolerate; the world of commerce, which has introduced precautions but advocates the freedom to meet the realities of the situation by the use of ransom payments; and the world of government, which stops short of deploring the payment of ransom but stands aloof, participates in protective naval operations but on the whole is unwilling positively to combat the pirates with force… In these morally muddied waters, there is no universally recognised principle of morality, no clearly identified public policy, no substantially incontestable public interest, which could lead the courts, as matters stand at present, to state that the payment of ransom should be regarded as a matter which stands beyond the pale, without any legitimate recognition. There are only elements of conflicting public interests, which push and pull in different directions, and have yet to be resolved in any legal enactments or international consensus”

This case (and the many other seizures of valuable ships and cargoes) should be compared with that of Paul and Rachel Chandler, a retired couple in their late 50s, who were seized near the Seychelles in October 2009 while sailing their yacht round the world. Despite calls on the British government to intervene, it was a friendly UK-based Somali taxi driver, Dahir Kadiye, who in the end negotiated a ransom payment (much smaller than originally claimed) to secure their release. (Perhaps he should now be given a job with the big cheeses in the shipping and insurance world.)

Although the House of Lords report recommended tougher sanctions by insurers against ship and cargo owners who fail to take adequate precautions against piratical seizure, the Report recognises that:

There will be no solution to the problem of piracy without a solution to the root causes of the conflict on land in Somalia.”

No sign of that happening any time soon. I suspect this case will not be the last we’ll see, or report, on the subject.