Brillante Virtuoso - Aden port limits and the application of Best Management Practices for protection against Somali piracy

In October, we reported on Mr Justice Teare’s findings that the Brillante Virtuoso was set on fire on the instructions of owners, and its beneficial owner, Mr Iliopoulos, in a failed attempt to defraud their underwriters (see here).

The claim by Piraeus Bank (the Bank) also failed not because the Bank was privy to the fraud, but because the Bank was unable to establish loss by an insured peril in these circumstances. There has been no appeal. Mr Justice Teare’s decision is final.

A number of other legal points arose in the case, including the meaning of ‘OPL Aden’ and the application of Best Management Practices for protection against Somali piracy.

Aden Agreement

On the afternoon of 5 July 2011 (the eve of the “attack”), underwriters were asked to agree the vessel’s call “OPL Aden to embark unarmed guards to sail with the vessel to Gale Sri Lanka”. The request was necessary because, without such agreement, the vessel would have been off risk in Yemeni waters. Underwriters agreed the call “OPL Aden” on that basis. At the time the armed men boarded, the vessel was drifting some 11-12 miles off Aden.

Was that “OPL Aden”?

The Bank alleged that OPL meant “off port limits” and that even though the port limits were about three miles, the vessel was still within the policy’s territorial limits, as amended. Underwriters said not. They argued that “OPL Aden” meant Outer (i.e. within) or close to Aden port limits and that the extension to cover was agreed on the understanding that the vessel would benefit from the protection of the port.

The Judge found “OPL” meant “off or outside” port limits but accepted that it had to be an area “in close proximity to the port limits”.

He stated that: “Since the port limits were about 3.15 miles off the coast I do not consider that the place where the master chose to drift can, in the context of the Aden Agreement, realistically be referred to as close to the port limits. …it is reasonable to expect that OPL Aden was intended to refer to a location quite close to the port limits (where the vessel can be expected to be relatively safe) rather than … almost in international waters”.

Was the Aden Agreement valid?

Underwriters argued in the alternative that the Aden Agreement was void (under the pre-Insurance Act 2015 law), because the purpose of the call at Aden was not to board a security team but part of the owners’ plan or conspiracy to set fire to the vessel. The Bank accepted that if that was the plan, then underwriters were entitled to avoid the Aden Agreement in principle, but argued that Underwriters had lost the right to avoid by affirmatory conduct. Underwriters, it was said, knew sufficient of the fraud to raise the point in 2015 but did not until 2016.

There were many responses to this, but the fundamental difficulty with the Bank’s argument was, as the Bank accepted, they had to show underwriters “had actual knowledge of the facts constituting the alleged misrepresentation and of their legal right to avoid the Aden Agreement”. Even in 2019, the Bank was strenuously denying any fraudulent conspiracy.

Certainly, in 2015, underwriters had suspicions (which got stronger), but the Judge accepted that at that time, underwriters may have had “sufficient evidence to allege scuttling”, but that did not mean that underwriters knew the “allegation to be true”. The affirmation argument failed.

Best Management Practices for protection against Somali piracy (BMP)

A further “non-fraud” defence was based upon the war risks policy which contained two terms:

(i) a subjectivity “… to follow Recommended Best Practice”
(ii) “Warranted JW2009/002 to apply … owners/masters should apply … BMP”.

Underwriters required compliance with BMP. BMP is, however, advisory and affords considerable discretion to the master.

The Judge found that one of the conspirators to the attack on the vessel was the master and plainly that was not BMP compliance at all.

However, if there was no conspiracy to defraud underwriters, then were the subjectivity and warranty terms complied with? The Judge found that what was required to be BMP compliant was that “the master, when deciding what steps or action to take to guard against the risk of an attack by pirates, [had] to take into account, in good faith, the recommendations in BMP 3.” BMP compliance did not require that the master’s decisions had to be objectively right.

Many BMP breaches were alleged by underwriters, but there were two fundamental issues.

1. The nature of the risk assessment prior to entering the Gulf of Aden. The risk assessment carried out for the subject voyage involved no more than cutting and pasting from a previous risk assessment. The Judge found that was not a genuine risk assessment and was in breach of the subjectivity/warranty.
2. A key tenet of BMP3 is maintaining full speed within the high risk area. The master decided to drift whilst awaiting the security team, with “not under command” lights on and engines on short notice (requiring at least 20 minutes to start). It was plainly not a sensible thing to do – leaving the vessel as a “sitting duck”.
   
   If the master was not privy to the conspiracy, was this BMP compliant? The Judge found “… the master's decision to drift rather than proceed up and down the coast at speed was surprising, given the advice in BMP 3 and what appears to me to be its good sense. … the master exercised his discretion unreasonably. However, I cannot say that he failed to consider the matter in good faith. I therefore do not consider, upon the assumption that the master was not party to the alleged conspiracy, that there was a breach in this regard”. 

Whilst it may be difficult for underwriters to establish a negligent breach of an advisory code, it is more difficult still to show that there was no good faith attempt at compliance.

Comment

The decision on these two elements arose under the law as it stood before the Insurance Act 2015 (the 2015 Act) came into force.

The outcome on avoidance of the Aden Agreement and the failed affirmation argument would likely have been the same, had the 2015 Act applied.

The outcome on underwriters’ BMP breach of warranty defence, if heard under the 2015 Act, would also likely have been the same. Cover would have been suspended at the time the intruders boarded the vessel. Further, the requirement to comply with BMP, would, we suggest, be a term governing “the risk as a whole”, in a policy covering the risk of piratical attack.

The BMP arguments also give rise to any number of policy drafting implications – the most important of which is that if underwriters require compliance with advisory codes, they should mandate, in clear terms, the individual provisions most important to the risks they are being asked to undertake.

Read more items in Marine Brief - December 2019

Related articles:

• Brillante Virtuoso – an extraordinary attempt at maritime insurance fraud
• Brillante Virtuoso – co-assured status and indemnity costs