{"id":1490,"date":"2024-12-16T23:53:12","date_gmt":"2024-12-16T15:53:12","guid":{"rendered":"https:\/\/fenchurchlaw.com\/en-sg\/?p=1490"},"modified":"2024-12-17T17:40:49","modified_gmt":"2024-12-17T09:40:49","slug":"the-f1-a-closer-look-at-the-bacardi-principle-and-section-11-of-the-insurance-act","status":"publish","type":"post","link":"https:\/\/fenchurchlaw.com\/en-sg\/the-f1-a-closer-look-at-the-bacardi-principle-and-section-11-of-the-insurance-act\/","title":{"rendered":"The F1: A closer look at the Bacardi principle and section 11 of the Insurance Act"},"content":{"rendered":"

The Facts<\/strong><\/p>\n

MOK Petro Energy FZC v Argo (No. 604) Limited, The F1<\/em> [2024] EWHC 1935 (Comm) concerned a cargo of 11,800 MT of 92 RON unleaded gasoline (\u201cthe Cargo\u201d) that had been loaded onto the tanker F1 (\u201cthe Vessel\u201d) in Sohar, Oman. The Cargo was insured under an all-risks marine open cover on the ICC(A) wording (\u201cthe Policy\u201d).<\/p>\n

The Cargo consisted of a blend of gasoline and methanol. The gasoline and methanol used for the Cargo were drawn from four shore tanks (two gasoline, two methanol). They were loaded onto the Vessel via connecting pipelines and then blended in a tank on board the Vessel.<\/p>\n

All gasoline-methanol blends have a phase separation temperature (PST), i.e., a temperature at or under which the blend will separate into a gasoline-rich upper layer and a methanol-rich lower layer. Phase separation is undesirable as phase-separated blends have a lower octane value and may damage the engine in which they are used. Put another way: the lower the PST, the better for the blend.<\/p>\n

Also relevant is the fact that water increases the propensity of a gasoline-methanol blend to under phase separation. Unwanted water contamination therefore increases the PST of a blend.<\/p>\n

The Cargo specifications, per the sale and purchase contract between MOK (the buyer) and PetroChina (the seller), required the Cargo to have a PST of 1\u00b0C or below. \u00a0However, when the Vessel arrived at the discharge port, the Cargo was found to have a PST of 29\u00b0C. The Cargo was rejected by MOK\u2019s end purchaser and ultimately sold by MOK to a salvage buyer. MOK claimed an indemnity under the Policy for the difference between (i) the value of the Cargo had it complied with specifications and (ii) the value at which it was actually sold.<\/p>\n

Insurers declined the claim. In the ensuing trial, the Commercial Court upheld insurers\u2019 declinature. While much of the judgment turned on the specific facts of the case, the Court\u2019s findings on the following two issues carry wider implications for policyholders:<\/p>\n

    \n
  1. Whether the mere fact that the Cargo had been defectively blended could constitute damage.<\/li>\n
  2. How should a Court assess whether compliance with a warranty would reduce the risk of loss, as required under section 11 of the Insurance Act 2015.<\/li>\n<\/ol>\n

    Whether the mere fact of defective blending could constitute damage<\/strong><\/p>\n

    Clause 1 of the ICC(A) wording provides that the insurance \u201ccovers all risks of loss of or damage<\/u> to the subject-matter except as provided in Clauses 4, 5, 6 and 7 below<\/em>\u201d.<\/p>\n

    A policyholder seeking to obtain cover under the ICC(A) wording must generally establish (i) a fortuitous event which (ii) caused loss or damage to the insured cargo. Insured cargo is damaged only where it undergoes an adverse change<\/u> in physical state.<\/p>\n

    In this case, one of MOK\u2019s arguments was that (i) PetroChina\u2019s decision to blend the gasoline and methanol in the proportions actually used was fortuitous, and (ii) this blending caused damage by resulting in a product that had a propensity to phase separate at 17\u00b0C, which was higher than the contractually stipulated PST of 1\u00b0C (although the blend did not actually undergo phase separation).<\/p>\n

    The question that arose was \u2013 could the blend be regarded as damaged merely because it was defective from the moment of its creation? Dias J held that it could not as there had never been a change to the physical state of the blend<\/u>. The facts were on all fours with the well-known Bacardi Breezers case: Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging Ltd<\/em> [2002] EWCA Civ 549 (\u201cBacardi<\/em>\u201d).<\/p>\n