The meaning of the perils of the seas and the definition of Inherent Vice in the Supreme Court decision '' the Global Process System Inc and Another v Siyarikat Takaful Malaysia Berhad (The Cendor MOPU)''.

Abstract

Abstract

This thesis examines the Supreme Court decision in Global Process System Inc. v Syarikat Takaful Malaysia Berhad (The Cendor MOPU). The decision appears to introduce a major change in the law, expanding the rights of policyholders in a manner apparently unexpected by the London market. The decision has been the subject of much discussion by academics and practitioners.

Therefore, the aim of the thesis is to analyse The Cendor MOPU in detail, to determine whether the Supreme Court correctly applied the previous authorities. The effect of the judgment in The Cendor MOPU is to establish that the exclusion for inherent vice – a mechanism used in English marine policies for at least 300 years - is limited to the circumstances where the loss results solely from the internal characteristic of the subject matter. Accordingly, contrary to the previous understanding that the it is possible to have a loss caused concurrently by perils of the seas (insured) and inherent vice (uninsured) the Supreme Court has suggested that there can only ever be one cause. In other words, if there is a “perils of the sea”, there is no room for the inherent vice defence. Inherent vice is merely a means of describing the situation where there is no peril of the sea, and not an exclusion removing cover where there is a peril of the sea working with an internal defect in the subject matter.

To reach that conclusion, the Supreme Court was required to interpret the phrase “perils of the sea”, again one in use since the earliest days of marine insurance in England and the key insured peril for both hull and cargo policies. Although the phrase is defined in the Marine Insurance Act 1906 Sch.1 r.7, the Supreme Court arguably gave a novel meaning to the words there used. It is suggested in this thesis that the Supreme Court’s redefinition has created a good deal of uncertainty.

Both these phrases, “perils of the sea” and “inherent vice”, play an important role in the insurance market as they affect both assureds and insurers and their respective interests under all classes of marine insurance policies. In addition, the inherent vice exclusion has traditionally been a strong weapon for insurers against assureds. However, after The Cendor MOPU, the assured is only required to show that the loss was accidental; in other words, if the cause of the loss is not inevitable then the insurers lose their chance to establish that the loss was the result of inherent vice.

Thus, this thesis will review the origin of the clauses “perils of the sea” and “inherent vice” by tracing back through the early cases in order to understand the origin and to note how and why the change occurred. Then the thesis will reach a conclusion as to how the law has been developed in the recent cases, and it will discuss whether the Supreme Court case, The Cendor MOPU’, has overruled the previous cases in terms of the words “inherent vice” and “perils of the sea”.

Lastly, this thesis will discuss the impact of The Cendor MOPU decision in respect of the Marine Insurance Act 1906 as well as the standard cargo clauses. It will put forward arguments as to whether the decision is consistent with the 1906 Act and the Clauses. It will also discuss the effect of the decision on recent cases and on the insurance market.