ABSTRACT
The rules of the relevant club (r 25) contained an express warranty prohibiting the insured vessel from entering certain declared areas. These areas were areas of such extreme danger that it was not considered acceptable by the club that they should cover vessels entering these areas. If an owner wanted such cover while his vessel was in a prohibited area, special arrangements had to be made. The owners of The Good Luck were in the practice of sending the vessel into prohibited areas, but neither the club nor the bank were informed. The managers of the club later discovered what was going on, but they neither took any steps to deter the owners of The Good Luck from carrying on nor informed the bank of what they had discovered. On her last voyage, The Good Luck was sent to part of the Arabian Gulf in breach of warranty. She was hit by Iraqi missiles and became a constructive total loss. Both club and bank knew of the total loss, but, whereas the club discovered the breach of warranty, the bank negligently did not investigate the possibility.53 In the
53 The bank was of the opinion that an arrangement was made between the owners and
Benefit of insurance was assigned to the
Bank by a ‘loss payable’ clause
Bank (The Bank of Nova Scotia)
P&I Club (Hellenic Mutual War Risks
Association (Bermuda) Ltd)
M
O R
TG A
G E
Owners of The Good Luck (Good Faith Shipping Co SA)
LETTER OF UNDERTAKING The Club undertook to advise promptly if they should ‘cease
to insure’ The Good Luck
mistaken belief that the loss was covered, the bank made further loans to the shipowners. In view of breach of warranty, the insurance could not be enforced, but the bank brought an action against the club for having failed to give prompt notice that they had ceased to insure the ship. Accordingly, it was contended that the club was in breach of the letter of undertaking given by them to the bank.
